Many clients come to me with questions about whether or not their insurance coverage is adequate. Given that I have been an insurance sales agent and provided insurance coverage analysis in the past, I have been able to give them advice on this subject. Below I will discuss some of the various types of insurances that are available and some issues regarding coverage.
Commercial General Liability Insurance:
Commercial General Liability (“CGL”) Insurance is the most typical type of insurance that businesses obtain. CGL Insurance provides for protection for your property as well as any incidents that could occur on the property. The first main component of CGL Insurance is property damage coverage. This coverage may extend to the actual structure of the business buildings and offices and cover risks such as fire, water intrusion and other types of damage. In addition, additional coverage is available to cover the contents of your business such as the desks, computer equipment and other important business assets.
The second major component of CGL Insurance is coverage to protect for any incidents that may occur on your property. For instance, if someone were to slip and fall on your property, CGL Insurance would pay to defend the lawsuit and for any settlement due to injuries that the person suffers as a result of the fall.
Dog bites are another typical example of issues that are covered under a CGL Insurance policy.
Other coverages are also available under a CGL Insurance policy such as business interruption and theft insurance. Business interruption insurance pays your lost profits and revenue in the event your company is forced to shut down due to accidents such as water damage and power outages. In addition, many CGL Insurance policies offer employee theft coverage. This coverage will pay losses that you incur as a result of employee theft, typically up to a maximum of anywhere from ten to fifty thousand dollars.
Employment Practices Liability Insurance:
Employment Practices Liability Insurance (“EPL Insurance”) covers
employment claims made by employees for things such as sexual
harassment, discrimination and wrongful termination claims. In this
era of a growing number of employment claims, EPL Insurance can be a
very effective way for companies to reduce their exposure to such
claims. The problem is that given the proliferation of claims by
employees, EPL Insurance is becoming increasingly expensive,
difficult to find and the self insured retentions (as explained
below) are continuing to increase. For many small companies, this
means that EPL Insurance is not worth the expense given the relative
risk of claims.
Directors and Officers Insurance:
Another type of insurance coverage available is Directors and
Officers Liability (“D&O”) Insurance. Although not typically
purchased by any ISOs, this coverage can be of use under many
circumstances where directors and officers are personally sued for
actions they have taken on behalf of the company.
D&O Insurance is often purchased when the directors and officers of
the company are not the principal owners of the company. Since they
are not the main owners of the company, directors and officers wish
to have an additional layer of protection in the event that they are
sued because of the actions they take on behalf of the company. D&O
Insurance coverage provides them with a defense of any lawsuits
wherein they are personally named as defendants, along with payment
of any settlements in such lawsuits.
Errors and Omissions Insurance:
One of the most highly sought after, but most difficult to obtain,
types of insurance in the bankcard industry is Errors and Omissions
(“E&O”) Insurance. E&O Insurance generally relates to the services
that you provide to a merchant. E&O Insurance serves to insure you
in the event that the goods and services you provide are not up to
industry standards, causing the merchant a loss. For instance, if a
merchant suffers a loss and your conduct contributed to that loss,
E&O Insurance could potentially pay the merchant for the loss,
sparing you any need to pay the merchant out of pocket.
Even when a policy is issued, there may be problems. I have been
provided with a number of specimen policies by clients. These
policies were provided to the clients by insurance brokers who stated
the policies would protect them in the event they were sued because
their actions caused harm to a merchant. However, in every instance
I have found the insurance coverage to be inadequate.
There are usually large loop holes that make the coverage almost
useless under any circumstances to the typical small ISO or merchant
level sales person. This is because the brokers were trying to use
policies geared towards other industries, such as banking, and have
them apply to the bankcard industry. Given the unique nature of the
bankcard industry, using a policy written for another industry,
however similar, does not provide adequate protection. I have yet to
find a policy that is tailor made to the bankcard industry for sales
agents and smaller ISOs that do not take risk for chargebacks. The
only coverages that I have seen that are specific to our industry
insure for the risk of chargebacks for full service ISOs that are
taking risk for chargeback losses.
Self Insured Retentions:
Another issue related to insurance is the use of self-insured
retentions by the insurance companies. A self-insured retention is a
situation where the insurance coverage only begins to apply after a
certain amount has been spent by the insured on defense or indemnity
costs. The amount of the self-insured retention is typically $25,000
or more. What this means is that you must incur at least $25,000 in
legal fees or in settlement payments before the insurance will
apply. In addition, the insurance is not set up to retroactively pay
the $25,000 that you have initially incurred, but only covers any
amount in addition to that limit which you incur in settlement costs
or defense fees. This is the way that the insurance companies are
able to minimize their exposure to a number of small claims.
Insurance and Your Agents:
Most insurance policies typically only cover your employees. This
leaves a large gap in coverage with regard to your agents. For
instance, if your non-employee sales agents are driving their
automobiles and are involved in a crash, the person that is involved
in the accident with your sales agent potentially can sue you for
their damages. The conundrum is that your insurance company in
general will not cover you for any such losses and you will have to
do so yourself. You can minimize your damages in this regard to the
extent that you have your agents indemnify you for any such losses.
However, such indemnity obligation is only as good as the financial
wherewithal of your sales agents.
Insurance is an important part of risk management for any business
owner. In most instances, it is almost imperative that at a minimum
you obtain CGL Insurance to mitigate the inherent risk in your
business. Whether or not you obtain D&O Insurance, E&O Insurance or
EPL Insurance will depend upon the potential risk you face in regard
to such claims, compared to the price of those policies. n
The information contained herein is for informational purposes only
and should not be relied upon in reaching a conclusion in a
particular area. The legal principles discussed herein were accurate
at the time this article was authored but are subject to change.
Please consult an attorney before making a decision using only the
information provided in this article.
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