INSURANCE COVERAGE: HELP YOUR INSURANCE BROKER HELP YOU
By D. Brad Hughes, Esq.
Hopefully, when determining proper insurance coverage for a business you met with an insurance broker and discussed your business and your biggest potential liabilities. When purchasing insurance it is never a one size fits all approach and purchasing insurance solely due to the price of the premium is almost never a good idea. I’ve been involved in a case in which a liquor store had a standard Commercial General Liability (“CGL”) policy but didn’t have a liquor liability endorsement. I have been involved in a case in which a hotel had a broad sexual assault and abuse liability endorsement when the policy was purchased but the endorsement was replaced some years later to exclude sexual assaults. As you can imagine, in both of these situations an event occurred and insurance coverage was denied. In the liquor store matter, liquor was sold to a 16 year old using a fake ID and an accident resulted in a death of a college student. In the hotel matter, a sexual assault occurred on site and the hotel was sued for negligent security. In this article we will readdress these two situations in context so one can see how these holes in insurance coverage came about.
- Your Initial Meeting with Your Insurance Broker
- Is Your Insurance Broker Asking You the Right Questions?
Sure, your insurance broker should be asking you what your average sales are, what you do, how many locations do you have, do you own or lease your locations, how many employees you have and does your business own or lease equipment and the value thereof. These are some of the questions that every insurance broker will ask a prospective insured. However, is your insurance broker trying to sell you a CGL policy or are they trying to evaluate and recommend a comprehensive insurance plan that will best suit your insurance needs?
I suggest that the most important question for a business to answer when meeting with an insurance broker is what is the biggest risk/liability of your company. In my liquor store example, the liquor store was well insured for a slip and fall. However, a CGL policy doesn’t cover a dramshop case for selling liquor to a minor. This particular liquor store had three locations, with three liquor licenses and at two of the locations the real estate was owned by the liquor store with no mortgage and there was no lien on the two liquor licenses.
In this case the biggest liability wasn’t a slip and fall but was a dramshop case. A dramshop case could result in millions of dollars in liability and that coupled with the fact that multiple locations and liquor licenses were wrapped into one corporation put decades of work and wealth accumulation at risk. The premium for a dramshop policy was not cost prohibitive and would have provided a defense for the owner and would have paid any judgment or settlement. Although this is a small business example, middle size and large businesses can also benefit from a thorough insurance plan.
- COVID as a Real Life Example of a Thorough Insurance Plan
The liquor store example shows how lack of planning by the business owner and the insurance broker can have disastrous consequences. However, how does this same concept apply in a mid-size or large business? Look at the world we currently live in. If you have some involvement in the procurement of insurance for your business did you or your insurance broker discuss insurance for infectious disease, an epidemic or a pandemic when you set up your insurance coverages? You probably did not discuss these risks and perhaps insurance coverage for this type of risk wasn’t readily available. However, it is rumored that the British Open in golf was cancelled this year instead of rescheduled because there was an insurance policy that paid a claim for cancellation due to a pandemic. If the British Open was rescheduled the policy would not have covered the claim. Prudent insurance planning perhaps left the organizers of the British Open with the choice of making a claim that provided adequate coverage or rescheduling a popular event with reduced attendees and with questionable profitability. Apparently, the decision was made to make a claim in lieu of putting on an event that would not be profitable. I am not suggesting that coverage was available to you or was cost effective but the British Open example shows that insuring for a minimal risk can pay dividends.
- Utilizing Your Insurance Broker as a Resource
If your insurance broker doesn’t understand your business they probably won’t understand all of the risks for which you need to be insured. Look for an insurance broker that has experience in your industry and demand they spend adequate time learning about your specific company, its assets and its risks. An insurance broker that understands your business or industry can be a huge advantage. Not only can they plan for and recommend a comprehensive insurance plan that can provide adequate coverage for all major risks, they can also provide you with business contacts that might be able to help you with other concerns about your business that they spot. Utilizing the liquor store as an example, an experienced insurance broker may have been able to recommend an attorney to provide advice about corporate structure including whether it would have been best to structure multiple liquor stores in one corporation or whether it would have been best to have these liquor stores owned separately in different corporations.
- Some Potential Coverages
The purpose of this article is not to discuss every type of coverage available. Your insurance broker should help you determine the available coverages. The point of this article is that there are many types of insurance coverages and shopping a policy without discussing your business in detail with an insurance broker is likely a mistake. That being said, some popular endorsements are as follows:
- Directors & Officers Liability
- Cyber Liability
- Employment Practices Liability
- Pollution Liability
- Business Property
- Environmental Liability
- Assault & Battery
- Sexual Assault
- Business Interruption
- Civil Authority
- Service Interruption
Although the above is a demonstrative and not an exhaustive list, you can see that there is much to discuss when determining your comprehensive insurance plan.
- Your Annual Meeting with Your Insurance Broker
Too many times an insurance broker and the insured never have another substantive meeting after that insurance policy is sold. After all, if the insurance broker and the insured thoroughly discussed the business and its biggest risks and put together a comprehensive insurance plan what is there left to discuss? You probably receive a call every year from your insurance broker in which they spend a few minutes and ask you what changed in your business over the last year. You usually answer the questions, say you don’t want to change anything, and that is the extent of your annual insurance coverage discussion. However, there are at least a few questions you should ask of your broker every year.
First, you should ask your insurance broker if they recommend any new coverages or endorsements and if you are underinsured in any area. Maybe there is a new coverage, like coverage for a pandemic. Maybe your insurance broker has some new suggestions for coverages that he/she just didn’t recommend before. Regardless, you should ask your insurance broker for suggestions every year.
Second, you should ask your insurance broker what changed in your policy in the prior year. If an insurer excludes coverage in your policy for something that was previously covered you should receive notice and there should be a clear notice of non-renewal of the policy. The purpose of this is to inform you that some major change to your coverage has occurred. However, the change is often more subtle and sometimes results in a simple notice that one of your endorsements is changing. This is what happened in my hotel example above. The initial policy purchased had a sexual assault endorsement, which included sexual abuse and molestation. However, over time the insurance industry excluded sexual assault from the sexual abuse and molestation endorsement and made sexual assault a new endorsement. In my hotel example, the hotel’s broad endorsement was replaced with the narrower sexual abuse and molestation policy but the owner did not realize sexual assaults were now excluded and the insurance broker did not explain this change. When a sexual assault occurred at the hotel, the hotel was forced to bring a coverage action alleging that hotel was not adequately noticed of the change in coverage. However, if the hotel owner would have asked every year what about changes to his policy he probably would have learned of the exclusion and would have had the opportunity to purchase the sexual assault endorsement.
- Helping Your Insurance Broker Help You
It is just as important for you to be a knowledgeable purchaser of insurance as it is for your insurance broker to be knowledgeable about the products they sell. You should ensure your insurance broker has knowledge and experience in your industry. If your insurance broker doesn’t know your industry they probably don’t have the experience to set up a comprehensive insurance plan. You should take the time to learn about the available coverages in your industry and you should evaluate your biggest risks and determine if there is coverage for those risks. Every year you should at least have a phone call with your insurance broker to discuss the changes to your business, the changes to your comprehensive insurance plan, and any suggestions for coverage changes your insurance broker may make. If these simple steps are followed you are much less likely to find yourself facing an uncovered claim for something that could have been covered if the endorsement was purchased.
About the Author:
D. Brad Hughes, Esq. is an AV-rated partner at Jimerson Birr, where he focuses his practice in the areas of business litigation, construction litigation, business torts, community association law and appeals. Jimerson Birr is an award-winning full-service business law firm with a reputation for being trusted counselors, effective negotiators and results-driven litigators. Jimerson Birr was recently recognized as a “Best Law Firm” by U.S. News & World Report and was named one of Florida’s Best Companies to Work For by Florida Trend Magazine for the fifth consecutive year. Brad’s online profile can be found at: https://www.jimersonfirm.com/attorneys/d-brad-hughes/