The 3 Most Common Coverage Gaps for Businesses

Today, we’ll review the 3 Most Common Coverage Gaps for Businesses. There is an incredible variety of insurance coverages available to business owners. This is not limited to only the type of insurance policy, but the coverage available on each separate policy.

Every business has a different need, but in general terms, there are a few coverages that are often missed.  We’ll review some of those coverages here.

Directors & Officers Liability

Most businesses have never heard of this type of coverage. It’s most commonly purchased by publicly-traded companies; however, most privately owned small businesses still have considerable exposure in the area where this coverage provides protection.

One of the reasons it’s not commonly purchased is because the coverage can be hard to grasp conceptually.  Here’s the best way I can explain the coverage:

Directors & Officers Liability protects the organization as well as its shareholders, members, partners, principals, directors, owners, & officers from lawsuits that come from actual or alleged mismanagement of the company.

That’s a bit of a loaded statements, so it’s worthwhile to break this down a little further.

Let’s start at the end, with “mismanagement of the company.” So what is mismanagement of the company? Think of it this way – if a stakeholder in an organization is financially or economically harmed due to the actions of a company and/or the people in charge of said company, they may bring lawsuit against the company and/or the people in charge.

Now let’s address who it the policy protects. Not only the organization, but the individual shareholders, members, partners, principals, directors, owners, & officers. In many cases, an individual can be named as part of a lawsuit, putting their personal assets at risk. Typically, the organization’s governing rules allow the organization to reimburse its members, but what if they’re unable to?

Directors & Officers Liability protects both the company and individual members.

Who Needs Directors & Officers Liability Insurance?

The typical organizations who need D&O insurance include:

  1. Organizations with a Board of Directors
  2. If you have already, or plan to raise capital from outside investors
  3. If you’re in a highly litigious or regulated industry

Who Might Bring a Lawsuit Covered by this Policy?

Stakeholders of the organization that might suffer an economic loss.  This often includes:

  1. Investors
  2. Partners
  3. Clients / Customers
  4. Suppliers
  5. Competitors
  6. Government Agencies

This is a pretty big group, right?  Have you started looking into Directors & Officers Liability yet?

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Employment Practices Liability Insurance

If you are a business owner with employees, this is a coverage you should have heard about by now. If you haven’t, it means that your current insurance broker has likely fallen asleep at the wheel.

In case you’re not familiar with it, Employment Practices Liability (EPL) is a type of insurance coverage that protects you from lawsuits regarding the management of your employees.  The most common examples are wrongful termination, discrimination and harassment.

But the coverage extends far behind these most recognizable examples. Other coverage available (depending on your policy) might include:

  • Retaliation
  • Third Party Harassment & Discrimination
  • Failure to Hire, Train, or Promote
  • Wrongful Demotion
  • Fair Labor Standards Act (FLSA) violations

Why is it Important?

You might do everything by the book, but that doesn’t mean you can’t be sued.  EPL Insurance will pay for your legal defense if the cause of an alleged event is covered.

We’re all human and humans make mistakes. This is especially true the more people who make decisions within your organization.  Maybe you’re careful and know all the rules, but is it possible you have a manager who might speak a little too freely or might not be as up to date as you are?

The world we live in today places a greater emphasis on social justice.  Black Lives Matter and the #metoo movement are two of the more prominent examples of the heightened awareness of social issues in our society. What this means for you as a business owner is simple – there is a higher likelihood of being sued today than there was yesterday.

Who Needs EPL Insurance?

This is a pretty broad group:

  1. Business owners who have employees
  2. Individuals and families that employ domestic staff

Cyber Insurance

There are businesses who truly don’t need Cyber Insurance, but these are few and far between.  The vast majority of companies need this coverage, but many still don’t have it.

The two most common objections I hear about cyber insurance go something along the lines of:

  1. I don’t have any internet presence / I don’t sell anything on my website; or,
  2. I don’t have any personal data on my clients.

These objections certainly do lessen your exposure to the things Cyber Insurance protects you from, but it doesn’t mean you don’t have exposure to financial loss.

Cyber Insurance does more than just provide financial protection from things like Data Breach or attacks on your website. The vast majority of businesses use technology to some degree, even if it’s just limited to email.

Cyber Crime takes many forms and there are great products available that not only protect you, but help you train your staff and proactively manage your risk.

Who Needs Cyber Insurance?

I think the better question is, who doesn’t need cyber insurance? To answer that, I’d ask you to answer a few questions:

  • If you lost the ability to use your computer systems, would you be able to continue to run your business without any loss of income?
  • If someone hacked into your email account, would they be able to affect your business or your bank account in a negative way?

The 3 Most Common Coverage Gaps for Businesses

These are the big three, but this list is not exclusive.  It’s also generalized for businesses across a wide range of industries.

Quote possibly, the biggest coverage gap to your specific business might be in a completely different area.  To solve the problem of not knowing what you need coverage for, we use a thorough risk identification process.

If you bought your insurance online, or have never met (or never hear from) your insurance broker, you might be missing coverage important to remaining in business.

To determine whether or not the 3 Most Common Coverage Gaps for Businesses apply to you – or if there’s anything else you might be missing – we’re happy to talk and provide you with a preliminary coverage audit. Please just give us a call or schedule an appointment with us here:

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Are you ready to save time, aggravation, and money? The team at Stillwell Risk Partners is here and ready to make the process as painless as possible. We look forward to meeting you!

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