Legal Disclaimer | Privacy Policy
For comments and suggestions email
Diversified Insurance Brokers Webmaster
or call 1–888–244–1212
Worldwide HQ - Salt Lake City, Utah, USA
© 2010 Diversified Insurance Group

Insurance Glossary

A Shorthand Guide to Common Coverages in Business Insurance

This document is presented with the understanding that the actual insurance policy is the only document which completely identifies all of the coverage terms, conditions, exclusions and limitations. For complete details please review the actual policy.

BUILDING AND PERSONAL PROPERTY COVERAGE

The Building and Personal Property coverage form covers your buildings, business personal property and personal property of others, located on your premises against direct physical loss due to a covered peril, e.g., fire, wind, hail, vandalism, theft, lightning, sprinkler leakage, explosion, smoke, glass breakage, collapse, etc. Please note that the causes of loss covered by the property policy we are proposing include: “all risks” of direct physical damage except as excluded or limited in the policy. (This is what is meant by Special Form Coverage.) Common policy exclusions include: earthquake, flood/surface water, ordinance or law, off-premises utility services, war or military action, nuclear hazard, governmental action, mechanical breakdown, pollution, an employees dishonest or criminal acts, etc. For example, damage to your property arising out of an earthquake is not covered; however, concurrent fire damage to your property resulting from the same earthquake is covered.

ELECTRONIC DATA PROCESSING EQUIPMENT, DATA & SOFTWARE

EDP Equipment and media/software includes all electronic property and equipment that is generated by a microprocessor or other memory device (please note that EDP definitions vary widely with insurance policies). In addition to the perils described above, other causes of loss commonly insured under an EDP form include: electrical damage, power surge, brown-out, short circuit and magnetic damage or erasure of EDP data and/or software, mechanical breakdown, change in temperature or humidity, computer virus and earthquake and flood. For example, coverage would apply if a software virus infected your information systems and destroyed all the data saved on the hard drives.

BUSINESS INCOME AND EXTRA EXPENSE

Business Income insurance is designed to cover your loss of business income sustained due to the necessary suspension of your operations during a period of restoration following a covered cause of loss. Business income is net income (net profit or loss before income taxes) that would have been earned plus continuing normal (necessary) operating expenses incurred, including payroll. In short, it pays “continuing business expenses” as well as “profits”. It is designed to make the Profit and Loss Statement perform as though no loss occurred. For example, if your building is severely damaged by fire you will have to close down for repairs and normal business operations, including income, will halt or slow down while repairs are being made. This insurance is designed to reimburse you for that lost income and any necessary business expenses during that time.
The Business Income Coverage form can also include Extra Expense insurance, which covers all necessary expenses incurred during the period of restoration that would not have been incurred if the property loss that necessitated them had not occurred. For example, the costs incurred from leasing a new location to conduct business while repairs are being made to the permanent location.

INLAND MARINE AND MISCELLANEOUS COVERAGE

The term Inland Marine encompasses a number of different coverages. To understand the term, it helps first to understand that the term is an old one derived in part from Ocean Marine, which means property that may move from place to place on the ocean. Inland Marine means, in a loose sense, property that may move from place to place on land. Common Inland Marine coverages include property floaters, which insure special types of property not covered in basic property policies - Valuable Papers, Accounts Receivable, Fine Arts, Property in Transit, Exhibition Floater, Sign coverage and more.
Transit Insurance covers your business personal property and/or inventory while being transported to and from various locations. For example, coverage would apply to your property that is stolen or lost while being shipped via common carrier. An Exhibition Floater covers your business personal property used at a trade show or convention while it is away from your premises. For example, coverage would apply to a stolen or missing lap top computer that is part of your trade show booth. Fine Arts coverage provides coverage to works of art that are specifically scheduled in the policy declarations. Some insurance policies, however, provide blanket coverage for fine arts and there is no need to specifically schedule each piece of art. Business Personal Property at Any Other Location covers your personal property while it is away from your premises at an unscheduled location.

EMPLOYEE DISHONESTY/CRIME COVERAGE (FIDELITY BOND)

Employee dishonesty coverage protects you against dishonest or criminal acts performed by your employees while at your premises. Most employee dishonesty losses result from theft of property for the personal gain of the employee, e.g., theft of money, securities, computer equipment or some other high valued property. However, some result from the destruction of property by an employee in retaliation for some offense, real or imaginary, committed by the employer. Losses to a business organization from employee dishonesty can take several forms, but embezzlement is the principal cause of such losses.

BOILER AND MACHINERY INSURANCE

The term Boiler & Machinery is somewhat of a misnomer because this coverage applies to other property and equipment not just to boilers. It would probably be better defined as “mechanical and electrical equipment breakdown” or “energy systems” coverage to emphasize that it does not apply solely to boilers. It has to do with insuring equipment that generates, uses or transmits power. In addition to providing direct damage coverage, this insurance also provides cover for business interruption and expense. Boiler & Machinery policies also add coverages that are normally excluded under the standard property policy, e.g., mechanical breakdown, electrical arcing, explosions to steam boilers, etc. For example, mechanical breakdown due to the wear and tear of an HVAC system would be covered.

COMMERCIAL GENERAL LIABILITY INSURANCE

The general liability policy provides protection against legal liability imposed by violations of tort. These violations may be violations of you or your employees, or violations of others as assumed through contracts. Major coverages provided are bodily injury and tangible property damage liability (e.g., property damage caused by you to property owned by someone else), personal injury (e.g., libel and slander directed at another person or party by you) and advertising injury (e.g., your misrepresentation of a product or service) and medical payments (“no-fault” medical payments to an injured third party at your premises or caused by your operations). This insurance will pay on your behalf for: damages which you become legally liable for up to the policy limits, defense and investigation in addition to the policy limits, and certain specified supplementary payments like investigation expenses, pre and post judgment interest, etc. (Please review all general liability exclusions.)

EMPLOYEE BENEFITS LIABILITY

Employee Benefits Liability responds to claims for damages due to any negligent act, error or omission by you or any person for whose acts you are legally responsible in the “management” of public and private employee benefits. For example, a clerical error that resulted in the failure to add an employee to the company health insurance program that resulted in an unpaid claim. (A fiduciary liability policy covers these same exposures and provides broader coverage.)

ELECTRONIC ERRORS AND OMISSIONS INSURANCE

Helps protect from lawsuits brought against the insured because a client claims the product failed to perform or malfunctioned and the client suffered a financial loss as a result.

UMBRELLA

The umbrella policy serves three purposes: it provides excess limits when the limits of the underlying liability policies are exhausted by the payment of claims (examples of underlying liability policies include general liability, auto liability, errors and omissions, employers liability, international liability and employee benefit liability); it drops down and picks up where the underlying policy leaves off when the aggregate limit of the underlying policy in question is exhausted by the payment of claims; and, it provides protection against some claims not covered by the underlying policy subject to the assumption, by the named insured, of a self-insured retention.

AUTOMOBILE COVERAGE

Automobile insurance provides liability and physical damage coverages for land motor vehicles, trailers, or semi-trailers designed for travel on public roads, not including mobile equipment.
Hired and Non-owned auto liability. Hired auto coverage affords liability coverage for leased (short term), hired, rented or borrowed autos only. This provides protection to the employer against third-party liability claims stemming from an employee’s use of a hired/rented vehicle to conduct business. Non-owned auto coverage affords liability coverage for autos that the company does not own, lease, hire, rent or borrow, but are used in connection with the business. This includes autos owned by your employees, partners, or members of their household, but only while used in connection with the business. Please note that the coverage afforded herein applies only for the benefit of the company, and not the employee, partner, or member of their household. Non-owned liability coverage is excess liability coverage that only protects the company. It is presumed and expected by the insurance company, that the employee has coverage under his/her own auto policy. The employee’s auto liability coverage is primary.
Hired Physical Damage Coverage - this provides physical damage coverage (comprehensive and collision) for hired or rented vehicles used in the course of business.

INTERNATIONAL PROPERTY AND LIABILITY COVERAGES

International policies extend the coverage territory to “true” world-wide coverage. International liability provides product liability and premises/operations liability coverage for suits first brought in a foreign country and resulting from foreign occurrence. Other liability polices, e.g., errors and omissions, can also be extended to world-wide coverage.
International property policies provide world-wide coverage beyond the US, Canada and Puerto Rico for property listed in the declarations. For example, world-wide transit insurance or exhibition floater.
Foreign Voluntary Workers Compensation provides workers compensation benefits for expatriates and state of hire benefits for employees while on temporary travel outside the U.S. FVWC provides 24 hour coverage for temporary business travel. For example, coverage would apply to an employee who is injured in his/her hotel room while on a business trip to Europe.

WORKERS COMPENSATION

Worker’s Compensation Insurance includes two basic coverages. The first coverage requires by state statute that an employer make medical and benefit payments to an employee if the employee suffers job related bodily injury due to an accident or occupational disease. The second coverage, Employers Liability, covers suits by employees against their employers for job related accidents. Suits can also be brought by family members of employees.

DIRECTOR & OFFICER’S LIABILITY INSURANCE

Directors and Officers of any corporation, whether publicly held or privately owned, are required by law to:

act diligently and with due care:

avoid conflicts of interest and activities that benefit them personally at the expense of the corporation; and

both personally and corporately, comply with the numerous federal and state statutes regulating management and corporate conduct.

If directors and officers fail to act properly they may be held liable, depending on the circumstances, to shareholders, employees, customers, creditors, competitors, regulators and other third parties.

Most states have enacted statutes which purport to eliminate or limit certain types of D&O liability exposure. They include permitting corporations to include "indemnification" provisions in their charter documents. However, these statutes vary greatly and require close examination to determine their true benefit. And, none of the statutes create absolute immunity for the directors and officers. For example, a corporation can not "indemnify" its directors and officers for liability they incur as a result of (i) shareholder derivative actions; (ii) SEC based actions; (iii) violations of the "duty of loyalty"; or (iv) liability based on certain federal laws; etc.,. Additionally, a corporation may choose not to "indemnify" its directors and officers for several other reasons including (i) the company is financially stressed or insolvent, and, (ii) the director or officer has fallen out of favor with the company by virtue of a hostile successor board or otherwise.

D&O insurance has traditionally combined two distinct coverages within one policy form. The first insuring clause (often referred to as the "A-side coverage"), directly insures the individual directors and officers for covered losses that they incur as a result of specified wrongful acts. This "personal" side of a D&O policy provides essential coverage when a company is prohibited from providing indemnification or is unable to do so. The second insuring clause (often referred to as the "B-side coverage" or "corporate reimbursement"), in effect reimburses a company for indemnification payments it makes to its directors and officers pursuant to its charters or by-laws or contractual arrangements.

The D&O contract typically applies on an “all risk” basis to claims made and reported within the policy period for Wrongful Acts commonly defined as: “any breach of duty, neglect, error, misstatement, misleading statement, omission or act by the Directors or Officers of the Company in their respective capacities as such, or any matter claimed against them solely by reason of their status as Directors or Officers of the Company, including any Claim arising out of their capacity as a director or officer of an Outside Entity but only if such service is at the specific written request or direction of the Company.” The loss that is covered would apply to monetary awards, settlements, and the various costs of defending a claim including legal expenses. Loss does not typically include punitive damages, multiple damages, criminal or civil fines, taxes or matters deemed uninsurable by the law.