Purchasing Commercial Auto

Commercial auto insurance is one of the most important aspects of your business insurance program. If your business uses a vehicle, or many vehicles, you need commercial auto insurance and you will want to ask your business insurance professional some important questions. You will also want to provide your business insurance professional with a complete picture of your vehicle use.

Consider the following points and ask the following questions.
Certain businesses must adhere to federal and state regulatory standards in the operations of their vehicles. For example, if your business will be hauling cargo interstate, there are specific Department of Transportation requirements for insurance that must be met. You will need to make sure you and your insurance professional have a thorough understanding of those requirements. Also, if you will be delivering or hauling for others or using other's equipment such as leased trailers or rental equipment, you will need hired or non-owned vehicle coverage.

Make sure you know the insured. Sound simple? Maybe. But, all to often businesses set up a leasing company to lease equipment to the main company and the leasing company is the titled owner of the vehicles. A common mistake is to identify the main company and not the leasing company as the titled owner on the policy. Or, the dba of the company and not the full name of the company is listed. You want the full name of the company as an insured, the titled owner, any affiliates, and dba, and all employees as insureds on your commercial auto policy.

Mobile Claims Applications

The typical mobile phone today is a combination of phone, camera, video camera, voice recorder, and notepad.

All of the tools necessary to properly document a business insurance claim!
Insurers have been quick to recognize the potential of the iPhone, Blackberry, Palm, or any number of other cellular phones as a claims tool. Many insurers offer their insureds free applications or mobile software to assist in that process. This is a list of some of the insurers that offer such applications to customers and a brief description of the application. I also note a few third-party software tools.
As a disclaimer, I am not receiving any compensation from any of these insurers nor is this list an endorsement of any particular insurer or application. Also, while the application may be free to install, your carrier may charge for data transmission and your contracted carrier charges apply. Finally, the list will lean heavily on iPhone applications, not because of any bias, but because the iPhone apps are the ones the insurers are focusing on developing.

State Farm Pocket Agent - State Farm launched the Pocket Agent application in June 2009. It is an iPhone application with support for the iPod Touch as well. It is primarily focused towards the residential auto market, but I think it could be used in a smaller commercial fleet. It allows you to submit a claim, locate agents, and locate authorized repair shops. So, if your driver is in an accident they can create an immediate photo details and damage questions. Online reviewers like the application with the one complaint being that billing information is not available through the app.


GEICO GloveBox - Geico's application does provide policy access, insurance ID access, and billing access for Geico customers. It also has an accident helper and roadside assistance.


Nationwide Mobile - Nationwide's mobile application is for the iPhone (although the website setup leads me to believe support for other platforms may be coming). It is also focused on the residential auto market, but can be used as a tool for a small business fleet. It includes claims processing, photo and accident organizer, repair locations. It also includes a flashlight!


Farmers iClaim - Farmers gets it right. First, the application has both iPhone and Blackberry support. Second, it is not limited to just auto claims. With a shake of the phone the insured is put in touch with Farmers HelpPoint to report the claim. Property owners can record an inventory and submit claims as well. This application seems more focused on all Farmers insureds rather than just the auto customers.


American Family My AmFam - American Family's application is for the iPhone, Blackberry, and the insurer offers a .mobi site (AmFam.com) expanding mobile capability beyond iPhone and Blackberry. Nice. The other insurers may offer similar capability, but AmFam makes it easy. This application has all of the typical features and states you can seek a "quote for all of our products." I do not know if that includes business insurance.

My list here is not exclusive and if you know of, develop or use other insurer apps, I would be glad to consider adding them.

Business owners have unique claims needs that may not fit into the more mass-market residential mobile applications. Here is a third-party application that may be better suited for a commercial customer.

iWrecked - There is only one downside to this application, it is only available for the iPhone. This application can be used by drivers to put together immediate and professional looking accident reports for submission to insurers. It could be a great fit for a fleet of sales people or drivers. And it is a free application.

If you know of any other good applications suited for business insurance purposes such as inventory lists, accident or property claims reporting, let me know.
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Casualty Insurance

Casualty insurance is typically combined with property insurance and often referred to as “property and casualty” insurance. However, there is a difference in the type of coverage. This is especially true after the events on September 11, 2001 and the hurricanes in 2004-2005.
Property insurance insures the location of the business while casualty insurance insures the business.
For example, if your business is on the seventh floor of a building and a natural disaster, such as a flood, occurs that wipes out the first floor, but causes no damage to the seventh floor, then any loss would not be covered by your property insurance because there is no direct loss to the location of the business. However, if you have business continuation or business interruption insurance you may have coverage for the indirect loss to your business.
Many of these products are developing in today’s world. Insurers are making it necessary to carry additional casualty insurance to cover certain types of losses. These types of coverage include:


Terrorism Coverage –
Acts of terrorism or war are not covered by traditional insurance policies – or, so claims the insurers. The attacks on September 11, 2001, resulted in claims exceeding $30 billion. Insurers now specifically exclude terrorism and require the purchase of a terrorism policy.


Flood Insurance –
Floods are generally not covered by typical property insurance policies and a separate flood insurance policy is necessary to protect against that risk.


Political Risk or Government Liability –
If you do business overseas or have substantial government contracts, then you may want to look into this type of coverage. It protects against a sudden loss due to a sudden political change in a country or withdrawal of a contract without recourse.


Other Types –
There are other types of casualty insurance that seem to be developed in response to the latest news: Cyber-Liability, Identity Theft, Cyber-Fraud, Employee Theft, etcetera.
Some of these casualty policies may be critical for the safe operation of your business. More often though, standard casualty coverage offered with a business owners’ policy will be enough casualty coverage and these types of policies are ‘flavors of the month.’
Casualty insurance also includes certain types of bonds or other limited insurance that have been long standing products and may be very necessary to your business.


Employee Theft and Dishonesty –
This coverage protects your business from loss or damage caused by employee theft. If your employees have access to company funds or handle cash transactions you may want to consider this coverage for the employees.


Surety Bonds –
This form of casualty coverage referred to as a bond insures someone you will contract with that you will complete the contract. If you are in construction or plan on bidding for government jobs, then you will be required to obtain a surety bond to insure your work.
Casualty insurance is a different type of insurance than property insurance. We will review different forms of casualty insurance and how these can work within your business plan.

Liability Insurance

Liability insurance protects your company in case it is sued or held legally liable for injury or loss caused by a mistake made by your company. The development of your risk management plan as part of your business insurance plan will limit the risk of error; however, that risk cannot be eliminated. Liability insurance covers the business for this risk.

For small businesses, many insurers package liability insurance into a larger insurance policy including property and casualty insurance. Most insurers call this packaged policy the “business owners’ policy” or BOP. Your business may be better served by a separate commercial general liability policy or CGL. The coverage afforded under both types of policies are almost always the same.
There are two types of liability policy:

Claims Made – The insurer that covers your business when the claim is made is the insurer that will cover the claim. If you are a construction or design professional, this is the most likely liability policy choice because it can be years after the completion of a project for a defect to become apparent.


Occurrence – The insurer that insures you at the time of the occurrence is the insurer that will handle the claim. The insurer is obligated to work with you until the claim is resolved even if you do not renew your policy with the insurer. These liability policies are more prevalent for businesses that would typically be aware of a potential claim immediately.
The two types of policies are the same with the exception of when the insurer’s obligation starts and ends.

The liability policy provides coverage for damage from an “occurrence” during the policy period. An “occurrence” generally means “accident” occurring to a third-party (someone other than you or the insurer). However, your liability policy may include a definition of “occurrence” to include “continuous or repeated exposure to substantially the same harmful conditions” that includes coverage for injury to a third-party for those kinds of injuries that cause damage over time. An example could be a gravel pit where a neighboring homeowner becomes ill due to a constant inhalation of gravel dust from the pit.
What is covered under your liability policy is a function of the substantive state law of your state. One state's courts may rule that a liability policy covers a particular occurrence, while a neighboring state rules it does not. There are some types of occurrences that are not covered and are excluded from the definition of occurrence across all liability policies:

Injury to a Worker- Workers are covered by workers’ compensation insurance and workers are not “third-parties” and, therefore, worker injury is not covered.


Automobile Liability – Damage or loss caused by a company vehicle is covered by a commercial auto policy specifically sold separately from the liability policy.


Damage to Business Property – Damage to business property or location is covered by your property and casualty insurance and your business is the “first-party” and liability coverage only applies to third-party claims.


Pollution – Most liability policies do not cover pollution. If your business will or can harm the environment, then you will need a separate policy or a pollution endorsement.


Products Completed Coverage – Liability policies do cover loss or damage caused by a completed product or service in most cases as long as there is a products-completed operations clause in the policy. Liability policies do not cover loss or damage due to the costs associated with the removal of a product or a recall of the product. There is separate coverage for that situation called product withdrawal coverage.

There are two types of limits in a standard liability policy:

Single Occurrence Limit – This is the limit the insurer will pay on one occurrence.


Aggregate Limit – This is the maximum amount the insurer will pay during any policy period for all of the occurrences in the policy period. Generally, this is two times the single occurrence limit.
Insurers have two duties in the event of a claim. The insurer has a duty to defend your company and a duty to indemnify. Indemnify means to pay the claimed loss. The duty to defend your company is the duty of the insurer to pay for your legal representation and all associated costs.
The limits in your policy may be inclusive of defense costs or defense costs may be outside of limits. You want to have a clear understanding of how your policy works. If you have a $500,000 single limit and that amount is to include defense costs, then your limit could be substantially reduced by the costs and fees associated with your defense.

Keep in mind that your aggregate limit is your total amount of insurance for the policy period. You will want this number to be a realistic reflection of your company's exposure to risk.
Endorsements add coverage to your policy and exclusions take away or limit coverage under your liability policy. We will address various types of exclusions and endorsements applicable to the liability policy. Here, we will briefly list the most common types of endorsements:


Liquor Liability-This is an endorsement to your liability policy adding coverage if your business sells, serves, produces, distributes or facilitates the delivery of alcohol to the public.


Employment Practices -As the population ages and as our workplace becomes more diverse, claims against employers alleging discrimination are increasing. This endorsement adds coverage for such claims subject to a number of limitations.


Employee Benefits - If you or an employee will manage employee benefits such as health, 401k's or pensions, then this endorsement will add coverage to protect you against claims of faulty administration or negligence.

Liability Insurance is a critical element of your business insurance plan and it can be complicated. Choosing a good insurance professional and creating a statement about what your business does so you can work with that professional to understand your options is important in making sure your liability insurance is an adequate part of your business insurance plan.

Basic Types of Policies

When considering what types of policies your business needs, it can quickly become very confusing to keep the terms straight. An easy way around this dilemma is to keep in mind that all business insurance and all policy types cover one of four things: property, liability, people or income.

Property: The property used in your business such as the structure you do business in or the vehicles used in your business need to be protected. Property and Casualty policies protect property.

Liability: No one is perfect, your business may make a mistake and, especially if your business is open to the public, there is always the chance your business will be held liable for an injury or error. Liability policies protect against being held liable for an error or injury.

People: At the heart of every business are its people. You and your officers, managers and employees are the company's greatest assets and must be protected. People are protected by workers compensation policies, health and life insurance policies.

Income: Without income the business does not survive. In the event of a catastrophe, a business interruptionpolicy can provide income or allow your business to be set up in a temporary location to earn income.

By preparing a list of property, potential liabilities, people and income categories for your business you will be able to wade through most policy descriptions and get a good overall sense of what types of policies you will need.

Key Man Insurance

"Key Man" insurance is a life and/or disability policy taken out by the business as a beneficiary in the event of death or disability to a particular key employee. This type of policy is also called: key executive coverage, key person coverage and key employee coverage.
The policy works by paying the business in the event of the death or disability of a person who is so important to the business that their loss could destroy the business. The policy is a cheaper option than standard life or disability policies because the policy can be purchased with a "first to die" provision and cover multiple key employees. For example:

A software company founded by three software engineers could take out a key policy on all three of the founders with a "first to die" provision. Upon the death or disability of one of these founders, the policy would pay benefits to the company. The policy would no longer apply to the two remaining founders. The policy payment would be used to replace the efforts of the first founder (hiring personnel, covering loss of sales, etcetera).

Insurance purchased in this manner would be much cheaper than three individual life policies and three individual disability policies.

You should consider "Key Man" coverage as a part of your business insurance program. Specifically, you should consider the coverage when any of the following apply to your business: Your business is a professional services business and key employees cannot be replaced expeditiously because of legal or ethical restraints.For example, a law firm or medical office cannot replace a twenty-year veteran with a new graduate.

The business cannot continue in the event of a loss of particular people.Imagine "The Dog Whisperer" without Cesar Millan. The fact is that some businesses are simply not a business without a particular person in the operation.

Business continuity is a concern.Look at your partner's children, wife and other heirs. Do they know the business? Do they care? Are they in the same profession? Your partner's share of the business will be inherited by someone and the business may need to buy out that person's share or dissolve the business.

Future growth or financing is possible.Most financiers and banks will require this coverage to be in place before extending any financing or credit to the company. If the company merges or goes public, this coverage will be required on top executives and board members.

The key persons are between the ages of 30 and 55.Young key people are more likely to be disabled than die. Young key people are also the least likely to have adequately planned for their death. Thus, if your business has young key people consider this coverage because it is human nature for young people to ignore their mortality and the business may be hurt by the lack of planning.
The cost of this coverage can often be defrayed as a business expense on company taxes (see your tax professional). The cost is often cheaper because it is sold as a term product usually for fifteen to twenty years and often corresponding to the most productive work years of the employee or officer. Your company may not need this coverage, but even engaging in the analysis of whether this coverage is necessary is often helpful. Do the analysis and consider what you would if Employee X was not able to work tomorrow.

Fire Insurance

A fire at a business can devastate a business. The structure may be damaged beyond repair. Business revenues are disrupted as the business cannot remain open. In the United States in 2006 there were 1.6 million fires reported resulting in $11.3 billion in direct property loss. It is a risk that must be insured against.

Most property insurance policies and business owner policies cover fire losses. Most business property insurance policies are broad form policies. These policies list a number of perils that are covered by the policy and exclude perils that are not covered.

However, fire insurance can be purchased as a specific peril policy or the coverage increased by a specific endorsement. It is important for the business owner to understand what is not covered under a traditional broad form policy and ways to increase coverage. It is important to review what are appropriate considerations when reducing premiums and what are not effective ways to save premiums.


Insure for the Proper Valuation


Many small business owners find that if they insure for an amount less than what the business is worth, premiums are lower. This is true. However, insurers require as a condition of the policy that the business is insured for a value equal to the actual value of the business. If it is not, and a loss occurs, a penalty is applied to the settlement amount. This penalty will almost always exceed the value of any saved premium and will come at a very bad time. Always insure for 100% of the business value.Have an independent evaluation of the business by an independent appraiser each year and adjust coverage as necessary.Do not rely on property tax evaluations or guesses from your insurance professional.


Actual Cash Value Versus Replacement Cost


Most policies cover a fire loss with actual cash value or ACV instead of replacement cost. Actual cash value pays the amount of the property less depreciation. This can be devastating if your business relies upon high value equipment that has a long useful life, but would be prohibitively expensive to replace. As examples: coolers, refrigerators, tow lifts, aircraft or anything that would be prohibitively expensive to buy new. Replacement coverage pays the amount to replace the property lost at whatever the replacement cost is today. Replacement coverage carries higher premiums and can be purchased as a rider or endorsement. Consider the following when considering ACV vs. replacement coverage. Your business may be underinsured if it cannot replace critical facilities and equipment at the depreciated value.Electronics such as computers frequently decline in real replacement cost such that actual cash value may be a better option.Property valuations are frequent causes of conflict between insurers and insured. You can avoid valuation problems by carrying replacement coverage.


Certain Property Needs Separate Coverage

Cash, valuable papers, certain types of inventory, some electronics, jewelry, and other items will require separate coverage or will be excluded from coverage. These are generally items that are impossible for the insurer to confirm and are prone to fraud.


Business Interruption Insurance

Fire insurance does not cover "downtime" for your business nor does it cover temporary relocation. Your business needs business interruption insurance to insure against the loss of revenue accompanying a fire and any potential relocation costs. Business interruption is a separate policy and should be considered if your business will be destroyed by being closed.


Coverage to Rebuild According to Current Building Code

Many businesses work in buildings or structures that are older than current building codes. In some cases, the structures are "grandfathered" in and do not have to comply with current modern standards. When a fire occurs the new construction must meet those standards. To the extent the insurer holds that such new standards are an improvement on the past structure, there is no coverage. If you have a historic building or do business in a rapidly changing area, you will want to make sure you have coverage to rebuild according to current building codes. This is often a separate endorsement or rider to the policy.


Other Points to Consider

You will want to review your policy annually. Make sure accurate addresses are reflected on the policy and all endorsements and riders. Sometimes if you own many buildings a blanket fire policy covering all of the structures can save significant premiums. Finally, always have a fire plan in place and train your employees appropriately. Insurers often provide discounts for active fire prevention programs.