UNDERSTANDING INSURANCE

For the Bed & Breakfast or Country Inn Innkeeper

Casualty Insurance

Commercial General Liability Insurance is one of the best types of liability insurance available, as every third party liability claim is covered unless there is a specific exclusion. This coverage is written on the same basis as the Special Causes of Loss form found in the property coverages - there is coverage unless there is an exclusion.

Commercial General Liability includes an aggregate limit, occurrence limit, products and completed operations aggregate limit, personal and advertising injury, fire damage, legal, and medical payments.

1). Aggregate Limit: The total amount of all liability losses, which will be paid in a single year; this figure is usually $1,000,000 or $2,000,000.

2). Occurrence Limit: The total amount of a single on-premises liability loss that will be paid; this figure is usually $1,000,000.

Caution: The occurrence limit contained within the Commercial General Liability portion of your policy applies per loss, not per person. If a guest falls down the stairs and you have a $1,000,000 occurrence limit, you have $1,000,000 available for your guest injury (one loss). If you have a fire in your Inn and 12 people are injured, with a $1,000,000 limit on your policy you only have $1,000,000 which applies collectively to all 12 people. To increase your aggregate and occurrence limits you can purchase an Umbrella or Excess liability policy, both of which are discussed further in this presentation.

3). Products and Completed Operation: Coverage designed to protect you from losses that develop after the guest has checked-out.

4). Fire Damage Legal: This coverage is only used in a landlord/tenant situation. If you are a tenant in a building and cause a fire, you would use your Fire Damage limit in order to repair the damaged portion of the building you occupy. If the value of the portion of the building you occupy is greater than your Fire Damage limit, you should increase this limit to cover your exposure.

5). Personal and Advertising Injury: Coverage to protect you from losses arising from invasion of privacy, defamation of character, wrongful detainment, libel, slander, and the like.

6). Medical Payments: A goodwill coverage designed to pay for any injury a guest may sustain. You are not admitting liability by using this coverage. For example, a guest breaks their leg because they were intoxicated and fell down your stairs: medical payments will pay for the ambulance and any medical expense up to the Medical Payments limit on your policy (this limit is usually $5,000.). If you are found legally liable, the "occurrence" limit will then be used.

Insist a guest seek medical attention if they are injured, offer to pay for the medical expense (DO NOT ADMIT LIABILITY) and call for an ambulance. Once the ambulance arrives, if the injured party refuses medical treatment the paramedics will have the injured party sign a form indicating medical services were refused. This form becomes important should the injured party bring a lawsuit against you.

Always, always report to your insurance agent any injury a guest may sustain no matter how small. Notice to your agent is notice to the insurance company. If you are sued several years after an accident occurs and you had reported the incident to your agent when it occurred, the insurance company cannot invoke Reservation of Rights (which is a right listed in the insurance policy). Reservation of Rights means the insurance company can decide not to entertain the claim if they determine the claim was not reported in a timely fashion.

If you have a business policy with Commercial General Liability coverage, the insurance company will provide a lawyer and pay for your defense costs. The defense cost will not be applied toward your policy limits.

For example, suppose you have a $1,000,000 occurrence limit on your policy and you are sued. After everything is said and done, the jury awards the plaintiff $800,00 and the legal fees were $1,200,000. Your insurance policy will pay the full $2,000,000 as the legal fees are paid above and beyond your policy limits. Now, suppose the award was $1,200,000 and the legal fees were $800,000. In this instance, your policy would pay $1,800,000. The policy will pay for the legal fees no matter the cost, however, it will only pay up to the policy limits for any settlement-in this case $1,000,000 as $1,000,000 is the per occurrence limit.

Back - Next - Table of Contents