Bar News - February 23, 2007
NHBA Insurance Agency: Liability Coverages to Consider for Your Practice
By: Suzanne Morand, NHBA Insurance Agency
Every attorney is aware of the importance of professional liability insurance. Thought should also be given to other equally essential types of insurance protection.
The basic business insurance plan consists of four fundamental types of insurance coverage: workers’ compensation, auto, general liability and property, plus an added layer of protection over all these, often called an “umbrella policy.”
Workers’ compensation coverage is required by law in all 50 states and protects an employer from liability for an accident involving an employee. This type of insurance will pay medical expenses and lost wages for an injured employee and, in cases of death or disability, provide lump sum payments. In most instances the rates are established by the state.
When purchasing this coverage, you should insure that your law practice is properly categorized and charged the appropriate rate. Also, once premium levels exceed a certain level, usually $5,000, your cost may be adjusted to reflect your claim experience. This experience modification factor, promulgated by the National Council on Compensation Insurance, compares the claim history of your law firm against national averages and should be checked to verify the accuracy of the computation.
General liability insurance protects any practice or business against claims made for bodily injury or property damage to a third party and for the cost of defending lawsuits. This coverage is often referred to as “premises” or “operations” coverage and also may include coverage for non-tangibles such as advertising liability and libel/slander.
Auto insurance is fairly straightforward and covers liability and physical damage to autos owned, hired or used by your practice. Many states set minimum liability limits and those limits may be well below what a law practice requires. Many experts suggest carrying a minimum of one million dollars in liability. To offset the increased cost of higher limits, you may increase the deductible on the physical damage portion of the policy.
The majority of property insurance is written on an “all risks” basis as opposed to a “named peril” basis. The latter offers coverage for specific perils spelled out in the policy. If a loss occurs from a peril not named, then it is not covered. The former covers loss caused by all perils not specifically excluded (common exclusions are surface water, flood, earthquake, etc.).
For starters, make sure the law practice is covered by an “all risks” policy. Then go the extra step and carefully review the policy’s exclusions. All policies cover loss by fire, but what about losses from such events as hailstorms and explosions?
Whenever possible, “replacement cost” insurance should be purchased. This will replace the damaged property at today’s prices, regardless of the cost when you bought the equipment or property.
In addition to the basic types of insurance, many insurance professionals recommend an additional layer of protection, called an “umbrella policy”. This protects you and/or your practice from payments in excess of your existing coverage or for liabilities not covered in your other policies.
Other Coverage to Consider
- Business Interruption Coverage – pays for income lost and extra expenses incurred if your office is damaged by a covered peril. This coverage is normally offered as an “extra” under the standard Business Owners Package Policy.
- Employee Benefits Liability – covers losses due to errors made in the administration of your employee benefit plan such as omitting to add a new employee to your health insurance coverage.
- Hired/Non-owned Auto Coverage – even if your firm does not own any vehicles, you should consider purchasing this coverage which provides excess liability coverage for rented or non-owned vehicles used in your business.
- Employment Practices Liability – Provides protection for an employer against claims made by employees, former employees, or potential employees. It covers discrimination (age, sex, disability, etc.), wrongful termination of employment, sexual harassment and other employment related allegations.
Reducing Risk and Premiums
All insurance premiums are based on the risks involved. Insurance companies evaluate the situation to determine the risk of potential loss that they will have to assume and base their rates on the results. Therefore, any steps that you can take to lower risks not only help safeguard the practice but may make the practice eligible for lower insurance rates.
Consider these steps:
- Maintain adequate lighting throughout the business premises.
- Keep electrical wiring, stairways, carpeting, flooring, elevators and escalators in good repair.
- Consider installing a sprinkler system, smoke and fire alarms, and adequate security devices.
- Keep only a small amount of cash in the petty cash box.
- Keep good records to help determine any loss and the amount. In fact, consider keeping a second set of records, especially computer back-ups, off-site.
- And, finally, you may want to raise your deductible. How high is a question that is generally governed by how much you or the practice can afford to pay out of pocket.
For more information about these and other types of insurance, contact Sue Morand at 866-642-2292 or firstname.lastname@example.org.