In part I of our series we explored common concepts and categories that make up the foundation of many types of policies. It's important to note that the summaries we're providing are general guidelines, and reading your policies, including "exclusions" and "definitions" that provide key provisions, is highly recommended.
Types of Liability Insurance
Liability insurance comes in two basic varieties: "occurrence" policies and "claims-made" policies. "Occurrence" policies protect you against accidents, losses, injuries, damage, mistakes, etc. that take place during the term of the policy. If you are sued years later, the original policy that was in force at the time of the "occurrence steps up."
This approach works well for clear-cut events like auto accidents. However, what if your manager is accused of mistreating someone over a period of time? Should the “occurrence” and which policy or policies should cover the claim? Where insurance companies think "occurrence" is too fuzzy a concept, they use a "claims made" policy instead.
"Claims made" policies protect you against suits, charges, complaints, etc. made against you during the term of the policy. Ideally, you are covered regardless of when the circumstances of the claim took place. Since the real world is often far from ideal, take care to check for any coverage restrictions on "prior acts."
What does it matter which approach your liability insurance policies use? Without getting too technical, this can make a big difference, particularly if you decide to stop purchasing a certain kind of insurance or switch from one variety to another. Generally, "claims made" policies are trickier to manage over time without creating holes in your protection, but they are the only kind of policy available for many types of liability insurance. If you purchase one, make a note to consult your agent carefully any time there is a change.
Aka: "first-party coverage" This refers to a category of insurance policies that reimburse you for loss (typically including theft, damage, and destruction) to a property you are responsible for or own. You can secure coverage for buildings, equipment, supplies, vehicles, financial assets, warehoused goods, cargo and more. As with insurance in general, property insurance policies pay covered claims up to the applicable "limit" of insurance, subject to a "deductible."
Often another party, such as a shipper, auto leasing company or equipment lessor will have an interest in a property you are insuring. If so, then expect claim payments to be made to both you and the other party (known as a "loss payee"). This way, neither loses control over the money.
Types of property insurance include the "auto physical damage" (i.e., collision, etc.) part of an auto policy, “boiler and machinery," "electronic data processing equipment" (aka "EDP") coverage, and of course "commercial property" insurance. So-called "inland marine" insurances, which cover property that may move around a lot, are also a variety of property insurance. These include "equipment floaters," "warehouse bailee" coverage, and non-liability "cargo insurance."
At least three things distinguish "property insurance" from "liability insurance" that covers loss to property:
- Property insurance policies respond to claims you submit. Liability insurance policies respond to claims by others ("third parties). Property insurance gives you more control over the reporting of claims and the timing of payouts.
- Property insurance pays a claim regardless of whether you have any liability (legal responsibility) for the loss. If you are not at fault, or if there is no contract, you—and your customers—can still be made whole.
- Property insurance can cover property you own outright. Liability insurance cannot.
Whenever you insure property, you get to choose between purchasing coverage for the property's "replacement cost" (i.e., the cost of new property of similar quality) or its depreciated cost (i.e., "actual cash value"). Other options are also available for special situations. Replacement cost coverage is superior, of course, and the difference in cost is often minimal.
Another factor to consider is called "coinsurance." Despite its convoluted name, the concept is straightforward. You don't receive full compensation for your claims if you don't report the full value of a property you are insuring. This may be discovered upon inspection after a loss. The higher the "coinsurance" percentage (typically 80-100 percent), the more accurate you need to be to avoid penalties. Don't take a chance, make every effort to report accurate values. Better still, seek out a policy with no "coinsurance" provisions.
Happy policy navigating!