How Commercial Umbrella Insurance Can Protect Your IT Business
As most IT business owners know, technology liability insurance policies can help…
- Procure client contracts.
- Lease office space.
- Protect your business against the cost of lawsuits.
However, when things go wrong – like really, really wrong – Commercial Umbrella Insurance, or Excess Liability coverage, can come to your aid by providing additional coverage beyond the limits of certain policies.
What Does Commercial Umbrella Insurance Cover?
Commercial Umbrella Insurance is available in $1 million increments and can provide payment for settlements and judgments that exceed the limits on the following policies:
Say a client sues your business, but your General Liability Insurance policy maxes out at $1 million in coverage. When the settlement comes out to $1.5 million, your Commercial Umbrella Policy can cover the difference.
Professional Liability Insurance (aka Errors & Omissions Insurance) is not covered under a Commercial Umbrella policy, however. If you make a professional error that leads to a client’s website being hacked or fail to deliver a project on time, you will only be covered up to the maximum of your Professional Liability policy, even if you have Commercial Umbrella coverage. That’s why it’s important to work with an agent to choose a Professional Liability limit that makes sense for your business.
Multimillion Dollar Lawsuits and Commercial Umbrella Insurance
You may recall that, in 2012, Sketchers USA agreed to pay $40 million in damages to settle a false advertising claim. The lawsuit from the Federal Trade Commission (FTC) accused the company of tricking consumers by claiming that its Shape-ups sneakers would help them…
- Strengthen and tone their legs.
- Lose weight.
- Resemble Kim Kardashian.
The FTC identified these as misleading claims and went after the company. Sketchers is a big corporation, but smaller businesses can just as easily get embroiled in an advertising injury claim.
As reported in this AL.com article, the Alabama Supreme Court upheld a jury’s decision in 2013 to award $7.5 million in damages to Shawn Esfahani, the Iranian-born owner of Eastern Shore Toyota dealership, after he won a defamation lawsuit against competitor Bob Tyler Toyota. Esfahani was able to prove that Bob Tyler Toyota employees…
- Spread false rumors that he was an Iraqi terrorist.
- Referred to his business as “Taliban Toyota” and “Middle Eastern Shore Toyota” to dissuade customers from buying a vehicle from his dealership.
Let’s say, in the case of the car dealerships, that Bob Tyler Toyota had a $1 million General Liability Insurance policy and a $5 million Commercial Umbrella Insurance policy. Once the dealership hit the $1 million max of the General Liability policy, the Commercial Umbrella policy would pay up to its limit of $5 million. The dealership would then be responsible for paying the additional $1.5 million owed.
Disparaging a competitor, as in the case of Bob Tyler Toyota, is a very real possibility and one to be mindful of. As much as you may think your competitor Computer Whiz Kidz is a bunch of incompetent hacks, it’s probably better to keep that opinion to yourself and not share it on your social media accounts – or you could find yourself hit with your own libel or slander lawsuit.
Commercial Umbrella Insurance and Your Small IT Business
Another potential instance when you might need to tap into your Commercial Umbrella coverage would be in the case of a serious accident or injury. Say one of your employees, or a contract worker, uses his own vehicle to travel to your clients’ offices and work on their computer systems. En route to a client, he causes a major car accident, which results in serious injuries for him and the family whose minivan he hit. If the amount of the resulting settlement exceeds your policy limit, Umbrella Insurance can often pay the difference – assuming you had a Hired and Non-Owned Auto Liability policy in place for his car.
Even small IT businesses can benefit from Commercial Umbrella Insurance. And the costs might be more affordable than you think. For example, an independent IT contractor could expect to pay roughly $450 annually for $1 million in coverage.
If you’d like to see more sample costs, check out “What Is the Cost of Umbrella Insurance for a Small Business?”