There are generally three schools of thought on the purchase of business insurance:
- As a business owner I should discuss my business with my insurance broker and purchase the policies recommended to cover all of my operations and potential hazards.
- A Business Owner’s Package (BOP) policy should cover all of my insurance needs, even the ones my broker doesn’t know about.
- I don’t need insurance. If I buy insurance someone is just going to sue me to collect from my insurance company.
Our favorite client is, of course, number 1. We offer risk management analysis services to all of our current and potential clients as a free service. What you (and we) don’t know can hurt you in the event of a claim.
But what about the other 2 types? Are these ideas really so dangerous?
No Policy Can Cover Everything
Even if it has “general” or “comprehensive” or “package” in the title, no insurance policy is designed to cover every eventuality. Every policy comes with some exclusions, and many of those exclusions are the result of court cases where a policy was forced to pay out on a claim the policy was never intended to cover.
A healthcare organization made news in the past year when they were the victim of a data breach. Millions of patients records and personal information were exposed. The costs of the hack would have been covered by cyber liability insurance, IF the board of directors had taken the recommendation of their insurance broker and purchased the coverage. They didn’t.
Since the decision of the board to decline cyber liability insurance affected the finances of the healthcare organization, they filed a claim against the directors & officers professional liability insurance. They claimed the board acted negligently in not purchasing the coverage that was offered, and the directors & officers professional liability policy paid out the policy limit of $2,000,000. It is probably a safe assumption that the D&O coverage was non renewed and replacement coverage has been hard to come by.
No Insurance Doesn’t Equal No Claims
A current Hayes client on the East Coast found themselves in a quandary a few years ago. The client owned a property and hired a contractor to do some repair work in the building. The contractor was a sole proprietor and didn’t have workers compensation insurance on himself. He fell down a flight of stairs on the client’s premises while working and was badly injured.
He filed a claim with the building owner and it was initially denied as a workers compensation claim. He sued and judge ordered the building owner’s liability insurance to pay the contractor $2,000,000, the limit on their policy. The insurance carrier paid the claim and then nonrenewed the client’s policy. They went from paying $3,500 per year for a BOP policy to $75,000 a year because of that one claim, and the mistake of hiring an uninsured contractor.
Uninsured businesses may think that they can’t be sued since they don’t have insurance, but sometimes that just isn’t true. A motivated plaintiff will knock on the door of every attorney in town looking for someone hungry enough to take the case. The time and legal fees associated with even a nuisance claim can drive some smaller companies out of business.
Insurance can be defined as a transfer of worry. If you want to worry about how to pay big losses, then don’t purchase insurance. If you want someone else to worry about how to pay those losses, call an insurance broker to find out which insurance policies may be right for you.