As methods and modes of doing business evolve, entities are routinely exposed to a wider variety of risks. Assessing such risks and understanding the types of insurance required for particular business exposures can be difficult and time-consuming. Familiarity with forms of specialty insurance, including newer products, is vital to determining the appropriate protection. Products that fall under the specialty lines insurancemarket are designed for specific risks, and such coverage can often be the difference between an insurance claim and a devastating expense. Underwriting, rating and claims functions for these products require an increased degree of expertise and negotiation. Since these complex policies are often difficult to place, it is important to work with a knowledgeable broker who can customize an insurance program to meet individual business needs. What follows is an overview of some specialty and cutting-edge products available in the marketplace.
Though the ultimate responsibility for a company lies with the owners or shareholders, its policies and day-to-day functions are implemented and executed by its directors, officers and personnel. Sometimes the dealings of a principal figure in a company or the conduct of an employee results in claims or legal action against the company. Professional Liability covers professionals from actions that stem from their professional capacity and training; it covers wrongful acts, errors and omissions, aka “malpractice.” Directors & Officers (D&O) Liability insures corporate directors and officers against claims alleging loss due to mismanagement. A D&O policy may cover one or more of the following: Side-A Coverage, which offers coverage for individual directors and officers where the corporation is unable to indemnify them; Side-B Coverage, which provides reimbursement to the corporation for indemnification of its directors and officers; and Side-C Coverage, which provides entity coverage for securities liability, class action litigation and regulatory actions. Employment Practices Liability covers lawsuits brought by employees against an employer and its employees alleging wrongful termination, discrimination or certain types of harassment. Coverage can be extended to also apply to thirdparty exposures (e.g., discrimination against customers and suppliers). Fiduciary Liability protects the entity and its responsible officers, trustees and other employees against claims for alleged failure to prudently act in accordance with ERISA requirements. Typical allegations against fiduciaries protected by this coverage include denial of or change in benefits, error in the administration of a plan, improper advice, improper plan termination, conflicts of interest, and imprudent investment decisions. Employed Lawyers Liability is professional liability for attorneys employed by a business organization. Typical exposures include representations made to staff relating to benefits, severance or corporate policy; representation to individual employees that in-house counsel is assigned to represent; liability associated with pro bono work and “moonlighting”; conflict-of-interest exposures (simultaneously representing company and advising staff); personal injury liability; and shareholder communication.
As more commerce is conducted online, and as entities more frequently use media outlets, additional risks are incurred. Cyber Liability, Security & Privacy insurance covers claims arising from a failure of computer security or the wrongful release of private information. Policies can be purchased to cover HIPAA and HITECH exposures for release of personal medical information. Coverage is available for liability claims by third parties and also for first-party losses (business income, damage to software and data, extortion). Media Liability/Intellectual Property covers liability arising from allegations such as defamation, copyright and trademark infringement, or invasion of privacy, or from published materials. Coverage can apply to online and offline materials.
Another challenge for businesses in the 21st century is compliance with environmental regulation. Environmental coverage insures against the pollution exposure associated with a property or business operations. Coverage, including defense, can apply to costs of cleanup and remediation or corrective action due to a third-party demand or a government order. Coverage can also include individual exposure from contracting operations, disposal site operation and transportation of toxic materials. For remediation projects, cost-cap coverage is available to insure cleanup costs in excess of estimates and also for contamination that is greater than anticipated.
As more companies are “going green,” businesses have seen the wisdom, and in some cases the necessity, of insuring the cost of replacing items to green standards. Green Property Endorsements are now available for green constructed or renovated facilities, as well as for rebuilding green after a loss. Insurance can include extra expenses for reconstructing buildings and replacing personal property with green alternatives, LEED-accredited professional oversight, loss of income, and increased periods of restoration. In addition, Green Auto Insurance now offers a hybrid upgrade option for new vehicle replacement.
To protect business financial interests, the following products are increasingly purchased. Product Recall: First-party covers loss of income and extra expenses incurred to respond to a mandated or voluntary product recall. Typical costs insured may include costs to replace or restore, communication, transportation,warehousing, overtime expenses, and disposal. Products are also available for accidental contamination and product tampering. Third-party covers legal obligations to pay certain compensatory damages pursuant to a contract. This can include expenses of a third-party for the recall of any product that incorporates the insured’s product, the cost to repair brand reputation and certain defense costs. Trade Credit protects accounts receivable from credit losses due to domestic or overseas customer insolvency, nonpayment and protracted default. This programcan allow an insured to safely increase sales, reduce bad-debt reserves to free up working capital and often obtain better financing terms. Coverage can be designed for an entire accounts receivable portfolio, a segment of customers or individual credits.
For business mergers and acquisitions, consider Representations & Warranties coverage as a financial guarantee for the seller’s indemnity obligations. This coverage may eliminate the need for an escrow account, letter of credit or other security. Insurance can be written as either a seller’s form (third-party liability insuring the seller when the buyer claims a breach of representation or warranty by the seller) or buyer’s form (first-party policy insuring the buyer). Other products utilized with mergers and acquisitions may include Loss Mitigation Insurance to insure unquantified risks from pending claims or from known events for which there is no claim at closing; Tax Indemnity Insurance for unknown or known but not yet quantified tax risks; Environmental Liability (described earlier); Indemnity Guarantee Bonds to guarantee the indemnity obligations undertaken in a transaction; and Aborted Bid Costs Insurance to insure at least a portion of the costs incurred by a potential buyer whose attempt to acquire a target fails.
Special Events coverage is applicable for gatherings such as company parties, vendor exhibitions and client outings. Liability coverage is either written as part of a commercial general liability policy or a stand-alone policy with dedicated limits. Stand-alone coverage can be written to include or exclude bodily injury of participants. Cancellation Insurance is also available as revenue protection in the event of cancellation, curtailment, postponement, nonappearance of principal speaker and similar disappointing occurrences.
For businesses that involve employee travel, a Travel Accident policy pays employees or their beneficiaries for injury, disability or death. These policies also include travel assistance benefits. Additionally, Kidnap and Ransom coverage can be arranged for corporations or individuals (and members of their families) for kidnapping and extortion threats, custody, expenses, loss of life or injury, legal liability costs, repatriation, and business interruption/suspension of operations.
Most of the different types of coverage described above are written on nonstandard forms and vary in scope and cost among carriers. Placement requires thorough review and analysis of all policy documents, including applications. For questions and additional information, please contact the author or your insurance advisor.