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InsuranceMan 2.0

Tuesday Morning Insurance Tidbit - 30,000 foot view

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It is Tuesday here on the ADI forums, and we all know what that means …

 

     In today’s installment of the Tuesday Morning Insurance Tidbit we are going back to the basics.  I have had many conversations with folks who were not entirely certain what the different coverages of an insurance policy are, how they are broken up, or really what they mean.  So, in today’s installment of the TMIT we are going to dissect a basic insurance policy and provide a 30,000 foot perspective.

     First and foremost, again, this is a very rudimentary explanation of an insurance policy.  Many of you will have needs far beyond this, but for several of you it may be your first time thinking about these issues.  Wherever you fall on the spectrum, I hope this is helpful.

     Where shall we begin?  Well, let us start with what is potentially the most important piece of information on the insurance policy, YOUR NAME!  You would not believe how many times I see this messed up, and you really would not believe the impact this can have on your coverage.  Your name is going to be your name, the name of the distillery, entity of the distillery, etc.  Simple, right?  Well, for some, not really.  Let’s say “Joe Smith” owns “Main Street Distillery” to keep things simple.  What should the NAMED INSURED section of the policy read then?  Well, who are we protecting with the policy?  Joe Smith owns the distillery and as the owner/partner/member/officer he is provided coverage by the policy if done under the entity name.  That would then mean that we should use Main Street Distillery then, right?  Well, maybe and maybe not.  Is Joe Smith a sole proprietor?  If so then we have to name Joe Smith as the named insured doing business as (DBA) Main Street Distillery.  Confused yet?  Right!  It all depends on the structure of the individual or entity that owns the business.  If Joe is a sole proprietor, then in order for Mr. Smith to be provided coverage he has to specifically be named on the policy as the named insured dba the business name.

     If Joe set things up as a C-Corp, S-Corp, LLC, etc., then he would be afforded protection automatically by the policy under the entity.  So, if it is Main Street Distillery, LLC then Joe would be included for coverage under the operations of the business.  It should be simple, but it can be confusing, and it can impact your coverage in a monumental way.  Case in point, let us say that Joe is a sole proprietor who is doing business as Main Street Distillery but the policy only names Main Street Distillery.  In this scenario there is a loss and not only is Main Street Distillery sued, but Joe is sued individually for his negligence.  Well, if Joe is not name as an insured on the policy then “Joe ain’t got no ….” coverage!!!!!!!  That’s right, the only thing contemplated for coverage is what appears on the policy declarations sheet.  WATCH OUT FOLKS!

     If the scenario is changed and the entity is an LLC, let’s say, then if the entity is sued and Joe is named individually, he would be afforded coverage via the policy since he is the owner/managing member of the LLC.  See how this can be confusing and have a huge impact on who is and who is not covered?  OK, so what if Joe operates the distillery as Main Street Distillery, LLC but owns the building under “Old Joe S Enterprises”?  Well, how is the ownership structured here?  Is it a subsidiary of Main Street Distillery, LLC dba Old Joe S Enterprises?  If so, then I would hedge on the safe side and list it as such, but many miss this factor.  Is it a separate LLC?  If it is Old Joe S Enterprises, LLC then it could either be listed as an “Additional Named Insured”, a straight up “Named Insured”, it could be included to have coverage on the overall policy, or it could have its own policy.  Ah, down the rabbit hole we go, HOLD ON!!!!!!

     Long-story-short, if you have never had the discussion with your insurance agent about what the ownership looks like, what the name of all of the entities are, and how they should be covered or separated out you could be in big trouble.  Or … you could work with someone who has a tight grasp on all of this.  Someone like me, InsuranceMan 2.0!!!, and you would know where you stand on this subject. 

     Next we have the actual coverage, the meat and potatoes side of the policy.  What you are actually being covered for and what that is based on.  Again, a rabbit hole of impressive proportions in its own right.  Simply put there are a few key coverage factors you will need to know about.  They are as follows:

General Liability

Liquor Liability

Property Coverage

Commercial Auto

Umbrella (maybe, depends on how big you are, lease contracts, distribution contracts, etc.)

(and potentially) Workers Compensation.

     I say “potentially” Workers Compensation due to the fact that many distilleries that are starting out may not have that need as they may not have pay rolled employees, or if they do they may not be subject to work comp.  It depends where you are located.  See my post about Workers Comp here:

     For the General Liability it is broken out into roughly 6 different sections.  Those sections are “Each Occurrence Limit”, “Personal and Advertising Injury Limit”, “General Aggregate Limit (Other Than Products – Completed Operations), Products/Completed Operations Aggregate Limit”, “Rented to You Limit”, and “Medical Expenses Limit (Any One Person)”.

     HOLY INSURANCE OVERLOAD, InsuranceMan 2.0!!!, “What does that all mean?!?!?!?!?”, you may be screaming at your screen.  Well, in brief, your Each Occurrence Limit is the amount of coverage you would have for any one liability loss.  Your Personal and Advertising Injury Limit would be the amount of coverage you have for any injury (physical) to a person or persons where as the Advertising portion would be if you were sued over saying something in your advertisements about someone else’s product tasting like caca and yours being superior.  Then the Aggregate limit is the total amount of coverage that you would be afforded in any one policy period.  So, if your per occurrence limit is $1,000,000 and your aggregate is $2,000,000 that means that the insurance company would pay out up to $1,000,000 for any claim, but never more than $2,000,000 in any given policy period.  Clear as mud?  No?  OK, think of it this way.  You have one claim wherein someone is injured and that claim is $900,000.  Ooooo ….. yikes, that was dang near that Million limit, but you are ok, it was under.  6 months later you sustain a liability claim of $500,000.  Boy Howdy, it is not your year!  Well, due to the fact that you already used $900,000 of the million limit you may be concerned that only $100,000 will be covered.  Not so!  Because of the aggregate limit, the full $500,000 is covered in this claim.  However, you now have had two instances that add up to $1,400,000 so you really only have $600,000 more in liability coverage to get you to the end of the year, and the way you are going, that may not be enough.

     The Products and Completed Operations Aggregate Limit works much the same way but this coverage only contemplated your products.  So if someone were to be injured by your product, that would fall under this portion of the policy coverage. Somewhat easier, and there is more to say, but I will leave it there for the time being.  Keep in mind that your General Liability premium and Products premiums are all based rated on your sales.  Again, a rabbit hole that we don’t have time to go down but this is a huge pet peeve of mine.  A L L sales need to be broken out and classified correctly, enough said.  This is something that I find to be incorrect on about 80% of the policies I see that are not mine.  I can fix this for you to make sure things are accurate, just give me a call to discuss this in detail.

That bring us to the Rented to You Limit.  This is for properties that you rent.  WATCH OUT HERE!!!!!!!  Most policies will give you $100,000 on the surface, and many of you are in lease situation where the building value you are in far exceeds $100,000.  Many of the policies that I provide include an endorsement (you’re welcome) that replaces this $100,000 limit with a $1,000,000 limit.  Ah, that’s better.  But watch out for this, if there is no increased limit on this line item you could be in trouble.  You can buy this limit up, but it will cost you some additional $$$$$$$.

      Last in the Liability section is Medical Expenses Limit (Any One Person) of $5,000.  “Does that mean if someone gets hurt at my place, I only have $5,000 to cover their injury?”  Great question my astute reader, but the answer is no.  Medical Expense is kind of a sub-limit of the overall General Liability.  This is for “nuisance” claims.  If someone comes to your facility and slips on some spilled water (hypothetical) and twists their ankle and has to have it looked at and wrapped at the hospital, and the expense is $2,500 then the carrier would pay them that amount in exchange for them waiving their rights to seek further damages.  If though, that same person who happens to be a concert pianist, slipped and fell braking their hand and now is claiming that they are going to be out of work for months on end, then it becomes a General Liability claim and would fall under that $1,000,000 limit.

     Now we are on to the Liquor Liability coverage.  I know, I know …  I hear it all the time, “But I only serve four (4) quarter ounce tastes, there is no way I can be sued for over serving under my Liquor Liability!”  Well, read this:

     As for the Property coverage, this is where you are going to cover your assets.  Your equipment, your building (if you own it), your contents, stock on hand, and miscellaneous items such as computers/boxes/labels/bottles/caps/corks/closures/etc.  You are going to want to make sure that this figure is accurate for a few reasons.  One, if something were to happen you want to make sure that you are reimbursed the correct amount so that you can replace your “stuff” and keep going.  Second is that if this figure is not accurate you could face a co-insurance issue.  Third is that you need to make sure that your product is covered correctly and adequately, especially if you are aging anything.  The is so much more to this aspect but this is only a quick look at the overall coverage.  If you want to know more about limits, co-insurance, deductibles, various coverage forms and what types of losses are covered, get in touch with me.

     How about Commercial Auto?  If you own a vehicle in the name of the business, then you are going to want to place a commercial auto policy on that vehicle or vehicles.  One, it protects you for a higher limit than you can obtain on a personal policy; Two, most personal policies exclude business use; Three, it protects the entity from lawsuits.  You may be thinking that commercial auto does not apply to you because you don’t own any vehicles in the name of the business.  I get that, but do you ever drive a personal vehicle, or ask others to do so for work related needs?  If so, you have a commercial auto need.  It is called Hired and Non-Owned (HNOA) Auto coverage.  If you want more details go here:

     This brings us to the Umbrella coverage.  What is this?  Well, it truly is like an umbrella because it provides an extra layer of protection above the rest of the policies.  Usually the limit is $1,000,000 and that is on top of your General Liability, Liquor Liability, Products, Auto, etc.  So that $1,000,000 limit that you had, with an umbrella, is now $2,000,000.  WHAT!?!??!!?  SWEET!!!!!!!  Yes, sweet indeed!  However, it is truly only $1,000,000 as most umbrellas only provide an aggregate limit of $1,000,000 meaning that the limit really is just $1,000,000.  Some reasons that you may consider an umbrella policy is that they are cheap, and they afford you a lot more protection.  Maybe your operation is such that you are seeing many people in your facility, you do a lot of events, or your distribution area is so large that if there were tainted product and you could not recall it quick enough there would be the potential for a lot of claims.  Who knows, but we can discuss that further if need be.  Another reason would be that it is a requirement.  Maybe the landlord requires you to carry $2,000,000 for any one occurrence.  If that is the case, really, one of the only ways to achieve that is via an umbrella.  Sometimes “big box stores” or distributors will require this in order for you to sell your products through them.  Whatever the case may be, it is something to think about and have knowledge of.

     Last but not least is Workers Compensation.  If you didn’t click the link above that references this, scroll back up after reading this and click on it to get a feel for what we are talking about.  In that article it discusses what Workers Compensation is, who needs it, and why.  I don’t want to regurgitate all of that here, so, if you think you have a need for this coverage, do yourself a favor and give it a look.

     OK, dearest loyal reader, there you have it.  A brief (-ish) synopsis of an overall insurance policy, what to look for, what you need at a basic level of understanding, and some interspersed humor (hopefully, so that it is not as painful or dry).  With that, I will leave you until next time.  If you have questions, would like to learn more, or just want someone to bounce things off of (I am a superhero after all so things just bounce right off of me), give me a call, shoot me an email, or flip on the InsuranceMan 2.0!!! beacon and I will swoop to your assistance.  Until next time dear reader …

 

Stay Vigilant,

Aaron Linden

a.k.a. InsuranceMan 2.0!!!

307-752-5961

insuranceman2.0@yahoo.com

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