For even the most experienced business owners, insurance can be confusing at times.
Our resident expert, Maureen Brogie, provides the answers to the most common questions asked about small business insurance.
1. What does small business insurance cover?
What is covered will all very much depend on the type of cover you opt for. If you’re not sure what type of insurance would be the best fit for your business, consider these examples:
This type of insurance protects you against claims made as a result of damage to a third party, or an alleged claim of damage made by a third party. Claims can be made as a result of damage to a person or their property.
If a customer trips over an electrical cable in your premises and hurts themselves, general liability insurance may apply. Equally, if you are a window cleaner and your ladder slips and smashes a window while on your client’s property, insurance could help protect you against a claim.
Also, general liability can defend you against slander claims. For example, if one of your employees talks about a client in a derogatory manner, which then gets back to said client, leading them to sue your company, general liability insurance could cover the subsequent claim, up to policy’s limits and pay for an attorney to defend your business if necessary.
Errors & omissions (AKA E&O, professional liability):
If a client accuses you of not delivering what was promised, or for making a mistake, whether their gripes are unfounded or not, they can still try to make a claim against you.
As a real estate agent, if you neglected to tell a buyer about wooden windows that needed to be treated to eliminate a termite infestation, which they only discover once they move in, meaning they have to hire an exterminator and get all of the windows replaced, a client could sue you.
E&O insurance could also be applicable if as an architect you draw up plans for a client with incorrect dimensions which then cause problems once the project gets to build stage.
Director’s & officer’s (AKA D&O):
Directors’ and officers’ insurance can help protect board members of an organization by covering costs arising from a potential lawsuit.
Claims from D&O could be due to a director of a business not keeping up to date with legislation, failing to ensure that safety measures are in place to protect employees, or being accused of mismanaging company finances.
If you are still not sure which type of policy to go for, read our guide on what type of insurance your small business needs.
2. What is the cancellation policy?
Cancellation policies can vary a great deal from carrier to carrier. Always pay attention to the small print to ensure that you understand the policy, and how you can cancel.
In some circumstances, insurers will offer a cooling off period, but again, it is best to refer to cancellation endorsements in your policy documents rather than assuming this. If you don’t want to commit to signing a policy before confirming the cancellation policy, you can request a sample of the policy document from your carrier.
3. Does my insurance cover my employees/1099s?
This is a bit of a grey area, as typically a general liability policy will not cover employees paid on a 1099. In most instances, it will cover them if they are employed directly.
E&O insurance might cover 1099 employees, but again, it all very much depends on the policy. If you are uncertain about who your policy covers, it’s always best to refer to the policy itself. Most will contain a ‘Definitions’ section, which clarifies who is considered an employee with respect to the policy, as well as a section often labeled as ‘Who is an Insured’.
4. What is a certificate holder/additional insured? Why would my client want that?
Some clients will require you to present proof of the insurance policies you hold before you begin working with them. This is to ensure that when hiring you, they are covered against damage to property or persons, or are protected in case there is a dispute about errors made in the work you deliver.
A certificate of insurance is a document that serves as your proof of insurance policy and will include details such as the types and limits of coverage, which company has issued the coverage, your policy number, the named insured, and the effective dates of the policy.
Often, a third party who has requested to see proof of insurance will request that they are added to your certificate as a certificate holder. This is only to establish that the insurance policy exists, and therefore does not give them any legal rights under the certificate.
Additional insured is different in that the third party is actually given coverage and rights under your policy in the event of a claim if they are added.
5. What is a Waiver of Subrogation?
To understand a Waiver of Subrogation, let’s start with explaining what subrogation is.
Subrogation occurs when an insured agrees to have its insurance company cover losses caused by a third party. The insurer then has the right to recover the losses which it covered on behalf of the insured from the third party, as they were responsible for the claim having to be paid out.
An example of when subrogation would apply is as follows:
You and your client face a common lawsuit for copyright infringement. Part of that claim alleges you were faulty in delivering your services as a designer, as you did not check that the images provided by your client were theirs to be used, and part of it alleges your client is at fault for supplying the images knowing full well they had been sourced from another brand’s website. In these circumstances, a judgment may be awarded that your insurance company pays in full in order to release you from the claim. However, as your client was also partially responsible for the loss, you would have the right to recover the part of the loss that is their fault. But, since your insurance company has paid the full amount on your behalf, they have now inherited your right to recover that portion of the loss. As a result, the insurance company can seek to recover damages directly from your client or your client’s insurance company.
A Waiver of Subrogation prevents the insurer from being able to sue the third party. As a result of not being able to subrogate, which puts the insurer at higher risk, the insurer is likely to charge a higher premium as they waive their right to recover their losses.
Have other questions about small business insurance? Call our InsuranceBee experts at 978-344-4215 or visit insurancebee.com where they will be happy answer any questions and ensure you have the right coverage at the best price for your business!