This is the fourth 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. The first three segments of the series focused on property insurance. Part 4 and 5 will cover Liability Insurance.

LIABILITY INSURANCE

1. I don’t have to report people that are injured on my premises until they make a claim against me.

This is not true. The liability policy requires that all injuries be reported, whether or not you think that they could result in a claim.  If you fail to do so, the insurance company could try to deny a later claim arising out of that event.

2. I need not list every location that I own or occupy as long as I list my primary location.

This is not true.  The policy requires that you list every location that you own or occupy, including vacant land, as of the inception date.

3. Liability insurance covers any location or any activity anywhere in the world.

The liability policy will cover injuries that occur in the United States, Canada, Puerto Rico or the Virgin Islands arising out of locations that were owned or leased as of the policy inception date or acquired thereafter or arising out of products that were manufactured.  Coverage for undeclared locations would not be covered if they existed as of the inception date of the policy nor would coverage be provided for locations outside the policy territory except for short business visits.

4. If I have a low potential exposure product that in itself cannot cause injury, I do not need to purchase products liability coverage.

This is not a safe bet.  The liability claim might not arise out of the product itself, it could arise out of packaging.  A claim occurred once where metal bearings, which by themselves would be unlikely to cause an injury, were spilled on a loading dock during delivery causing someone to fall.  This is a products liability claim and would not be covered without products liability coverage.

5. I should settle any minor injury claims in order to avoid a claim on my policy.

This actually would violate a policy condition that does not allow you to prejudice the interest of the insurance company.

6. If I charter a party boat to entertain my customers, this would be covered.

Under the standard liability form, if the boat exceeds 25 feet and is non-owned and results in an injury, there would be no coverage.  You need non-owned watercraft coverage with a footage limit that exceeds the watercraft being used.

7. If I use my personal boat for business entertaining, it will be covered.

Again, if the boat exceeds 25 feet there would be no coverage.

8. If I fly my personal aircraft and take a client with me on business, it will be covered.

This is not correct inasmuch as aircraft liability claims are excluded from the standard commercial liability policy.

9. If my employees utilize their own automobile on company time and have an accident, they will be covered under the company policy.

This is not correct. The company will be covered for acts of employees using their own personal automobiles if non-owned automobile coverage was purchased; however, the employee would not be covered unless the policy extended this coverage to employees as additional insureds.  In fact, without this extension the business owner’s insurance company could, in fact, sue the employee for any losses that they pay because of the employee’s accident and subsequently could garnish the employee’s wages.

10. My general liability policy will always cover liquor-related claims.

The general liability policy will cover claims arising out of events that involve liquor as long as you are not in the business of selling or serving alcoholic beverages.  Some carriers will carry this a step further by indicating there is no coverage if you make any type of a charge for the alcoholic beverages.  For example, if you have a company picnic and people reimburse you for the cost of beer, this may be excluded under certain commercial liability forms.

11. I have contractual liability insurance and it covers all hold harmless agreements.

Actually, most contractual liability coverage only covers bodily injury and property damage.  The typical hold harmless agreement is usually far broader than this.  You can expand the coverage for contractual liability to cover certain other situations; however, this is not typically automatically provided.

12. The general liability policy I have will cover employee benefit claims involving my mistakes in handling employee benefits such as a failure to send a COBRA letter.

This is not correct.  You need to have employee benefit legal liability coverage or as a fiduciary liability policy.

13. I have employee benefit legal liability coverage and it will extend to protect me for all claims arising out my employee benefit obligations.

This is not correct.  Employee benefit legal liability coverage will cover certain administrative errors but will not cover fiduciary liability arising out of your responsibilities under the ERISA law.

“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,  [email protected] or via www.cambridge-pc.com” .

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