Insurance Needs of Business

By J. Steven Collins steve@bcjattorneys.us A. Components of Insurance One of the ways to protect your business assets is to insure. Operating a business exposes the business’ assets and depending upon the form of business in which you operate, your personal assets to direct loss and to claims for damages of third parties. These assets are at risk of direct loss through perils such as theft, fire, flood, etc. These assets may also become exposed due to the business’ liabilities to third parties such as customers, contractors and employees. Some types of insurance directly protect your business. Insurance which pays you for direct loss to your business assets is known as a first party coverage policy. The type of insurance which protects your business from liability claims of other persons is known as third party coverage. In the law, insurance is defined as “a contract by which one party, for adequate consideration paid . . ., undertakes to indemnify or guarantee the other against loss by certain specified risks – an agreement wherein one becomes surety to another that the latter shall not suffer loss or damage upon the happening of certain contingencies, upon specified terms.” Lee v. Royal Indemnity Co., 108 F. 3d 651, 654 (6th Cir. 1997). Third party liability policies have two basic components. The components of such a liability policy are the duty to defend and the duty to indemnify. Not all third party claims are valid. Nevertheless, any claim which evolves into litigation may be expensive. Therefore, the promise to defend contained in insurance policies provides the important benefit of securing defense counsel for your business at the insurer’s cost. The promise of indemnification requires the insurance company to pay any damages which are awarded for harm caused by acts or omissions of your business which are covered under the policy terms. As an insured, your business must meet a number of conditions precedent in order to trigger the performance of the insurer to defend and indemnify. Some of these condition precedents include: That the loss or harm was caused by a covered risk and not by an excluded risk. Timely payment of premium. Timely notice of claim. Cooperation with the insurer and retained attorney in the defense of any claim. B. Insurance Needs of Businesses General Liability or Business Owners Policy (BOP): Provides first party coverage for loss to your business assets caused by certain specified risks such as fire, flood, theft and vandalism, etc. Such policies also have a third party coverage aspect which will protect you from lawsuits of third persons for claims of harm allegedly caused by your business activities. Business Interruption Insurance: Insurance which will provide specified monetary benefits for business losses should the business be required to shut down for a period of time as a result of specified risks such as fire, flood, vandalism or other catastrophe. Products Liability Insurance: Provides both indemnity and defense benefits for third party claims brought by persons alleging to have been injured as a result of the use of a product of your business. The “Tennessee Products Liability Act” may be found at Tenn. Code Ann. § 29-28-101, et seq. Malpractice/Errors and Omissions Insurance: Provides coverage for claims against professional activities. Motor Vehicle Insurance: Provides coverage for claims resulting from the use of motor vehicles or for damage to your business’ motor vehicles. This particular coverage will also include coverage for loss caused by uninsured or under insured motorists, unless you specifically reject such coverage. The “Tennessee Financial Responsibility Law” which addresses the insurance requirements and financial responsibility of owners or operators of motor vehicles may be found at Tenn. Code Ann. § 55-12-101. The general provisions concerning automobile insurance and the determination of the priority of coverages may be found at Tenn. Code Ann. § 56-7-1101, et seq. and Tennessee statutory laws concerning uninsured motor vehicle coverage may be found at Tenn. Code Ann. § 56-7-1201, et seq. Workers’ Compensation Insurance: Statutorily required insurance for most businesses having more than five employees which pays benefits to employees suffering injuries arising out of and in the course of employment on a no-fault basis. Tennessee’s Workers’ Compensation Law may be found at Tenn. Code Ann. § 50-6-101, et seq. Employment Practices Liability Insurance: Coverage providing indemnity and defense for employee claims of discrimination, harassment, wrongful discharge and other employment law-based, but non-workers’ compensation claims. Officers and Directors Liability Insurance: Coverage for indemnity and defense of claims as a result of suits brought by shareholders of a corporation. Key Person Insurance: Typically disability and loss of income insurance and life insurance for key management personnel in a business. Health Insurance: Important, expensive and valuable employee benefit providing payment for covered health-related expenses, subject to deductibles, co-payments, maximum benefit and maximum out-of-pocket losses. C. Premium Saving Tips Risk Management: Although insurance can insulate business from loss, the best “insurance” is a viable risk management/safety program for your business. Premiums are calculated to a large measure on your business’ claims experience. There are also lost opportunity costs involved with the management of claims because personnel of the business must assist in the management of such claims as opposed to their normal positive, productive work. Effective risk management and safety programs in the business and in the workplace also may provide the business with legal defenses to claims of third parties and employees. Deductibles: Setting higher deductibles may be a viable method to reduce your business’ premium costs. Higher deductibles may also allow you to have more input and control over the management and settlement of claims against your business. Drug Free Workplace: The Tennessee General Assembly has announced a public policy promoting a drug free workplace and has established a statutory structure to benefit employers who participate in the drug free workplace program. The statutes addressing the drug free workplace program may be found at Tenn. Code Ann. § 50-9-101 et seq. Certification as a Tennessee drug free workplace provides the employer with stronger defenses to workers’ compensation claims involving employees injured while intoxicated or under the influence of illegal or illicit drugs. Further, participation in a drug free workplace can result in a 5% premium discount on employers workers’ compensation premiums. More information concerning Tennessee’s drug free workplace program may be found on the web at the Tennessee Department of Labor and Workforce Development’s web site, http://www.state.tn.us/labor-wfd/. Utilizing Independent Agents and Brokers: When investigating acquiring insurance, it is suggested that you consider retaining the services of an independent broker or agent.  The independence of the broker or agent will mean that they are not required to sell the insurance product of a particular company; and therefore, are in a position to investigate a broad range of insurance products from numerous insurers, thus enhancing the possibility of obtaining a more competitive premium quote.  Visit the web site for the Independent Insurance Agents of America to identify independent insurance agents and brokers in your geographic region.  The web site is: www.independentagent.com.