Insurance Considerations - Property of Others
Issue #40
January 21, 2008
This weeks article is provided by guest writer Nancy Nunley. Nancy is Executive Vice-President of Insurance Services at Kempkey Insurance Services, holds an AAI designation, and has been with the agency for twenty years.
If your business operations include taking possession of or working on property owned by others, you need to be aware of your insurance provisions and plan accordingly to minimize a potentially expensive, uninsured surprise. Before considering your insurance options, a solid risk management practice would be to first make sure your written agreements with your clients are closely reviewed by your attorney to limit your potential liability. After that, a close review of your insurance options should be considered. There are four different insurance coverages that interact here – general liability, property, bailees, and professional liability.
General Liability Insurance
Commercial General Liability policies contain a standard exclusion for personal property while it is in your “care, custody, and control.” This exclusion has long been a part of liability policies mostly for two reasons: First, insurers underwrite and price their policies with the expectation that covered liabilities will only arise when the ordinary degree of care is used as the measure of liability. However, liability for the damage to property of others in your control would be controlled by a stricter standard, usually the standard of strict liability. As a result, the risk is much greater. Secondly, insurers wish to avoid duplication of coverage where the property in question is, or should be, covered by a first-party policy, such as a property or inland marine (Bailees’) policy.
Property Insurance
Your property insurance coverage is intended to cover property you own. Some policies may include limited coverage for property of others. However, it usually applies only if you are “legally” liable. Your property policy could be modified to include property of others on a primary basis; however, you would be charged premium accordingly. Also, because a property policy has exclusions for design or workmanship flaws, damage caused by a negligent act of you or your employees would not be covered (see Professional Liability section). Another important consideration is the limit of insurance on your policy. A catastrophic loss at your location could prove inadequate if a portion of your limit is used to cover property of others.
Bailees’ Insurance
Insurance can be purchased in the form of a Bailees’ policy which could provide coverage for your responsibility as a bailee for property of others you have in your possession. It is important to note that most Bailees’ policy forms would exclude coverage for property while it was being worked on or processed. There are some insurers who will modify their policy, but it must be negotiated.
Professional Liability Insurance
If you are providing advice or consultation to others as to the manufacturing or processing of their product, you would also need to consider Professional Liability coverage. Your general liability coverage is intended to cover liability arising out of your operations and use of your product, but not for claims of negligence. This coverage insures against claims arising out of negligent acts, errors or omissions in the rendering or failing to render professional services.
Summary
Because insurance policies can differ greatly in their terms and conditions, you need to review your provisions carefully with your insurance advisor to make your best informed decision.
As you can see from this example, a small investment in safety can have huge returns for an employer.
Kempkey Insurance Services provides insurance and risk management consulting to growth oriented businesses. Ed Kempkey may be contacted by email at ed@kempkey.com or by phone at (888) 536-7539 extension 2188.