Insurance Advisory Newsletter Vol.1: BUSINESS LIABILITY INSURANCE – NEED OF THE HOUR-May-2021
The novel Covid-19 pandemic has posed serious challenges and threats towards businesses, corporates, and other commercial undertakings. Businesses globally are struggling with uncertainties, business interruptions, supply chain issues, loss of revenue, workers health, safety, steep rise in the increased cybersecurity and data risks due to work from home. The pandemic is steadily disrupting the business operations and creating insurance exposures. What remains in the hands of a business owner is adoption of a proactive risk mitigation towards their business in the best possible way. Undoubtedly, mitigating the insurable risks by careful selection of appropriate insurance products can be one of the effective tools of risk mitigation.
WHY BUSINESS LIABILITY INSURANCE?
The insurance products specifically designed to mitigate the risk exposure of the businesses pertaining to claims arising out of their operations from third parties in the event they face any lawsuits or third-party claims, are commonly referred to as business liability aka liability insurance (“Business Liability Insurance(s)”). Business Liability Insurance protect the financial interest of the parties and enable a business to receive compensation against actual loss and allows it to freely concentrate on its core business activities. Further, there is a rising trend to contractually require the service provider to procure an appropriate insurance coverage and any non-compliance to these provisions could cost the service providers dearly, including termination of the contract, breach of their contractual obligations and a potential lawsuit. SMEs, Partnership firms and sole proprietorships are particularly vulnerable to exorbitant expenses and are consequently in the greatest need of Business Liability Insurance coverage.
WHICH BUSINESS LIABILITY INSURANCES TO LOOK OUT FOR?
Business Liability Insurances offer protection to any business from risks that it may be held liable for in course of carrying out the business of the entity or if sued for example losses, damages, unintentional acts, errors, omission, negligence, or injury. General Liability Insurance comes as an aid for the insured entity from legal pay-outs and costs for which the insured entity is held liable for.
1. Commercial General Liability
Commercial General Liability (“CGL”) provides protection from the bodily injury, personal injury, and property damage caused by the business’s operations, products, or injuries that occur on the business’s premises. The policy can extend to both industrial activities like construction, manufacturing, and non-industrial activities such as offices, hotels, multiplexes etc. It is generally a company’s first line of defence against liability arising out of its operations.
Applicability and Coverage:
CGL responds to third party liabilities arising from loss or damage a company can be liable for, caused during business activities, such as bodily injury, property damage, personal and advertising injury including slander or libel and medical expenses. The coverage is provided to owners, directors, and operations head. It also covers sellers, manufacturers, and distributors.
2. Commercial Crime Insurance
This policy protects employers from dishonest acts of employees. Cover for direct financial loss of money, securities and property of the insured from the direct loss of money, securities, or other properties of the insured arising out of employee theft and/or third-party fraud and dishonesty and includes computer fraud and/or forgery. Applicability and Coverage The policy responds to financial losses, damages caused due to misconduct of employees, gives indemnity for internal frauds (employees) and external frauds (customer, vendors, and suppliers). Coverage includes theft, disappearance and destruction, forgery and counterfeiting, funds transfer frauds, theft of money or securities, transit theft, computer/data theft of the insured or third parties.
3. Cyber Liability Insurance
Cyber liability insurance is undertaken by a business entity to protect the confidentiality, integrity and security of data stored on cloud or electronic devices. Cyber liability insurance protects the business entity losses on account of data breaches, virus, or other cyber-attack.
Applicability and Coverage:
The policy responds to financial losses that results due to data breaches, breach of data protection laws, cyber-attacks and material interruptions and provides two-pronged coverage: i. First party coverage This includes direct costs such as cost of informing the client, handling business reputation, loss of income due to the attack, extortion money paid to the hacker, repairing costs incurred on damaged software/hardware. ii. Third party coverage This includes costs incurred in regulatory proceedings, fines, media liability claims, intellectual property infringement costs, lawsuits for privacy breaches, contractual breaches, and negligence claims.
4. Directors and Officers Liability
Insurance Directors and officer’s liability insurance coverage is intended to protect individuals from personal losses if they are sued in their capacity as a director or as an officer of a business entity. It covers the legal fees and other costs the organization may incur on account of such a claim. Applicability and coverage: The policy applies to former, present, and future members of the board of directors, the management and any employee performing a managerial or supervisory role. Claims brought against directors, officers, and employees for actual or alleged breach of duty, neglect, misstatements, or errors in their managerial capacity are also protected along with defence costs payable in advance of final judgment. Some of the specific exposures covered under this policy are vulnerability to shareholder/stakeholder claims, Sexual harassment (complaints under the POSH Act 2013), discrimination allegations and other employment practice, violations, regulatory investigations, accounting irregularities, exposures relating to mergers and acquisitions, corporate governance requirements etc.
5. Errors and Omissions/ Professional Indemnity Insurance Policy
Errors and omissions insurance policy protects the business entity, its workers and professionals against the claim made by clients against negligent or insufficient work in performance of professional services. This policy is more relevant for companies in the field of Information Technology, Call Centres/Business Process Outsourcing, Financial Institutions, Media Companies, consultants, and other professionals.
Applicability and Coverage:
The policy applies to claims made against the entity, employees, professionals who provide advice or service as an advisor, consultant, and service provider etc. on account of negligent or deficient service. This policy covers claims, damages, expenses arising out of negligence, deficiency, errors, omissions, delays, unintentional misrepresentation, and inaccuracies in performance of professional services. The policy also responds to defence and damages and other expenses incurred during legal proceeding by the defending company such as judgements, arbitration proceedings and settlement costs.
WHAT LIES AHEAD?
While Covid-19 is yet to find its exit route, the current circumstances warrant businesses around the world to relook at their strategies and contracts to ensure that their insurance contracts coverthe risks that ought to have been covered. A timely assessment of evolving business model vis-à-vis the actual insurance coverage, customer asks, the exclusions agreed under the insurance contracts and endorsements will go a long way in providing a secured business environment and certainly shall avoid any surprises in the event of a potential or actual claim.