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Legal & Insurance

2 Posts authored by: Steve Strauss

Right out of law school, I got a great job in a big law firm handling insurance defense. Being young and arrogant, I used to say that my job was to “deny claims.”matthew-waring-MJAoiige14E-unsplash.jpg

 

Now, years later, that embarrasses me.

 

Denying claims was not my job and not what I was expected to do. I was

expected to read the file and figure out whether the claim was legitimate and whether the company had reasonable grounds to deny the claim.

 

Here is what I know now: By the time a business insurance claim gets to the point that it is being litigated over, you are in trouble. Either the business bought the wrong insurance and filed a claim that wasn’t covered, or it filed a frivolous claim, or it didn’t have enough coverage, or something else went wrong.

 

Here is what else I know: Insurance companies do NOT want to deny claims. They are in the business of covering risk and accidents and expect to pay legitimate claims; that is what they do and that is what keeps them in business.

 

So, what you need is to have a “legitimate claim.” Let’s look at how that works:

 

Let’s say your business was injured or damaged in some way. The first thing you need of course is a policy. But not just any policy, you will need a policy that covers – and doesn’t exclude – the type of damage you have. (More on that exclusion word in a sec.)

 

Small business can get all sorts of different types of coverage, for example:

 

  • Liability: Comprehensive General Liability (CGL) is a type of catch-all policy. It is “a standard insurance policy issued to business organizations to protect them against liability claims for bodily injury and property damage arising out of premises, operations, products, and operations.”
  • Commercial auto
  • E&O: Errors and Omissions insurance is for professionals and service businesses for claims arising out of allegations of sub-standard work, i.e., negligence and professional malpractice
  • Property: Protects business property and assets
  • Business interruption insurance: If a disaster or catastrophic event does occur, your operations and income may be interrupted. This covers that.

 

The first thing is to buy the insurance that provides the widest net for the types of foreseeable risks that your business may encounter.

 

As for exclusions, almost every policy will exclude certain risks/coverage. It is akin to a health insurance policy that excludes certain types of drugs, surgeries, etc. Make sure the exclusions in your business policy do not prevent the type of claim you may have.

 

Next, consider the amount of coverage. The amount and types of things covered are often constrained by what you can afford. Of course, you can’t insure against everything but the risk is not buying enough insurance. If you buy some cheapo policy that limits coverage of a claim to $10,000 and your damage is $100,000, you are out of luck.

 

Best practice: Buy as much insurance as you can afford.

 

Finally, consider the deductible: One common way to reduce costs is to have a high deductible. Smart, until you need to file a claim.

 

This is how it is supposed to work: You buy some insurance. Something happens that damages your business. You file a legitimate, covered claim. Your insurance reviews it and pays you the amount of your damage, less the deductible.

 

As you may gather, a lot can go wrong in that process. It could be that your deductible is too high, or your coverage is too low, or your type of claim is excluded, or that you may have waited too long (the statute of limitations has run).

 

There are two additional things you can do to protect yourself:

 

  1. At the start, before you buy, meet with an insurance broker. As opposed to an agent, who only represents one company, a broker can steer you to the right company and the right type of coverage.
  2. If your claim is denied, hire a lawyer. Period.

 

And hopefully, your attorney will understand insurance better than I did when I began those many years ago.

 

 

 

About Steve Strauss

 

Steven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert  Steve+Strauss+Headshot+SBC.pngcolumn is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest, The Small Business Bible, now out in a completely updated third edition. You can also listen to his weekly podcast, Small Business SuccessSteven D. Strauss.

 

Web: www.theselfemployed.com or Twitter: @SteveStrauss

You can read more articles from Steve Strauss by clicking here

 

Bank of America, N.A. engages with Steve Strauss to provide informational materials for your discussion or review purposes only. Steve Strauss is a registered trademark, used pursuant to license. The third parties within articles are used under license from Steve Strauss. Consult your financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.

 

Bank of America, N.A. Member FDIC. ©2017 Bank of America Corporation

Maybe the only thing worse than paying for insurance that you never use is not having insurance when it is needed. Insurance is one of those aggravating and pricy business Small Biz Insurance.jpgitems that are both important and responsible to have.

 

Buying insurance requires a cost-benefit analysis because you probably cannot afford all the insurance you would like to get. So, which insurance is vital, which is nice to have, and which can you (almost) safely pass on?

 

Starting with the basics, there are two types of insurance that all businesses need, no matter what: property insurance and liability insurance.

 

1. Property Insurance

 

Property insurance is essential. Property insurance protects your business assets from damage – things like the building, equipment, computers, and so on. Even if you run an online business and don’t have an actual brick-and-mortar store, you still have vital business equipment or inventory that surely needs protection.

 

And this dovetails with an important note for home-based business owners: your homeowner’s insurance will likely not cover any damaged business equipment – don’t make the mistake of thinking you are already protected!

 

2. Liability Insurance

 

Liability insurance is the other essential insurance every small business needs. Ultimately, liability insurance helps to prevent you from getting sued. Again, very necessary.

 

General Liability Insurance: Comprehensive General Liability insurance (often also called CGL insurance) protects your business from any potential liability due to negligence that could cause injury to others. For example, say that one of your employees at your carpet store, driving a forklift, knocks a roll of carpet onto a customer, injuring her. That is where your CGL policy would come into play (and no, I swear, I didn’t hurt anyone when I did this when I was 16 and working at my dad’s carpet store!)

 

General liability insurance protects your company from being sued by someone who was injured after having used your company’s products or services.

 

Professional liability insurance: Professional liability insurance isn’t necessary for all businesses. However, if you are a doctor, lawyer, realtor, architect, or computer consultant, professional liability insurance is something you should seriously consider investing in, and of course, may be something required by your administrating organization.

 

Like CGL, professional liability insurance protects you should negligence injure a client, only in this case, it would be your professional negligence, in which case, you will have a lot more to worry about.

 

3. Employee Insurance

 

Workers’ compensation insurance: This insurance is legally required if you have employees. It provides benefits to employees who have been injured on the job in exchange for their right to sue. This is demonstrably less expensive than a lawsuit.

 

Health insurance: Even if you don’t have a medium-sized company, providing your employees with health benefits is one of the best ways to keep them happy and loyal. Medical, disability, and dental benefits are all great ways to ensure a healthy workplace. Also, know that under the Affordable Care Act, employers with more than 50 employees are required to provide them with health insurance.

 

4. Miscellaneous Insurance

 

There are plenty of other types of insurance you can buy for your business. They are not all entirely necessary, but they can certainly prove beneficial.

 

  • Business Interruption Insurance:
  • Disability Insurance:
  • Key Person Insurance:
  • Data Breach:

 

The bottom line here, folks? Better safe than sorry.

 

About Steve Strauss

 

Steve Strauss Headshot New.png

Steven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest, The Small Business Bible, now out in a completely updated third edition. You can also listen to his weekly podcast, Small Business SuccessSteven D. Strauss.

 

Web: www.theselfemployed.com or Twitter: @SteveStrauss

You can read more articles from Steve Strauss by clicking here

 

Bank of America, N.A. engages with Steve Strauss to provide informational materials for your discussion or review purposes only. Steve Strauss is a registered trademark, used pursuant to license. The third parties within articles are used under license from Steve Strauss. Consult your financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.

 

Bank of America, N.A. Member FDIC.  ©2018 Bank of America Corporation

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