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Have You Had Your Annual Checkup?
Have You Had Your Annual Checkup?
By: Steven A. Walker
No, I’m not referring to the one that we all dread at our doctor’s office. I’m referring to the one with your property and casualty insurance agent. Creating business entities and trusts are a smart strategy for limiting your liability exposure (or at least confining it to a particular entity) and protecting assets in the event of lawsuits, but your first line of defense is always going to be your insurance policy.
That’s why it is critical that you sit down with your property and casualty agent at least once a year and review your coverage. Your insurance agent should be a valued member on your “team of advisors” so it is important to select an agent who is familiar with your business and what your risks might be. So make sure your agent is actually insuring businesses similar to yours because he or she will be in a better position to advise you about the types of coverage and the policy limits that are appropriate for your type of business.
Once you have found the correct agent to work with, you need to review your coverage. Have you formed a new business entity or transferred assets to a trust? If the answer is yes, that new entity or trust needs to be named as an insured on the policy. Have you added new business partners and have they been added to the policy as well? In the event of a lawsuit, the plaintiff is likely to name everyone and everything in the suit and then during the course of discovery will figure out who actually is the correct party or parties to the lawsuit. However, even though a person or entity may eventually be dropped from the lawsuit, there will still be a period of time during which legal representation will be necessary. Without insurance coverage, you will have to pay out of your pocket (not the insurance company’s pocket) for that defense.
Another critical area to review is what you are insuring and the value of what you are insuring – did you build new structures, increase your livestock numbers (if a farm), purchase new equipment, or trade in some equipment? It is important to go through your coverage line by line to make sure that you actually have everything insured that should be insured and that you are not insuring something that no longer exists. At the same time, review your umbrella policy and decide whether you need to increase the coverage or perhaps purchase one if you don’t already have an umbrella policy.
Finally, you need to review whether you have the appropriate coverage in place to reflect your business activities. I met with a farm client who was plowing residential driveways as a side business. I’m nearly certain that plowing driveways for unrelated parties as a side business is not covered under a typical farm owner’s policy. I suspect that if this farm owner was in an accident while engaged in that activity, his insurance company would deny coverage. Therefore, you need to discuss with your agent what it is that you are doing to determine if you are actually covered for that activity.
So, schedule that checkup today if you haven’t had one in the last 12 months. Otherwise, you might have a false sense of security with respect to your coverage.
If you have any questions, please do not hesitate to contact me or the attorney in our office with whom you typically work.
To view this article in PDF format, please click here [Have You Had Your Annual Checkup].
