While there are many coverages available to the manufacturing industry, three basic coverages provide most of what is needed by manufacturers.
General Liability coverage helps protect the company from lawsuits resulting from bodily injury or property damage, either from their operations or products. In the case of a claim due to the insured’s products, Product Liability is the coverage that will respond. For contractors, the similar coverage is called Completed Operations. General Liability protects the business if someone other than an employee is injured on your premises, or if injury occurs to someone due to one of your products. An extension in a General Liability policy can also provide coverage for allegations of libel and slander, but coverage is usually not extended for professional services you provide.
This exposure is best covered by a Professional Liability/Errors & Omissions policy
Commercial Property policies protect a businesses’ buildings, contents, raw material and inventory. Extensions to a property policy can also provide coverage for Fine Arts, Accounts Receivables, Data & Software, Newly Acquired Property, Outdoor Property, Data Breach, Backup of Sewers & Drains, Electronic Vandalism, Earthquake, Flood, Off-Premises Utility Services, Outdoor Signs, Product Recall & Replacement, Spoilage, Transit, amongst many others.
Business Income coverage is a coverage on a commercial property policy that reimburses a company for loss of income because of a business shutdown or slowdown, caused by a covered loss under the definition in the policy. For the coverage to respond, there must be damage to its physical property. This coverage can be modified to extend the coverage to Dependent Properties if critical to the company’s success. These Dependent Properties can be owned by third party companies that supply components or products necessary for the insured to manufacture or complete their products. Also, the coverage can be endorsed to extend the period of indemnity to suit the needs of the company.
Business income coverage, previously called Business Interruption, provides insurance for the loss of business income because of damage to physical property during a covered event. As with most insurance, the policy will not insure against acts of war, government seizure, and nuclear hazards. Also excluded are extreme weather events, earthquakes, flood, and mudslides.
Excluded operating expenses generally include marketing, payroll, insurance, and funds allocated for research and development. Some insurance carriers may offer policies which will cover some of these expenses at an additional premium. Basically, coverage can be tailored to include continuing expenses that the insured must pay regardless of whether the business is operating at full capacity or totally shutdown due to a covered loss.
The risk advisor should help the owner determine the amount of business income to cover. Also, policies may include Extra Expense as a coverage group. Extra expenses can be any other expenditure the business incurs during the period of property damage, which would hasten a return to regular business activity. However, to be covered, the Extra Expense must not cost more than the amount of business income it brings in.
The process of calculating the details of the business income coverage policy requires the owner to break down elements of the business income and outlays, as well as create contingency plans to determine the proper and allowable amount of coverage.
Business income coverage supplements standard property insurance, since property insurance covers damage to physical property, merchandise, and equipment in the location of the business, whether the business owner owns or rents the location. In contrast, Business Income coverage covers loss of business income resulting from damage to the structure which prevents the business from operating. This means if the company can resume operations from another location to begin doing business even before the property is repaired, the business income coverage will cease and only cover the time the company could not operate.
Some policies may allow a specific rider added to the coverage which would allow additional protection. Keep in mind, this is where it is critical for the policy to include Extra Expense coverage, which reimburses the insured for the extra expenses to get the business back in operations quickly.
Traditionally, the insurance industry has had several different policies available to provide coverage for movement of goods within a supply chain. These forms would provide specific coverage for goods in the supply chain while in transit on an ocean vessel, a truck, rail car, in process or finished goods in a warehouse. Today we have a single specialized form of supply chain coverage that provides coverage for goods moving throughout the supply chain whether in a manufacturing plant, a warehouse, on the ocean, in a truck, plane or train anywhere in the world.
Instead of two or three policies, as historically done, coverage for the above exposures is on a single worldwide policy which can cover raw materials, work in process, finished goods and packaging supplies, whether in transit or storage. It can also cover owned stock and stock owned by others for which the insured has written responsibility to insure.
The coverage works well for most risks manufacturers, distributors, retailers, wholesalers, importers, exporters and others have in their operations. And this single policy is particularly beneficial in those cases where there is a percentage deductible on a property policy for the catastrophe exposures of Flood, Earthquake, Hail and Windstorm; since the deductible for this specialized form is at a set amount that can be as low as $5,000.
This can be invaluable for those risks currently with high percentage deductibles that can often run into the tens of thousands, or even millions for large multi-location companies.
Since Texas is an elective state for Workers’ Compensation insurance, employers have the option to elect to purchase Workers’ Compensation coverage, reject the coverage and purchase Non-Subscription coverage, or reject the Workers’ Compensation act and not secure any type of coverage. Whichever method the employer chooses in addressing their work injury program, an employer in Texas is required to notify both the state and their employees when the company rejects to purchase of Workers’ Compensation coverage for the employees. Failure to comply with this guideline could result in heavy fines to the employer.
Texas Non-Subscription coverage is usually less in cost to the employer when compared to Workers’ Compensation, even though it can provide coverage similar to Workers’ Compensation. Advocates of Texas employer’s Non-Subscription stress that employers control the process of claims management, since an employer can reject what may be thought to be fraudulent claims from time to time. Also, the employer can direct the employee to approved medical providers, who are legitimate medical providers with a proven track record of providing sound medical services.
However, for the construction trades, most General Contractors and project owners require all workers entering a jobsite to carry Workers’ Compensation coverage. And the buyer must know what is being lost by rejecting Workers’ Compensation. Alonso & Andrade can explain the three defense mechanisms which are lost:
1) Contributory Negligence
2) Assumption of Risk, and
3) the Fellow Servant Rule, and how the loss of these defenses could cause grave consequences for the employer.
We have years of experience in partnering with companies that have significant Product Liability exposures, as well as other vulnerabilities, such as Business Income losses and disruptions to their supply chains. Whether it is a fire at a plant in China providing a critical component needed in a manufacturing or distribution process, or a fortuitous event at a plant that puts a company out of commission for several months; there is a planning process businesses should go through before something unexpectedly strikes.
Events like these present hard financial expenses that can be addressed down the road with proper planning now. So, don’t be caught with a disruption in the flow of your goods and your income without a game plan. Plan for the inevitable.
During our years in partnering with companies in these industries, we have become experts in advising them how to best address supply chain exposures, by minimizing overall premiums, and using several maneuvers to eliminate redundancies that few of our competitors employ. Quit throwing away those extra dollars and give our team an opportunity to guide you through our process of how to pay less while protecting manufacturing or distribution supply chain.
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Fort Worth Office
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Fort Worth, TX