Insurance contracts: Are you protected?

Your business probably has a commercial general liability policy but do you really understand your coverage? Sadly, many businesses do not appreciate the limitations in their policies until they make a claim and learn about the numerous exclusions or limitations, with potentially devastating consequences.

It is imperative that business owners communicate their particular insurance needs to their insurance broker so that appropriate coverage may be determined. It is then the broker’s responsibility to ensure that the requested level of insurance is obtained on behalf of the client.

Where, for instance, a client requests “full coverage”, the broker will be required to arrange coverage against all foreseeable insurance risks of the client’s business. This will usually require the agent to inform himself about the client’s business in order to appreciate such risks. If the maximum coverage is not provided, the agent is required to advise the client clearly and unequivocally that he does not have the maximum coverage, and that there is a gap in his coverage. If the premium for such coverage is high, the broker must nonetheless advise the client of the availability of such coverage, leaving the ultimate decision as to whether to purchase such a policy to the insured.

The renewal process should not simply be an automatic exercise, but an opportunity to revisit whether the client’s requirements are being met.

An insurance contract is unique. As a “peace of mind” agreement, the law requires all parties to act in the utmost good faith. While many of the responsibilities fall to the insurer and broker, as the insured, you also have a duty to provide accurate information about the scope of the business, and to alert the insurer to any material changes affecting your business.

This article was originally published in an October 2009 edition of the Ottawa Business Journal.