What Does Business Insurance Not Cover?

One of the things that complicates many aspects of life is exceptions. This is as true in Business Insurance as it is in a broad spectrum of categories, including relationships, warranties, and civil rights. While it is wonderful to have Business Insurance available to protect your company, it is critical to identify the precise areas of risk that remain uncovered by your policies.

A  knowledgeable insurance advisor will be able to provide you with this information while discussing the specific advantages of particular Business Insurance policies you may need. Because insurance advisors do not work for a single insurance company, they can offer you a wide range of options, making your best interests their top priority.

The Benefits of Knowing What Your Business Insurance Does Not Cover

Once you understand your business’s vulnerabilities, you may be able to purchase additional insurance policies for specific high-risk areas or to prepare to handle unprotected events by setting aside funds to pay for damages out-of-pocket.

Alternatively, you may anticipate taking out loans in the unlikely event that such situations arise, or you may simply decide that you will just live with the small measure of risk involved. Whatever steps you take, it is helpful to know possible risks upfront so that you will not be blindsided.

How do insurance companies decide which types of Business Insurance to offer?

Insurance companies, like your own business, weigh the products and services they offer in terms of their bottom line since they must make a profit to continue functioning. Therefore, the greater the risk that they will have to pay claims on a particular type of insurance, the higher your premium will be.

So, if your business has a high risk of personal injury claims (e.g. if you own a construction company or a factory with dangerous machinery), you will pay more for liability coverage than a management consulting firm. On the other hand, if your business is located in a high-crime section of town, your Commercial Property Insurance may be more costly.

Insurance companies base their Business Insurance policies on tables and algorithms that give them a fair idea of how much risk they will be taking by insuring your company for different types of damage or loss. Usually, if you are willing to pay the cost, you can get just about any kind of Business Insurance you’re looking for. Interestingly, extremely rare occurrences, like falling meteors, are usually already covered by your ordinary Commercial Property Insurance.

What Business Insurance Does Not Cover

Among the losses uncovered by your Business Insurance are:

Damages caused by certain natural disasters, such as floods and earthquakes. While you likely can make a successful claim for damage caused by a burst water pipe or heavy snow, you will probably not be able to recoup losses if a river adjacent to your business overflows, unless you have purchased a separate Flood Insurance policy.

Damages to other people’s property stored at your business.

In most cases, other people’s property that is on your premises will not be covered by ordinary Business Insurance. Such property may include leased equipment, property of your customers or clients, and other people’s property that is stored off premises under your supervision.

While companies you have leased from may require you to insure their machines or appliances separately, it may be up to your discretion to purchase supplemental insurance to cover customers’ property placed in your care.

Intentional Acts of Misconduct.

If you have engaged in malfeasance, your Business Insurance will not cover you. Professional Liability Insurance provides coverage for negligence, not criminal behavior. In the same vein, your Business Insurance will not pay claims based on the deliberate destruction of your client’s property by one of your employees.

The same is true if it can be proven that you destroyed your own property and then put in an insurance claim. In such cases, in addition to not being reimbursed, you will likely be charged insurance fraud.

Besides destruction of property, other deliberate forms of illegal behavior -- such as hacking into IT systems of competitors or engaging in discriminatory hiring practices -- are never covered by Business Insurance. There is no legitimate insurance company that will provide coverage for illegal activity.

Rioting and Looting

While some Commercial Property Insurance policies explicitly disallow coverage for civil unrest, and others may allow coverage but have very high deductibles, most standard policies do cover damage that results from civil commotion and vandalism, as well as damage caused by police or other first responders. It is important to discuss specific aspects of your policies with a capable insurance advisor in order to be aware of exactly what type of coverage you have before you ever have to grapple with a catastrophe.

COVID-19

Although Business Interruption Insurance is often part of Commercial Property Insurance, physical damage to insured property (e.g. by fire) is typically the basis of such claims. Because coronavirus, though deadly and disruptive, has not destroyed property, insurance companies have been turning down claims that businesses have become “inoperable” due to the effects of the virus. As a matter of fact, after the SARS outbreak in 2003, when hotels in Hong Kong received millions of dollars from their insurance companies, many U.S. insurance companies made specific coverage exemptions for “viruses.” In spite of federal and state aid, many businesses are suffering to keep their businesses afloat or have already lost them. The refusal of insurance companies to pay for coverage during the pandemic is a controversial issue that will probably be addressed legislatively or in the courts.

The Takeaway

Since the whole point of having insurance is being proactive, do yourself a favor and engage now in understanding what your Business Insurance policies are likely to pay and not pay if you have a serious problem. Discussing your insurance needs with an experienced insurance advisor is the best place to start.