Commercial Insurance or Business Insurance is a very complicated and detail oriented coverage in Texas. All shoppers should talk to a qualified Commercial Insurance Agent before you choose coverage because the wrong policy could result in a denial of a claim and catastrophic losses.
What Is Commercial General Liability Insurance?
Commercial General Liability (CGL) insurance protects business owners against claims of liability for bodily injury, property damage, and personal and advertising injury (slander and false advertising).Premises/operations coverage pays for bodily injury or property damage that occurs on your premises or as a result of your business operations.Products/completed operations coverage pays for bodily injury and property damage that occurs away from your business premises and is caused by your products or completed work.
Excess liability insurance pays for covered losses that exceed your CGL policy’s dollar limit.
Umbrella liability insurance is excess liability insurance coverage above the limits of automobile liability and CGL policies. The umbrella policy also provides liability coverage for exposures not covered under the primary CGL insurance policies and not excluded by the umbrella liability insurance policy.
Claims-Made Versus Occurrence Policies
Occurrence policies cover claims arising from injury or damage occurring while the policy is in force, regardless of when the claim is first made.
Claims-made policies cover claims that arise from injury or damage occurring during the policy period and reported to the insurer during the policy period. Claims arising from events outside the policy period or claims reported to the insurer outside the policy period are not covered unless special coverage is purchased or arranged with the insurer. This special coverage comes in two forms:
- Prior acts (“nose”) coverage covers claims that arise from injury or damage occurring before the policy period, but reported to the insurer after the policy period begins.Prior acts coverage is provided by establishing a “retroactive date” covering injury or damage occurring after the retroactive date. The retroactive date usually appears in the declarations page accompanying your policy. It may be the effective date of the policy or an earlier date. Prior acts coverage does not cover claims that were known at the time your policy began.
- Run-off (“tail”) coverage, also called extended reporting period, pays for residual claims made after your policy expires. A typical claims-made policy provides a short reporting period of 30 or 60 days after the policy’s expiration date to file claims that arose too late to report before the policy expired. Run-off coverage starts when the 30- or 60-day period ends and is provided for an additional premium. The extended reporting period may be one, three, or five years, or even unlimited.
If a claims-made policy does not continue (expires, cancels, or nonrenews), you should purchase either run-off coverage from your previous insurer or prior acts coverage from your new insurer to prevent coverage gaps. Generally, claims-made policies may be less expensive in their early years as the potential for claims increases as policy years accumulate.
The differences between claims-made and occurrence policies are best illustrated by the following examples:
Assume you operate a business located in a building that you own. Your customers may enter the building and shop for merchandise in a showroom. On April 15, 2010, a customer slips and falls in your showroom. The customer reports the incident to you but says he does not believe he is injured. On December 15, however, you receive notice that the customer has filed a claim for injuries sustained in the fall.
Occurrence Policy: An occurrence policy with a policy period from June 1, 2009, to May 31, 2010, will cover the claim because the incident occurred during the policy period.
Claims-Made Policy: A claims-made policy with a policy period from June 1, 2009, to May 31, 2010, will not provide coverage because the claim was made after the policy expired. If, however, you purchased an extended reporting period from your insurer when your policy expired, the claim may be covered.
Examples of Exclusions in a CGL(Commercial General Liability) Policy
Following are some examples of exclusions commonly contained in a CGL policy. Coverage varies by insurer and will include additional exclusions other than the examples below. You should carefully review your policy and any endorsements to know exactly what your policy does – and doesn’t — cover. Talk to your agent if you have any questions about your policy, its coverages, or policy limits.
Damage to Your Work – Generally, CGL policies exclude coverage for property damage to your work (see Example No. 1 below). There is an exception to the exclusion for damaged work if a subcontractor working for you caused the damage (see Example No. 2 below).
Example 1: You own a homebuilding business that recently constructed a new residence with a garage. After the home is sold and the homeowner moves in and parks her vehicle in the garage, the roof on the garage collapses because of faulty construction. The collapsed roof damages the homeowner’s vehicle. The policy may provide coverage for the repair or replacement of the vehicle but may not pay to repair the collapsed roof because the roof is your work.
Example 2: The situation is the same as in Example 1, except the work to construct the roof was performed by subcontractors working on your behalf. The policy may cover the damage to the vehicle and also may pay to repair or replace the roof constructed by your subcontractor.
Damage to Your Product – CGL policies don’t cover property damage to your product arising out of the product or any part of the product.
Example: If you install a propane-powered appliance that malfunctions and causes a fire that damages a home, your CGL policy may pay to repair the home. It will not pay to repair or replace the appliance if the malfunction was caused because the appliance was faulty.
Contractual Liability – CGL policies exclude coverage for bodily injury or property damage that you are obligated to pay because you assumed liability in a contract or agreement. The exclusion contains the following two exceptions:
- Liability for damages that you would have assumed in the absence of the contract or agreement; and
- Liability assumed in a contract or agreement defined in the policy as an insured contract, if the bodily injury or property damage occurs after the contract or agreement is executed.
Example 1: You sign a contract to complete the construction of a building within a specified amount of time. The contract requires you to pay damages if you breach the contract. Your CGL policy will not provide coverage for any damages you have to pay because you failed to meet the deadline.
Example 2: You sign a contract to hold harmless and indemnify another party for the other party’s negligence if that negligence results in bodily injury or property damage. Your CGL policy may provide coverage to indemnify the other party depending on the wording of the indemnity agreement.
Recall of Products, Work, or Impaired Property – CGL policies will not pay the cost to recall faulty products, work, or impaired property. However, this coverage may be added to the policy by endorsement for an additional premium charge.
Workers’ Compensation and Employer’s Liability – CGL policies are not intended to provide coverage for workers’ compensation or employer’s liability. This exclusion prohibits such coverage.(http://www.tdi.texas.gov/pubs/pc/pcgenliab.html)
Commercial Property Coverages
Commercial property policies aren’t standardized in Texas. Insurance companies must meet minimum state requirements but may create their own policies. As a result, coverages and policy terms will vary by insurance company and by policy.
Commercial multi-peril (CMP) policies combine several coverages — such as commercial property, liability, inland marine, and commercial auto — in a single policy. It’s typically cheaper to buy a CMP policy than to buy the coverages individually.
Business owner program (BOP) policies are a common type of commercial policy primarily for small businesses. BOP policies combine property and liability coverage in one policy.
Commercial property policies provide various types of coverage, either as part of the base policy or through policy endorsements. Endorsements expand or amend a policy’s coverages and usually increase your premium. You can buy certain coverages as separate standalone policies.
Following are some typical commercial property coverages:
- Building occupied by the insured coverage insures a building that you regularly use but don’t own. This coverage can be important if you lease or borrow a building.
- Newly acquired or constructed buildings coverage insures a new building if you add it to your policy within a certain amount of time. If you don’t tell your insurance company within the time period – usually 30 days – your policy won’t cover the new building. Commercial property policies usually only cover buildings named in the policy.
- Employees’ personal property coverage insures your employees’ personal property if the property is on your premises. Generally, you must buy this coverage as an endorsement if you need more than a limited amount.
- Off-premises property coverage covers your property located off site. Some policies might not cover off-premises property or may provide only limited coverage. You can usually buy an endorsement to cover off-premises property. If you can’t buy an endorsement, you may have to buy a separate policy.
- Business interruption coverage pays for the income you’d lose if your business is damaged and you can’t perform your normal business operations.
- Extra expense coverage pays any additional costs to return your business to normal after it’s damaged.
- Valuable papers coverage provides limited coverage for your business records and other valuable papers. You may be able to buy an endorsement to increase this coverage.
- Ordinance or law coverage pays additional costs to repair or rebuild a facility to current building codes after it’s damaged. Many policies provide limited ordinance coverage, but you can increase it with an endorsement.
- Boiler and machinery coverage covers boilers, air conditioning units, compressors, steam cookers, electric water heaters, and similar machinery. Coverage is usually only for machinery listed in the policy and to any subsequent losses, such as when a boiler explosion or water heater leak causes damage to other property. You can usually buy this coverage as an endorsement or a separate policy.
- Inland marine coverage insures goods in transit by land, air, or inland waterways. It also covers projects under construction and transportation and communications structures, such as bridges, tunnels, and communications towers. (http://www.tdi.texas.gov/pubs/consumer/cb021.html)