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Depending on the individual risk characteristics of your business, your Sebrite Agency agent will present you with different coverage options for purchasing commercial insurance. An agent's proposal is just that, a proposal. When all is said and done it is your responsibility to make an informed decision and choose the insurance that best fits your business plan. The relationship that you build with your agent is extremely valuable in this critical decision making process. An experienced Sebrite agent has dealt with hundreds of businesses similar to yours. Since commercial insurance can be complicated, you should feel free to discuss any terms, conditions, or concepts that are unclear to you with your agent. It is part of our agent's service to answer your questions and help you understand the insurance you are purchasing.
While your business may not need all commercial coverage lines, it is a good idea to have a basic knowledge of the types of insurance coverage available. As your business changes and expands you will have the necessary knowledge to purchase insurance coverage as new exposures arise. The following commercial lines of insurance cover broad areas of exposure common to most business operations:
Property Insurance
Commercial insurance is divided into
two main categories: property insurance and casualty insurance. Property
insurance provides coverage for property that is stolen, damaged, or destroyed
by a covered peril. The term insurance includes
many lines of available insurance. Commercial Property,
Inland Marine, Boiler and Machinery, and Crime are the most common
commercial property coverage lines Each of these property coverage lines
is described below.
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Commercial Property
Buildings you own or lease as a part of your business, your business personal
property, and the personal property of others make up the basic coverage sections
of commercial property insurance. Commercial property insurance can be sold
separately as an individual line policy, (referred to as a monocline policy),
or it can be sold as part of a Commercial Package Policy (CPP), which combines
two or more commercial coverage parts such as commercial property, general
liability, and commercial auto.
Building coverage includes buildings
or structures and any completed additions, which are listed on the declarations
page of a commercial policy. Permanently installed fixtures, machinery, and
equipment are also insured as a part of building coverage. The limit of insurance
is the estimated amount needed to rebuild your building and to replace permanently
installed fixtures, machinery, and equipment in the event of a total loss.
You are required under the insurance policy to fully insure the value of
your buildings. If a building is not insured to value, you can be subject
to a monetary penalty at the time of a loss. This penalty is commonly referred
to as coinsurance. It is important to read and understand the coinsurance
clause of your commercial property policy and to discuss any questions with
your agent.
Business Personal Property consists of furniture; fixtures,
machinery, and equipment not permanently installed; inventory; or any other personal
property owned by and used in your business. Personal Property of Others refers
to property that is in your business's care, custody, and control. The type of
business you operate will determine if you need to protect the personal property
of others.
Covered Causes of Loss
Whether or not a property loss is covered depends upon the policy language, exclusions,
and endorsements. You can choose the covered causes of loss in your property
policy. Causes of loss are divided into two main categories: specified perils
and open perils.
Specified Perils consists of a list of each peril to be
insured against, such as fire, explosion, windstorm, vandalism, et cetera. You
can usually request basic specified perils or broad specified perils coverage.
Broad specified perils coverage adds to the list of covered perils found under
basic specified perils.
Open Perils coverage covers all losses unless they are
specifically excluded. Earth movement (including earthquake) and flood are two
common perils that are excluded under open perils coverage. Since open perils
coverage offers more comprehensive protection, it is more costly than a specified
perils policy.
Valuation Types
Commercial property coverage will include a provision to determine what valuation
method is to be used to pay the loss. The most common policy valuation method
is Actual Cash Value (ACV). Unless otherwise defined in the policy, ACV is considered
to be Fair Market Value. There are two other methods of property
valuation: agreed value and replacement cost. Agreed value waives any coinsurance
penalty and pays 100% of the stated amount (agreed upon amount) for any covered
loss. Replacement cost covers the amount it takes to replace your property with
new property of like kind and quality up to the limits of insurance. Like ACV,
replacement cost is subject to coinsurance.
Coverage Forms and Endorsements
There are various coverage forms and endorsements in addition to the basic property
coverage's already discussed that can customize coverage in a commercial property
insurance policy. The following are the most common coverage forms and endorsements
used in commercial property insurance:
Builders Risk Added to a policy
for one year minimum term to cover a new building structure under construction
or an existing structure undergoing additions, alterations, or repairs. Cancellation
is allowed on a pro rata basis upon project completion; however, midterm
cancellation will result in a short rate penalty. A reporting form or renovations
form allows coverage to be carried according to the stage of completion (i.e.,
as more of the project is completed, more value is reported, resulting in
the proper amount of coverage for each stage of construction).
Legal Liability or Fire Legal Liability - Cover's your
legal liability for loss or damage to real and personal property of others as
the result of your negligent acts and/or omissions. The loss or damage must be
caused by a covered peril (including loss of use). The loss must be accidental
and the coverage most often is purchased for tenants in commercial buildings.
Building Ordinance - Provides coverage if the enforcement
of any building, zoning, or land use law results in loss to the undamaged portion
of the building (Coverage A); demolition and removal costs of undamaged parts
of the structure (Coverage B); or any increased cost of repairs or reconstruction
(Coverage C). Replacement cost must be in effect for Coverage C to be applied.
Glass - Basic specified perils for glass coverage include
any resulting damage to other property from broken glass due to vandalism and
also vandalism to glass building blocks. Broad and specified perils covers $100
per pane of glass up to $500 per occurrence. A glass form must be added for scheduled
glass coverage when there is a significant glass exposure to insure. The glass
form includes the number of panes, dimensions, location, lettering, and ornamentation.
A separate glass deductible may be scheduled as well.
Peak Season - An endorsement that provides additional
limits on personal property inventory during a designated period of time. This
is specifically used to cover fluctuating inventory values before and during
peak shopping seasons. Inflation Guard - Automatically adjusts the limits of
insurance to keep up with inflation. The adjustment can be tied to the construction
cost index in a regional area or a specified percentage per year. This endorsement
can be very important in helping to maintain adequate coverage limits, which
can protect against potential coinsurance penalties in a property loss.
Time Element - Insurance that covers other losses
stemming from a direct loss by a covered peril to business property. Business
interruption, extra expense, and loss of rents and rental value are the most
common time element coverage's. Business interruption coverage replaces lost
business income after a covered loss. Certain key employees can be named,
allowing the employer to continue to pay their salaries until the business
restarts operations after a loss. Extra expense coverage mainly applies to
service or product related companies where the business must continue to
ensure the survival of the company. Extra expense can pay for office space,
equipment rental, advertising, or most costs considered reasonable for keeping
the company operating after a covered loss. Loss of rents and rental value
cover loss of rental income to the property owner caused by damage or destruction
of a building rendering it unfit for occupancy.
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Inland Marine
Without prior knowledge of inland marine insurance, it is easy to assume that
this insurance line has something to do with boating transportation. In fact,
inland marine insurance can cover a variety of transportation exposures; however,
it does not cover boating transportation, which is covered under ocean marine
insurance. Inland marine is a specialized type of property insurance that primarily
covers damage to or destruction of your business property while in transport.
Inland marine also covers the liability exposure for the damage or destruction
that may occur to property in your care, custody, or control during transport.
Covered Causes of Loss
Standard perils in Inland Marine may include fire, lightning, windstorm, flood,
earthquake, landslide, theft, collision, derailment, overturn of the transporting
vehicle, and bridge collapse.
Coverage Forms and/or Specialty Coverage's
Inland marine has great flexibility in covering many potential transportation
risks. Some of the most common types of coverage offered are accounts receivable
insurance, consignment insurance, equipment floaters (i.e., contractors equipment),
installation floaters, motor truck cargo insurance, trip transit insurance, and
valuable papers (records) insurance. If you have questions regarding what inland
marine insurance can cover, and if it is right for your particular business,
then contact your agent for further information.
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Boiler and Machinery
Boiler and machinery insurance can add an important layer to potential insurance
coverage. Boiler and machinery insurance is currently marketed under such names
as ‘systems protector, systems breakdown, and ¦machinery breakdown insurance.
Boiler and machinery insurance covers business property, other property losses,
and legal fees (if any) that may result from the malfunction of boilers and machinery.
Boiler coverage includes covering the costs of inspection and often maintenance
of boilers. Machinery coverage can include many different types of machines used
in retail, office, and manufacturing settings. Machinery coverage also includes
major machinery systems common to most commercial buildings, such as heating,
ventilating, and air conditioning systems. Since most commercial property policies
exclude losses from boilers and machinery, it is important to be aware of any
exposure your business may have and discuss it with your broker-agent.
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Crime Insurance
Crime insurance provides protection for the assets of your business including
merchandise for sale, real property, money and securities. It is considered a
property insurance line. Based on the crime coverage that you purchase, it is
possible to be covered for the following causes of loss: robbery, burglary, larceny,
forgery, and embezzlement. Specialty coverage parts can be added based on need
and exposure to loss such as mercantile open-stock, burglary insurance, mercantile
robbery insurance, mercantile safe burglary insurance, money and securities broad
form policy, office burglary and robbery insurance, and storekeepers burglary
and robbery insurance.
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Casualty Insurance
Casualty insurance provides coverage primarily for the liability exposure of
an individual, business, or organization. Liability from the negligent acts and
omissions of an individual, business, or organization that causes bodily injury
and/or property damage to a third party is the subject of casualty insurance
coverage. Commercial Automobile, Commercial General Liability, Commercial Umbrella,
and Workers Compensation are the most common business casualty insurance lines.
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Commercial Automobile
Coverage, Classification, and Limits of Insurance
Commercial automobile coverage is similar to the coverage you may carry on your
personal auto; however, commercial automobile exposures can be more complex requiring
specialty coverage's to be considered based on the individual needs of your business.
Basically, commercial auto coverage can protect your company from any liability
stemming from automobiles used in your business or any damage to the covered
automobile. A Business Auto Policy (BAP) has the flexibility to provide coverage
for business, personal, non-owned, or hired autos based on the coverage purchased
and applied to each scheduled auto. In other words, automobiles can be separately
scheduled along with corresponding coverage's. Coverage can differ by vehicle
and a symbol or multiple symbols will designate the coverage assigned to a scheduled
auto. These symbols are referred to as covered auto symbols and use a simple
numerical system (1-13). The automobiles are classified by weight (light, medium,
heavy, extra heavy) and by type of use (private passenger, service, commercial).
Unlike personal auto policies that separate bodily injury and property damage
limits (split limits), BAP's commonly utilize a Combined Single Limit (CSL) for
the limit of insurance. This creates higher limits for the both coverage's, including
per occurrence limits. Common commercial automobile CSLs are $500,000 or $1,000,000.
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Commercial General Liability Coverage
Coverage
One of the key concepts of liability coverage is that it is comprehensive in
nature. What this means is that the policy (insuring agreement) covers all hazards
within the scope of the insuring agreement that are not otherwise excluded. It
is likewise comprehensive in that it provides automatic coverage for new locations
and activities of your business, which come about after policy inception and
throughout the policy term. Commercial General Liability (CGL) is the standard
commercial liability policy used to insure businesses. There are three primary
coverage sections that make up a CGL policy: premises liability, products liability,
and completed operations. Premises liability covers liability for accidental
injury or property damage that results from either a condition on your premises
or your operations in progress, whether on or away from your premises. A products
liability hazard exists for any business that manufactures, sells, handles, or
distributes goods or products. The hazard being the potential liability for bodily
injury or property damage that arises out of your goods or products. Completed
operations covers your potential liability for bodily injury or property damage
that arises out of your completed work. The major exclusions under a CGL policy
include: intentional injury; insured contracts; liquor liability; workers co
and employers liability; pollution; aircraft; automobile; watercraft; mo bile
equipment; war; care, custody, and control; damage to your work; impaired property;
sistership liability; and failure to perform. It is always important to read
and understand all coverage exclusions; however, it is particularly critical
in a liability policy. If you do not understand the coverage exclusions or limitations
of the CGL policy, then contact your agent and discuss completely until a working
understanding is achieved.
Classification
The type of business you run determines how a CGL policy is classified. Generally
speaking, a specific code or codes (in some situations) are assigned based on
exposures that are common to your type of business operation. The way a business
risk is classified is the first step to determine premium and an important part
to the rating formula.
Limits of Insurance
The CGL policy has separate limits of insurance for general liability, fire legal
liability, products and completed operations liability, advertising and personal
liability, and medical payments. An aggregate limit of liability is in force
for the general liability, fire legal liability, advertising and personal liability,
and medical payments claims. When total claims for all these areas exceed a stated
annual aggregate limit of liability, the policy limits are exhausted and no more
claims will be paid from the policy for the duration of the policy period. There
is also a separate aggregate limit of liability in force for products and completed
operations liability claims.
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Commercial Umbrella
When a liability claim goes above the aggregate limit of liability, the policy
limits are exhausted. By purchasing a commercial umbrella, you can protect your
business from being liable for this excess liability judgment. A commercial umbrella
covers the amount of loss above the limits of a basic liability policy. Commercial
automobile, CGL, workers compensation, or any liability policy can be covered
by a commercial umbrella. A commercial umbrella may also provide coverage if
a basic liability policy is not in force. Also, commercial umbrellas can provide
coverage for gaps in coverage under basic liability policies. When a commercial
umbrella provides coverage for basic liability loss it does not pay the loss
from the first dollar. It is common to have a Self-Insured Retention (SIR) amount
of at least $10,000. SIR is similar to a deductible. If there is a commercial
loss and there is no corresponding underlying policy in force, you must pay
the first $10,000 of the loss before the umbrella policy responds.
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Workers Compensation
When an employee suffers a work related injury or illness, workers compensation
insurance steps in to provide benefits based on the type of illness or injury
sustained. Workers compensation is based on a no fault system, which means that
an injured employee does not need to prove that the injury or illness was someone
else's fault in order to receive workers compensation benefits for an on-the-job
injury or illness. Workers compensation insurance is divided into two coverage
sections. In workers compensation part one the insurance company agrees to promptly
pay all benefits and compensation due to an injured worker by workers compensation
laws of the states listed on the declarations page of the policy. In employers
liability part two the employer is protected against situations where an employee
can sue for injuries suffered under common law liability (i.e., consequential
bodily injury, loss of consortium, dual capacity, or third party over actions).
These types of injuries in the course of employment are not covered under workers
compensation law and are therefore not compensable under the workers compensation
part one
Classification and Rating
Classification of workers compensation insurance is based upon the specific duties
that your employees perform in the course of their employment with your company.
These classifications are developed and assigned by the Workers Compensation
Insurance Rating Bureau (WCIRB) in most cases. Your workers compensation insurance
company when working with the WCIRB must use the classification codes the WCIRB
provides when rating your specific policy. Each classification is assigned a
specific rate by the insurance company, which helps determine the overall premium
for your policy. The WCIRB also generates the experience modification that must
be applied to your policy. The experience modification is calculated from loss
information your insurance company is required to submit to the WCIRB on an annual
basis. The WCIRB provides a policyholder ombudsman who is available to answer
questions from employers on classification, experience modification, and rating
issues.
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