While commercial insurance protects against a wide range of losses, some things are either not insurable or may require a different policy or endorsement. Even the most comprehensive policies have limits and exclusions.
Understanding what isn’t covered is just as important as knowing what is. By identifying these gaps, you can plan ahead and take steps to minimize risk.
Here are eight common exposures business owners often assume are covered by insurance.
Wear and Tear
Insurance is designed to cover sudden and accidental losses, not the gradual breakdown of equipment over time. If your HVAC unit stops working after 25 years or your roof finally gives out, that’s wear and tear, not an insurable event.
To protect your business from equipment losses due to wear and tear, consider investing in regular maintenance and service contracts. For equipment losses due to mechanical and electrical failures (not caused by wear and tear), consider purchasing equipment breakdown coverage.
Care, Custody and Control
A general liability policy doesn’t cover damage to property in your care, custody and control. For example, a mechanic damages a customer’s car while it’s in the shop for repairs, or a cleaning service damages furniture while cleaning a client’s premises, these situations are excluded.
To protect your business, consider property, bailee or garage keepers insurance.
Contractual Liability
Most general liability policies exclude obligations that exist only because of a contract. For example, if a client is unhappy with the quality of work and sues you, this claim would typically fall outside your general liability coverage. Contract disputes involve failing to fulfill agreed-upon terms, such as poor quality or missed deadlines, which are not covered. Liability for negligence that causes harm, such as damaging property or injuring a person, is typically covered. It is wise to have legal counsel review all indemnity clauses in your contracts and avoid signing broad “hold harmless” agreements without understanding their insurance implications.
Pollution Risks
General liability policies typically include broad pollution exclusions. Events like mold in a daycare or fumes from cleaning products will likely fall under pollution exclusions. To protect your business from pollution liability exposures, you may need a separate environmental or pollution liability policy. This is particularly critical for businesses that operate in industries involving chemicals, solvents or fuel storage or own property, but nearly all businesses produce some level of pollution.
Known Incidents, Events
Claims-made policies, like employment practices liability or professional liability insurance, cover claims reported during the policy period. If management knew of an incident before renewal—such as an employee complaint of sexual harassment that later became a lawsuit—and failed to report it, coverage can be denied.
It’s important to understand what your policy defines as a “claim” and to report anything that falls under the definition of a claim, even if no formal complaint has been made. Keep documentation and communicate with your broker when potential issues arise.
Voluntary Parting and Social Engineering Fraud
If your company voluntarily releases property or money due to deception, such as shipping goods to a fraudulent buyer, standard property policies won’t respond. This is known as voluntary parting.
You can add social engineering fraud coverage to your cyber or crime policy, but not all social engineering coverages address the voluntary parting of property other than money and securities. For protecting voluntary parting of property, you can add an endorsement to your commercial property policy. To mitigate risk, verify large orders, banking details or address changes directly with known contacts.
Roadside Assistance and Heavy Vehicle Towing
Unlike personal auto insurance, commercial roadside coverage is rare and often limited by vehicle weight or type. If you own fleets or heavy trucks, consider a specialized roadside assistance plan. Check with your broker to go over the specifics of available coverage.
The Umbrella Misconception
Umbrella policies are designed to extend limits on your primary liability policies, typically applying to general liability, auto liability and employers’ liability. Some businesses, such as schools and contractors, may have professional and pollution liability extended through the umbrella policy.
It is important to review your entire insurance portfolio with your broker to identify where additional primary or specialty policies are needed. You can purchase additional limits of insurance with an excess policy specifically designed to provide coverage over management liability, cyber, and specialty lines.
Contact HWP
Insurance is designed to protect your business from unexpected events, not routine maintenance or known risks. By understanding exclusions, you can make smarter coverage decisions and adopt proactive risk management practices.
HWP, a leading insurance agency, provides individuals and businesses throughout Washington, D.C., Annapolis and Southern Maryland with customized insurance solutions. We would be happy to review your commercial insurance and discuss ways we can help bridge coverage gaps. Learn more at hwphillips.com.
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