FAQ - Frequently Asked Questions About Business Insurance Coverage
There are two primary types of commercial insurance coverage you may need for your business:
- Liability, or casualty insurance
- Property Insurance
Each type includes a variety of options that you can select for your specific business needs.
Liability insurance protects your company in the event that harm comes to a person or their property due to actions associated with your firm. This coverage defines harm in multiple ways, to ensure that you are as protected as can be when unexpected events occur. Types of harm included in this insurance are:
- Physical injuries to individuals
- Damage to personal property
- Harm or damage from previously completed work services
- Harm or damage from products you’ve sold
- Harm to a person’s or company’s reputation
- Loss or harm due to misuse of intellectual property
- Damage to business structures your company leases
Property insurance protects your company from expensive losses related to your tangible property and assets.
- Your company’s buildings and structures
- Fences and signs
- Furnishings and furniture inside
- Inventory and maintenance materials
- Decorations and improvements
- Computers and accessories
- Computers files and software
- Valuable papers and documents
Depending upon the specifics of your business, you may not need every single coverage option that is available for each type of commercial insurance, but there are a number of scenarios in which each could be imperative to the continued success of your company.
If, for instance, your company operates an HVAC retail store location that is open to the public, then you have a higher risk of encountering an unexpected event that causes someone to become physically injured. If a visitor to your store accidentally knocks over a swamp cooler display and suffers injuries from that event, they will hold your company liable for the forthcoming medical expenses they will incur when they seek treatment. In this instance, general liability insurance would help pay for their care costs so that you won’t have to directly. This coverage can also pay for your company’s legal expenses if you are sued as a result of the event. The same coverage applies if your company solely provides work services on location, at the customer’s house for example.
General liability helps when you’re accused of being at fault for something. A competitor may accuse you of running slanderous advertisements against them for instance, or they may allege that your advertising used their trademarks without authorization. Even if your company did neither, you will still incur costs associated with defending yourself in court.
HVAC contractor property coverage helps protect your company’s physical assets from loss or destruction. If, for example, your company keeps all of its HVAC parts and equipment in a storage warehouse and that warehouse is damaged in a severe storm, your equipment, tools, and inventory may be damaged as well. Without the proper amounts of property insurance, you would be faced with replacing all of those items directly from company or personal funds.
Claims-made insurance policies provide continued protection against claims, as long as two things are true:
- Your insurance policy is active and current when the claim is made
- Your insurance policy has remained active since
Occurrence policies provide protection against claims that are made for events that occurred while you had active coverage, regardless of whether you have maintained an active policy since.
For a claims-made insurance policy to be applicable, you must first obtain the coverage. Once you have coverage, you must maintain that coverage over time. Any claim that is filed before your coverage was first activated will not be covered by the policy, and any claim that is filed after you terminate the coverage will not be covered unless you opted to include tail coverage.
If you operate a pool cleaning company for instance, you would acquire your insurance policy on the date that you begin operations, and you must renew the policy each year. If you open your business in 2011 and keep the policy active each year thereafter, then your company is protected throughout that time.
If a customer files a lawsuit against you in 2014 for services rendered in 2012, your insurance policy provides the protective benefits you’ll need because you were covered in the year that you provided the services, as well as in the year that the lawsuit was filed.
If, however, you sold pool cleaning products to your first customer at the end of 2010, your insurance would not cover a later claim against those products because your policy did not go into effect until after that time. Likewise, if you terminate your pool cleaner insurance in 2013 and the lawsuit is filed against you in 2014, benefits do not apply because your claims-made policy is no longer active. If you had purchased a tail rider for that policy however, then they would apply.
An insurance policy retroactive date is the date in which your policy protection begins.
Insurance policies have a starting date in which claims can be covered. This starting date is referred to as the retroactive date, and usually coincides with when your company began officially operating. If an incident occurs on or after the retroactive date on your policy and it is covered by the policy, the protective benefits of that policy will apply. The retroactive date on your policy does not change as long as you maintain active coverage.
For example, if a new solo entrepreneur decides to start a janitorial company in 2010, they may skip getting insurance initially as a way to save on their startup costs. When the company begins seeing success, they decide to purchase janitorial insurance protection in 2011. The retroactive date for their insurance is set to the applicable date in 2011.
A year later, that company is sued for property damages that are alleged to have happened in the early part of 2010, when the company was still owner operated and running as an uninsured sole proprietor. The allegations filed are not covered under the janitorial insurance that was established in 2011, because the event happened before the insurance policy retroactive date.
A retroactive date can be maintained when switching insurance providers however. If the janitorial company was insured with Carrier A in 2010 and simply changed to Carrier B in 2011 without lapse, then the retroactive date would be 2010 and the janitor insurance policy protections would apply for the claims made against them during that time frame.
The amount of general liability insurance that is adequate for your business depends on the type of business you own. Considerations include:
- How much interaction your company has with the public
- Whether you provide work services on location
- Whether you run a public retail establishment
- The type of services you provide and products you sell
Different businesses have different insurance needs, and thus the general liability insurance limits they choose may vary widely. Some companies may need higher liability limits because they operate numerous retail stores that have large amounts of public traffic going in and out each day. Other company’s may need a lower coverage limit because the majority of their customer interactions are conducted over the phone, thus there may be less potential risk of bodily injury claims. Other businesses provide their services at the customer’s location as well as in multiple retail locations.
For example, lawn care contractor liability is likely to need higher policy limits because of the increased risks involved with their standard business operations. The bulk of a lawn care contracting company’s work services are provided at the customer’s home or place of business. When working in one or more remote locations, there is an increased risk of potential liability incidents.
When selecting a general liability insurance provider, it’s important to understand the difference between Admitted and Non-Admitted carriers.
Admitted Carrier insurance companies are carriers that have been approved by the specific state’s insurance department. The carrier meets all state insurance rules and regulations, and the state guarantees coverage.
A non-admitted insurance carrier is one that does not meet some or all of the given state’s insurance regulations. States do not guarantee, or step in and take over claims, if the insurance company goes out of business.
If a fire sprinkler contracting company was to acquire fire sprinkler contractor insurance from an admitted carrier company for instance, and that company later goes out of business, the contractor still has a measure of protection. The state that approved the admitted carrier will back the policies that were written, and provide the fire sprinkler company protection if a claim is filed against them after the insurance carrier was absolved.
If the fire sprinkler contractor liability coverage is instead obtained through a non-admitted carrier then there is a risk that they will not be covered if the insurance company goes bankrupt. Since the carrier was not approved by the state’s insurance department, the fire sprinkler contractor liability policy will not be covered by the state.
There are two important things for you to know about subcontractors and general liability insurance:
- Other companies are unlikely to hire your company if you do not carry general liability coverage
- Your company may be held liable for a subcontractor that you hire, if that subcontractor does not carry their own general liability insurance
When one company hires another company to conduct all or a portion of the work they were hired for, the hiring company can be held legally and financially liable for any damage or harm that is caused by the subcontractor they hired.
Because of this, it is very unlikely that your company can win contracts as a subcontractor with another company if you’re uninsured, because that company does not want to take full financial and legal responsibility for the actions of your company.
A general contractor may win a large contract with a state for example, and put out a call for bids on pieces of the work. Their intention is to hire subcontractors to complete some or all of the work. If a paving company wants to be considered for the road portion of that contract, they must carry road paving contractor insurance or they may not even be able to bid on the work. This is because the general contracting company will not want to assume all responsibility for the road paving contractor’s company and crew.
If the road paving contractor carries insurance and wins the bid, they may decide in turn to hire out a portion of their own work to another company. If the subcontracted company does not carry their own general liability coverage, then any injuries or damages they cause may have to be paid for through the road paving contractor insurance directly.
Choosing the right insurance coverage for your company depends on a variety of things:
- What type of business do you operate
- Do you own expensive equipment and tools
- Do you maintain inventory
- Do you operate one or more retail locations
- Do you have frequent interactions with the public
- Do you work with intellectual property
There are many different combinations of questions and scenarios that must be considered before choosing commercial insurance coverage. You know your business better than anyone else, and discussing your needs with a specialist is the best way to ensure you have everything you need without paying for unnecessary items.
Some businesses conduct the majority of their work in stationary, low risk office locations and they do not have a lot of public traffic coming and going. Other companies maintain multiple public store locations while still others conduct business on the site of someone else’s property. Some companies keep expensive inventory stocks while others invest heavily in computers, tools or machinery assets that help them provide the services they are hired for.
A new handyman business for example, may be owned and operated by the same person. The owner may conduct all of his work on location only, and not rent or lease any business property. The handyman insurance coverage he needs at that stage might be simple general liability coverage, with no property protection.
That same handyman company may grow extensively in the first few years, and change things dramatically. If the company leases a storage property so that it can store business related merchandise such as paint and nails, or tools and equipment such as carpet cleaners, ladders and paint rollers, then the company would be wise to adjust the handyman insurance so that it includes property insurance coverage in addition to general liability protection.