insurance requirements Archives - Competitive Edge Insurance

When it comes to protecting your business, insurance can get tricky. What policies do you need? How can you ensure you’re meeting insurance requirements given by a city, state, or government?

Don’t worry—Here we have Brenda Jo Robyn, Founder of Competitive Edge Insurance, on camera to discuss standard insurance requirements for business owners. Let’s dive in!

Why Do Business Owners Need to Comply with Insurance Requirements?

Business owners are required to have certain insurance.

Most cities, states, and governments fall into the category of asking for insurance requirements, including the SBA and the requirements they have for their EIDL loans that companies have taken out due to COVID or other disasters.

Vendors and service providers follow suit in asking for insurance requirements.

Lastly, as you might imagine, landlords frequently ask for different insurance requirements in their contracts. Anytime real property is part of a professional relationship, these requirements ensue.

What Policies Are Typically Required in Contracts?

Below is a general list of four policies you might see in a contract in terms of insurance requirements.

General Liability

The number one policy that’s required is general liability.

This type of insurance policy protects a third party in the event that there’s a bodily injury or property damage claim to your products or services that you provide for them.

General liability, for example, would also include this scenario: Let’s say you have someone come into your office (you’re either renting a space or the whole building). Then, this someone trips on your carpet and falls as they’re coming in.

General liability would be the number one policy to make sure that you have your requirements buttoned up.

Property Insurance

The next policy would be property insurance. If someone is renting their property to you, they want to ensure that it’s covered in case of a loss.

If you’re a restaurant, for example, you could imagine you’re in someone else’s building. You need to make sure not only that you have the safety elements in place (i.e. fire suppression) but also insurance for the owner of the building, should something happen.

Professional Errors and Omissions (E&O) Insurance

Professional errors and omission (E&O) insurance come into play when there’s a failure in services or technology that you might be providing. The policy will provide the company with a way to make the client whole after an error that results from this mishap or financial loss occurs.

Directors and Officers (D&O) Liability Insurance

Directors and officers (D&O) liability insurance might come into play for a business owner as well.

This type of policy is typically required by investors before they fund, and before becoming a board member. Remember, when you’re working with investors and funding, there’s a contract involved—so you’ll probably see this there.

How to Manage Your Risk as a Business Owner

So, now what do you do? Here comes the risk mitigation part.

A lot of times, you will see that most contracts ask for reasonable requirements—and it only makes sense they should have these protections in place.

We recommend, however, that you keep your eye out for these elements in order to best manage risk.

Outlandish Requirements

There are times, however, that you see outlandish requirements. Brenda Jo reminds us that these need to come up as a big red flag for you. An example of an outlandish requirement would be an unusually high minimum occurrence or aggregate limits or policies that are unrelated to the scope of the contract.

Broad Language in Indemnity Agreements

Look at broad language within the indemnity agreement that works in their favor, and not in yours. Moreover, there is such a thing as being too broad.

Remember, indemnity agreement language should always be reviewed by your attorney.

Unreasonable Required Coverage

This is a big one!

If you’re the party in the contract that the insurance requirements are being imposed upon—in construction, typically the contractor or subcontractor—it’s important to confirm that the required coverage terms are either included in your current insurance program or can be purchased at a reasonable price.

Ideally, you’ve had your broker review the contract before you sign it so that they can let you know what might be remiss in the requirements that are being put in front of you, and what you might need to purchase.

Then, is the purchase of new insurance more than what would be justified for this amount of a contract? For instance, if your contract is $25,000, and you’re required to purchase additional insurance for $5,000, does that make sense? Is this something that you can write out of the contract? Or, do you need to rework your bid?

Then, what level of insurance is necessary for each of the different policies? Do the policies make sense regarding the contract or the scope of work? For any new requirements or endorsements that need to be added, are they reasonable, and are they reasonably priced?

Interested in learning more? Read on to learn about complying with insurance requirements for construction, manufacturing, and tech start-ups.

Insurance for your business isn’t one size fits all. As we’ve well learned, various industries have different requirements. This rings true, especially for insurance requirements regarding construction, manufacturing, and even tech start-ups.

Requirements can be regulatory or contractual. Moreover, depending on your industry you might need varying levels and types of insurance. Let’s discuss some aspects that stand across the board.

Workers’ Compensation Insurance

Workers’ compensation insurance, purchased by employers, is insurance that covers the medical costs and lost wages for employees who are injured during the course of work for the insured.

Workers’ compensation benefits and wages are provided in exchange for eliminating the employee’s right to file a lawsuit against their employer’s negligence.

Workers’ compensation insurance is required by law in California, and can help pay for:

Immediate medical costs (i.e. emergency room expenses)
Ongoing medical costs (i.e. physical therapy)
Partial lost wages while the employee is unable to work

Lack of proper coverage can result in fines and even criminal exposure.

Workers’ compensation insurance is extra important in the construction and manufacturing settings, where accidents are more likely to occur. This considered, businesses within the construction and manufacturing industries might opt for higher levels of workers’ compensation to keep their employees and business safe.

General Liability Insurance

General liability insurance (GLI), also known as business liability insurance or commercial general liability insurance, “helps protect your business from claims of bodily injury or property damage that can come up during normal business operations.”

This is important for construction and manufacturing businesses where hands-on work is occurring but also for tech start-ups. According to Insureon, general liability insurance covers “the cost of legal fees and settlements if your company is sued for:

Client injuries
Client property damage
Advertising injuries, like copyright infringement, libel, and slander

General liability insurance is often required as part of a property lease, mortgage, or client contract.” Moreover, the cost of your GLI will depend on the level of risk your company faces.

If you don’t have GLI, medical expenses and property damages will need to be paid for out of pocket. Depending on the injury or event, not investing in general liability insurance could cost you your business.

Employment Practices Liability Insurance

Employment Practices Liability Insurance (EPLI) is insurance that “provides coverage to employers against claims made by employees.”

Claims can be made for an assortment of reasons, including:

Wrongful Termination
Sexual Harassment
Wage-Related Claims
Claims of Unequal or Unfair Pay Discrimination Claims (i.e. age, race, gender, sexual orientation)
Third-Party Claims
And more

The primary industries that are susceptible to EPLI claims include healthcare, professional services, restaurant, food services, retail, and manufacturing and construction.

Read on to find out if your construction business needs EPLI.

Cyber Liability Insurance

In our digital age today, more businesses than ever are falling victim to cyber-attacks. Having a cyber liability policy in place, for any business, is crucial to keeping your business and your clients safe. This stands even more true for tech start-ups that manage sensitive information and high volumes of data.

There is both first and third-party coverage available. Implementing a quality cyber liability policy can help pay for regulatory fines and penalties, credit and fraud monitoring services, crisis management and public relations, finding and addressing the security defect, and more.

Complying with Insurance Requirements: Things to Note

The insurance policies listed above are not, of course, an exhaustive list of insurance requirements all construction, manufacturing, and tech start-ups need to meet; but rather, a list to get you thinking about insuring your business.

You might also need automobile liability and property damage Insurance, commercial property insurance, errors and omissions insurance (E&O), the list goes on.

Regardless, there are additional elements to consider regarding insuring any one of these three businesses. Let’s discuss some final things to note.

Occupational Safety and Health Administration

The Occupational Safety and Health Administration, also known as OSHA, has particular requirements regarding insurance as well as health and safety practices for a variety of industries.

Visit the OSHA website for additional information.

Certificates of Insurance

In any project, it’s important to make sure you have the proper insurance to protect yourself and all parties involved.

Every contract with a vendor or a customer will have an indemnity or insurance section of what they want to see from you as far as insurance is concerned. This includes documents that extend your policy to cover them. Those requirements are contractually driven, which means a certificate is necessary.

A Certificate of Insurance (COI) gives a summary of what coverages someone has, whether it be general liability, workers’ compensation, or property. A COI can also include a description of coverages that might be there or attached; such as additional insured status or waivers of subrogation.

Read on for more on what you need to know about certificates of insurance.

Contract Wording

A written contract is a printed document that is legally binding and details what parties can or cannot do. For this reason, the contractual language is extremely important. Contracts for construction, manufacturing, and tech start-ups might include hold harmless clauses and/or indemnification clauses.

Hold Harmless Clause

What is a hold harmless clause? According to Investopedia, “a hold harmless clause is used to protect a party in a contract from liability for damages or losses. In signing such a clause, the other party accepts responsibility for certain risks involved in contracting for the service. In some states, the use of a hold harmless clause is prohibited in certain construction jobs.”

Indemnification Clause

An indemnification or indemnity clause protects “one party from liability if a third-party or third entity is harmed in any way. It’s a clause that contractually obligates one party to compensate another party for losses or damages that have occurred or could occur in the future.”

For this reason, the wording in such contracts must be crystal clear.

With the influx of remote employees in current and previous years, it’s important to consider how workers’ compensation policies might change. Read on for more information on what workers’ compensation looks like for remote employees.

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Insurance Requirements for Business Owners