Who’s on First? Deciphering Commercial Liability Insurance
By Linda Ziegler, Commercial Underwriting Consultant
Remember the Abbott and Costello skit, “Who’s on First?” Lou and Bud go around and around because all the baseball players had ambiguous nicknames such as Who, What, Where and Why. Commercial liability insurance can be as confusing as the baseball players in that sketch.
However, there are some simple ways to help clear up who gets what coverage in commercial liability insurance. If you can remember that liability follows the named insured, you’ll have an easier time figuring out what to do the next time you’re faced with a situation with multiple operations with the same named insured.
Tips for Coverage
Keep in mind that:
- The liability provided in the policy is for the protection of the named insured.
- The named insured and entity type determine who is protected in a liability loss. If you have an individual or partnership entity, those shown as named insureds are covered but only during the course of their business operations (no personal liability provided). If you have an LLC or corporation, its members and/or officers are provided coverage but only in the course of their business operations. No personal liability is provided for the members or officers.
- Personal and commercial liability coverage cannot be stacked. Coverage is purely personal liability or commercial liability even if the name is the same on both policies.
- If there is more than one commercial policy in the same name, you must attach a form either limiting coverage to what you intend to cover or to exclude a known exposure that is either self-insured or covered elsewhere. Failure to clearly define what is being covered could lead to stacking of limits when there is more than one commercial liability policy.
Commercial Liability Insurance Case Study: Jane’s Hair Care LLC
We recently discussed this scenario with one of our mutual clients:
An HO3 insured also operates a beauty shop from her residence. A Home-Based Business endorsement is on the HO3 policy. Now the homeowner is going to rent space to two other entities — another beautician and a massage therapist. This insured will still occupy the building as her permanent home and continue to operate her owned beauty shop.
To figure out the appropriate coverage, we first asked who the named insured was on the HO3. It was a single named insured, whom we’ll call Jane Doe. Jane operated her owned beauty shop under the name of Jane’s Hair Care LLC. That was fine to provide coverage under the HO3 with an HBB endorsed onto the policy. When the situation changed and the insured became the landlord to another beautician and a massage therapist we came up with this approach to cover each exposure and entity:
- Homeowners: An unendorsed HO3 in the name of Jane Doe. This policy covers the home structure, personal property and her personal liability. Under the homeowners policy, there’s no business coverage provided for either property or liability of the business. The Home-Based Business coverage was removed from the existing policy.
- Business coverage on the owned beauty shop: A BOP policy was written in the name of her LLC business covering her owned beauty shop supplies, property used in her hair care business and commercial liability for her own beautician operation. She may also add professional coverage to this policy if she chooses.
- A Landlord’s policy: A CGL policy listing Jane Doe as named insured covering the liability as a landlord to the other beautician and massage therapist.
We also advised that if the landlord policy was not in Jane Doe’s name but her business name, a limitation or exclusion form would be needed on both the BOP and the CGL. Remember, liability follows the named insured. If you have two CGL policies with the same name (covering different exposures), there is potential for stacking of limits if no attempt is made to limit the policy to only what you are covering.
Lastly, we suggested that Jane Doe, as a landlord, be listed on her tenants’ policies as an additional insured. This provides additional protection for her. You would need to verify at each renewal that the tenants continue to carry their own coverage with liability limits equal to, or greater than, your insured.
We’re here to help you untangle the who, what, where and why of insurance. Feel free to contact your underwriting consultants for any help in deciding how to best insure your clients.