Commercial general liability coverage
Unfortunately, every company runs the risk of being sued. Even home-based businesses may need liability
protection if they are selling items such as food that could cause injury or illness.
Commercial general liability (CGL) insurance covers injuries or damages caused by your company, including
the products and services you sell. Typical examples include a customer slipping and falling on your property,
an employee causing damage to someone’s home, or a lawsuit claiming your advertising was false or
misleading. CGL would cover the cost of your legal defense and pay damages up to the limits in your policy if
you are found liable.
The Insurance Information Institute says that commercial general liability insurance “is one of the most
important insurance products, due to the negative impact that a lawsuit can have on a business and because
such liability suits happen so frequently.”
CGL policies are composed of three parts:
Part A covers bodily injury and property damage.
Part B covers personal and advertising injury such as libel, slander, copyright infringement, use of
another’s advertising idea, wrongful eviction, or invasion of privacy.
Part C covers medical payments for injuries to a non-employee that occur on your premises or as
a result of your operations.
It’s important to note that a CGL policy doesn’t cover negligent professional acts. These would be covered by
a separate professional liability policy. You’ll need to purchase workers’ compensation and employment
practices liability insurance separately as well. We’ll cover those types of coverages later in this white paper.
Commercial property insurance
Nearly every company needs some type of property insurance to protect the premises and the contents of
the business. Commercial property insurance will pay to repair or replace physical assets that are damaged or
destroyed from fire, theft or other covered losses. These policies typically cover buildings, equipment,
furniture, personal property, inventory and tools.
Home-based businesses may need commercial property insurance as well because homeowners insurance
offers only limited coverage for business property. For example, most homeowners policies limit protection for
business equipment to $2,500.
If you have special equipment, such as a commercial kitchen or woodworking or shop tools, or you store
equipment and tools for your business in your home, you should talk to an insurance professional about
commercial property insurance. If you transport tools and equipment to a job site, you may need inland
marine insurance as well.
Commercial auto coverage
If you use a car or truck in your business, you’ll need an auto policy that insures vehicles for commercial use.
This includes uses such as picking up clients, visiting a job site, transporting goods for sale or running
business errands. While many insurers offer these types of policies, and it’s easy to get quotes, you may
benefit from talking to an insurance professional who can design the best coverage portfolio for you.
You’ll want to ask about liability limits, physical damage, medical payments, under- and uninsured motorist
protection, hired auto (if you pick up passengers or make deliveries), and whether the policy covers employees
and non-owners. Coverage and prices will vary by type of vehicle, such as car versus truck.
If a family member or one of your employees is making deliveries with a personal vehicle, you’ll need to check
to see if they’re covered under their personal auto policy. Your business could be held liable if an employee
causes an accident while traveling on company time.
Business owners policy
You may have heard the term BOP and wondered what this type of insurance covers and whether you should
get it for your family business. A business owners policy (BOP) is a bundled approach to commercial coverage.
These policies include coverage already described above, such as liability, property and vehicle, and they
sometimes include a few other protections that we’ll see below, such as cyber insurance, employment
practices liability insurance, and business interruption insurance.
While BOPs may offer everything your family business needs to get started, they usually don’t provide as
much coverage as stand-alone policies. Your insurance professional can help you weigh the advantages and
disadvantages of a bundled approach.
Larger businesses or firms that operate in a specialized field may be better off with a commercial package
policy (CPP), which allows you to tailor the coverage to your needs. Like a BOP, the core of a CPP will be
protection against property and liability exposures.
But you can also add commercial auto and many other types of insurance such as umbrella liability, business
interruption, employment practices liability, builders risk, inland marine, crime protection, cyber security,
professional liability and pollution liability. Your limits of coverage may be higher using the CPP approach.
Many family businesses rely on the internet for their business operations and the sale of services and
products. This makes your company even more vulnerable to cyber crime and data breaches. Cyber criminals
are always looking for new ways to exploit system vulnerabilities, and they target small businesses to a much
greater degree than large companies.
Ask an insurance professional about cyber and data breach coverage to protect against electronic theft, loss
of data, disruption of your company’s networks, loss of income due to a temporary suspension of business
operations, and damage to your reputation. Many insurers offer privacy and network security coverage as a
part of a BOP or professional liability insurance policy.
It’s a good idea to engage a cyber-security professional to help you protect your internet connections, Wi-Fi
enabled devices, and computers/tablets/smartphones from hackers. You’ll also need to protect customers’
personal data – while being transferred and while being stored. You could be held liable for a data breach if
you fail to protect your clients’ information.
Most cyber policies will cover customer notification of a breach, anti-fraud protection and credit monitoring
for customers, security incident investigations, cyber extortion, and ransomware costs.
There are also cyber risk policies that cover network business interruption. These help if your system fails for
reasons other than cyber invasion – something like human error, a failure to install updates, or a third-party
network problem. This coverage may be bundled in an overall cyber package, so talk to your insurance
professional about how to integrate this important protection into your coverage.
Directors and officers liability insurance
Directors and officers (D&O) liability insurance protects your company’s leaders from personal financial
exposure in the event investors, employees, vendors, competitors, customers, or other parties sue them for
breach of duty.
Some of the more common exposures include failure to comply with regulations or laws, failure to provide a
safe and secure workplace, operational failures and mismanagement, employment practices and HR issues,
cyber liability, and bankruptcy.
If your family controls a company, has representation on the board, or is in the C-suite, D&O coverage is
critical. You may think D&O is only for larger, publicly traded companies or assume that your commercial
general liability policy will cover your exposure, but that’s not the case.
In fact, lack of D&O coverage can be a deal-breaker for investors and potential directors. Most venture capital
and private equity firms won’t invest in a company that doesn’t have D&O coverage. Remember, your
directors and officers are putting their personal assets at risk if you don’t have coverage.
That’s of increased concern in family businesses, where the founders tend be more involved in operations and
may have a large amount of their personal wealth tied up in the company.
It’s best to talk to an insurance professional about tailoring a policy to your family business. D&O policies
have four separate parts: Side A, Side B, Side C and Side A DIC (DIC stands for “difference in conditions”).
Each of these sides covers different aspects of liability, such as defense expenses and settlements,
reimbursement to the company for indemnification, entity coverage if more than one director is named in a
lawsuit, and additional coverage not included in Sides A, B and C.
You can purchase D&O coverage separately or as part of a bundled package of coverages that may include
D&O, employment practices liability, fiduciary liability, crime, and cyber insurance.
Employment practices liability insurance
Employment lawsuits can be a huge exposure for your company, with defense costs in the tens or even
hundreds of thousands of dollars. Employment practices liability insurance (EPLI) will cover your court costs
and attorney fees in these cases, subject to the limits in the policy.
EPLI policies cover a range of exposures, including wrongful termination, discrimination, sexual harassment,
retaliation, defamation or libel, breach of employment contract, and mismanagement of benefits.
You may be able to add EPLI to your BOP as an endorsement, or you may want to buy a stand-alone policy
with higher limits.
Insurers will ask to see detailed information about your business when underwriting your risks for D&O and
EPLI coverage. Family businesses don’t always have a formal business structure or well defined human
resources policies. Take a look at this checklist to make sure you have these safeguards in place:
Written HR policies banning discrimination and sexual harassment
Regular, consistent and fair performance reviews, with policies for addressing and documenting
Safe, confidential reporting procedures for employee feedback
A written policy regarding social media in the workplace
A business continuity plan
A corporate governance program
Written procedures to address fiduciary duties
Written guidelines for performance reviews and policies for addressing unacceptable performance
Other coverages you may need
Professional liability/errors and omissions (E&O) – If your family business provides
professional advice or services, you’ll need professional liability insurance to protect against the
cost of lawsuits. Ask your insurance professional about the various policies available.
Business interruption – Also known as business income insurance, these policies cover the loss of
income after a disaster, whether it’s due to the closing of your business or the rebuilding process
afterward. Designed to put your business in the same financial position it would have been in if no
loss had occurred, business interruption insurance may be offered as a rider or endorsement to a
commercial property policy or a BOP. Coverage is limited to defined events in the policy.
Commercial umbrella – When claims against your business exceed your regular coverage limits,
an umbrella policy provides additional protection. Your insurance professional can discuss your
policies’ limits and suggest where you might need additional coverage.
Pollution – Pollution insurance was created specifically to manage the cost of pollution cleanups
and cover liability claims for related injuries, illnesses and deaths. It’s a separate policy from your
regular business insurance. Hair salons, dry-cleaning services, junkyards and service stations are
just a few family businesses that might need pollution insurance.
Catastrophe – Your property insurance may cover some catastrophes, but you can also add a
rider or purchase a separate policy just for catastrophes. Insurable disasters include hurricanes,
earthquakes, tornados/windstorms, hail, fires, floods, volcanoes, and acts of terrorism.
Workers’ compensation – Workers’ comp insurance is required in nearly every state to
compensate employees for injuries sustained on the job. Family members who are employees are
not always exempt from this requirement; the requirements vary by state and are based on your
number of employees and the job role of the persons under consideration. If your business is in
construction or another type of hazardous work, workers’ comp is a must. Find out more from an
insurance professional who specializes in the workers’ comp market in all states where you operate.
Key person insurance – One way to ensure your family business survives from one generation to
the next is to purchase “key-person” life insurance on the lives of the top people in your company.
The named insureds can be the owners or key executives – anyone whose premature death might
jeopardize the future of the business. The premiums are paid by your business, and the business
itself is named as the beneficiary of the policy’s proceeds, which can be used to fund an executive
search or for another company-sustaining purpose. Life insurance can also fund a buy-sell
agreement, which is a way to transfer ownership when an owner or partner dies. The policy’s death
benefits are used to pay for the sale of shares to the surviving owners of the company, thus
keeping the business in the family.
Get the insurance you need to stay in business
If your family owns a business or hopes to start one, you’re in good company. There are 5.5 million family
businesses in the United States. From the Small Business Administration to local business centers, there are
many resources to help you start or expand a business. Your insurance professional can help, too, by
designing an insurance program that grows with your company.
According to the Family Business Alliance, more than 30% of family-owned businesses survive into the second
generation. Twelve percent will still be viable into the third generation, with 3% of all family businesses
operating at the fourth-generation level and beyond. Make sure you’ve got the longevity you need to survive
by getting the right insurance protection.