For most businesses, a complete insurance program will involve the purchase of several insurance policies designed to provide protection from both the first-party and third-party risks which the business is expected to face. The most common types of policies that most businesses have are a commercial general liability policy (CGL); some type of auto policy; and workers compensation.
Each of these policies is intended to fill a different need and by design, they usually do not have any substantial amount of overlapping coverage. The CGL is designed to cover accidental bodily injury or property damage that does not arise out of the use of an auto and which does not occur to one of your employees. A prime example of the type of claim covered by the CGL is a slip and fall at your premises.
If your business owns autos or trucks, it will likely have a policy providing business auto coverage (BAC). Forming a kind of mirror image to the CGL, the BAC requires that an accident arise from the use of a covered auto in order for coverage to be triggered. Like the CGL, it also excludes coverage for workers compensation benefits and inuries to your employees.
Injuries to your employees are covered by your workers compensation coverage. In Texas, workers compensation coverage not only provides benefits to injured employees, it also provides you with immunity from almost all lawsuits arising out of the injury of an employee.
In Texas, each of the foregoing policies has what is known as an “occurrence trigger”. This means that coverage is triggered by an occurrence (i.e., an accident of the type covered by the policy) that occurs within the annual policy period. The good thing about this type of policy from the policyholder’s perspective is that it does not matter how long after the policy has expired that a claim is made. So, hold on to those old policies!
Each of these policies is a primary policy, meaning it is designed to respond first to a loss. In contrast, an excess policy is designed to respond after the limits of a primary policy have been exhausted through the payment of claims.
If your company is extremely small, you may not think you need an excess policy but it is usually “good insurance” to have one (no pun, although it sounds like one) . An excess policy that doubles or triples the amount of your primary limits will usually cost just a small fraction of the premium for the primary policy.
Large enterprises will have “layers” of excess coverage that are said to be “stacked” on one another. An excess carrier at any given level will not be required to respond to a loss until all layers beneath it have been exhausted through the payment of claims.
An issue that arises frequently in these uncertain economic times is the effect of a primary or excess carrier becoming insolvent. Is the excess carrier in the layer above then required to “drop down” and pay claims that were the responsibility of the defunct insurer? The answer depends on the wording of the policy being asked to drop down but virtually all excess policies now have terms that prevent this from occurring. This means that if you have an insolvent insurer at some level, you are likely to be left with a gap in coverage.
Depending on the nature of your business, you may have a separate access policy for each of your primary policies or one or more umbrella policies. An umbrella policy is an excess policy that offers broader coverage than the policies below it. For example, an umbrella policy might cover your excess exposure for both general liability and auto risks, even though you have two separate policies at the primary level. Some umbrellas even offer primary coverage for uncommon types of claims that are not coverd by a CGL policy.
If you are a professional such as a doctor or an attorney, your policies will usually contain an express exclusion for professional liability. You will be required to purchase Errors and Omissions coverage to cover his type of risk.