Business Insurance: Part Two
In Part One of this series, we discussed some of the basics of insurance, why we need it, and where to begin your search for a business policy. Armed with this foundational knowledge, we are ready to delve into much more specific topics to assist in your search for a policy or review of your existing coverage. Brace yourself, because this is highly complex subject matter and those of you who don’t get all tingly inside when you read through a contract (the way I do) may find your eyes glazing over. Don’t be discouraged if things don’t quite make sense right away. Feel free to drop any questions or comments below the article.
DISCLAIMER: I am not an attorney or licensed insurance agent. This article is not legal or financial advice and should not be treated as such. You will see words like “typically” and “generally” used throughout, because some or all of the topics discussed here may not apply to your specific situation. This article is meant only to provide helpful talking points for a conversation between you and your insurance agent and/or attorney. It’s also worth noting that the topics discussed here are based on U.S.-issued insurance policies and may not translate to policies issued in every U.S. state or other countries.
Anatomy of a Business Owner’s Policy
For our purposes, I’ll focus on a specific type of policy known as a Business Owner’s Policy (BOP), which is typically the best fit for a small photography business or freelancer. There is another type of business policy known as a Commercial Package Policy (CPP), but these are generally more complex and better suited for the specific type of business they are designed to represent (e.g., there is a CPP form designed specifically for the risks associated with automotive dealerships). Later, we will spotlight another policy type that pertains specifically to covering your business equipment, known as an Inland Marine policy.
Just about every insurance policy issued in the United States is based on standards set by the Insurance Services Office (ISO). That doesn’t mean every policy is the same—far from it, in fact—but the basic templates and language will be similar, if not identical, between insurance companies, assuming the same specific type of policy. The base policy will generally include terms that are applicable in almost all situations. The good news here is that, because policies are standardized in this way, you can save time and shop with confidence when comparing quotes. Bear in mind, however, only the base policy itself is standardized—there will likely be many unique features and restrictions within each policy. But these are easy to spot, and I will show you how to recognize and discuss them with your agent.
Important: The way these topics are organized for the purposes of this article may not match up exactly with the way the actual policy refers to them. This is done for organizational purposes as we move through this complex subject matter.
Most of us are familiar with the “good, better, best” model in retail. Insurance is no different. There are options to fit every need and budget, but you must weigh your budget against the risks you are able and willing to assume. Less coverage means a cheaper premium, but it also means more risk, which could prove much more expensive in the long run. The policy form describes the policy itself, rather than being a section of it. The policy form identifies the overall scope of coverage provided to the insured party, as well as the way losses are valued and other details. Offerings may vary between companies, but there are three main policy forms on the market today:
Basic Form: While I haven’t come across many of these, they do exist and should be considered with caution (and in my personal opinion, should be avoided altogether for photographers). Basic Form policies provide the least amount of coverage and therefore expose the insured to the most risk. The covered causes of loss are usually restricted to specific named perils like fire, certain types of weather, civil commotion/riots, and a few others. Loss settlement is often performed on an actual cash basis, meaning that if property needs to be replaced, you will likely have to cough up a substantial portion of the total cost to do so.
Broad Form: I’d argue this is the most common policy you’ll encounter. Like Basic Form policies, Broad Form policies are known as “named peril” policies, meaning that only specific causes of loss listed in the policy are covered. Broad Form policies expand quite a bit on the list of covered perils/causes of loss, and will generally include enhancements to other aspects of the policy. For example, Broad Form policies typically provide replacement cost loss settlement, which is far better than the “garage sale value” actual cash value settlement provides.
Special Form: This is the most comprehensive type of policy. Basically, anything that’s not specifically excluded is covered, which effectively places the burden on the insurance company to prove why a specific loss would not be covered. This is known as an “open peril” policy. Your agent might use the outdated term “all risks” to describe a Special Form policy. However, there are still exclusions that could expose you to risk (exactly why that term is considered outdated), so it’s important to review those with your insurance agent. Don’t rule out Special Form coverage just because it tends to be the most expensive of the options—my BOP is a Special Form policy, yet I still pay less premium than some of my colleagues who have Broad Form policies.
The policy Declarations contain an itemized summary of vital information pertaining to the policy:
- Named insured details (name, address, etc.)
- The policy coverage period (policy number, dates of coverage, etc.)
- Coverages, their associated limits, and the premium for each
- List of endorsements on the policy
- Other information that varies with each policy
If you want to impress your agent, casually refer to it as the “dec page.” Generally, the quickest way to compare quotes in a fair and accurate way is to start by comparing the Declaration pages, because you will have the itemized coverages, their limits, and the associated premiums right in front of you. Be careful, though. The Declarations may contain standard placeholders for optional coverages referred to elsewhere in the policy, that you have not actually purchased and are therefore not provided by your specific policy. You’ll generally be able to determine this by the fact that there is no premium listed next to that coverage type. You’ll receive a new Declarations page at each renewal, reflecting the new policy period dates and any relevant changes to the policy.
The policy conditions are basically the rules you must follow as part of the company’s agreement to provide coverage to you. For example, after a loss, you are required to promptly notify the insurance company of what happened. This gives them a chance to quickly intervene, obtain evidence/documentation where needed, and hopefully reduce the amount they might have to pay out on your behalf. Conditions may be found in more than one area of the policy.
Each type of coverage has a specific category (which we’ll cover shortly), as well as a specific limit, which is shown on the declarations. The Coverages section explains what types of losses fall under each coverage type.
Causes of Loss (Perils)
While the Coverages section defines what your policy protects (property, liability, etc.), the Causes of Loss section defines the risks your policy protects against. A cause of loss is also referred to as a “peril.” This section can be helpful in determining how the insurance policy is designed to respond to a given event. Let’s say you set your camera down at a café and, after finishing your lunch, you drive away without it. You return to the café to look for it, but it’s gone. Most people would call this “theft” but for insurance purposes, it would generally be categorized as “mysterious disappearance.” This distinction would likely determine whether or not the loss will be covered, or at least to what extent.
The Exclusions section lists specific causes of loss or scenarios in which no coverage is provided. Many situations in which a policyholder is horrified to learn their claim will not be covered, result from an exclusion to an otherwise covered cause of loss. Some exclusions will seem obvious; others may surprise you. However, if you see an exclusion in the policy, that doesn’t mean it applies to your policy. Like just about anything else in the policy, exclusions can be overridden or reversed by endorsement.
Because insurance policies can be quite complicated, they are generally very standardized, which can create conflicts with state-specific requirements or neglect coverages that a client needs. That’s what endorsements do: they change the policy. Endorsements can add, remove, increase, or limit coverage, replace language found elsewhere in the policy, or just about any other change that would otherwise require a nearly infinite number of versions of each policy type. When you go to a restaurant and say, “No onions, substitute salad for soup, and add a side of mashed potatoes,” all of those customizations would be “endorsements” to what is offered as standard on the menu. Just about every insurance policy will include multiple endorsements specific to the state in which the policy is written, as well as company-specific terms and/or enhancements to coverage.
Property: If you own or rent a studio space, this would be what protects the space itself. If you rent a space, there may be coverage for some built-in improvements you make as a tenant as well. This coverage may also be referred to as “Building.”
Business Personal Property: This refers to your equipment, accessories, cases—physical “stuff” you use in the course of your work. As many of us work from home, it’s a good idea to discuss with your insurance agent where your home policy should end and your business policy should begin. If you experience a loss that affects both your business and home renter’s policies, you will likely have to pay two deductibles to engage their respective coverages. Some people prefer to insure some or all of their BPP using an Inland Marine policy, which works similarly to a floater on a home/renter’s policy.
Business Liability: Generally, this coverage compensates others on your behalf for losses that are attributable to your actions, or pays to defend you against such claims. There are a few subcategories that may each have their own coverage limit: medical expenses, personal and advertising injury, damages to premises rented to you, and possibly others. My policy also contains an “aggregate limit” for this coverage, which is the maximum amount the policy will pay, regardless of how many claims are made.
Business Interruption: When you experience a property loss caused by a covered peril, this coverage compensates you for the business you are unable to conduct while repairs/replacements are made. The scope of this coverage, like other coverages, is limited to covered causes of loss, so certain restrictions apply.
Errors & Omissions: Real estate agents and notaries public carry this coverage because it deals with liability from errors on a document or incorrect professional advice. Why would photographers need this coverage? Aside from potential contract-related issues, there’s one scenario in particular where E&O becomes critical. Let’s say you perform a shoot that costs the client $10,000 in expenses—in some cases even the cost to keep a building air-conditioned for the shoot can approach this amount. If your memory card is corrupted and the resulting images lost, E&O coverage will pay the client’s expenses relative to recreating the shoot, or reimburse them for the loss. Many people assume their liability coverage would step in here, but technically speaking, E&O would generally be needed for this type of loss to be covered. Remember our previous example about leaving your camera at a café? Regardless of what coverage you have for the camera, the expense associated with the lost images is another issue entirely. Note that my own policy’s E&O endorsement refers to “wedding photographers and videographers,” but this, like many endorsement titles and descriptions, does not actually limit the coverage to weddings or wedding photographers. Check with your agent if you have any questions about semantics of this nature.
Inland Marine Policies
The Business Personal Property coverage provided by your base policy will generally have some limitations that could prove problematic for some photographers. The most common issue is that usually only a certain percentage of BPP is covered while not located at the insured location. In other words, if you regularly travel with 50 percent of your equipment and it all becomes damaged due to a loss, only a portion would be covered. Coverage is also typically not worldwide, so if you travel internationally, there may be less or no coverage at all.
The term “Inland Marine” comes from marine insurance, which is about as old as insurance itself. Dating all the way back to the Middle Ages, merchants would insure their shipments while in transit over water (this is actually how Lloyd’s of London got its start). Coverage was typically provided on an open-peril basis, with very few exclusions, so the merchants would be satisfied that whatever risks their cargo might face at sea would be covered. During the Industrial Revolution, as new types of property needed to be insured (like radio towers), property insurance companies saw competition from marine insurers who were already used to insuring property for almost all causes of loss. Inland Marine policies, casually referred to as “in-transit” policies, take the idea of marine insurance and extend coverage to certain types of property, anywhere in the world, whether located on water or on land.
The enhanced coverage provided by Inland Marine policies makes them well worth considering. You will likely also have the option to select a different deductible to protect your equipment, or possibly no deductible at all (though your premium will reflect that). It’s usually possible to list specific equipment on an Inland Marine policy, and leave the rest of your equipment to the BPP coverage on your base policy. Note, however, that earthquakes are generally excluded as a cause of loss from BPP coverage, but not from an Inland Marine policy. If you live in an area prone to seismic activity, it’s worth factoring that risk into your plans.
Typical Exclusions and “Gotchas”
Most of the negative reviews I read about otherwise well-regarded insurance companies relate to dissatisfaction with the results of a claim. Maybe the claim was denied, or the customer is unhappy with the amount they received. In some cases, the customer has objectively unreasonable expectations, but more often than not, the discrepancy seems to result from lack of communication with the agent or the assumption that certain risks would be covered. The reason exclusions exist on insurance policies is not because the insurance company is trying to skirt their responsibility to protect you; it’s because agreeing to cover those risks would present a much greater risk to them, which the premium you are quoted does not account for. There are a few specific exclusions I have seen repeatedly misinterpreted or overlooked in discussions, as well as a couple that relate to questions I was recently asked:
When your equipment is damaged on a photo shoot, that would be an example of sudden and accidental loss, a key circumstance in determining coverage for a claim. Unfortunately, when your equipment simply stops working, that is a warranty issue rather than an insurance issue, and is typically excluded from coverage. For example, if your hard drive crashes (unrelated to physical damage to the computer), your policy is not meant to pay for a replacement. However, if the hard drive failure causes data loss, your policy may cover hiring someone to recover the data or it may indemnify you from liability associated with the lost data.
Have you ever rented out your equipment? It seems so easy: hop onto ShareGrid, KitSplit, or a similar website, list the equipment, and make money on it while you’re not using it. However, there are caveats to this practice, as one photographer found out after his $3,500 camera kit was stolen on KitSplit for $70. The scam is pretty simple: someone rents your equipment and simply doesn’t return it. Unfortunately, this is often considered a form of fraud rather than theft, and is generally excluded from coverage. Although that photographer’s situation was eventually rectified, and both ShareGrid and KitSplit have since enhanced the coverage they provide to equipment owners on their platform, don’t count on your business policy to pick up where they leave off. Similarly, if you sell equipment on eBay or Facebook and get scammed, this is usually considered voluntary parting as well, so be careful.
Business interruption due to non-covered causes of loss
If you rent/own a photography studio of some kind, there will likely be a certain amount of business interruption coverage. If your studio catches fire and you are unable to work for three weeks while repairs are made, that’s where business interruption coverage comes in—it compensates you for the loss in revenue that you experience by not being able to conduct your business. But that coverage doesn’t apply for just anything. When the COVID-19 stay-at-home orders began, people rushed to call their insurance company and seek coverage for interruption to their business. Unfortunately, because no specific loss occurred, at least not one that would be attributable to a covered peril, that coverage wouldn’t generally apply in such an instance.
One of the most iconic and satisfying movie scenes I think I’ve ever seen occurs in “Fried Green Tomatoes,” when two young women gleefully steal Towanda’s parking space she’d been patiently waiting for, then sneer at her saying, “Face it, lady, we’re younger and faster.” Towanda proceeds to repeatedly ram her land yacht into their little VW convertible, and just before she speeds away, she says, “Face it, girls, I’m older and have more insurance.” While this bit of street justice brings a feeling of vindication for any of us who’ve ever had someone swoop in and steal our parking space, in real life, Towanda’s auto policy would not likely have been obligated to pay for the damage, at the very least not to her own car, because it was intentional. Aside from likely criminal charges, she would probably have a civil judgment rendered against her in court by the car’s owner or whichever insurance company paid for the damage to the convertible.
The same is true in business insurance. If you intentionally cause a loss that would otherwise have been covered by the policy, that generally negates the coverage. No matter how many times you’ve envisioned throwing your laptop out the window when it acts up, resist the temptation.
Operation of a drone
Unless endorsed on your policy, there will generally be no coverage for any loss associated with a drone. That means no coverage for the drone itself, liability for injuries or property damage, or any equipment you might have attached to it.
This topic has come up a lot within the photography community as many of our clients have asked us to sign waivers releasing them of liability in the event we contract COVID-19. While it’s questionable whether someone could successfully sue for causing transmission of a virus, it’s worth noting that most insurance policies exclude coverage for losses caused by viruses. Such risk may be best mitigated with a COVID-19 liability waiver.
Property of others, while in your care
Here are two scenarios with the same end result, but different events leading up to it:
- Scenario 1: You trip over one of your strobe’s electrical cords, causing you to fall onto an expensive sculpture, knocking it off the table. It falls to the ground and shatters.
- Scenario 2: While styling the scene for an image, you pick up an expensive sculpture to move it. It slips from your hands, falls to the ground, and shatters.
The first scenario is a typical example of a loss your liability coverage would handle. However, in the second scenario, the sculpture would have been within your “care, custody, and control,” which is a different type of loss entirely. Some policies include limited coverage for this type of loss, but it’s generally nothing near your liability limits. If you regularly handle expensive items belonging to others, whether to style a property or to photograph artwork in your own studio, make sure you discuss this with your agent.
Preparing for Client Requirements
Special endorsements, single-day coverage
Your clients may occasionally require coverage limits exceeding what you currently carry. This is information you will need to know sooner than later, as obtaining additional coverage is not usually as simple as a phone call to your agent. Typically, the most economical way to handle this would be to purchase single-day “event” insurance pertaining specifically to the photo shoot it is intended to cover. Note that in the event of a loss, under the “duplicate insurance” term, your primary policy may still be responsible for a portion of the loss. This may mean you will have to pay two deductibles as applicable.
However, do not automatically assume your client’s requirements are your responsibility. There are many situations where the client should actually purchase their own coverage, yet may incorrectly insist that you take out additional coverage. Your agent can help you determine who should bear the responsibility (and the expense) of the additional coverage.
Obtaining a Certificate of Insurance (COI)
It’s not entirely uncommon for a client or third-party venue to suddenly remember at the last minute that they need a certificate from your insurance company specifically listing them as an “additional insured.” This designates the named party as the payee for damage to their property that results from your actions. A Certificate of Insurance can generally be obtained through your agent or insurance company, but it’s not usually an instant process. Some insurers also charge a fee for each COI. Find out the most efficient way to request this document when needed and the required lead-time it involves. Ask your client well in advance of your photo shoot whether a COI will be needed.
Avoid These Common Mistakes
Any subject matter this complicated is bound to have some potential pitfalls, even when you have a good agent. While I generally advocate for the added value and accountability a skilled insurance agent can provide, we still need to be our own advocates when it comes to our insurance. Watch out for some of these common issues:
- Not enough or too much coverage. How much coverage is too much? The final answer is for you and your insurance agent to decide, but be realistic. The coverage amounts are simply maximums—it does not mean that if you inflate your property coverage by $20,000 that the insurance company will write you a check in the event of a loss. Similarly, carrying too little coverage can lead to a potentially devastating loss. If you lose $30,000 in equipment that becomes destroyed in a loss, and only have $20,000 in coverage, saving a few dollars in premium will have cost you dearly.
- Making decisions based solely on price. This issue also relates to the amount of coverage, as many people take out too little coverage in order to save money in the short run. However, as you consider multiple quotes, it’s easy to assume the coverage between them is exactly the same. In some cases, it might be, but this requires a keen eye for detail. If you are ever presented with a significantly cheaper quote than your current policy provides, check with your agent to make sure it is a one-to-one comparison.
- Not reporting changes or regularly reviewing the policy. When was the last time you bought a new piece of photography gear? Did you call your agent to tell them? This may be particularly problematic if you have an Inland Marine policy where higher-value items tend to be specifically listed on the policy. You might also have equipment you sold years ago that still shows up on the policy and you are still paying premium to insure. Both scenarios could prove costly.
- Not considering all coverage needs. Your “independent contractor” assistant may actually be considered an employee. California recently passed legislation, known as AB-5, to address the perceived misclassification of gig workers as independent contractors, rather than employees. Your state may similarly have a standard for classification that differs from the often-referenced IRS test. If that’s true, then in addition to the tax implications, you are likely obligated to carry worker’s compensation insurance for your assistant. Your liability policy will likely exclude coverage for worker’s compensation-related claims, leaving you exposed to a great deal of risk in addition to potentially hefty fines.
Best Practices When Shopping for Insurance
If you already have coverage
- Request a copy of your current policy declarations. If you don’t have a copy of your policy, request a copy of the whole thing, including any endorsements (or preferably, save a tree and have it emailed or download it).
- Ask your agent or insurance company for a policy review, which can usually be conducted by phone or video. Discuss any premium change since the previous term and the reason for it. Make sure that all eligible discounts are applied and that no claims are incorrectly showing up and/or affecting your premium. Verify all personal details are correct, including your address and other contact information. Discuss current coverages, their limits, and any recommended changes based on your situation. Finally, ask if there is anything else that could potentially be inaccurate that might be affecting the premium. I was once able to lower my insurance after learning that they had increased my reported gross sales automatically from the prior term, when sales had in fact not changed. The review process will ensure that your coverage and the amount you’re paying for it are both correct and a true representation of the cost of insurance with your current company.
- If changes are made as a result of the policy review, request a copy of the updated declarations.
- If your agent rushes the policy review, fails to ask any questions, or gives you a sort of “it is what it is” attitude without much explanation, this is cause for concern. There’s not really anything the agent can do about the premium as long as everything on the policy is correct, but they should be able to speak to the factors affecting the premium and at least discuss your options.
Shopping for a new policy
- Once you have a short list of companies to approach for quotes, as we discussed in Part One, locate one or more agents in your local area that represent those companies. Many companies have an agent locator tool on their website. Some companies have an internal sales team that allows you to request a quote directly. Many companies provide online quoting options as well, but upon completing the quote you are often assigned to an agent. I prefer to interview an agent first, and perform the quote with them directly.
- If you already have coverage and want the company quoting you to match that coverage, provide a copy of your policy declarations. They may prefer to just ask you for your current coverages and amounts, but be careful not to omit any endorsements for additional coverage that you might currently have. Anything that has a premium amount next to it is likely information that they should be aware of for a proper quote.
- Once you’ve obtained at least two or three alternate quotes, compare the total term premium to your existing policy. Do not be seduced by a lower monthly payment as it may not be reflective of the true total cost of the policy. However, if you are paying monthly, you should also factor in whether an installment fee will apply, as those tend to differ between companies.
- If you already have coverage, take the competing quotes to your current agent to give them the opportunity to identify any discrepancies between your current policy and the quotes you received. It’s surprisingly common to find differences in coverage or deductibles, discounts applied that you might not qualify for (and will later be removed), and other problems that in some cases are innocent mistakes, but in others might be the result of an attempted “bait-and-switch.” I’ve seen everything from basic issues such as an error in the zip code to an agent providing a quote on a Basic Form policy when the insured currently had Special Form—a huge difference in coverage.
- Consider your options and decide what’s best for you. The lowest premium may not be the best choice. Take into account your experience thus far with each agent/company, their availability for questions and possibly urgent requests such as generating a Certificate of Insurance, and the general quality of the coverage you will receive. Also, be sure to inquire with any of the competing companies about any special limits in coverage that may differ from your current policy but are not reflected in the quote you received.
- If you already have coverage and decide to switch companies, I recommend cancelling your current policy only after you have bound coverage on the new policy (“bound” means the insurance company has officially agreed to provide the coverage). The effective date of cancellation should generally be the same as the effective date of your new policy.
Congratulations! If you’ve made it to this point, you now likely know more about insurance than anyone else in the room you’re in (unless you’re currently sitting in your insurance agent’s office, though possibly even then). Insurance is an aspect of your business that’s easy to forget about until you need to rely on it and I assure you that the time you invest in ensuring you have proper coverage at the best price will be worthwhile. Feel free to drop any questions or comments below.