The Expert Podcast

If you're a business owner or operate any type of commercial enterprise, you certainly have at least one, if not more, commercial insurance policies. It may be something as simple as general liability. You may have a BOP or a Business Owner's Policy. There's also insurance called the CPP—Commercial Package Policy—E&O insurance. There's several different types of business insurance, and you may think you're covered for a lot of things, but it's important for you to know, as a business owner, what you are not covered for.

Because losses in any category where you're not covered could be catastrophic—could result in the end of your business as you know it. Now the good news is it's very easy and often very inexpensive to cover many of these gaps. We're going to talk about what's commonly overlooked with business insurance policies—what are common exclusions from coverage—and it's not that your insurance agent may have intentionally left coverages out. It's just that insurance on commercial risk is very complicated, and unless the agent knows your business inside and out, there may be things about your particular business that might not have been on the radar screen.

You want to make sure that you know what's covered and what isn't covered. Start by reading through your policy. There'll be a section for exclusions from coverage—things that aren't covered. But let's look at some that you might want to ask about intentionally. If you have a commercial policy that covers your structure, whether you rent it or you own it, there's a lot of exceptions that you might not be aware of.

First of all, flooding is normally not covered by a basic policy. That flooding can be from storms, it can be from backflow of sewers, it could be from the next door neighbor to you having a backup of storm water. There's also exclusions from coverage for earthquakes and landslides. So if you are in an area that's prone to earthquakes, you might not have coverage for that. In many cases, insuring vehicles related to a business is excluded from the general policy. You would have to have a separate commercial auto policy that covers exclusions—and that may not just cover vehicles that are owned by your company, but vehicles that are used by your company.

If you have an employee use their personal vehicle to run company errands, there may be lack of coverage for certain types of losses. Again, this is not intended to be a definitive legal guide for all your rights and obligations, but you want to check into this. You want to look at your policy to see what's covered and ask your carrier.

Here's another big one that a lot of times creates losses for companies that they're unaware of—equipment breakdown. In your company, you have all kinds of equipment—it may be heaters and boilers, it may be construction equipment, your pizza oven at your restaurant. Equipment breakdown a lot of times is excluded from coverage unless it's endorsed back in with another policy.

If you have property that you don't own called unowned property, it will not be covered under your business commercial property insurance in most cases, as these belong to somebody else—not to you. Again, you can endorse these back with other coverages.

Other types of exceptions from coverage that a lot of times are overlooked is anything that's expected or intended. If something is an expected damage or intentional damage, then that's not covered. For example, if you are trying to load equipment to your warehouse with a forklift, and there's some piece of equipment blocking your path—maybe somebody left a vehicle blocking your path, or they left some personal items, a suitcase blocking your path—and you run it over, it's not going to be covered because it's intentional.

Most insurance policies also exclude coverage for contractual liability, meaning that if a contract that you execute as a business owner assumes liability for another party, then that may not be covered under your policy. If you're a construction company and you assume liability for a project that you're building, your insurance company may not control what that other third party does and may not be covered under your policy.

Another big one is if you have employees—workers compensation. Workers comp is a separate policy, not covered under your general liability or commercial liability. You’ll have to have a separate policy for that. Also EPLI—Employment Practice Liability Insurance—things like wrongful termination, sexual harassment, racism in your company, discrimination—those types of things are covered under a separate policy called EPLI. If you want to have that coverage, you should have a separate EPLI policy.

Also, pollution is not covered. If you accidentally emit harmful materials into the environment—maybe you spilled a can of paint, maybe you had some gasoline stored and it was leaking into a building—the general liability will have an exclusion for pollution, on a large scale or a small scale. Consider that not only if you're a manufacturer and have products or materials that could be harmful in the wrong environment, but even small companies.

We had a case where there was a small drugstore that processed film for photo developing, and they kept on-site some chemicals for photo developing. One small batch of that leaked, and it required tens of thousands in remediation—and it was not covered.

Also, vehicles that are not road vehicles—aircraft, watercraft, vessels—liability by using those is normally excluded from a GL policy. If you have building materials or inventory, they're usually not covered under general liability if they're damaged as part of your normal business operations. You’d have to have a separate commercial property policy for that.

What about your products? If you manufacture a product, it may not be covered during shipping. It may not be covered during storage. Also, if you have to redo work because something was damaged that you manufactured, the redo or the labor for repairing that is probably not going to be covered.

Related to that is a recall of products. If you manufacture a product—even if it's something minor like a key chain—and somebody gets hurt because the keychain has become a hazard, somebody chokes on it, or it causes an auto accident because the way it’s designed turns the car off—recalls of those products or liability for those products is not likely covered unless you have a separate endorsement for that.

Also, if you get sued for personal injury, even if it's non-tangible—meaning that if you infringe on somebody's copyright, or you make a false claim about a competitor in your advertising—that's probably not going to be covered.

A major one that we've talked about before is cyber liability. Electronic data is usually excluded from coverage on your primary policy. You probably have to get separate cyber liability insurance for that. If you have data that's held for a client—let’s say if you're a medical office and you keep X-rays or MRI images—and those are lost and that causes damage, or you have to redo it, that is probably not going to be covered.

A couple other areas that are excluded are intangible things like accounts, customer data, even things like securities in your company. Copyrights and trademarks are not covered if they're damaged or lost, unless you have separate coverage for them. Currency, money, or cash is usually not covered beyond a certain amount—usually a small amount.

If you have a property which is adjacent to a body of water, anything that's a pier or dock or a wharf—it’s not covered under most general liability policies. If you are in the agricultural industry and you don’t have separate coverage for animals or crops or livestock, that’s not going to be covered. If you have walkways or roads that are adjacent to your building that are damaged, they may not be covered.

So the moral of the story is not necessarily to be afraid of exclusions from coverage on your insurance. It's more to be aware of what's important for you to have a coverage on. And if your standard policy does not include coverage for things that are important to you, go ahead and get some endorsements or additional policies that cover those. It’s not going to cost you a lot of money in most cases.

Probably the reason you don’t have coverage for many of these things is not because you’re trying to save money or it was too expensive—it’s probably because you and your agent didn’t know that these are not covered, and they’re important to you. If you are a business where certain specific types of coverages are important and they’re not in your policy, it’s easy enough to add those in—in most cases, either on your existing policy or on a standalone policy.

If you talk with your agent and explain what’s important to you to have coverage on, you can make a decision on whether or not adding the coverage and the cost involved is worth it—if it’s valuable to you. The biggest reason why these coverages are left out is because the standard policies from most insurers don’t have coverage for these specific things—because nobody really thinks to add them on.

If you do need to add them on, and you add on that small amount of coverage now, you’re going to have the proper customized coverage for your business—not coverage that was based on the lowest common denominator of companies—and it can keep you from losing everything you’ve put into your business.

Start by reading through the policy. Even if you skim through the deck page—the front page—and go right to exclusions from coverage and see what's there. Look, 99% of the exclusions from coverage you may not care about. Leave them out. But there might be one or two things that you might want to add back in so that your business, and your livelihood, and your income is not at risk for something that’s a very minor additional expense—something that neither you or your insurance agent really intended to leave out—just didn’t know it was there. You might have thought it was there.

Something that's come up quite a bit with the pandemic was business interruption insurance—BI insurance. So if you have a loss at your business and you have to shut down for some period of time—a week, a month—while you're fixing your front door, or while you're getting a new roof, or some physical damage happens, what about the income that you normally would have received from customers during that time?

If you're a storefront, you can't be open. If you're a restaurant, you have to be closed down. If you're a manufacturing firm, you can't sell any products. That loss of income may be something that could be covered with an additional policy. If you don’t want it to be covered, that’s fine—but be aware that, you know, for a month, if you have no income, you still have to pay employees and payroll and rent and utilities and all the other expenses you normally have. How would that go without income? So having business interruption insurance or replacement revenue insurance would be a valuable thing to add.

Also EPLI—EPLI is something that a lot of businesses don’t have. And with employees, you never know what’s going to happen. Even between two employees that are well trained, you could have a conflict that results in a lawsuit against your business. And you don’t want to have that be the reason that your company can’t go on being the American Dream that you have—because of an act of a third party puts you at financial risk of losing your business.