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Is your business covered?

While nearly all business owners know that they need to purchase and maintain insurance to cover unexpected loss and liabilities, many discover only too late that the insurance which they purchased does not provide the extent or type of coverage expected.  It is vitally important that any business owner fully understand what his/her insurance does and does not cover and the types of insurance needed.  What insurance is needed will depend upon factors such as the size of the business, the type of business, the number of employees and the risks involved with operation.  As litigation in general increases, particularly in the employment area, the time to ask questions about the scope of one's coverage is not upon service of suit, but rather, at the time insurance is purchased.  In most instances a variety of insurance coverage is advisable, and the cost of the insurance is routinely minor compared to what the cost would be to defend a lawsuit through trial.  Employment practices liability coverage, for example, is becoming increasingly popular for medium to large employers to protect from suits for harassment, wrongful termination, and the like, and such coverage can prove of vital importance in the event of litigation.   

Additionally, it is unwise to assume that the interpretation of any policy language will stay the same from year to year.  It is important that employers keep abreast of changes or clarification in the insurance arena which may serve to expand or limit the coverage being purchased.  In some instances one court ruling can overturn ones long held belief as to the scope of coverage provided by a particular type of policy. 

A great example of this principle dates from just this past year.  In the case of Cincinnati Insurance Company v. Motorist Mutual Insurance Company, 306 S.W.3d 69 (Ky. 2010), the Kentucky Supreme Court clarified the losses to which standard commercial general liability (CGL) coverage applies in Kentucky, thereby no doubt sending many contractors scrambling who assumed that their CGL coverage would protect them from all work site accidents resulting in damage to property.  In Cincinnati Ins. the issue was whether a claim of defective construction against a homebuilder was, by itself, a claim for property damage caused by an "occurrence" under a CGL insurance policy.  If it was then the contractor would have had coverage.  Despite the fact that the CGL policy in Cincinnati Ins. defined an "occurrence" as "an accident," the Kentucky Supreme Court ruled that a defect in construction, even if completely unintentional, was not an accident and thus not an “occurrence” under standard CGL policy language. Thus, in one fail swoop the Kentucky Supreme Court made it clear that certain losses would not be covered under CGL policies. 

For these same reasons, business owners must stay abreast of changes in the law and be prepared to adapt their insurance coverage to make sure they are adequately insured.  One cannot assume that there will be no change in the law or that the language of a policy will stay the same from year to year.  In conclusion, it is vital that business owners read their insurance policies in full and that they work with their insurance agents and counsel to make sure they in fact have the full extent of insurance they both desire and need to be adequately protected. 

 

 

 

 

 

 

 

 

 

Luke A. Wingfield is an associate with McBrayer, McGinnis, Leslie & Kirkland, PLLC. Mr. Wingfiled concentrates his practice in employment law, insurance defense, litigation and administrative law. He is located in the firm’s Lexington office and can be reached at lwingfield@mmlk.com or at (859) 231-8780.

This article is intended as a summary of newly enacted federal law and does not constitute legal advice.

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