Insuring your home-based business success

Tamsyn Burgmann
SPECIAL TO THE STAR

It wasn’t until a valued customer called, freaked out by a rogue bumble bee she found resting dead in her loose leaf tea, that the risks of running a home-based business dawned on Hatem Jahshan.By then, Jahshan and his wife Tonia had been operating their tea party consultancy, Steeped Tea, out of the converted basement and two-car garage of their Hamilton home for a full year.

Though he also runs a fast-food restaurant, Jahshan knew zilch about protecting his home-based business.

“In fact, it felt like you didn’t even have to worry about insurance when you start your home business. As a business person, I like to hang out with business people, and nobody’s got insurance. It’s a very, very quiet issue that nobody talks about,” he said. “Usually, you start thinking about insurance when bad things happen.”

Facing added premiums can be daunting for the small business owner, but insurance shouldn’t be a dirty word, say the experts. No matter whether you’re running a full-scale taxidermy outfit or typing data into a single laptop, protection is integral to a savvy business plan.

“The worst case scenario is that you could be financially ruined if you don’t have insurance,” said Peter Warner of the Insurance Bureau of Canada.

“A policy will cover anything pertaining to running your business.”

As soon as doing business from home enters your mind, set up a meeting with your insurance broker, agent, or the company that insures your home, he said.

They’ll listen to the particulars, asses whether you’re underinsured and offer options to ease the nerves.

In many cases, the company providing your home or “property” insurance can add an extension to your homeowner’s policy, protecting you against common business risks.

Standard property insurance rarely protects anything business-related. Should fire rip through your home, compensation won’t be offered to replace computers, printers, fax machines, samples and paper records. And it won’t protect you from a lawsuit.

Generally, “home-based business” or “home business” insurance provides three areas of coverage: business property; business interruption; and legal liability.

The first protects property kept on or off the home premises, including inventory, samples, supplies, tools, filing cabinets, computer equipment and software.

If disaster strikes the home, rendering office space unfit for use, business interruption coverage pays the cost of your temporary office relocation, thus insuring your products and services are delivered to customers.

Legal liability coverage – usually set at $1- or $2-million – becomes a lifesaver if your company’s products or services cause harm to a customer. If Steeped Tea’s frazzled caller had alleged trauma or an allergic reaction to the pesky bee (which likely slipped into the mix when the tea was being dried in India’s fields before export) this coverage would have paid for legal defence or compensation ordered by the courts.

A classic example of legal liability involves a delivery person who slips on a piece of ice while carrying a package up your front steps; falls and breaks a leg; then sues.

“The liability portion of your home insurance doesn’t protect you, because the activity was directly related to your business,” Warner said.

Insurance providers calculate premiums based on exposure to risks – the possibility of loss – receipts and how much income you’re making from the business. The lower both are, the lower the premium. Knitting sweaters and selling them online is likely to be considered less risky than running a massage clinic that brings clients into the home.

Premiums are likely to run several hundred dollars a year – usually not more than $500, according to the Insurance Brokers Association of Ontario. But if your business liability is higher than that for your property policy, it will probably be boosted to the same level, potentially costing you more.

Most insurers keep lists spelling out what is or isn’t likely to fall under their home business insurance. The tricky part of the equation arises with vastly increased exposure. The line blurs between where home business insurance ends and commercial insurance begins.

To assess whether obtaining a heftier policy might be wise, look at how often clients, or consumers, visit your home and also, whether you run the risk of “professional” exposure. The latter occurs when a business person provides advice or expertise to a client who later might theoretically allege it caused them financial or other harm – for instance, an accountant.

There are no hard and fast rules when it comes to navigating home-based insurance coverage. When in doubt, call a broker – who represents multiple insurers rather than a single provider – suggests Bryan Yetman, IBAO president-elect.

“You can have a candid, honest conversation with your broker. They’ll give you a true evaluation and then you decide,” he said.

“Shop around,” agreed Catherine Swift, chair of advocacy organization Canadian Federation of Independent Business, adding the biggest complaint mounted by members is around insurance costs and short notice of cost increases.

Every business presents risks, but someone who buries his head in the sand could be making the riskiest move of all, the experts agreed.

“(Insurance) brings me peace of mind now,” Jahshan said. “Once you have insurance you can remove fear out of the way and you can actually focus on bettering your business.”

DIFFERENT TYPES OF COMMERCIAL INSURANCE

The most common types of commercial insurance are property, liability and workers’ compensation. In general, property insurance covers damages to your business property; liability insurance covers damages to third parties; and workers’ compensation insurance covers on-the-job injuries to your employees. Depending on your business, you may want additional specialized coverages. Listed below are some of the different types of business insurance.

PROPERTY INSURANCE Property insurance pays for losses and damages to real or personal property. For example, a property insurance policy would cover fire damage to your office space. You can purchase additional coverages for business property, including:

Boiler and Machinery Insurance Boiler and machinery insurance, sometimes referred to as “equipment breakdown” or “mechanical breakdown coverage,” provides coverage for the accidental breakdown of boilers, machinery, and equipment. This type of coverage usually will reimburse you for property damage and business interruption losses. For example, this coverage would cover fire damage to computers.

Debris Removal Insurance Debris removal insurance covers the cost of removing debris after a fire, flood, windstorm, etc. For example, a fire burns your building to the ground. Before you can start rebuilding, the remains of the old building have to be removed. Your property insurance will cover the costs of rebuilding, but not of removing the debris.

Builder’s Risk Insurance Builder’s risk insurance covers buildings while they are being constructed. For example, a Builder’s risk policy would cover losses if a windstorm takes down your partially constructed condominium complex.

Glass Insurance Glass insurance covers broken store windows and plate glass windows.

Inland Marine Insurance Inland marine insurance covers property in transit and other people’s property on your premises. For example, this insurance would cover fire-damage to customers’ clothing from a fire at your dry cleaning business.

Business Interruption Insurance Business interruption insurance covers lost income and expenses resulting from property damage or loss. For example, if a fire forces you to close your doors for two months, this insurance would reimburse you for salaries, taxes, rents, and net profits that would have been earned during the two-month period.

Ordinance or Law Insurance Ordinance or law insurance covers the costs associated with having to demolish and rebuild to code when your building has been partially destroyed (usually 50 percent). For example, your three-story building is 100 years old. A flood destroys the basement and first two stories. Because more than 50 percent of your building has to be rebuilt, a local ordinance requires that the building be completely demolished and rebuilt according to current building codes. Property insurance covers only the replacement value, not the upgrade.

Tenant’s Insurance Commercial leases often require tenants to carry a certain amount of insurance. A renter’s commercial policy covers damages to improvements you make to your rental space and damages to the building caused by the negligence of your employees.

Crime Insurance Crime insurance covers theft, burglary, and robbery of money, securities, stock, and fixtures from employees and outsiders.

Fidelity Bonds A bond company covers losses due to a bonded employee’s theft of business property and money.

LIABILITY INSURANCE Liability insurance covers injuries that you cause to third parties. If someone sues you for personal injuries or property damage, the cost of defending and resolving the suit would be covered by your liability insurance policy. A general liability policy will cover you for common risks, including customer injuries on your premises. More specialized varieties of liability insurance include:

Errors and Omissions Insurance Errors and omissions (“E & O”) insurance covers inadvertent mistakes or failures that cause injury to a third party. The act must actually be an inadvertent error, and not merely poor judgment or intentional acts. For example, an E & O policy would cover damages arising from an insurance agent failing to file policy applications, or a notary forgetting to fill out notarizations properly.

Malpractice Insurance Malpractice insurance, or professional liability insurance, pays for losses resulting from injuries to third parties when a professional’s conduct falls below the profession’s standard of care. For example, if a doctor makes a mistake that other doctors of his specialty would not have made, his patient might sue him. A malpractice policy will pay his defense costs and any judgment or settlement. Malpractice insurance is available for doctors, dentists, accountants, real estate agents, architects, and other professionals.

Automobile Insurance Commercial automobile policies cover the cars, vans, trucks and trailers used in your business. The coverage will reimburse you if your vehicles are damaged or stolen or if the driver injures a person or property.

Directors’ and Officers’ Liability Insurance This type of insurance is generally purchased by corporations and nonprofit organizations to cover the costs of lawsuits against directors and officers.

WORKERS’ COMPENSATION INSURANCE Workers’ compensation insurance covers you for an employee’s on-the-job injuries. Businesses with employees are required by various state laws to carry some type of workers’ compensation insurance. In most cases, workers’ compensation laws prohibit the employee from bringing a negligence lawsuit against an employer for work-related injuries.  

Source: Findlaw.com

Self-Inspection Checklist for Business Offices

A vital part of loss control is the recognition and removal or correction of unsafe activities or conditions before a loss occurs.  This WILL save you money.  The attached Self-Inspection Checklist provides you with a tool to identify some areas that might need attention.  A “NO” response to any question indicates corrective action my be necessary.  This survey form should be completed at least quarterly, and reviewed by management to assure that unsafe acts/conditions are corrected and follow-ups are scheduled to see if the correction(s) accomplishes its purpose.  Additional measures may be required beyond those identified by this checklist.

Business Office Self-Inspection Checklist

DIRECTORS AND OFFICERS LIABILITY INSURANCE

Directors and officers liability insurance (D&O) provides financial protection for the directors and/or officers of both public and privately held companies against suits filed against them in conjunction with the performance of their duties as they relate to the company. Most D&O policies also cover the liability of the company itself if the liability arises out of a claim involving the purchase or sale of the company’s securities. The company itself may purchase D&O insurance for many reasons, even when it is for the sole benefit of directors and officers. If it does not, it may not be able to attract and retain skilled, experienced and competent persons to occupy those positions.

Most D&O policies offer three primary coverages. Insuring Agreement A, also referred to as “A-Side Coverage,” is direct coverage for directors and officers for claims made against them for their wrongful acts committed in their capacity as a director or officer.

Insuring Agreement B, or “B-Side Coverage,” reimburses the company for amounts it spends indemnifying directors and officers for claims against them. However, this coverage does not apply to the company’s own liability.

Insuring Agreement C, or “C-Side Coverage,” insures losses sustained by the company itself, regardless of any losses suffered by its directors and officers.

Each of these coverages has its own retentions, deductibles and coinsurance percentages, and each may have different exclusions than the others.

Other coverages that may be provided in a D&O policy include employment practices liability (EPL), which protects directors, officers, employees and/or the company against employment-related claims brought by employees and specified third parties under certain circumstances.

D&O insurance is usually written on a claims-made basis, meaning that coverage applies to a covered claim regardless of when the act or omission giving rise to the claim occurred, as long as the claim is made during the policy period.

The coverage provided is also affected by the way certain terms in the policy are defined. As with other types of coverage, provisions and exclusions must be examined carefully to completely understand the scope of coverage.

Most D&O policies do not impose a duty to defend on the insurer but do provide coverage for defense costs. However, the insurance company does have the right to associate with the defense and approve defense strategies, expenditures and settlements. The “right to select counsel” provision means that, while D&O insurers may not impose their choice of counsel on the insured, the insured’s choice is still subject to the insurer’s consent. The primary questions that arise with payment of defense costs involve control over the costs incurred and the timing of when defense payments must be made.

Some policies have express defense cost advancement provisions and others do not. Most policies provide for reimbursement of only reasonable costs and include a clause stating that, if a director or officer withholds his or her consent to a settlement of an action, the insurer does not cover any part of the loss that is more than the amount for which it could have settled the claim. The same clause also precludes payment of claim costs after the date that the claim could have been settled.

Co-payments, retentions and deductibles are the insured’s responsibility. Insurance companies encourage this L participation as an incentive for the insured to work with the company to HP incorporate loss prevention measures and control the amounts paid in settlements. These costsharing amounts vary, depending on the size and type of business or operation.

The severability clause is very important. It protects innocent directors and officers by allowing coverage on them to continue at the same time that coverage is denied to a director or officer whose fraudulent activities are the basis of the claim. The severability clause can be broad or limited. Naturally, the insured wants the broadest one possible.

At one time, only large corporations and businesses purchased D&O coverage. It is now available for small businesses and not-for-profit organizations as well, because individuals are reluctant to participate as officers or board members unless their personal assets are fully protected. While this has led to the availability of a wide range of coverage forms and policies, the differences between them may be significant, and each must be reviewed carefully before recommending one over another.

Please note that this is only a brief overview of the coverages available. The PF&M Analysis from The Rough Notes Company, Inc., contains broader and more thorough discussions of these and related subjects. Agency OnLine subscribers can refer to PF&M Section 384.1, Directors and Officers Liability Insurance, for a detailed evaluation, discussion and additional information on this and related subjects.

Copyright Rough Notes Co., Inc. Oct 2007
Provided by ProQuest Information and Learning Company. All rights Reserved

Office

As a business operating in an office setting, you are keenly aware of the many hazards that could affect your investment. One of the most important things you can do is select the coverage that you feel best suits your business insurance needs. We have coverages available for you to purchase that may help your peace of mind.

Our highly dedicated, top-tier Claims professionals are here to help you get back where you belong. Let our Loss Control Professionals work with you to help you prevent potential losses in your business. See how our Loss Control can help.

The Coverages

Here are some of the coverage options that are available to you to help you with your insurance needs:

Property and Inland Marine

·      Buildings at Replacement Costs or Actual Cash Values

·      Automatic Increase in Building Amount (inflation guard)

·      Contents at Replacement Costs or Actual Cash Values

·      Automatic Increase of the contents for seasonal fluctuation

·      Personal Property off-premises coverage

·      Loss of income & extra expense on an actual loss sustained basis for 12 months or other extended period

·      Loss of income & extra expense from power interruption

·      Loss in value of undamaged building portion, demolition or increased construction cost to meet ordinance or law requirement

·      Comprehensive equipment breakdown coverage

·      Coverage extension to newly acquired buildings and contents

·      Fire department service charge and extinguisher recharge cost

·      Outdoor signs

·      Debris removal & pollutant clean up cost

·      Back up of sewers or drains

·      Accounts Receivables and Valuable Papers coverage

·      Computer equipment including Media & Records

·      Earthquake or earthquake sprinkler leakage

Crime

·      Employee Dishonesty

·      Forgery & Alteration

·      Money & Securities – both inside and outside the premise

·      Money Orders & Counterfeit Currency

 

General and Other Liability

·      Operations and Premise liability including parking lot liability

·      Personal and Advertising injury liability

·      Products and Completed Operations liability

·      Contractual and Owners Protective liability

·      Hired and Non-owned automobile liability

·      Employee Benefits Liability

·      Medical Payments and Tenant’s legal liability