Tag Archive | business insurance
July 17, 2010  

Earthquake Insurance: Don’t Get Caught Off Guard

Lately, Southern California has been rocking with small earthquakes. Luckily they have been small, rolling quakes for the most part, but every time they strike, they scare the crap out of people two reasons: for one, they come out of nowhere, and second, they make people brace themselves in fear that they’ll grow stronger and more violent.

A third reason why earthquakes are scary is often overlooked and unknown to many. That reason is: standard property insurance policies exclude coverage for damages resulting from earth movement, including earthquakes. So, if your home or business is destroyed in an earthquake and you don’t have a separate earthquake insurance policy, you’re out of luck.

In order to cover your home or business for earthquake damage is to purchase a separate earthquake insurance policy. Earthquake insurance covers a building and its contents, but inevitably includes a large percentage deductible on each. Even if you don’t own a building or structure, but have high value contents and possessions like stock or merchandise, you might want to consider earthquake insurance. In California, most policies are sold by the state-run insurance pool, the California Earthquake Authority (CEA), although a few private companies also sell earthquake coverage.

To determine if earthquake insurance is right for you, or how much coverage is right for you depends on your individual circumstances.  The following questions may help you decide:

  • Can you afford to replace your business possessions (such as stock, merchandise, furniture, computers/media, and general equipment) if they were destroyed in an earthquake?  How much would they cost?
  • If you have to find temporary accommodations because you cannot operate at your business location as a result of an earthquake, how much will you need to pay for those additional operating expenses?
  • If you own a commercial building, how much home equity do you have?  Can you afford to risk losing that equity if an earthquake damages or destroys it?
  • How much would it cost to rebuild?  Do you have assets available to repair or even rebuild your building after an earthquake?
  • Do you have a mortgage, second mortgage, or line of credit on your commercial building?  Can you afford to continue repaying those loans while also paying to rebuild or replace your structure?

Earthquakes are surprising enough when they strike. Don’t get caught off guard by your insurance policy coverages and exclusions after it’s too late. Be prepared!

July 15, 2010  

What Is Coinsurance?

If you think about a building and consider the potential causes of loss, what do you think the chances are that it could suffer a total loss vs. a partial loss? Take into account some of the more common causes of loss: fire, theft, water damage, vandalism, etc. It’s not often that a building is completely destroyed. Usually the only time you hear stories about this is in the news under extreme circumstances.

Insureds who recognize this might take a gamble and limit the amount of insurance they purchase. Why pay the higher premium for full coverage when chances are it will never be needed? Individuals who purchase full coverage pay much higher premium than those who reduce the amount of their insurance.

In an effort to prevent this for happening and to encourage insureds to carry a reasonable amount of insurance in relation to the true value of their property, a coinsurance clause is included within many commercial property insurance policies. The coinsurance clause determines what percentage of the value of your property must be insured in order to be fully reimbursed for a loss. The most commonly issued coinsurance percentage is 80%

Here’s how it works:

Say a policy carries an 80% coinsurance clause. Using the following numbers as an example:

Total replacement cost of Building – 1,000,000
Applicable Coinsurance Percentage  –  80%
Amount insurance carried  –  $600,000
Amount of Loss  –  $300,000

80% coinsurance means the insured is required to carry an amount of insurance equal to 80% of the replacement cost of the building ($800,000 in this case).

To compute the loss payout for the above example, use the following coinsurance equation:

(Amount of insurance Carried / Amount of insurance required) multiplied by the amount of loss equals the settlement.

Filling in the numbers, take ($600,000 / $800,000) multiplied by $300,000 equals $225,000.

So the insured lost out on $75,000 by not insuring their building to 80% of the replacement cost ($800,000)

Coinsurance limits the amount the insurer must pay for damaged property to that proportion of the loss. It is crucial that values of property are accurately reported and updated annually to reflect inflation and other increases in cost.

Now you know, and knowing is half the battle. –G.I. Joe

July 13, 2010  

Do I need Errors and Omissions Insurance?

If you are in the business of providing a service to your clients for a fee, you have an Errors and Omissions (E&O) exposure and should consider Errors and Omissions Liability Insurance.

What is E&O insurance? 

E&O insurance, also referred to as professional liability insurance, covers businesses or individuals in the event that a client holds such company or individual responsible for a service that was provided, or failed to be provided, and did not have the expected or promised results. In very basic terms, it protects you when you perform a service for your client and they claim it was done incorrectly and caused them harm. Most E&O policies cover defense costs and any resulting settlements and judgments against you or your company, up to the coverage limits on your policy. Your Commercial General Liability policy does NOT provide this coverage.

Who needs E&O Insurance?

Any company that is in the business of providing a service to clients for a fee faces an E&O exposure. Some of the more common professions which need E&O insurance are real estate agents, architects, engineers, doctors, lawyers, IT consultants, and accountants to name a few. The list of professions is a lot more extensive. If you are in doubt as to whether you might need it, consult with your insurance agent.  

Why do I need it? 

For one, E&O is excluded on general liability insurance policies. More importantly, mistakes are inevitable for any business or individual. Nobody’s perfect.

Here are some claim scenarios courtesy of Philadelphia Insurance Company. 

When should I buy E&O insurance?

The best time to buy errors and omissions insurance is before you begin practicing. If you know you have an exposure, make E&O insurance part of your insurance program before conducting business. 

I will be covering more aspects of E&O insurance in future blogs and how it differentiates from general liability insurance. There is no such thing as “one size fits all” in an E&O policy. These policies are customized and tailored to each and every business. It is very important that your insurance agent understands E&O coverage and the marketplace. Neither you nor your business can afford to get it wrong.

July 9, 2010  

What If I Have Employees and No Workers Compensation Insurance?

So you’re an employer looking for ways to save money and trim your business expenses. There are plenty of areas you can probably pinch and save but let me tell you, workers compensation insurance shouldn’t be one of them and let me explain why.

The very core of workers compensation insurance is that it provides medical care for employees who are injured in the course of employment. Beyond medical care,  Workers Comp insurance provides temporary and/or permanent disability benefits, supplemental job displacement benefits or vocational rehabilitation and death benefits. Workers Comp is a trade-off between employers and employees. Employees receive prompt effective medical treatment for on-the-job injuries or illnesses no matter who is at fault and, in return, are prevented from suing employers over those injuries.

[Did I bore you yet?]

Putting the definition of workers compensation insurance aside, one might ask:

“Does an employer have to purchase workers’ compensation insurance?”

Yes. California law requires all employers to have coverage for their California employees, even if they have only one employee. (This applies in all states, not just CA. I am using CA as an example since I reside here).

What happens if an employer is unlawfully uninsured and an employee is injured?

According to the WCIRB, it is a criminal offense for an employer to be unlawfully uninsured regardless of whether or not an employee is injured. California Labor Code specifies that it is a misdemeanor punishable by either a fine of up to $10,000 or imprisonment in the county jail for up to one year, or both. In addition, the state issues penalties of up to $100,000 against illegally uninsured employers. If an employee is injured, an employer also opens himself/herself up to liability lawsuits from injured employees.

Would you be willing to take that gamble? The way I look at it, an annual insurance premium is nothing in comparison to the possible fines and penalties one might face should they decide to take that gamble. Please, find other ways to save on your business expenses, workers compensation insurance isn’t the place to do it.

July 6, 2010  

Businessowners Policies: Comprehensive AND Affordable

If you have a business with revenues typically less than $10,000,000, you might be eligible for what’s called a Businessowners Policy, commonly referred to as the (BOP). Businessowners policies have been compared to a homeowner’s policy for business and have become a very popular over the years. The reason is that these policies combine a variety of basic coverages into a package at a premium that is usually less than the cost of purchasing these coverages separately. 

Businessowners policies combine property, general liability, and business interruption insurance along with a list of supplemental coverages that businesses may need. Optional coverages can also be added to meet specific needs of the business. It’s kind of like bundling your cable, internet, and phone together under one package instead of purchasing them individually. Maybe this isn’t the best analogy though, as I know first hand that my cable/phone/internet package costs a ton!

There is an extensive list of business classifications eligible for Businessowner’s policies. To name a few, retail stores, offices, and apartment complexes all the way to restaurants, dry cleaners, and beauty salons.

Chances are that if your business fits under these guidelines, you are already insured under a BOP policy. However, if you are uncertain, be sure to check in with your insurance agent to verify. You may just save yourself some money while carrying better coverage in the event of a loss.

July 2, 2010  

Is My Employee Covered On An International Business Trip?

I had a client call last week to ask  if his business would be covered by his general liability insurance policy if his employee was traveling internationally and caused bodily injury or property damage to a client of theirs. Truthfully, I didn’t know the sure answer to his question. This was the first time anyone had ever asked it. If this was in the United States, the answer would be easy….yes. However, would coverage apply internationally? 

I reviewed the Coverage Territory on the standard commercial general liability policy form and found “Coverage Territory” means: 

a. The United States of America (including its territories and possessions), Puerto Rico and Canada;

b. International waters or airspace, but only if the injury or damage occurs in the course of travel or transportation between any places included in a. above;

c. All other parts of the world if the injury or damage arises out of:

(1) Goods or products made or sold by you in the territory described in a. above;  

(2) The activities of a person whose home is in the territory described in a. above, but is away for a short time on your business; or

(3) “Personal and advertising injury” offenses that take place through the Internet or similar electronic means of communication  

provided the insured’s responsibility to pay damages is determined in the United States of America (including its territories and possessions), Puerto Rico or Canada, in a “suit” on the merits according to the substantive law in such territory, or in a settlement we agree to. 

Unless you’re a lawyer or an insurance agent or something, this might look like a foreign language to you. Let me translate. Under, c.(2) above, my client would have coverage in a general liability claim since his home is in the United States he and is away for a short time on business. Note, however, that my client’s responsibility to pay damages would have to be determined by a U.S. Court, not an international court. 

And you thought that all insurance agents do all day is run quotes and punch numbers, didn’t you?

Newer Posts »