Commercial Insurance Coverage and Policy Construction
By Linda Ziegler, Commercial Underwriting Consultant
Commercial insurance is similar to personal insurance, but there are some important differences. A commercial insured may own a building that is rented out to others. They may run a business from a non-owned or owned building. If the insured runs a business, they more than likely will have business personal property. Most will need some form of business income coverage that is designed to help keep them running in the event of a covered property loss.
Not all commercial losses will be covered under a commercial property policy, just as all personal property losses are not covered under a personal property policy. The cause of loss form that is used will dictate what is and isn’t covered. Fire is always a covered cause of loss and other causes of loss are added in dependent on the form chosen.
The attachment of mandatory forms also is important for commercial insurance policies. Mandatory forms have been developed based on specific state legislation, to make coverage clearer or to exclude certain causes of loss that were not intended to be covered. The mandatory forms are usually the result of past court cases where the language used in the main coverage form was deemed to be ambiguous or when emerging issues need clarification.
When coverage (or exclusions) are not clear enough the courts will favor the insured in most cases. Failure to add all mandatory forms may result in coverage that was never intended. It is a good practice to review your current forms lists to ensure all required forms are attached to each policy. The addition of any missing forms may alter the policy in such a way that direct notice of altered terms would be required.
You will need to review the form to determine if the insured will lose coverage or have reduced coverage at renewal. That is why it is important to start renewals at least 75 to 90 days prior to the renewal date. This will allow time to conduct an underwriting review and send any required notices. All of the current forms lists for commercial coverage are available by logging in to the WRC website and going to the Commercial Lines Underwriting tab.
The layout of the declarations is also important. Each covered item should be listed and include the location address, coinsurance, deductible and valuation. AAIS Direct provides sample declarations. Certain coverages may be displayed on a form rather than on the declaration pages. Remember, rating is only a mechanism to calculate an adequate premium. A review of the rating in conjunction with what is shown on the policy and its forms is important to ensure that everything you’ve charged for is represented on the policy.
Liability may provide for bodily injury or property damage that could occur in the course of the insured’s business. This may be due to their premises operations or a product that is manufactured or sold.
Commercial insurance coverage is based on what the insured is doing as part of their business. If the insured is a landlord renting a building to someone else, their liability may be due to falls that may occur if they are negligent in keeping the walkways and the building clear of hazards.
They also may need personal and advertising injury coverage. Personal injury can cover unlawfully detaining someone or wrongful eviction. Advertising injury covers libel or slander in the statements regarding the insured’s products or services.
It is important to note that personal and advertising injury is one limit. You cannot purchase just personal coverage or just advertising injury coverage. This differs from the personal injury that is available under a personal policy.
If the insured makes or sells a product or provides a service, they’ll need products and completed work coverage. The products coverage covers items made or sold that may cause bodily injury or property damage after the customer has purchased them. Those that perform a service for others may also be the cause of a bodily injury or property damage loss that would fall under the completed work coverage.
Commercial General Liability
Commercial General Liability (CGL) coverage has a limit for each occurrence of:
- Products/Completed Work
- Medical Payments
- Personal and Advertising Injury
- Fire Legal Liability
The liability coverage form describes what commercial insurance coverages are being provided. Not all coverage forms provide for each coverage. The limits for each occurrence are capped by the aggregate limits. There will always be a general aggregate limit that caps the limits for each occurrence for other than products/completed work. The aggregate limits are usually twice the limit for each occurrence. AAIS Direct also provides sample declarations for use when writing liability coverage. The samples outline how to show the limits of coverage on the declarations based on the coverage form being used.
We can help you review your current declarations or direct you to additional information about proper policy construction. Feel free to reach out with any questions.