While there are many ways to describe an entrepreneur, Merriam-Webster defines an entrepreneur as “one who organizes, manages, and assumes the risks of a business or enterprise.” The term entrepreneur is not a new one; in fact, the origin of its usage dates back to 1762. When examining risk mitigation strategies, insurance almost automatically comes to mind. Afterall, as the International Risk Management Institute (“IRMI”) notes “[i]nsurance is a contractual relationship that exists when one party (the insurer) for a consideration (the premium) agrees to reimburse another party (the insured) for loss to a specified subject (the risk) caused by designated contingencies (hazards or perils).”
Those currently in the business world and new entrants to the world of business may assume that their insurance coverage is broader than what is covered under the terms of the policy. Global Entrepreneurship Week, celebrated this year from November 13th through the 19th, recognizes the entrepreneurial spirit of those involved, and it also provides a mechanism for worldwide economic growth solutions as explained by National Today. One way to facilitate such growth is to explore how certain gaps in insurance coverage can have significant impacts. There may be situations where businesses are exposed to certain vulnerabilities that they have not yet even contemplated. In Part One of this article, we will review common exclusions to commercial general liability (“CGL”) policies and explore some of the ramifications of these gaps in coverage. Part Two of this article series will examine three claims examples to illustrate how such policy exclusions have operated across multiple industries.
Two Common Exclusions in Commercial General Liability Policies: What does that Mean for Entrepreneurs?
Entrepreneurs oftentimes have very innovative approaches to a new business model. Apart from visualizing and then actualizing their visions, there are many steps and sometimes stumbles along the way to making their dreams come true. After securing a CGL policy, it’s necessary to learn about what is included and what is excluded from coverage. Two common exclusions under a CGL policy are as follows: the pollution exclusion and the professional services/liability exclusion. Based on an entrepreneur’s line of business, additional types of coverage offerings may be imperative. As opposed to a policy endorsement, an exclusion serves a different function. IRMI delineates between the two, explaining that “[a]n endorsement is an insurance policy form that either changes or adds to the provisions included in one or more other forms used to construct the policy, such as the declarations page or the coverage form.” In contrast, IRMI points out that “[a]n exclusion is a provision of an insurance policy or bond referring to hazards, perils, circumstances, or property not covered by the policy.”
- Pollution Exclusion
The first common exclusion that we will discuss is the pollution exclusion, which does not cover losses resulting from pollutants. That seems simple enough. However, what actually is a pollutant? Some ideas may come to mind, and perhaps more traditional environmental pollutants are on the top of that list. Did a fume generated from the application of a floor sealant make the cut?
Again, it’s all in a definition, and the interpretation of that definition in question. For example, in Cincinnati Ins. Co. v. Becker Warehouse, Inc., a 2001 case, pollutants were defined as follows: “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed. Pollutants include but are not limited to substances which are generally recognized in industry or government to be harmful or toxic to persons, property or the environment.” This definition is used for illustrative purposes, and it may give others a moment of pause to examine how aspects of their business could be similarly affected. The second article in this series will explore the Cincinnati Ins. Co. v. Becker Warehouse, Inc. case in more detail.
- Professional Services/Liability Exclusion
Even in umbrella or excess commercial liability policies, a professional services/liability exclusion may exist. Depending on one’s business, coverage for those situations involving potential professional liability should be explored. Staffing agencies who employ those who perform professional services can also be impacted. Damages arising out of that performance or lack thereof of professional services can be excluded from coverage under said policy. A 2017 case, Energy Ins. Mutual Limited v. Ace American Ins. Co., addressed this very issue, and the Court determined that under the circumstances presented there that the services that the staffing agency provided did, in fact, fall under those excluded by the policy. In that case, the resulting damages were attributed to the professional services performed, and were, therefore, excluded from coverage under the policy. This case will also be discussed in further detail in the subsequent article.
Hopefully, this article will inspire current and future entrepreneurs to examine their current coverages and to ask questions about what other functions/needs of their business need to be addressed. This dialogue could help others to mitigate unexpected situations that could arise in the future. A lot of times, it’s not a matter of “if,” but really just a matter of “when.” When entrepreneurs are looking to start a business, there are many demands on their time. However, it is highly recommended that such individuals make time to consult with a trustworthy insurance broker who can help to assess both their risk management and insurance needs. Afterall, don’t let a gap in coverage lead to the failure of a business that you worked so hard to start! The next article in this series will illustrate how the policy exclusions described above have operated in real-world scenarios across multiple industries.
Synapse Services LLC does offer environmental and professional liability insurance coverage options. Please contact one of our producers if you are interested in receiving more information about the coverage options available.
By: Jessica Cambridge