By Les Brown
The fast-paced nature of the startup world means that entrepreneurs often overlook the insurance products necessary to protect a growing company. But simply telling your board “We have insurance” does not mean it is the appropriate insurance for your particular company or that the policy is being properly utilized. Insurance should be viewed as, and maximized like, any other company asset.1. Comprehensive General Liability (CGL) Insurance
CGL insurance protects the company’s assets when a claim is brought for alleged:- Third-party bodily injury
- Property damage
- Personal property
- Advertising injury
Keep in mind that CGL policies contain an ever-expanding list of exclusions and conditions designed to prevent coverage. For instance, insurance policies usually require notice of a claim or loss “as soon as practicable,” though what that means varies depending on what your state law requires. In any event, don’t sit around and think about it—give notice. You can always withdraw if the matter fails to develop.
In addition, since most service contracts require that a company have at least $l million in CGL coverage, even if you think you can get away with not having this level of protection, you will have to purchase it anyway.
2. Directors and Officers (D&O) Liability Insurance
Though having well-known individuals on your board will help grow the company, these individuals will insist they be protected from litigation concerning their business decisions. Essential to any startup, in this regard, is Side “A” D&O coverage, which protects officers and directors from claims alleging “wrongful acts,” meaning that their decisions negatively impacted the value of the company.Side “B” coverage protects the company by indemnifying the director or officer and has to pay for the defense or indemnity costs.
Side “C” coverage protects the company directly in the face of shareholder/class action suits over securities issues.
3. Cyber/Media Insurance
Given recent high-profile hacking incidents in the business world, the need for cyber insurance is clear. Unfortunately, there is no standard cyber policy form, and various insurers’ policies contain untried provisions, terms, and definitions.Like the coverages already described, these policies provide both defense and indemnity coverage. They also may provide services for compliance, with regulatory notice and disclosure requirements, and crisis management, once an incident has occurred.
4. First-Party Property Insurance
First-party property insurance provides coverage for physical damage to company property. The best form of this coverage is “all risk” coverage, which provides protection for types of damage to buildings and equipment not specifically excluded.This insurance is important for startups with significant infrastructure. Even tech companies are well advised to purchase it. First-party property insurance protects against damage to the servers themselves. An owner may add business interruption coverage for losses due to the down time involved in replacing or fixing the equipment. Exclusions in these policies include damage or loss of your property due to machinery breakdown, wear and tear and design defects.