How to fill the gaps in your general liability insurance Featured

5:45am EDT January 29, 2014
James A. Misselwitz, CPCU, Vice President, ECBM James A. Misselwitz, CPCU, Vice President, ECBM

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Historically, private business owners overestimate what their comprehensive general liability (CGL) policy covers, and therefore don’t buy the additional insurance they need.

According to the Chubb 2013 Private Company Risk Survey, 44 percent of private companies have experienced at least one claim in directors and officers (D&O), employment practices, fiduciary liability, employee fraud, workplace violence and cyber liability in the past three years. More than half of the executives interviewed mistakenly believed they had some form of coverage under their CGL policy.

As business owners run into a wide range of costly lawsuits, government fees, data theft, criminal activity and employment claims, they must deal with these disruptive issues, which tax their administrative capabilities and put a financial drain on the institution. Until a company experiences an event that isn’t covered by CGL, however, a business owner may not realize where the coverage gaps are.

“They are starting to understand that they have a problem but very few of them actually buy the extra insurance,” says James A. Misselwitz, CPCU, vice president at ECBM.

Smart Business spoke with Misselwitz about where CGL falls short and what to do about it.

What do private business owners need to know about CGL coverage?

CGL does:

  • Cover legal liability arising out of bodily injury and property damage, and also advertising injury and personal injury (libel and slander).
  • Defend the company from lawsuits rising out of their operations.
  • Defend against infringement on a trademark or copyright.
  • Defend and litigate publications that involve liable and slander.

However, it doesn’t protect against:

  • Wrongdoings of a director or officer of the company.
  • Employment-related lawsuits, such as retaliation, harassment or sexual bias.
  • The personal liabilities arising out of mismanagement of a pension or 401(k) plan.
  • Professional liability risk arising out of services rendered for a fee, such as charging for estimates and quotes.

With D&O liability, why would a privately owned company be affected?

It only takes a marriage, divorce and/or another generation to get involved for a company to become vulnerable. Let’s say a second-generation heir is going through a divorce that isn’t amiable. Now, their spouse may feel like they have a right to an asset that they think is being mismanaged.

Almost all CGL forms exclude cyber liability arising out of social networking and social media, even as defamation and copyright infringement lawsuits increase in this arena. With social media, nothing is as simple as it seems and the ramifications of doing something wrong can be devastating.

In addition, business owners may believe their required ERISA bond covers fiduciary liability. An ERISA bond only protects a retirement plan’s assets from theft. It doesn’t protect the personal assets of fiduciaries who are found in breach of duty, such as making poor investment decisions. For that, you need to buy fiduciary liability insurance.

What’s your advice for business owners who may not have enough coverage?

You need to examine the activities of your company closely, while comparing current insurance policies, so that large holes in coverage don’t crop up. Basically, business owners need to discuss with a knowledgeable insurance broker what risk they can effectively transfer to an insurance company.

But as business owners start becoming aware of areas where coverage is a concern, some still fail to pull the trigger on an up-to-date insurance program. Many think this kind of additional coverage is expensive. However, the marketplace has already responded with insurance companies forming management liability packages that combine risks and lower costs.

The other problem is that some insurance brokers are unable to have an in-depth discussion about these types of coverage. Interview your broker to assess your risks,
and whether or not those risks have been transferred. If you feel your broker is not knowledgeable, then it may be time to call another broker.

James A. Misselwitz, CPCU, is vice president at ECBM. Reach him at (888) 313-3226, ext. 1278 or

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