100 Insurance Myths (#7 of 8)

This is the seventh of an 8-part series dealing with insurance myths. We all know that insurance is one of the major risk management tools for any sport, fitness, or recreation business. For many of us, however, insurance is just a big mystery that we entrust to others. After this series, you will know many pitfalls and minefields to avoid. Thanks go to Daniel P. Hale for contributing this series to Sportwaiver.com. Segments 1-3 focused on property insurance, segments 4-5 covered liability insurance, and segment 6 addressed two areas of insurance – workers compensation and automobile insurance. This week the seventh segment includes seven topics – employee theft, umbrella liability, directors and officers liability, intellectual property, named insured clauses, employee leasing, and personal insurance.

EMPLOYEE THEFT

1. Employee dishonesty extends to theft of client property.

This is not true.  Employee dishonesty covers the theft of employer property only. Separate coverage needs to be negotiated to cover theft of third party property by your employees.

2. Employee dishonesty covers my ERISA obligations.

This is inaccurate.  Employee dishonesty will cover losses relating to the entity that is listed.  If you have listed an ERISA entity such as a 401(k) plan and have an ERISA compliance endorsement on the policy and have insured 10% of the plan assets, then your insurance policy will provide coverage.

UMBRELLA EXCESS LIABILITY

3. An umbrella policy is a “catch-all” policy covering mistakes in property insurance and liability insurance policies.

This is not true.  An umbrella policy is a tort liability policy covering liability claims for amounts over and above your primary general liability and auto liability insurance policies.  It does not cover any first party or property insurance.

4. An umbrella policy is always excess of whatever I have in my primary insurance.

This is typically not true.  An umbrella policy is a stand-alone contract and may have exclusions that are greater than your primary insurance.

DIRECTORS AND OFFICERS LIABILITY

5. I do not need directors and officers liability coverage because we are not a public company.

Directors and officers of private corporations can be sued by banks, by customers, by suppliers and by employees, and directors and officers liability coverage should be purchased as well as employment practices liability coverage.

INTELLECTUAL PROPERTY

6. If I am sued for infringement of copyright or trademark, my liability insurance coverage will protect me.

This is not correct.  Standard liability insurance policies have an exclusion for infringement of copyright, patent, trademark or trade secret.  The policy indicates there is no coverage for personal and advertising injury arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights and the only exception in the exclusion is that it does not apply to infringement in your advertisement of copyright, trademark or slogan.  A separate intellectual property type policy is required.

NAMED INSURED CLAUSES

7. The named insured on my policy extends to my subsidiaries and related entities and they need not be listed.

This is a dangerous myth. Subsidiaries are not covered unless they are stated under most property and liability policies. Some directors and officers liability and employment practices policies will cover subsidiaries; however, it is still best to list those subsidiaries or any other entity in order to avoid any misunderstanding of what is a subsidiary under those policies, and under the property and liability policy you absolutely need to list all entities.

8. Prior entities that are now active do not have to be listed.

This is not true.  In the event you had a sole proprietorship or a partnership in previous years and you are now doing business with a corporation or an LLC entity, you still need to list the prior entities because there could be a current injury arising out of that previous operation and unless you list the prior entities there is no insurance.

EMPLOYEE LEASING OR PEO

9. My employees are leased employees. I do business with a professional employer organization and because these are not my employees I do not need to have workers’ compensation coverage.

This is not correct.  You need workers’ compensation coverage in the event these employees indicate that they are actually working for you.  You also need this coverage to protect you for uninsured independent contractors and to cover people that are not within the employee leasing agreement.

10. Employee leasing is always a good tool for businesses.

Actually, employee leasing can create severe problems.  Typically the agreements with the employee leasing companies impose requirements that an employer cannot comply with, such as adding the employee leasing company as an additional insured on the employer’s policy, failure to provide loss information and many other matters. Employee leasing should be entered into very carefully.

PERSONAL INSURANCE

11. My homeowners policy has guaranteed replacement cost coverage which waives the limit in the event the limit was not sufficient.

This is not an absolute.  A guaranteed replacement cost endorsement, where available, will waive the limit; however, there are requirements that you report improvements done to your home within a certain period of time or the specific limit under the policy will apply.

“This Article was submitted by Daniel P. Hale, J.D., CPCU, CRM, ARM, CIC, AAI, LIC, AIC, AIS, API, AU.   Mr. Hale is vice president of Cambridge Property & Casualty and an attorney licensed to practice law in the State of Michigan.  He can be contacted at 734-525-2429,  dhale@cambridge-pc.com or via www.cambridge-pc.com

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