Mar 02, 2020
Choosing the Right Insurance Coverage for Your Practice: A Primer
Mar 02, 2020
By Andrea Christensen
Have you thought about or even decided to start your own solo or small practice? Congratulations! My clients always love the question that follows: Have you thought about all of the insurance issues you might face?
Will you hire a paralegal or an assistant? Lease office space? Obtain a loan or lease for office furniture or equipment? Each of these actions has insurance implications, as do many of the things you’ll do and there are many, many lines of insurance you can purchase. I’ll focus here on the types of insurance I recommend all small practice owners purchase in order to provide at least a minimum level of protection. The two most common are a Business Owners policy and Professional Liability policy, with the additional option of an umbrella or excess liability policy depending on your specific needs.
Business Owners PolicyThis is the insurance that can cover your office contents and premises in case of injury. General liability and property insurance are commonly written as one policy, called a package or business owners policy (BOP). For businesses located in a leased commercial building, a business owners policy covers:
Liability: Premises liability insurance, written in increments of $1,000,000.
Loss of Business Income: With this coverage, you may be reimbursed for the rent and often other continuing expenses you pay when you cannot occupy your office in the event of a covered claim. The loss must occur on your premises and must be caused by an insured peril.
This coverage is typically written for only 12 months from the date of loss but you can purchase it for a longer term, which is what I recommend.
Property: The property portion can insure all of the contents in your office, including your phone system or office equipment and supplies, as well as tenant improvements if you have any.
The premiums on the property section of a policy are inexpensive, so always ask what it would cost to buy a higher limit than you think you may need. Most people underestimate this limit and could have been insured for the correct limit for as little as $20 more annually.
What Can I Expect to Pay for a Business Owners Policy?
Annual premiums for a business owners policy can be as low as $500, based on the amounts of coverage you choose. As these policies typically contain a lot of “extras” in the coverage options, you should review them carefully; increases to those limits are typically very inexpensive.
How Do I Choose the Limits of Coverage?
In deciding the amount of business property coverage you feel is necessary, think carefully about what it would cost to go out and buy, new, everything in your office (picture the entire building wiped out by fire). It is a good idea to make and retain, off premises, a complete inventory of your office contents (right down to the staples and paperclips!). In the event of a covered claim, your insurance carrier is going to ask you for a list of what was damaged and it is up to you to remember everything in your office in exact detail so that you are compensated correctly for the loss.
As to your liability limit, most policies start with a limit of $1,000,000 and some offer $2,000,000. I recommend you purchase the maximum limit available and if you need a higher limit, purchase an excess or umbrella liability policy (see below).
When making decisions, it is important to work with an insurance broker who asks to read your lease(s) so that your insurance meets all of your lease requirements.
Professional LiabilityThis is your malpractice coverage, usually written in increments of $1,000,000. It is often available through professional organizations as a group policy for a discounted premium. Whether you purchase this coverage from a broker or through a program, the policies are written on a “claims made” policy form. Claims made means that if your current policy covers a particular claim made against you during the policy period, it does so even though the work was done in a prior year or years. These policies have “retroactive dates,” which reflect how far back your current policy covers you for your past work. In general, retroactive dates will only extend back as far as the earliest year from which you have had continuous liability coverage up to the current policy. Thus you must keep a policy in continuous effect in order to have coverage applicable to potential claims for errors or omissions that may arise long after you perform the work.
Automobile LiabilityWhile you may wonder why I address this in a business insurance article since most people already have their car insured, I caution you to check your current automobile insurance to make sure it covers how you are now using your vehicle, especially if you are using it in the course of your business. Personal and commercial auto policies vary greatly in what they cover, which means the only way to know what’s covered—and what additional coverage you might need—is to read your current policy and ask your broker to interpret it for you if you have questions.
Umbrella or Excess LiabilityThis is an “excess” liability policy that can provide coverage in the event the primary or basic policies’ (such as your business owners policy) liability limits are exhausted in the event of a covered claim. I recommend you purchase a limit adequate to protect your assets and even your future earnings and ask for professional guidance on the limit you should carry from all of your financial and business advisors. You want this coverage available to you to potentially pay a settlement or judgment for which you are liable in order to avoid having to sell your assets to pay for it. This policy can also potentially provide excess coverage over a commercial automobile policy, professional liability policy and/or the employers liability portion of a workers compensation policy, to name a few.
What If I Hire Employees?When you have employees, you move into areas such as:
Worker’s Compensation Insurance: It covers employee injuries occurring on the job and is mandatory in California, with premiums based upon payroll and rates that vary widely by insurance carrier (only a portion of the rates are set by the state).
Employee Benefits: Many employee benefits are actually insurance—medical, dental, vision, etc. and choosing those is beyond the scope of this article.
Employee Benefits Liability: Many people do not realize that insurance can provide coverage for errors or omissions in the administration of an employee benefit program.
Employment Practices Liability Insurance (EPLI): It can cover suits brought by employees such as for harassment, discrimination or hostile work environment and wage and hour claims. These policies are not standardized, meaning they vary widely from insurance carrier to insurance carrier as to the limits offered, coverage forms, retentions, limitations and exclusions. These are written on a “claims made” policy form. As discussed above under professional liability, this makes carrying continuous coverage imperative. The policies also contain “retentions,” which are different from deductibles. While deductibles are usually subtracted from a claim payment made to you, you typically pay a retention to the insurance carrier when they begin to defend a claim and some carriers will not even begin to defend a claim until the retention is paid. As retentions usually start at $2,500 or more, it is important for a small business to understand how these typically work.
Small Business Insurance Issues Specific to California Businesses with Employees
An article I recently read in Insurance Business magazine noted that California businesses can be 40% more likely than businesses in other states to be sued by their employees for discrimination, harassment or unfair employment practices. One of the areas of suits or demands is called “wage and hour claims.” Most EPLI policies do not cover wage and hour claims. They may provide for some limited defense in that area, usually as a “sub limit,” but they do not pay for the actual damages or fines. For example, a policy may have a $100,000 sub limit for defense only of a wage and hour claim. After payment of the retention, the insurance carrier may offer to defend the claim with reservation of rights and pay for defense up to the sub limit. The settlement, which may include paying the employee for unpaid overtime, fines and the employee’s attorney fees, will have to be paid by the employer out of pocket.
How Do I Minimize My Risk in This Area?
- Work with an expert to write your employee handbook and others who can guide you in properly tracking your employee hours, overtime, breaks, lunches and vacations. Be sure your payroll service uses accurate records when preparing your payroll.
- When you purchase an EPLI policy, look for an insurance carrier that offers free risk management resources that will assist you in hiring, record keeping, harassment training and basic advice on resolving employee issues. Ask if the coverage includes independent contractors or extends to third-party claims (picture a delivery person making unwanted advances to your employees). Read the quote and ask questions so you understand what you are purchasing. Then, when your policy arrives, read it!
How Can I Decide What Insurance I Need?There are many other coverages available to business owners than are addressed here. As a small business owner myself, I am aware that one of the considerations in what insurance you purchase is affordability. I encourage you to obtain quotes for all of the types of insurance that are available to or offered to you by your insurance broker, then decide what is most important to protect, and what you can reasonably afford. To do so, I strongly recommend you work with an insurance broker you can build a relationship with. You should feel comfortable asking all the questions you want to ask and get clear, timely answers. The better the communication, the more likely it is that you will purchase the correct insurance products for your business and avoid surprises if you do have a claim. And finally, perhaps above all, read your policies and ask for clarification if you don’t understand how the coverages apply.
A native of Marin county and resident of Sonoma county for nearly 40 years, Andrea has been an independent insurance broker her entire professional career. She has spoken on the topic of insurance for various professional organizations and at Santa Rosa Junior College, and has served on a variety of boards and non-profit entities. Andrea is passionate about helping small businesses and nonprofit organizations with their insurance needs. Her business, Allstar West Insurance, located in Petaluma, provides personal and commercial insurance for both individuals and businesses. 415-883-5100 x 207