Liability Insurance - Are You Covered?
Most business owners believe that they have "liability" coverage and they are covered. Commercial Insurance policies will break down liability (usually called Commercial General Liability - CGL) into separate categories with their own sub-limits, which you should know about. The example below is from an actual Bicycle Shop Insurance policy with a summary of these categories. Scott Turner of All-Risks Insurance Brokers Ltd. has then broken down each section to explain what it means for you as a business owner.
Property Damage/Bodily Injury
Most Shop owners think of customers test riding a bike as their main threat of liability. However, the frequency of slip and fall claims are on the rise. For example, for a broken arm the insurance company will generally start their reserve (or starting point) at $20,000 but the cost will often go up from there, depending how the person is affected and if their employment is affected by the injury. This number does not include the defense cost which would be covered by the CGL. The CGL will also cover defense costs if you are found clear of any wrongdoing and not at fault.
Some tips to reduce the risk of slip and fall incidents include keeping aisle ways clear and dry during inclement weather. Floor maintenance logs are excellent for defending slip and falls as well. Even on those clear, dry, great riding days, write a note that the floors were checked and it was a "dry" day.
Personal and Advertising Injury
The Insurer will pay when you become legally obligated (you get sued and lose) to pay "compensatory damages" because of "personal and advertising injury". What this means is the plaintiff must have suffered a monetary loss due to your actions. A few important exclusions for this coverage are as follows;
a) Knowing violation of rights of another
b) Material published with knowledge of falsity
c) Material printed prior to policy period
d) Criminal Act
e) Contractual liability
f) Breach of contract
g) Quality or performance of goods-failure to conform to statements
h) Wrong description of prices
The thing to remember is that this coverage will not protect you if you intentionally or knowingly falsely advertise or copy another's advertising or intellectual property.
In other words, if you are located beside a 'Mal-Wart' don't put up a bunch of yellow smiley faces and advertise that you are "rolling back" your prices!
General Aggregate
"I thought I was Insured for $2,000,000 liability, but my policy says I am covered for $5,000,000."
Many business owners after looking at the Commercial General Liability section of their policy will think this. The General Aggregate refers to the maximum the Company will pay out during the policy period for multiple occurrences.
An example would be as follows. Someone walks into your store, trips and sues you for $2,000,000 which is the maximum paid per occurrence for the illustrated policy. Two weeks later another person does the same and the court awards $2,000,0000. If a third person walks into your store and trips, the most the Insurer would pay is $1,000,000 regardless of how much the Court awards. The business owner would then be responsible to make up the difference.
Products and Completed Operations Liability
Products and Completed Operations Liability protects you for products that you sell or make. The Insurer must know what type of business and the products you are involved with. For example, you are bicycle retailer but you fail to notify your insurer that you also manufacture helmets as well. If one of your customers suffers a head injury using one of the helmets you manufactured, the insurer will not cover you for this loss since it is not in the ordinary practice of retailer to manufacture a helmet.
Products and Completed Operations Aggregate is the maximum during a policy term which the policy will pay for Products and Completed Operations Liability.
Medical Payments
The Insurer will pay for medical expenses as described below for "bodily injury" caused by an accident. The Insurer will pay as long as the accident occurs on the premises you own or rent, or on the ways next to your premises (ie. sidewalk), or because of your operations.
Injuries must be reported within one year of the accident and the person must allow a physician of the Insurer's choice to examine them at the Insurer's expense. Examples of what the Insurer would cover are costs such as any first aid costs at the time of the accident, x-rays, dental services and ambulance fees.
This coverage, however, does not cover yourself as the business owner, staff or any individual you rent space to. The coverage is not meant to replace Worker's Compensation.
Tenant's Legal Liability
Very often Tenant's Legal Liability coverage is misunderstood. This coverage pertains to the property or location which you as the tenant occupies. The coverage is in place to pay "compensatory damages" because of "property damage" that you are responsible for. This coverage is only for the area that you as a tenant occupy.
An example would be: your shop is located in a multi-unit plaza and you suffer a fire loss which started in your unit but damage occurred to other units in the plaza.
The damage caused by the fire to the landlord's property which you occupy would be covered by this section. However, this does not include any of your property or improvements, only the structure of the unit and improvements that the landlord owns.
As far as the damage to any of the other units this part of the claim would revert back to the policy's Commercial General Liability Property Damage section coverage with a limit of $2,000,000.
Some lease agreements require the tenant to maintain a limit of liability of $2,000,000 including Tenant's Legal Liability. Unless the unit that you occupy and the landlord's property within it would cost $ 2,000,000 to rebuild this request may be excessive. Most policies will include this coverage in the range of $100,000 to $500,000.
Employee Benefits
Unfortunately, your Commercial Insurance does not include Employee Benefits. This coverage protects you from Errors or Omissions in administration of your employee's benefits plan.
An example would be if your business upon hiring an individual agrees to enroll the individual in the employee benefit plan after 90 days of employment. You fail to complete the transaction of adding the employee after the 90 day period and the employee becomes ill and requires the use of the benefit plan.
If you would have added the employee at the appropriate time they would have been covered and now they are seeking "compensatory damages", this is why the coverage is in place.
Generally most policies that include this coverage have an "aggregate limit" per policy term equal to the base amount of coverage. You could have ten claims of $100,000 or one claim of $1,000,000.
Non-Owned Automobile
Yet another area of liability coverage which creates some confusion is Non-Owned Automobile Liability. Non-owned Automobile Liability provides legal liability coverage for bodily injury or property damage arising from the use or operation of an automobile not owned by the insured.
A common occurrence which would expose a bike shop to a loss pertaining to this coverage would be an employee driving their own vehicle on your shop's behalf. You send your employee to run an errand for you and they use their vehicle and are in an accident. Your employee is responsible for the damage to their vehicle. However the person they hit has suffered injuries. Since the employee was working under your direction on your behalf the possibility of you being named in the law suit would be almost guaranteed. The way to protect yourself is to ensure you have Non-owned Automobile Liability coverage within your policy.
Summary
You may or may not be covered for the coverage listed above, because not every policy is the same. Take the time to look your policy over and understand it, and know what you are and are not covered for before you have a claim. Ask your insurance broker/agent, it's their job.
If you have a question about your business insurance, contact Scott through the website www.bikeshopinsurance.com
