So many insurance policies! What kind does your business need?
By Amy Stewart Law
Running a business is full of risks, which is why one of the first purchases savvy business owners make is insurance. Between the dizzying array of choices and the opaque policy language, however, deciding which policies to buy can be overwhelming.
Choosing coverage that will help protect your company when you need it most can pay off in a big way, so here’s a brief overview of the policies commonly available to businesses.
Commercial general liability (CGL) insurance
- What it is: CGL insurance is one of the most prevalent business liability policies. General liability insurance may be written as a stand-alone policy or may, for smaller insureds, be included with a package policy that provides several types of coverage.
- What it covers: CGL policies generally cover, subject to policy terms and conditions, the insured’s liability to others arising from property damage, bodily injury, advertising injury and personal injury. Common CGL claims include premises liability claims, claims alleging damage to property caused by the insured’s operations, invasion of privacy claims, and claims for defamation, libel and slander. Some CGL policies provide such broad advertising injury coverage that copyright infringement or other intellectual property claims are covered, exclusions notwithstanding.
- What to watch: CGL policies are usually written on standardized, industry-recognized forms, and significant similarities exist from policy to policy. However, endorsements can alter the coverage significantly and must be carefully considered. (An endorsement is a document attached to an insurance contract that amends the policy in some way. An endorsement may add, remove or alter the scope of coverage under the policy.) Make sure the complete policy, with all pertinent endorsements attached, fits the business risk to be insured.
Directors and officers (D&O) liability insurance
- What it is: Broadly speaking, D&O insurance protects the insured organization and its directors and officers from liability for acts, errors and omissions committed by the directors and officers in their official capacities. Private company and not-for-profit D&O policies may provide similar coverage for the insured entity, while public company entity coverage is typically limited to securities claims.
- What it covers: D&O policies can be triggered by a wide range of claims. The directors and officers of a corporation may be sued by the corporation itself, the corporation’s trustee in bankruptcy, successors of the corporation, and shareholders in a derivative action. Claims asserted by creditors, investors, lenders, competitors, regulators and enforcement agencies may also trigger coverage under D&O policies. Fraudulent and criminal acts, personal profit or ill-gotten gains, claims brought by insureds, and claims arising from breach of contract, on the other hand, are typically excluded.
- What to watch: Attorneys’ fees and expenses associated with the company’s response to subpoenas and informal government investigations can be significant. Consequently, carefully analyze the definition of “claim” in the policies under consideration to identify the broadest coverage for pre-litigation defense costs. The definition of “insured person” is also important, potentially extending coverage to managers, non-executive officers, and even employees of the company.
Cyber and privacy liability insurance
- What it is: Cyber liability insurance protects the insured from liability to third parties as the result of a data breach or other cyber-event, such as damages arising from the theft of personal identification information, identity theft, third-party network interruption, and third-party security failures.
- What it covers: Cyber and privacy insurance responds to claims arising from liability associated with the Internet, computer networks, use of computer technology, computer virus transmission, and other transmission of compromised data to a third party. Although technology companies and financial institutions have required coverage for data and privacy risks for many years, cyber policies are relatively new to other corporate insurance portfolios.
- What to watch: The cyber insurance market is evolving — and expanding — rapidly in response to increasing risks. While new policy forms have been introduced in an effort to standardize the product, coverage can vary widely. Read the policy carefully to make sure you understand the pertinent limitations on coverage.
Errors & omissions (E&O) insurance
- What it is: Errors and omissions insurance — also called professional liability insurance — covers liability arising from the performance of specialized or professional services. Architects, engineers, technology vendors, investment professionals, lawyers, accountants, and healthcare providers regularly purchase E&O coverage.
- What it covers: E&O policies cover third-party claims arising from acts, errors, and omissions in the rendition of specialized or technical services, which is often excluded under standard CGL policies.
- What to watch: E&O policies are not standardized and can vary widely. The coverage typically turns on the definition of “professional services.” That definition is nearly always negotiable and should reflect all activities or services the company seeks to insure.
Insurance policies cover specific risks and liabilities, occasionally overlapping and often leaving uninsued gaps. Before selecting your policies, know your insurable risks and tailor your corporate insurance program accordingly.