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Grow Your Insurance Agency Business by Discovering New Business Ventures

Although new consultancies and professional service firms have tight budgets during their infancy, they need at least two types of coverage. Your agency can help. Simply by amending your annual personal lines renewal questionnaire with one simple question – “Have you or a family member started a home-based business in the past year or so?” – you may find new avenues to round out your personal lines business with a businessowners (BOP) or a professional liability policy.

We know that personal consulting businesses face at least two types of exposures, so let’s review their needs and discuss how you can help protect your clients.

First, let’s focus on professional services firms.

What Types of Insurance Does a Professional Consultancy Need?

When your client provides a service or offers advice, what if it is faulty? Consider the side-job person who designs websites. The designer may use a photo cadged from the internet protected by copyright laws. Even after closing the professional services firm, that image may come back to plague the designer when the website owner receives a takedown notice and a demand for a hefty payment from the image firm that owns that copyright. Or what if a copyright holder accuses that designer or content writer of plagiarizing protected content, what then?

Obviously, that business owner has professional exposures. Just like the home-based bookkeeper who may lose customers’ accounting data in a cyber hack, there are many considerations the home-based entrepreneur must contemplate prior to opening a business, or in the first few months of that start.

However, the professional liability policy is not a one-size fits all coverage. Remember the BOP may or may not include coverage for personal & advertising injury (P&AI), yet the commercial general liability (CGL) policy is rarely right for a small consultancy.

Additionally, if the insurer defines the consultancy as a “media company,” that firm may find itself without P&AI coverage after a loss. This can expose your agency to an errors & omissions (E&O) claim.

The insurer may word the professional liability policy as follows: "The company will pay on behalf of the insured any loss excess of the deductible not exceeding the limit of liability to which this coverage applies if the insured becomes legally obligated to pay because of claims made against the insured during the policy period for wrongful acts of an insured or because of personal injury arising out of wrongful acts of an insured."

This wording exposes the limited scope of the professional liability policy. The policy’s intent is simply to cover only negligent professional or “wrongful” acts that result in personal injury. Again, the policy may provide limited protection for personal injury, such as libel or slander or a wrongful eviction, committed by the insured against a third party for the firm. A media firm will require special media liability coverage beyond the scope of a BOP.

Next, the consultancy may need a general liability policy. Let’s discuss the need for general liability coverage.

How Does a Professional Services Firm Protect Itself Against Liability?

A liability policy, often found in a businessowners policy that can also cover personal property and some theft exposures, may cover bodily injury (BI) to a person or damage to the property of others (PD) caused by a firm's negligence. The policy will exclude intentional acts that cause BI or PD, however.

As courts have ruled repeatedly, the liability policy is not a performance bond. A liability policy will not cover the quality of a company's advice or service. This helps restrain the contractor from low bidding on a job, performing poorly and then relying on the insurance carrier to cover that risk.

Look first at typical liability language under the insuring agreement, the heart of a policy. "We will pay those sums that the insured becomes legally obligated to pay as compensatory damages because of 'bodily injury' or 'property damage' to which this insurance applies."

Here are a few of the exposures covered under a general liability policy.

Premises and operations liability for persons injured or items damaged while your insured has business customers on their premises or because of the business’s typical operations.
Coverage when your insureds sign certain written contracts or agreements, such as leases. (Do not try to be a lawyer by reviewing the terms except for insurance provisions; refer your clients to legal help to avoid an E&O exposure.)
Tenant's liability if the business owner, for example, accidentally starts a fire in a rented premises.
Host liquor liability if your insured is not in the liquor business.
Legal investigation and defense for covered claims.
Bonds and court courts associated with a claim.
Limited financial compensation when your insured assists the carrier in the defense of a claim.

In addition to bodily injury and property damage, a liability policy may provide coverage for personal injury liability, including libel and slander, as well as advertising injury. Again, the BOP may not, and you may have to endorse personal & advertising injury on the policy, or the carrier may not agree to provide that coverage. The CGL policy offers consultancies the broadest coverage and peace of mind. However, most small consultancies do not need a CGL. Your insureds can run their enterprises with assurance that help is available in the event of a broad range of losses with a well-crafted BOP or professional liability form and a general liability policy.

Although there is a great deal of uniformity among professional liability forms and CGL forms, all carriers use a variety of forms and not all are Insurance Services Office forms. With more business going to surplus lines, especially for new business ventures, you must ensure you read the form to alert your insured to any provisions that could limit or exclude coverage.

What are Some Liability exclusions?

There are many exclusions under a liability policy, and to understand each one is tricky. Forms differ and jurisdictions that hear lawsuits vary greatly. However, here are some general exclusions:

Intentional injury -- If business owners must defend themselves, there is generally coverage. For example, suppose a robber breaks into the darkened firm and brandishes a knife at the owner, who is catnapping. He heaves a computer monitor at the burglar and injures the burglar. Carriers should defend the case unless it appears the insured intended to inflict malicious injury.
Care, custody and control of property owned by others — For the consultancy that repairs computers or other equipment, bailee coverage may be necessary.
Liability arising from an aircraft, auto or watercraft — If your insured uses any of those conveyances in their business, they will require specific coverage to protect their assets. However, if your clients provide an automobile to an employee who gets in an accident, a business auto policy is a must for coverage, depending on the coverage form and the jurisdiction. It is important, however, that you always offer non-owned auto coverage to each of your insureds and document any rejection. A simple task like allowing employees to use their own vehicles on a business task can create a big liability exposure.

While a liability policy offers most consultancies broad coverage, as an agent, you must evaluate each risk carefully to recommend and document those recommendations, and any subsequent insured rejections, to protect yourself against an E&O claim.

The Liability Policy or BOP May Not Cover All Exposures

As a consultancy grows, the liability and/or businessowners policy may be only part of your insured’s coverage solution. The liability policy will not cover every exposure faced by your client, especially once your insured hires employees. In most states, after a business owner hires either one or a small number of employees, their state mandates workers' compensation coverage.

Additionally, employment practices coverage is important in today's complicated employment arena. There is no coverage under the liability policy or BOP for most employment exposures like a wrongful termination or a discrimination claim.

Many consultancies start with only one computer and a printer, but as a firm grows, so does its personal property. In many cases, the BOP will offer sufficient coverage; however, for contractors such as a handyperson or small HVAC repair person, coverage can be a more complex story.

Crime coverage is necessary for consultancies who have employees or face robbery risks. Small firms are very frequently a fraud target. Crime coverage may be available on the BOP form you offer, or your insured may, as the business grows, need a specialized crime form in some cases.

Additionally, I cannot tell you the number of times my small business owner friends have been told by their current agent, “We can’t get you work comp coverage,” or worse, fail to offer that coverage. This is not only a setup for an errors & omissions claim, but also lost premium by failure to offer much-needed coverage. Even professional consultants have a personal injury exposure if they drive or travel to meet clients or attend seminars.

You are More Than an Agent; You are an Educator

Many new business founders may not realize their insurance coverage needs' importance until it is too late. After analyzing the business offerings of the consultancy, and where and how they offer them – at home or away from their premises – you can begin to evaluate their liability and other insurance needs. You can determine what additional coverage, such as professional liability, employment practices, or workers' compensation policies they may need.

Because most consultants have auto insurance, they understand liability coverage. While business liability is more complicated, the general principles of coverage for bodily injury and property damage are similar to the auto policy. For the new consultant, this comparison may be a good starting point to help them understand their company's need for general liability coverage.

In today's complex business environment, no consultancy should go without two types of coverage – professional and general liability – at a minimum.

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