Ten Key Areas to Consider When Purchasing Business
Insurance
By: Scott
J. Richardson, Esq.
Small business owners wear many hats. The duty to purchase
insurance for their business is important, as insurance is a risk
management tool. By purchasing insurance for your business you
"sell" some of the risks, in certain amounts, to an insurance
company.
Mitigating or eliminating risks for your business is of paramount
importance. So, when purchasing insurance you need to weigh the
options, the types of coverage available, the carrier, and of
course, cost. An often overlooked tool in this process is
selecting your agent or broker. Does your agent or broker
understand and have experience in your type of business? If
not, how can he or she help you assess the risks and counsel you as
to needed coverage? For example, some operations are governed
by laws or rules and regulations that require certain types of
insurance. Is your agent aware of these requirements? Has your
agent visited your place of business to observe your business
operations? The right agent invests in you and your business
to ensure that you are obtaining the proper
coverage.
We recommend that you start analyzing your insurance needs by
carefully looking at your risks. The following list is a
great place to start:
1. Do you own property that
you do not want to pay to have replaced if it is damaged or
destroyed? Property coverage pays for damage or destruction of your
building, contents, equipment, etc. subject to the limits and
limitations of the policy. This is a hallmark of risk shifting. If
your property is destroyed you want to shift the cost of
replacement to a carrier for a premium that is much less than the
replacement cost. Here you need to be careful. There is a
difference between types of property coverage. Coverage for
Actual Cash Value (ACV) pays for the property minus
depreciation. You may not receive enough funds to be able to
replace the property. Replacement Cost Value pays the
depreciated value and then adds money once you replace the lost
property. Understand which one you are purchasing and what
you will have if you need to replace damaged property.
2. Does your company have
employees? If so, it is highly likely that your company is
required to carry workers compensation insurance. This covers your
employees for medical expenses and time off, as well as for any
permanent disability that occurs as a result of an injury in the
course and scope of employment. Not having workers
compensation in Arizona can subject you to the "non-insurance" fund
which will pay the claim and seek reimbursement from your company
along with a penalty. Employee claims are generally excluded under
your General Liability policy. Therefore, your business needs
a workers compensation policy.
3. Does your company own or
operate vehicles? If so, your company will need some type of
automobile coverage. This coverage can be purchased alone, or is
sometimes part of a business owners package of coverage, but it
provides protection should someone cause an accident resulting in
personal injury or property damage. Additionally, you can
purchase liability umbrella policies, usually in million dollar
increments.
4. Are you subject to claims
for professional errors or omissions? While this is true for
lawyers, accountants, and doctors, many services you provide - such
as appraisals - may be considered an opinion. Most business may not
need this coverage, but it is important to carefully review your
operations prior to declining this coverage.
5. Could your operations
damage someone else's property or injure them on your business
site? The answer is likely "yes" for every small business owner.
General liability insurance will protect your company. Auto
coverage is limited to damage caused by the operation of a motor
vehicle in your business and it may need its own policy.
General liability covers property and personal loss and damage that
are not related to automobiles.
6. Does your company
manufacture, design, create or distribute products? Product
liability coverage, often part of a business package protects you
from claims of person injured by your product. Personal injury
claims subject you to not only claims for medical care, but pain
and suffering of the injured person, and perhaps much more. This is
a risk that can put you out of business. Don't "bet your
business" on such a loss without coverage.
7. If your business has
employees, your company - and key employees - may be at risk for an
employment claim for discrimination, harassment or the like.
Employment Practices Liability Coverage is relatively
inexpensive. For example, an employee returns from a workers
compensation claim to light duty. He performs poorly and is
insubordinate to his supervisor. You terminate him. He sues your
company for wrongful termination, claiming you fired him because he
instigated a workers compensation claim. Your workers compensation
policy does not cover this suit or its defense. Your General
Liability Policy may not cover the claim, based upon exclusion for
claims by employees. If you have added Employment Practices
Coverage, either separately or under your General Liability policy,
you will have coverage and a defense for this claim whether
meritless or not. Additionally, you can purchase an employee
benefit coverage in the event that an employee is not timely
enrolled in health insurance or benefit plan and is harmed because
of that error.
8. Do you have a partner or
other key employee who along with yourself is indispensible to the
viability of your business? While disability insurance can replace
that income, key man life insurance can provide protection to the
business should the "key" person; you included, become disabled or
pass away. Recognize that the death of a key person can have a
devastating effect on the operations of a business for an extended
period of time.
9. Do you operate your
business from your home? If so, you have the unique risk that your
homeowners' policy may cover some of your property damage but not
risks of general or professional liability. You will need to
purchase coverage for your business and not merely rely upon your
homeowners' coverage which has limitations for business
losses.
10. Do you know why you have a
certain insurance company for your business coverage? You may have
purchased coverage with the company that offered the lowest
premium. However, that may leave your business exposed.
There are rating services for insurance companies that look
at their financial health. You want a financially strong
carrier so they will be in business and maintain adequate reserves
to pay claims. If not, state guarantee funds may step
in, but they only provide you with minimum coverage amounts.
Work with your agent or broker to determine the best
companies for you to do business with. They are your partner
in selecting coverage for your business.
These are but a few of the questions you and your agent need to
discuss. Understand that risks are real. You cannot purchase
coverage for a risk that has already happened. Protect your hard
work and capital by purchasing adequate and appropriate insurance
now.
About the author: Scott
J. Richardson is a partner at the Phoenix law firm of Jaburg
Wilk. Scott assists business clients with their insurance
coverage needs and frequently represents carriers in coverage
issues and bad faith claims. To learn more about Scott, visit
/attorneys/scott-j-richardson.aspx.
Scott can be reached at 602.248.1012 or sjr@jaburgwilk.com.
This article is not intended to provide legal advice and
only relates to Arizona law. It does not consider the scope of laws
in states other than Arizona. Always consult an attorney for
legal advice for your particular situation. This policy is
written based on Arizona law for Arizona employers.
3200 North Central Avenue
. Phoenix . Arizona