I’m sure this is widely known, but commercial insurance is a sexy, vibrant, ever-evolving world. While it is impossible to confine all of the notable trends to a single article, I always think that the annual legal edition of Business is a great place to catch you up on what is happening in this realm.
CYBER LIABILITY
According to a 2014 NetDiligence cyber claims study involving 117 actual paid cyber liability claims, the median number of personal records exposed in a cyber claim was 3,500. This marks the third straight year of increasing smallimpact breaches. So, while Anthem Health and Target dominate the headlines, small companies are at risk as well. Most general liability policies do not include cyber liability, although several companies in our marketplace are adding small sub-limits such as $10,000 or $50,000. According to the same study, 29 percent of claims were attributable to hackers while staff mistakes were responsible for 13 percent and malware or viruses accounted for 11 percent. According to the February 2015 issue of IA Magazine, 48 percent of insurance company claims payouts went toward crisis-response services such as forensics, notification to customers and public relations rather than to actual third-party damages. If you conduct any business online via email or store any personal information whether it be electronic or in paper format, your business has an exposure.
ADDITIONAL INSUREDS
If you’ve read my articles in the past (and let’s be honest, we both know this to be appointment reading), you know I think the additional insured endorsement was an awful invention. In the most basic sense, it requires the named insured (i.e., the company paying all the premium) to potentially share or completely cede the limits and defense costs provided by that policy to a third party, often at the sole expense of the named insured. Unfortunately, this request has become so pervasive that we hardly see a customer with a general liability policy that doesn’t include some mention of at least one leach, err, I mean, additional insured. According to the Insurance Information Institute, in 2013, 28 percent of general liability claims costs resulted from defense costs compared to just 7 percent for commercial auto claims. In my opinion, this is a direct result of the additional insured status that increases the number of covered parties.
BLANKET ADDITIONAL INSURED
Because of the frequency of the additional insured request, insurance carriers sometimes automatically include a blanket additional insured clause. Be careful about the term “blanket”; this is not your security blankie from when you were a toddler. There are many different versions of the additional insured endorsement and carriers change their forms frequently. To illustrate this point, the original 1985 additional insured endorsement was a single sentence; the 2013 edition was two pages. It is therefore crucial that you talk with your agent about what coverage is being required so they can match up the correct coverage. For example, many of the blanket endorsements require that a written contract mandating the additional insured status be in place for the blanket endorsement to apply. An email request from a contractor would not automatically trigger the coverage.
TENANT’S IMPROVEMENTS AND BETTERMENTS
In my 18-year career, I have come to learn that there is no such thing as a “standard” lease. I’ve seen a wide variance in the leases my clients sign with regard to the improvements and betterments they make to a property they are leasing. Again, it is important to share the lease agreements you sign with your agent so that they can amend the insurance policy and advise you of any potential coverage gaps. The standard tenant’s improvements and betterments coverage form offers a pro-rata payment of the property improvements that a business has installed based on the time remaining in the lease when the claim occurs. For example, if a restaurant puts in $500,000 worth of improvements to a building in 2010 and signs a 10-year lease, the company would only have to pay $250,000 in the event of a fire loss in 2015 if the building owner decided not to rebuild. This could be a nasty surprise to that client if they were looking to rebuild elsewhere. The surprise could be catastrophic to a business that is on a year-to-year lease. Coverage can be amended via the leasehold interest endorsement to close this gap, but it isn’t likely to happen if the client doesn’t share the lease and have that conversation with the agent covering the business.
The call to action on all of the above is the same as in most of my articles: Keep your agent informed. Share the contracts, leases and any other changes in business with them on a regular basis so that your coverage responds correctly in the event of a claim.