Frequently Asked Questions
What bonding requirements might I face and how do they relate to insurance?
Bonds and insurance are related but distinct risk transfer mechanisms. Many contracts require bonds alongside insurance, and understanding both helps you meet comprehensive contract requirements.
What bonds are:
Three-party agreement: Unlike insurance (two parties), bonds involve you (principal), the party requiring the bond (obligee), and the bonding company (surety).
Guarantee of performance: Bonds guarantee you’ll fulfill obligations. If you don’t, the surety pays the obligee.
Reimbursement obligation: Unlike insurance, you must reimburse the surety for any payments they make.
Credit-based: Bond approval depends on your financial strength and creditworthiness.
Common bond types:
Bid bonds: Guarantee you’ll enter a contract if your bid is accepted.
Performance bonds: Guarantee you’ll complete contracted work.
Payment bonds: Guarantee you’ll pay subcontractors, suppliers, and workers.
License and permit bonds: Required for various business licenses.
Fidelity bonds: Protect against employee dishonesty (though often considered insurance).
When bonds are required:
Public construction: Federal Miller Act and state ‘little Miller Acts’ require performance and payment bonds on public projects.
Private construction: Many private owners require bonds on larger projects.
Licensing: Various professional licenses require bonds.
Court proceedings: Various court matters require bonds.
Bonds vs. insurance:
Loss expectation: Insurers expect some losses and price accordingly. Sureties expect no losses; they’ve underwritten your ability to perform.
Reimbursement: Insurance pays claims without expecting repayment. Bond claims must be repaid by the principal.
Underwriting focus: Insurance looks at operations and loss history. Bonds look at financial capacity and character.
Getting bonded:
Surety relationship: Build relationships with sureties before you need bonds.
Financial documentation: Be prepared to provide financial statements and other documentation.
Bond capacity: Establish your bonding capacity before bidding bonded work.
What coverage do I need for healthcare or medical-related products?
Healthcare and medical products face heightened scrutiny, regulatory oversight, and liability exposure. Standard product liability coverage may not adequately address these specialized risks.
Regulatory environment:
FDA oversight: Medical devices, drugs, and many health products require FDA approval or clearance, with specific compliance obligations.
Recall authority: FDA can mandate recalls, creating exposure beyond voluntary recall scenarios.
Record-keeping: Extensive documentation requirements create compliance exposure.
Post-market surveillance: Ongoing monitoring and reporting obligations continue after products reach market.
Coverage considerations:
Clinical trials: Products in development need clinical trials liability coverage before human testing begins.
Product liability: Limits should reflect the potential severity of medical product claims. Injuries from medical products often involve significant damages.
Product recall: Particularly important for medical products given FDA recall authority and the potential scale of recalls.
Professional liability: If you provide medical services alongside products, medical professional liability applies.
Regulatory defense: Coverage for responding to FDA warning letters, inspections, and enforcement actions.
Special considerations:
Adverse event reporting: Systems to track and report adverse events as required.
Quality systems: FDA-compliant quality management reduces regulatory risk.
Insurance specialists: Work with agents and insurers experienced in healthcare products. This market has specialized expertise and coverage forms.
The healthcare product space is complex. Engage specialists in both regulatory compliance and insurance early in product development.
What coverage do I need for specialized vehicles or equipment?
Specialized vehicles and equipment often don’t fit neatly into standard coverage categories. Unique risks require tailored coverage approaches.
Common specialized vehicles:
Food trucks: Combine auto, property (equipment), product liability, and potentially workers’ comp.
Construction vehicles: Dump trucks, cement mixers, cranes require coverage addressing both vehicle and equipment functions.
Emergency vehicles: Ambulances, fire apparatus, and similar vehicles have specialized coverage needs.
Tow trucks: Need garage keepers coverage for vehicles in their care, plus auto and on-hook coverage.
Buses and passenger vehicles: Higher liability limits and specific passenger coverage requirements.
Agricultural equipment: Farm vehicles and implements have specialized coverage forms.
Coverage considerations for specialized vehicles:
Dual function: Vehicles that are also workplaces (food trucks, mobile medical units) need both auto and premises coverage.
Mounted equipment: Coverage should address both the vehicle and any specialized equipment mounted on it.
Higher limits: Specialized operations often require higher liability limits than standard commercial auto.
Professional liability: If the specialized vehicle is used to provide professional services, E&O coverage may be needed.
Product liability: Food trucks and similar operations need coverage for products sold.
Finding coverage:
Specialized markets: Some insurers specialize in specific vehicle types and understand the unique exposures.
Package policies: Coverage packages designed for specific industries (food trucks, contractors, etc.) address multiple exposures efficiently.
Endorsements: Standard policies may need endorsements to address specialized risks.
Work with an agent experienced in your type of specialized vehicle to ensure comprehensive coverage.
What coverage do I need when expanding to a new facility?
Opening a new facility triggers multiple insurance considerations. Addressing coverage before operations begin ensures protection is in place when exposure starts.
Property coverage for the new facility:
Building coverage: If you own the building, add it to your property policy with appropriate values and coverage terms.
Tenant improvements: If leasing, cover build-outs and modifications you make.
Business personal property: Equipment, inventory, and other contents at the new location.
Business interruption: Coverage for lost income if the new facility is damaged.
Equipment breakdown: Mechanical and electrical equipment at the new location.
Liability considerations:
Premises liability: Your general liability should extend to the new location. Verify coverage territory and scheduled premises.
Landlord requirements: Review lease insurance requirements. Add landlord as additional insured as required.
Certificate of insurance: Provide COIs to landlord and others as required.
Operational coverage:
Workers’ compensation: Employees at the new location need coverage. If in a new state, state-specific requirements may apply.
Commercial auto: Update coverage if vehicles will be based at or regularly serve the new facility.
Inland marine: If equipment moves between facilities, coverage should apply at all locations.
Timing and process:
Early notification: Contact your agent during facility planning, not after you’ve moved in.
Coverage binding: Ensure coverage is bound before occupancy or operations begin.
Policy review: A new facility may change your overall risk profile enough to warrant policy review beyond just adding the location.
Documentation: Get written confirmation of coverage additions.
What coverage gaps commonly occur during business expansion?
Expansion creates multiple simultaneous changes that collectively produce coverage gaps, even when each individual change seems minor. The most dangerous gaps are those where business owners believe they’re covered when they’re not.
Common expansion-related gaps:
Premises liability at new locations: Your policy might cover your existing address but not automatically extend to new spaces.
Equipment in transit: Business property coverage often applies only at specified locations; equipment being moved may be uninsured.
New employee exposures: Rapid hiring can outpace workers’ compensation policy adjustments, leaving you underinsured for payroll.
Contractual obligations: New client contracts may require coverage types or limits you don’t currently carry.
A systematic review before expansion identifies these gaps when they’re easiest and cheapest to address. Waiting until a claim reveals the gap makes the gap far more expensive.
What cyber exposures does my business face?
Cyber exposure exists anywhere your business uses technology, stores data, or connects to networks. Even businesses that consider themselves ‘low-tech’ typically have more exposure than they realize.
Common cyber exposures:
Customer data: Names, addresses, email, phone numbers, and especially payment card data or Social Security numbers create breach liability.
Employee data: Personnel files contain sensitive information that creates exposure if compromised.
Business email compromise: Fraudulent emails that trick employees into transferring funds or revealing credentials cause substantial losses.
Ransomware: Malware that encrypts your systems and demands payment for restoration can halt operations entirely.
System outages: Whether from attacks or failures, losing access to critical systems interrupts business.
Website liability: Your website can be compromised to attack visitors or host malicious content, creating liability.
Third-party systems: When vendors you rely on suffer breaches, your data may be exposed.
Assessing your exposure:
What data do you collect? The more sensitive the data, the higher the exposure.
How do you store it? Cloud, on-premises, and hybrid environments each have different risk profiles.
Who has access? More access points mean more potential vulnerabilities.
What’s your backup? Recovery capabilities affect how severely an incident impacts you.
What does employment practices liability insurance cover?
Employment practices liability insurance (EPLI) protects your business against claims made by employees alleging wrongful employment practices. As your workforce grows, so does your exposure to these claims, which can be expensive to defend even when you’ve done nothing wrong.
Common claims EPLI covers:
Discrimination: Allegations of unfair treatment based on race, gender, age, religion, disability, or other protected characteristics.
Harassment: Claims of hostile work environment, sexual harassment, or bullying by supervisors or coworkers.
Wrongful termination: Allegations that an employee was fired illegally, such as in retaliation for whistleblowing or filing a complaint.
Retaliation: Claims that an employee faced adverse action for exercising legal rights.
Wage and hour disputes: Some policies cover claims related to overtime, breaks, or classification issues.
EPLI provides both defense costs and settlements or judgments. Even frivolous claims can cost tens of thousands to defend, making EPLI increasingly essential as your team grows.
What does hired and non-owned auto insurance cover?
Hired and non-owned auto (HNOA) coverage protects your business when employees use vehicles your company doesn’t own. This includes rental cars, personal vehicles used for business, and other non-owned vehicles.
What HNOA covers:
Non-owned autos: When employees use their personal vehicles for business purposes, HNOA provides liability coverage for the business. The employee’s personal policy is primary, but HNOA fills gaps.
Hired autos: Rental cars and other vehicles your business rents or borrows for short-term use.
Liability protection: HNOA covers bodily injury and property damage liability when accidents occur during business use.
What HNOA doesn’t cover:
Physical damage to the vehicle: HNOA is liability coverage only. Damage to the employee’s personal vehicle isn’t covered. Collision damage waivers on rentals address hired vehicles.
Employee’s personal exposure: HNOA protects the business, not the employee personally.
Regular, dedicated use: If an employee uses their vehicle as their primary work vehicle daily, HNOA may not be sufficient. Commercial auto coverage listing that vehicle may be needed.
Why HNOA matters:
Sales staff: Salespeople driving to client meetings in personal cars create exposure HNOA addresses.
Errands: Employees picking up supplies, making bank deposits, or running other business errands.
Travel: Business trips involving rental cars.
Most businesses have employees who occasionally drive for work. HNOA is an inexpensive way to address this common exposure.
What does it mean to be named as an additional insured?
Additional insured status extends your liability coverage to protect another party. When you add someone as an additional insured on your policy, they gain certain rights under your coverage for liability arising from your operations.
How additional insured status works:
Extended protection: Your policy defends and indemnifies the additional insured for covered claims arising from your work.
Their benefit, your policy: The additional insured can make claims under your policy without having their own coverage respond first.
Scope limitations: Coverage typically applies only to liability arising from the named insured’s (your) operations, not the additional insured’s own negligence.
No physical damage: Additional insured status applies to liability coverage, not property or physical damage coverage.
Why parties request additional insured status:
Contractors and subcontractors: General contractors require subcontractors to add them as additional insureds.
Landlords: Property owners want protection from tenant operations.
Clients: Clients hiring service providers want coverage for liability arising from those services.
Event venues: Venues require event organizers to add them.
Common additional insured situations:
Lease requirements: Commercial leases routinely require landlords be added as additional insureds.
Service contracts: Clients require additional insured status before work begins.
Construction projects: Multiple parties require additional insured status from contractors and subs.
Cost and process:
Endorsement required: Your insurer must formally add the additional insured via endorsement.
Minimal cost: Many policies include blanket additional insured coverage; specific endorsements typically cost little or nothing.
Certificate evidence: Additional insured status is noted on certificates of insurance.
What does it mean when a contract requires ‘occurrence’ coverage?
Some contracts specifically require occurrence-based coverage rather than claims-made coverage. Understanding this requirement helps you ensure compliance and proper protection.
Occurrence vs. claims-made:
Occurrence coverage: Covers incidents that occur during the policy period, regardless of when claims are filed.
Claims-made coverage: Covers claims made during the policy period, regardless of when the incident occurred (subject to retroactive date).
Long-tail protection: Occurrence coverage provides permanent protection for the policy period; claims-made requires continuous coverage or tail.
Why contracts require occurrence coverage:
Guaranteed protection: Occurrence coverage ensures coverage exists for policy-period incidents even if you later change insurers or cease business.
No tail concerns: No need to purchase extended reporting period coverage.
Simplicity: Easier to understand and administer than claims-made.
Project completion: On long projects, occurrence coverage remains available regardless of policy changes.
Coverage types and forms:
General liability: Typically occurrence-based; contracts usually can be satisfied.
Professional liability: Usually claims-made; may not be available on occurrence basis.
D&O insurance: Typically claims-made.
Cyber liability: Usually claims-made.
When occurrence coverage isn’t available:
Explain the limitation: Some coverage types aren’t written on occurrence basis.
Alternative protection: Offer extended reporting period or other provisions providing equivalent protection.
Contract negotiation: Work with the client to address their underlying concern.
Industry standards: Point out that claims-made is standard for certain coverage types.
Verifying coverage form:
Check your policy: The declarations page and policy form indicate whether coverage is occurrence or claims-made.
Certificate indication: Certificates should indicate the coverage form.
Agent confirmation: Ask your agent to confirm your coverage form meets requirements.
What does primary and non-contributory coverage mean?
Primary and non-contributory is a coverage designation that determines which insurance policy pays first when multiple policies could apply to a claim. Contracts often require your coverage to be primary and non-contributory.
How it works:
Primary: Your policy pays first, before any other insurance the additional insured may have.
Non-contributory: Your policy pays without requiring contribution from the additional insured’s own insurance.
Combined effect: Your coverage fully responds to claims without involving the additional insured’s policies.
Why parties require this:
Protecting their coverage: Additional insureds want your insurance to pay without affecting their own loss history or policy limits.
Clean claims: Single-policy claims are simpler than those involving multiple insurers.
Preserving their limits: Their coverage remains available for their own direct claims.
How coverage typically works without this:
Other insurance clauses: Most policies have provisions determining how they share with other applicable coverage.
Pro-rata sharing: Policies might share claims proportionally.
Excess provisions: Your coverage might try to apply as excess over their coverage.
Disputes: Multiple insurers may dispute payment responsibility.
Primary and non-contributory provisions:
Contract requirement: The contract between parties should specify primary and non-contributory coverage.
Policy endorsement: Your policy needs an endorsement permitting or requiring this status.
Blanket provision: Many policies automatically provide primary and non-contributory status when required by contract.
Certificate notation: Certificates indicate when coverage is primary and non-contributory.
Ensure your policy can meet primary and non-contributory requirements. This is standard in most contractual relationships involving additional insureds.
What does professional liability insurance cover?
Professional liability insurance, also called errors and omissions (E&O) insurance, protects against claims that your professional services caused financial harm to clients. Unlike general liability, which covers bodily injury and property damage, professional liability covers economic losses from professional mistakes.
What professional liability typically covers:
Errors: Mistakes in the work you perform, such as calculation errors, incorrect advice, or design flaws.
Omissions: Failing to do something you should have done, such as missing a deadline, overlooking an important detail, or not warning about a known risk.
Negligence: Failing to meet the standard of care expected in your profession.
Defense costs: Legal fees to defend against claims, which can be substantial even when claims are meritless.
Industries that commonly need professional liability:
Architects, engineers, accountants, attorneys, consultants, IT professionals, real estate agents, insurance agents, financial advisors, healthcare providers, and many other service professionals face E&O exposure.
If you provide advice, design, consultation, or other professional services, discuss professional liability coverage with your insurance advisor.