A PUBLICATION BY: GODFREY MORROW GODFREY INSURANCE MORROW AND INSURANCE FINANCIAL AND SERVICES FINANCIAL LTD. SERVICES LTD. 2012 What are the main liability policies you should consider for your commercial business? EXAMPLES OF CLAIMS: ~ You knock over a lamp in a customer s office and start a fire causing massive damage = CGL Coverage ~ You give advice on how a product can be used for a certain application, it ends up causing damage = E&O Coverage ~ You fire an employee incorrectly and they sue you for discrimination What are the three main liability policies you should know about for your commercial business? The three main policies are Commercial General Liability, Errors and Omissions and Directors and Officers policies. Why should I be looking at these three policies? They are the main policies that will help to protect you for most insurable claims of negligence against you. There are other liability products that may need to be looked at in specific cases, however most of the coverage available is contained in or can be added to these three main types of policies. These three coverage s have one thing in common, they all aim to protect you, your employees and other named insured s against negligent claims made against you. They often work in conjunction to provide thorough coverage against a spread of risks, but they each cover a unique area separate from each other. What s the Big Deal? What they are: A CGL protects you against an occurrence where it is alleged that you have done real damage to another person or property that you typically do not own or control, through your negligence. Errors and omissions (E&O) is the i n s u r a n c e t h a t c o v e r s y o u r company, or you individually, in the event that a client holds you responsible for a service you provided, or failed to provide, that did not have the expected or promised results D&O Policies will pay the costs a director or officer incurs due to an action or allegation, made by a third party. Similarly, most policies will reimburse your Organization when you have indemnified the director or officer for the costs, which have been incurred To put these into easy to understand language, a CGL covers you for damage to other things or people and is usually physical in nature. E&O covers you for your advice and the damage it can cause. D&O covers you for your actions while running your company. = D&O Insurance As you can see from above all three work together but cover three different and distinct area s that may affect you and your business. By using these three types of coverage you can protect most of your risk areas, physical damage you do, advice you give and actions you cause. GODFREY MORROW INSURANCE www.godfreymorrow.com 1 P age
A PUBLICATION BY: GODFREY MORROW GODFREY INSURANCE MORROW AND INSURANCE FINANCIAL AND SERVICES FINANCIAL LTD. SERVICES LTD. 2012 COMMERCIAL GENERAL LIABILITY INSURANCE WHAT IS IT? Commercial General Liability insurance (otherwise known as a CGL) is coverage against third party claims. This coverage protects you against an occurrence where it is alleged you have done real damage to another person or property you typically do not own or control, through your negligence. Defense costs are typically included in your coverage. Most CGL policies are occurrence based which means in order for the policy to respond to a claim of negligence your policy had to be in force at the time of the occurrence of the claim or the alleged negligence took place. Q&A Who needs a Commercial General Liability (CGL) Policy? Just about anyone who has a commercial exposure and could potentially cause bodily injury or property damage to a third party. If you or an employee, within regular business activities, cause harm through negligence, you can be held accountable for your actions and have a suit brought against you. From contractors to Lawyers, if you interact with the public or their property a commercial general liability policy is for you. No it is not actually. There are quite a few coverage options we have not mentioned above. Below is a list of some of the extensions and a brief description of coverage that may come standard or be added to a CGL policy. Is that all a Commercial General Liability (CGL) Policy Covers? Tenants' legal liability: This coverage is the maximum amount payable because of property damage for any one premises rented by an insured. Personal and Advertising injury: This coverage is the maximum payable for things like libel and slander Products-completed operations: This coverage is the maximum payable for damage your products or your completed operations may cause. Medical payments: This coverage pays for those accidents that happen that may not have been caused by your negligence but still may be in your best interest to pay for. This is usually a smaller limit Non-Owned Automobile Liability: Indemnifies the insured for the legal liability arising out of the operation of non-owned vehicles used in the Insured's business There are many more extensions that can be added to your CGL policy, talk to your broker and give a good description of your business so a proper assessment can be made for the coverage you need GODFREY MORROW INSURANCE www.godfreymorrow.com 2 P age
INVESTOR A PUBLICATION NEWSLETTER BY: GODFREY ISSUE MORROW N 3 GODFREY INSURANCE MORROW AND INSURANCE FINANCIAL AND SERVICES FINANCIAL LTD. SERVICES LTD. FALL 2012 2009 Q&A The basic information you will need to give to a broker to get a quote is similar to the information you have to give your accountant, but with out all of the receipts. What information do I need to give to get a quote? We will need: The nature of your business and all operations undertaken by your company. The typical work performed and for whom. The total Gross receipts your company brings in for all operations. The number of employees. The territories you work in. Any claims or losses you have been involved with previously. Your company s history as well as your experience in the same or similar field. Any Hazardous or dangerous activities. Basic information on both your company and yourself. Lawsuits against your company or yourself can be crippling. Protect your assets and name with a CGL policy. It is not only your negligence but what you can be sued for in today s society. The following example of a claim is fictional but similar claims have occurred. Why buy a Commercial General Liability (CGL) Policy? A person comes in to your office and slips and falls due to what they claim is a slippery floor. That person claims injury and files a suit for damages against you. If the floor was slippery due to your negligence they will most likely win their suit and you will be responsible for the damages assessed by the court. A CGL policy would respond to pay for both the defense costs and damages awarded. If the floor was free from anything that could have caused them to slip and fall but they still take you to court you will have to defend yourself. The CGL will respond to the defense costs even though you were not at fault. If you do not have a CGL policy in force you will be responsible to pay for awarded damages and all costs to defend yourself even if you have no fault. GODFREY MORROW INSURANCE www.godfreymorrow.com 3 P age
INVESTOR A PUBLICATION NEWSLETTER BY: ISSUE N 3 GODFREY MORROW INSURANCE AND FINANCIAL SERVICES LTD. FALL 2012 2009 Errors and Omissions (E&O) Insurance What is E&O Insurance? Errors and omissions (E&O) is the insurance that covers your company or you individually, in the event that a client holds you responsible for a service you provided, or failed to provide, that did not have the expected or promised results. For doctors, dentists, chiropractors, etc., it is often called malpractice insurance. For lawyers, accountants, architects or engineers, it may be called professional liability. Whatever you call it, it covers you for errors (or omissions) that you have made or that the client perceives you have made. Most E&O policies cover judgments, settlements and defense costs. Even if the allegations are found to be groundless, thousands of dollars may be needed to defend the lawsuit. They can bankrupt a smaller company or individual and have a lasting effect on the bottom line of larger companies. In short, E&O coverage provides protection for you in the event that an error or omission on your part has caused a financial loss for your client. Who needs E&O insurance? Any one who is paid to give advice should purchase E&O insurance. The best-known professionals who need E&O insurance are doctors, lawyers, accountants, architects, engineers, etc. However, less thought about individuals range from advertising agencies to commercial printers, Web hosting companies to wedding planners. If you are in the business of providing a service to your client for a fee, you have an E&O exposure. You may want to consider what will happen if the service is not done correctly or on time, and it costs your client money or harms their reputation. Why does my company need coverage? To put it very simply, everyone makes mistakes. Even with the best employees and the best risk management practices in place, mistakes will be made. No one is perfect. In some provinces such as Ontario, Quebec and Saskatchewan, errors and omissions insurance is mandatory for professionals such as Estate Planners and Financial Consultants. If you provide professional services that involve getting paid for advice, you should check to see whether or not provincial legislation requires you to carry errors and omissions insurance. WHAT INFO IS USUALLY NEEDED WITH AN APPLICATION? An insurance company underwriter may ask for copies of contracts, resume s, a description of quality control procedures, documentation procedures, training procedures, etc., or they may want nothing more than a completed application. The underwriter will not only look at your experience to see if you have had claims, but they will also try to determine the reason you haven t had claims. Is it luck or are you doing something that prevents the claim in the first place? And if you have had claims, what steps have you taken to ensure that the same errors will not continue to occur? Here are some steps you can take to mitigate claims: Always have a written contract that spells out what will be done, what will not be done and what the fees will be. Communicate throughout the job and keep the expectations realistic. Have quality control procedures in place and use internal and external audits to check them. The more comfortable you can make the underwriter with your operation, the more likely they are to give you a competitive price on your policy and to provide the coverage needed. GODFREY MORROW INSURANCE www.godfreymorrow.com 4 P age
INVESTOR A PUBLICATION NEWSLETTER BY: ISSUE N 3 GODFREY MORROW INSURANCE AND FINANCIAL SERVICES LTD. FALL 2012 2009 Directors & Officers Liability Insurance Directors and officers of corporations, whether publicly held, privately owned or Not- For-Profit are required by law to: Act diligently and with due care in the management of the Organization Avoid conflicts of interest and activities, which at the expense of the Organization benefit them personally Both personally and corporately, comply with numerous, federal and provincial statutes, which regulate corporate management and conduct Claims against directors and officers can be initiated by stakeholders, employees, creditors, customers, competitors, regulators and include a broad range of allegations such as: Wages, vacation pay and taxes Negligent misrepresentation Breach of fiduciary duty Breach of contract Mismanagement Neglect Antitrust Unfair trade practices Consumer protection violations Franchise disputes Wrongful interference with a contract Copyright, patent and trademark infringements Why buy Directors and Officers Liability Insurance? Today, Directors & Officers of Canadian companies face unprecedented exposures. Regulatory authorities, courts, stakeholders, employees, creditors and other members of the public have increased expectations as to the conduct and integrity of Organization management. It is important to note that in most cases these statutes are the same for Not-For-Profit and For- Profit businesses. Liability for employee wages, vacation pay and taxes is imposed without fault, on a strict liability basis, and can include liability for amounts which become outstanding even after a director or officer has resigned. While many directors & officers of Not-For-Profit Organizations believe that their Organization will protect them from these claims, it may not if: Indemnification by the Organization is not legally permissible The Organization is financially distressed, impaired or insolvent The Organization chooses not to indemnify the director or officer Directors & Officers Liability coverage will respond not only to claims resulting from the claim allegations listed earlier, but to other types of claims including: Written demands for monetary damages Civil lawsuits commenced by a service complaint or similar pleading Criminal proceedings commenced by the return of an indictment Formal administrative or regulatory proceedings commenced by the filing of a notice of charges, formal investigative order, or similar document In Canada, there are over 200 provincial and federal statutes under which Directors and Officers could be held personally liable, such as: Bankruptcy Act Consumer Protection Act Competition Act Income Tax Act Unemployment Insurance Act Corporations Tax Act Canada Business Corporations Act Retail Sales Act GODFREY MORROW INSURANCE www.godfreymorrow.com 5 P age
A PUBLICATION BY: GODFREY MORROW GODFREY INSURANCE MORROW AND INSURANCE FINANCIAL AND SERVICES FINANCIAL LTD. SERVICES LTD. 2012 What costs will be paid by a Directors & Officers Liability Insurance policy? Policies will pay the costs a director or officer incurs due to an action or allegation, made by a third party. Similarly, most policies will reimburse your Organization when you have indemnified the director or officer for the costs, which have been incurred. The costs paid by most policies will include legal defense costs, damages, settlements and judgments. How do we protect ourselves when we are directors of other companies? Many companies request or encourage their officers to serve as directors on outside boards. Depending on the circumstances, the requesting Organization may be obligated to indemnify their employee should they be sued from their service or actions on the outside board. Service in that outside position subjects the individual not only to the standard exposures faced by directors & officers, but to the increased exposure of being perceived as a deep pocket defendant because of potential indemnification by your Organization. Your Directors & Officers coverage can be extended to protect your officers and your Organization for defense costs, settlements or employees. GODFREY MORROW INSURANCE www.godfreymorrow.com 6 P age
INVESTOR A PUBLICATION NEWSLETTER BY: ISSUE N 3 GODFREY MORROW INSURANCE AND FINANCIAL SERVICES LTD. FALL 2012 2009 Where do we go from here? We have looked at three different types of coverage and how they can protect us. Which policies are right for you? Do you have an exposure that may affect your business adversely? Will you and your company be able to withstand a lawsuit for a negligent claim in any of the areas discussed? Do any of your contracts require you to carry one or all of the coverage we discussed? Do I need to purchase all three products? By calling an insurance broker and reviewing all of your business requirements we can help you figure out what you need to protect yourself against insurable risks. At the end of the day only you can decide the amount and level of protection you and your company need. Ask your self these basic questions below and then call your insurance broker to start the process. For a commercial General Liability Policy: Is it possible that through my or my employee s negligence, damage to a person or property can occur? What is the worst case scenario if that happens? For an Errors and Omissions Policy: Do I give advice that may impact another person or thing and cause damage should I be wrong or miss something? Will I be sued if that happens and how much will they sue me? For a Directors and Officers Policy: Will you ever have to terminate an employee? What will happen if that employee claims discrimination and can I afford the lawsuit personally? What should I do now? Have a frank discussion with your Insurance Broker about the risks that you may face and how to insure against them. Even if you do not feel you need a certain coverage being informed of the possibilities will assist you in your decision. Whether you give advice, provide a service, have employees or even just allow the public access to your premise, you need to be aware of the possible types of claims that can affect you and understand how to mitigate the chance of a loss. You can use these products to help with that decision. GODFREY MORROW INSURANCE www.godfreymorrow.com 7 P age