Insurance coverage considerations for the business owner
John Bachofner
Bullivant, Houser, Bailey PC
The leak was small – nothing more than a waste of water – leading the maintenance person to attempt repair of the nuisance himself. However, when the main water shut-off valve broke and the trickle turned into a torrent, nobody in the maintenance department knew where to find an up-line shut-off valve. Water came gushing out in a three inch river flowing into offices throughout the 13th floor of the commercial building. Those tenants were the lucky ones, with property damage limited to carpeting, furniture and office equipment at floor level. Before the water could be shut off, nearly every business owner below the 13th floor experienced a downpour that soaked computers, phones, electronics, furniture and files.
With the pressure of start-up expenses, inventory and payroll, business owners often find it too easy to bank on the luck element and overlook insurance coverage. Yet, a catastrophe like the scenario above could deal your business a blow from which it might never recover. To protect your investment, make certain you have appropriate insurance coverage.
In the scenario above, we might consider whether the maintenance company has sufficient liability insurance to cover losses resulting from possible negligence. While the tenants ultimately may be able to recover damages for their losses, how long will it be before they see a recovery, if any? In the short term, who will pay for clean-up, or the replacement of office equipment or furniture? How about recovery of customer and business data? How long will it be before the office is running again?
Would you be protected if you were one of the business owners occupying a lower floor in the above scenario? Many business owners will purchase fire or property insurance, but surprisingly few opt for business interruption coverage. A business that closes down due to property repairs will suffer reduced revenue and may lose customers to competitors. Business interruption insurance compensates an owner for lost income sustained during a shut down due to a covered property loss. It may even cover fixed utility expenses that continue while the doors are closed. Just be certain to select sufficient policy limits, since most people do not anticipate how long it actually takes to bring their business up to speed.
Another issue, frequently overlooked by small and home-based business owners, is the extent to which personal insurance will or will not cover losses. Because many commercial policies do not automatically include automobile liability coverage, some owners may try to "slip-in" under their personal auto policy, only to find that they have inadequate or non-existing coverage for a business-related accident. Beyond liability, there is property coverage. According to the Insurance Information Institute, most homeowner’s policies only provide $2,500 in coverage for business equipment, and may provide little or no liability coverage. Some types of businesses may require special types of policies or coverages. With employee lawsuits against employers on the rise, even small businesses should consider some type of employment practices liability insurance ("EPLI") coverage. EPLI provides protection against many kinds of employee lawsuits, including sexual harassment, wrongful termination, or even mismanagement of employee benefit plans.
Many people are surprised to learn that most basic policies do not cover losses from floods, earthquakes or terrorist attacks. While floods and terrorist attacks may seem unlikely in the Northwest, scientists have been predicting a major earthquake to hit the Vancouver/Portland area for years. Remarkably few businesses have earthquake insurance.
In addition to protection from damage awards, business owners sometimes forget one of the most valuable benefits of liability insurance – avoiding legal expense related to a claim. Even a company that was free from wrongdoing could find itself spending many thousands of dollars defending a frivolous claim. Most policies require an insurer to defend their policyholders against lawsuits, whether they are frivolous or not. Even a minimal liability policy can provide significant benefit in the form of legal defense costs.
For more information regarding the types of insurance coverage available, try the Insurance Information Institute online at www.iii.org. To determine the types of coverage and limits appropriate for your business, consult your commercial lines insurance broker. While it may not bring customers to your door, purchasing appropriate coverage may ensure that you will still be there when they arrive.
John R. Bachofner is a shareholder in the Vancouver office of Bullivant, Houser, Bailey, PC, a west coast regional, multi-practice law firm with six offices in four states. Bachofner advises businesses and individuals on commercial litigation, insurance and creditors’ rights issues in both Oregon and Washington. He can be reached at 360-906-6340 or john.bachofner@bullivant.com.
