FAQ

A commercial umbrella liability policy is a relatively inexpensive way to purchase higher liability limits for your business. Any business owner seriously concerned about protecting business assets and earning power should consider a commercial umbrella policy. Accidental tragedies resulting in multi-million dollar lawsuits are far too common to rely solely on the coverages and limits provided in your basic liability policies. All umbrella policies have three objectives:

• To provide high limits of liability for any one accident or occurrence, as well as for multiple claims during the policy period. The limit of liability available on an umbrella policy usually starts at $1 million and can go as high as you need. This limit applies as an amount in excess of the limits provided by your general liability, auto liability and employers liability policies and may also apply to claims not covered by one of those policies.
• To cover claims not covered by another liability policy because of policy exclusions or because the limit on the policy has been used up by previous claims during the policy period.
• To defend claims not covered by another liability policy.

Umbrella policies are not “standard” and coverages vary widely from one insurance company to another. It’s important to review policy forms carefully to be sure any policy offered meets the three above objectives and is suitable for the liability exposures your business confronts. Ask your agent for a commercial umbrella quote. You may be surprised how inexpensive it can be to double or triple the liability limits provided by your other policies. You may also want to ask your agent to provide quotes from several companies, along with a review and explanation of any policy exclusions that might preclude coverage for exposures covered by your existing policies.

When you or one of your employees rent a vehicle for business use while out of town, there comes that time when you’re standing at the rental car counter and the agent asks the inevitable question: “Do you want to buy our loss damage waiver (or our insurance coverage)?”

Most loss damage waiver (LDW) fees are outrageous. Sometimes they cost more than the daily rental fee itself. But are they worth the additional cost? The answer may depend on your tolerance for risk and inconvenience. You must decide if the extra cost is reasonable, considering the potential for an uninsured loss should something happen to the vehicle during the term of the rental contract, and the resulting inconvenience of dealing with the rental company and your insurance company – or perhaps even your employee’s insurance company – to satisfy the rental company’s demands.

First, you should know that the LDW is not actually an insurance policy. It is a waiver of the rental company’s requirement in the rental contract that the renter bring the vehicle back in the same condition as when it left their lot. Most rental contracts make the renter responsible for any damage to the vehicle, including theft and weather-related damage. When the renter purchases the LDW, the rental company is removing that provision from the contract on a conditional basis.

If you don’t purchase the LDW and the vehicle is damaged, here are some of the costs for which you or your employee could be held responsible under the rental contract:

1. Cost to repair damage to the vehicle, or the full value of the vehicle if it is a total loss
2. “Diminished value” of the vehicle – the difference between what the vehicle was worth before the accident and what it is worth after repairs have been made
3. “Loss of use” – the amount of money the rental company loses on rental fees while the vehicle is out of service for repair or replacement
4. Administrative or loss-related expenses incurred by the rental company, such as fees for towing, appraisal, and claims adjustment, plus general office expenses for handling the paperwork

Reasons to purchase the Loss Damage Waiver:

1. Your policy may not cover damage to the rental vehicle at all.

Your policy does not cover damage to the rented vehicle and related costs, UNLESS the policy has been changed to cover vehicles rented by you or your employees on company business (the “Employee Hired Autos” endorsement), and you have purchased special coverage (“hired auto physical damage” ).  (Note: not all insurers offer these coverages.)

2. Your insurance company may not pay the entire amount demanded by the rental company.

When your policy covers damage to a rented vehicle, the amount payable by the insurance company is the lesser of the “actual cash value” of the vehicle or the amount “necessary” to repair or replace the vehicle, minus the same deductible that would apply if the damage was to one of your own vehicles. In addition, some policies cover “loss of use” with a daily limit (usually as low as $20 per day) and a maximum limit (usually $600). Because of all these limitations, you or your employee may become personally responsible for:

• The amount demanded by the rental company to repair or replace the vehicle in excess of “actual cash value” or the amount “necessary” to repair or replace;
• The amount of your deductible;
• The amount demanded by the rental company for “loss of use” in excess of the daily and maximum limits payable by your insurance company, if the company offers this coverage at all;
• The amount demanded by the rental company for “diminished value” of the vehicle, even after the repairs are complete;
• The amount demanded by the rental company for administrative or other loss-related expenses.

3. Your policy may exclude some electronic equipment.

Your policy may exclude loss to some electronic equipment that receives or transmits audio, visual or data signals. If you rent a vehicle equipped with a GPS receiver, for example, your policy may not cover it.

4. Your premium may go up or your policy may not be renewed.

You or your employee are driving an unfamiliar vehicle in unfamiliar territory. If you or your employee has an accident while driving a rented vehicle, and your insurance company pays the claim, it may hold this fact against you – with a premium surcharge or perhaps even non-renewal.

5. Your or your employee’s line of credit may be adversely affected.

If you don’t buy the LDW, the rental company will probably ring up an estimated damage amount on your credit card or your employee’s credit card, pending settlement by the insurance company.

6. You or your employee may suffer a huge inconvenience.

When you purchase the LDW, you or the employee can bring a damaged vehicle back to the rental company, throw the keys on the counter, and walk away. When you haven’t purchased the LDW, you or your employee may have to spend a significant amount of time dealing with the rental company and your insurance company, and perhaps the employee’s insurance company, as well.

7. Your personal auto policy (if you have one) or your employee’s personal auto policy may be affected.

Most personal auto policies cover accidents involving vehicles rented by you or your employee, even when the rental is solely for business purposes. When you purchase the LDW, the personal auto policy won’t be needed to pay for damage to the rented auto. (Note: If the accident is your fault or your employee’s fault, the personal auto policy may become involved if the accident involves injury to other persons or damage to other property. There is nothing you can do to avoid this.) For more information on how the personal auto policy responds to accidents involving rented vehicles, ask us for a copy of an article on that subject.

Bottom Line: We recommend that you buy the Loss Damage Waiver from the rental company.

Recommended Guidelines for Employers

Here are some guidelines for you to consider if employees rent vehicles for company business:

1. Instruct employees to include the company name, if possible, on the rental agreement.
2. If you have no tolerance for the risk of incurring the potential uninsured losses shown above, or the means to pay those losses, tell employees to purchase the LDW offered by the rental company.
3. Tell employees to report any accident in a rented vehicle to you and to their own personal auto policy insurer or agent.

New Option for Purchasing a Loss Damage Waiver

Now there is a new way for you or your employees to cover rental car exposures – a standalone Loss Damage Waiver policy offered by a major insurance company that can be purchased online with a credit card. The web site insuremyrentalcar.com provides options to purchase coverage for a single rental period or an annual term at a cost that is significantly lower than what rental companies charge. The actual policy form can be viewed on the web site and a thorough and easy-to-understand FAQ section provides answers to a number of important questions. This option is available only to individuals (not companies), but you might want to consider instructing employees who rent cars frequently to purchase the coverage on an annual basis and then reimburse the employee for the expense.

Auto and truck dealers make it very easy to buy a new vehicle these days. Buyers usually need to provide only an ID card showing proof of liability insurance and off they go. This practice makes it easy for the dealer and the buyer to overlook proper insurance coverage on the new vehicle. The same thing is true if you intend to purchase a vehicle from a private seller.

Unfortunately, the only way to be sure you have exactly the coverage you need on a newly purchased vehicle is to call your agent before you drive away from the point of sale. That of course is not always possible.

Fortunately, all policies provide some automatic coverage on newly acquired vehicles, but not all policies provide the same automatic coverage.

The first important point to know is that your policy provides coverage only on vehicles purchased or acquired by the person or entity that is named on the policy – the “named insured.” If you are going to acquire a new vehicle and intend to issue the title in a name other than the name shown on your policy, there is no automatic coverage on your policy. If that’s the case, you definitely need to contact your agent before driving the new vehicle away from the dealership or the private seller’s location.

Once you are OK with the ownership requirement, it’s important to know that very few business auto policies automatically provide “full coverage” on newly acquired vehicles. The coverage you get may depend on whether or not you are trading in one of your current vehicles for the new vehicle at the time of the sale and what kind of coverage exists on the traded vehicle.

Even if a policy provides “full coverage” on a newly acquired vehicle, the automatic coverage may only last for a few days – 30 days on most policies. You must call your agent before that period ends in order to finalize the details.

If you are going to shop for a new vehicle, call your agent before you go. Your agent can review your policy and ask a few questions. Then he or she can tell you if it’s OK to drive the new vehicle away from the seller’s location without calling first to give details about the purchase. If it is, be sure to call your agent on the first business day after your purchase, so the final details on the coverage can be arranged.

If your agent says you need to call first, be sure call back as soon as you are ready and then wait until he or she confirms that coverage has been purchased before you take possession of the new vehicle.

There is an axiom in the business consulting business that there are two types of organizations: those that have been breached and know it, and those that have been breached and don’t know about it – yet. Of course you may believe you are in a third category: those that have not been breached yet. It could happen today.

Maintaining security of electronic systems and the private information therein is a huge concern these days. A breach of your systems and loss of private information is only one type of “cyber exposure” faced by your business. Here are some examples of incidents that could cause you some financial heartburn:

• A hacker gains access to customer information stored on your server, including credit card numbers. Federal and state laws, as well as genuine concern for your customer relationships, require you to notify customers affected by the breach, provide credit-monitoring services, pay expenses and losses incurred by customers, respond to media inquiries about the breach, determine what led to the breach and fix the conditions that allowed the breach to happen in the first place.
• An employee sends a customer an e-mail attachment containing a virus that destroys the customer’s computer system. The customer sues you for damages caused by the virus transmission.
• A competitor sues you for alleged financial harm incurred as a result of material displayed on your web site, including defamation, disparagement and infringement of trade dress.
• An employee opens an e-mail attachment that introduces a virus into your computer system and causes a total shut-down of your e-commerce activities for a number of days.

You can purchase insurance – called Cyber-Liability and Information Security coverage – to protect your business against these and other cyber-related incidents. These insurance policies are affordable for most businesses, especially when you consider the important benefits they provide. Contact your agent for details on available coverages and cost.

A claims-made insurance policy is most often used to provide professional liability coverage, such as the coverage needed by lawyers and doctors to protect them from malpractice claims.  But it is also used frequently for other types of liability insurance, such as employment practices liability, directors and officers liability, and products liability.  It is sometimes used for the general liability insurance that all businesses purchase.

The typical claims-made policy provides coverage for injury or damage no matter when it occurred as long as the claim against the insured is presented during the policy period.

Some claims-made policies contain a “retroactive date” that precedes the effective date of the policy and allow coverage for acts that occurred prior to the policy period.  This is called “prior acts coverage.”

Some policies also allow an extended time period for the reporting of claims after the expiration date of the policy.  There could be a “basic extended reporting period” for a short amount of time, usually provided for no additional cost.  There could also be a longer “supplemental extended reporting period” made available for additional premium.

Ask your agent or look at the front page of the policy to determine if your policy is a claims-made policy. If it is, you need to carefully review incidents that might develop into a claim at a later date. There are two potential coverage gaps when using a claims-made policy form:

1. You may be without coverage for a claim filed after the policy expires if it is not replaced with a similar policy that provides prior acts coverage.  Since the claims-made policy responds only to claims that are made during the policy period, there would be no coverage for a claim arising out of an occurrence during the policy period but not reported until after the expiration of the policy or the extended reporting period.
2. The policy will not respond to a claim arising out of an occurrence prior to the effective date or the retroactive date, even if the claim is reported during the policy period.

These coverage gaps can be avoided by careful attention by you and your agent.  Close attention to the retroactive date and the use of extended reporting period provisions will alleviate these problems.

In September 2009, ACORD revised the ACORD 25 Certificate of Insurance form. One of the major changes was the removal of the cancellation notice provision. We are unable to issue an older edition of this form, modify the current form, or complete a proprietary form you provide.

Notice of cancellation is a policy right, not an unregulated service. No insurer shown on this certificate is able to provide the cancellation notice you desire by endorsement. For example, the insured can cancel immediately, so it would be impossible for the insurer to give you the notice you request. State law also grants the insurer the right to cancel for reasons such as nonpayment with less notice than you require.

For the reason just cited, if our agency was to issue a certificate that provides the cancellation notice you request, we would do so with the full knowledge that it would be impossible to actually give that amount of notice under certain circumstances. As such, the certificate could be alleged to constitute a misrepresentation or fraud which could subject our agency and staff to serious civil and criminal penalties.

If a certificate purports to provide a policy right different from that provided by the policy itself, then the certificate effectively purports to be a policy form. Policy forms must be filed and approved by our state department of insurance. Use of nonfiled policy forms is illegal and could result in legal sanctions distinct from the assertion that the certificate is fraudulent.

We cannot use an older edition of the ACORD 25. Under the ACORD Corporation’s licensing agreement, the prior editions of superseded forms can be used for one year from the time the new forms are introduced. Using a prior edition would violate ACORD’s licensing agreement and, as a copyrighted document, federal copyright law.

Likewise, we are unable to modify the new certificate to add a notice of cancellation. ACORD forms are designed to be completed, not altered. Our insurance company contracts only allow us to issue unaltered ACORD forms.

We are often asked to issue proprietary certificates provided by the certificate holder. Again, our insurance company contracts only allow us to issue unaltered ACORD forms. Many proprietary certificates include broad, vague or ambiguous language that may or may not be incompliance with state laws, regulations, and insurance department directives.

We appreciate your understanding of the legal restrictions on our ability to fully comply with your request.

A certificate of insurance is an informational document issued by or on behalf of an insurance company. The certificate indicates that an insurance policy exists of a certain type and limits. Certificates are simply snapshots of basic policy coverages and limits at the time of issuance of the certificate. Certificates are not intended to modify coverages or change the terms of the insurance contract and they convey no contractual rights to the certificate holder.

The futility of depending on certificates of insurance was highlighted by the Texas Supreme Court in its recent decision in Via Net, et al v. TIG Insurance Company, et al., wherein the Court said: “Given the numerous limitations and exclusions that often encumber such policies, those who take such certificates at face value do so at their own risk.”

As a utility contractor, you are no doubt often asked to sign construction or service contracts that include certain insurance requirements that must be evidenced by a certificate of insurance. If the certificate holder desires status as an additional insured under a policy, this can only be done by endorsement to the policy, not by issuance of the certificate alone.

Problems often arise when a contract makes demands that are, for all practical purposes, virtually impossible to meet. Examples include requests for insurance for losses or damages that are uninsurable, requests that agents cannot legally comply with, requests that require inappropriate certificate wording, and requests that are impractical from a market standpoint.

As a result, insurance agents are sometimes asked to provide a certificate of insurance that cannot comply with the contract you may have already signed. In fact, you may have already completed the job and need the certificate in order to get paid. The purpose of this article is to illustrate how such problems can arise and what solutions are available, if any, to address the most common problems.

UNINSURABLE REQUESTS

Sometimes contracts will attempt to transfer risks and liabilities that are largely uninsurable. For example, the contract may require you to be responsible for “ANY negligent acts, errors or omissions” or “any and all liabilities” that result in “ANY claim, cost, expense, liability, penalty, or fine.” A commercial general liability (CGL) policy typically does not cover “errors and omissions” or fines and penalties, nor will it pay for damages other than those arising from bodily injury, property damage, and personal and advertising injury liability. In addition, the word “any” implies there are no exclusions when, in fact, the policy has many exclusions ranging from pollution liability to faulty workmanship.

Needless to say, it is advisable to have an attorney review contracts on your behalf. In addition, prior to signing any contract, have your insurance agent review the insurance specifications, preferably in conjunction with your attorney. He or she can advise what requirements may be impossible or difficult to insure. It is important to know the costs before bidding on the contract and it’s possible that truly onerous insurance requirements can be deleted from the contract.

Often contracts will require your insurance to be “primary and noncontributory.” The “ISO standard” CGL policy does say that it is primary with regard to the certificate holder’s general liability policy IF the certificate holder is an additional insured on your policy. So, the first order of business is to make sure that the appropriate additional insured endorsement is attached to your CGL policy.

However, the undefined term “noncontributory” is meaningless on its own. The term may just be used to reemphasize that your insurance is primary, which is fine. Or the intended meaning may be that a waiver of subrogation endorsement is desired. However, often it means that the certificate holder’s CGL policy will not contribute in any way to a loss even if that policy otherwise covers it. This means that you will have to pay out of your own pocket any claim that exceeds the limit of your CGL policy without contribution from the certificate holder’s CGL policy.

It is in your best interest to attempt to clarify and, if necessary, strike the “noncontributory” wording from the contract. If that’s impossible, consider increasing your own policy limits or be prepared to assume a potentially large uninsured loss.

ILLEGAL REQUESTS

Construction contracts sometimes require that the certificate holder be given additional insured status under a specific endorsement number and edition date. It is not uncommon for a contract to request an “ISO standard” policy form such as the CG 20 10 11 85 additional insured endorsement. Note that “11 85” refers to the November 1985 edition of this form. These forms typically must be filed with and approved by the Texas Department of Insurance before they can be used. Since later editions may have superseded earlier editions, it could be impossible for the insurer to provide a form that is 20+ years old and is no longer approved by the Texas Department of Insurance.  This is also the case in most other states where you might be working.

Your insurance agent can often provide a later edition form with comparable coverage. In some cases, two endorsements might be necessary to replace a single older form, one providing ongoing operations coverage and the other completed operations coverage.

The latter form, however, might not be available or only available at significant cost. Your insurance agent may represent more than one insurance company, making it more likely that your account can be shopped to another insurer who is better able to meet your needs. In any event, you will want to price this coverage before submitting your bid since completed operations insurance, if available, can be substantial in price.

Also, contracts frequently mandate that coverage be extended to the additional insured’s sole negligence. In some states, sole negligence cannot legally be transferred to another party. Increasingly, even where insurance transfer is permitted, insurers are using additional insured endorsements that prohibit assuming the additional insured’s sole negligence. The current “ISO standard” endorsements do just that.

If you are working in a state that has anti-indemnity statutes or case law, then this should not be an issue. Otherwise, you will want your insurance agent to determine if the insurer is still willing to assume sole negligence under an additional insured endorsement. If not, the contract will need to be modified or compliance will be impossible.

INAPPROPRIATE REQUESTS

Contracts often specify that the certificate of insurance provide for notice of cancellation to the certificate holder. The problem is that all “ISO standard” additional insured endorsements make no provision for cancellation notice to an additional insured. Perhaps acknowledging this, some contracts settle for the more hopeful “endeavor to” provide notice of cancellation provision.

Keep in mind that, unless the policy specifically provides for cancellation notice to the additional insured, the insurer is usually under no contractual obligation to provide such notice. Even if an attempt is voluntarily made, mistakes happen. In some cases, due to regulatory decree by the state department of insurance (New York is an example), a certificate of insurance cannot make a promise of notification unless notice of cancellation is provided for in the policy or endorsement.

Some organizations and government entities use their own certificates of insurance instead of the more standardized ACORD 25 – Certificate of Liability Insurance form. These may create problems for insurance agents because some states have laws or regulations prohibiting the use of such forms unless approved by the state department of insurance.

These forms may include wording implying coverages or rights that don’t actually exist under the policy, again violating the law in many states. These certificates may sometimes be almost exact duplicates of the “ACORD standard” form(s), creating copyright violation possibilities. They may also lack disclaimers designed to protect you and the issuer.

Be very wary of these non-ACORD certificates of insurance. Rely on your insurance agent for guidance on how to handle these forms. In many cases, they can be issued, but require referral to the insurance company which can cause delays. Again, it is important to involve your insurance agent in the process as soon as possible.

IMPRACTICAL REQUESTS

The construction contract may specify that certain coverages (e.g., completed operations) be provided or that certain exclusions (e.g., pollution liability) be removed. Because of the proliferation of defective workmanship claims in the construction industry, completed operations coverage may be difficult to procure at a reasonable cost. Most insurers are unwilling to remove certain exclusions such as pollution liability and the cost to purchase the coverage separately may be prohibitive.

Be sure to give your insurance agent ample time to search for the coverages required by your construction contracts. If coverage is available, you will want to include the premium costs in your contract bid. If coverages are not available, you may be able to negotiate such requirements from the contract or pursue another source of coverage.

It is not uncommon for your insurance agent to be unable to meet every requirement of the contract you’re being asked to sign, from the standpoint of coverages, policy rights, or completion of a certificate of insurance. The other party to the contract may then inform you that they can provide a list of agents who claim they can comply with the contractual requirements in full.

While it’s possible that the person requesting the certificate is aware of agents who are better able to comply with their requests, be cognizant that fraud and misrepresentation with regard to certificates is not unheard of. If you are requiring certificates from subcontractors, be aware that bogus certificates do exist.

While it is rare, there are unfortunately some insurance agents who will issue certificates that do not accurately reflect coverages and policy terms just to allow a contractor to get a job and for them to keep their business. Since certificates are rarely legally enforceable against insurers or agents, you may be incurring significant liability if an inaccurate certificate is issued. It is important that you do business with insurance professionals in which you have great trust or that you verify the accuracy of the certificate.

As outlined in this discussion, the single best thing you can do in dealing with certificate of insurance requirements is to involve your insurance agent in the process as soon as possible. He or she can counsel you on how to best meet your insurance requirements and, if not possible in some instances, provide an explanation as to why something is difficult or impossible, often to the satisfaction of the requestor.

That’s an excellent question, and it’s a question asked by many business owners like you.

Business income insurance (sometimes called business interruption insurance) can make the difference between “life and death” of a business following a catastrophic loss. It can be as vital to your survival as fire insurance on your buildings and personal property.

Most business owners would never consider opening a business without buying insurance to cover damage due to fire and windstorms. But too many small business owners fail to think about how they would manage if a fire or other disaster damaged their business premises so that they were temporarily unusable. A business that has to close down completely while the premises are being repaired may lose out to competitors. A quick resumption of business after a disaster is essential.

Business income insurance compensates you for lost income if your company has to vacate the premises due to disaster-related damage that is covered under your property insurance policy, such as a fire. It covers the profits you would have earned, based on your financial records, had the disaster not occurred. It also covers operating expenses, like rent or mortgage payments, that continue even though business activities have come to a temporary halt. And, it pays for extra expenses you incur to expedite recovery or continue operations, such as a move to a temporary location.

Make sure the policy limits are sufficient to cover your company for more than a few days. After a major disaster, it can take more time than many people anticipate to get the business back on track. There is generally a 48-hour waiting period before business income insurance kicks in.

Business income insurance is surprisingly affordable. In fact, some package policies provide the coverage automatically without additional cost. Ask your agent for a proposal and premium quote.