Fundamentals of commercial insurance in the United States

It is no surprise that there are many differences between the business area in the United States of America and that of many countries in Latin America. And while there are many experienced North American companies operating in the South, it is a newer phenomenon than Latin American companies that are investing in foreign lands and struggling to understand different laws and customs. One of those differences is the depth of the insurance culture that exists in the United States. The normal thing in the United States for companies of medium and large size is to buy insurances of diverse lines with significant limits. Those companies also have a genuine expectation that their insurers will pay claims under the terms of the policies, and when they do not, they will sue them in court, taking advantage of quite protective laws of the rights of insured that exist in many states and a generally experienced justice in insurance matters (depending on the state, locality and the judge). Below I will cover basic insurance topics and some of the most common types of insurance contracts in the United States business environment.

  1. Insurance Basics             
    1. Insurance Regulation

In relation to the insurance regulations of the United States, the most important thing to understand is that insurance contracts, and with few exceptions, the courts give effect to the clauses in the literal form. The specific way they give that affection tremendously favors the insured, but you cannot count on a judge “rewriting” a clause to achieve a favorable resolution for the insured. For this reason, it is very important to understand well the clauses and exceptions of the coverage offered. Similarly, although there are some lines of insurance without much variation (eg, workplace hazard insurance (known as “Workers’ Compensation”)), many insurance contracts are not standardized and can vary significantly (especially, for example, insurance policies). directors and officers (“Directors &

The vast majority of insurance is under the exclusive regulation of the states, not the federal government, and there could be important variations in insurance laws between the states (typically depending on the relative importance of insurers in the local economy, up to point that states with many insurers have less protective laws for policyholders). Despite state attention and a relatively high level of government intervention in the insurance arena, assistance from a public agency is generally not available in the event of a dispute with an insurer, especially in the commercial area.

An endpoint of insurance regulation. Like many things in the United States, the most important regulation does not come directly from a law or regulation, but from the “market.” So while there are statutory requirements to maintain coverage in certain situations (for example, transit companies must maintain certain insurances by law), the practical need for insurances comes from counterparties to commercial contracts and a general expectation that companies will maintain the coverage corresponding to the risks faced.

  1. Basic Types of Insurance

At its most basic, there are two types of insurance – “first-party insurance,” which responds when direct and physical damage occurs to the property of the insured. In other words, after a covered loss, the insured presents proof of the existence of the damage and the value of the damaged property, then the insurer would pay the corresponding amount. The other is a liability to third parties (“third party insurance”), which offers protection from third party claims in which the damages required are of the type of risk covered by the contract. “Protection” in this context consists of two distinct obligations – hiring an attorney to present a defense on behalf of the insured (known as “duty to defend”) and indemnifying the insured in the event of a judgment against them (“duty to indemnify ”).

  1. Insurance Commonly Viewed in the Business Environment
    1. Commercial Package (Property, Inland Marine, CGL, Auto)

In business, insurers typically offer the most common insurance all together as a package (known as the “Commercial Package Policy”) that could include both property and liability insurance to third parties.

In many cases, the most important policy in the first group is simply called “Property Policy,” which provides coverage for real property, real estate, and personal property located in the insured locations. Commonly covered risks include wind, frost, rain, fire, flood, earthquake, and other claims. However, there are many other types of coverage in this class, including coverage covering property in transit (“Inland Marine”), automobiles (“Auto”), theft by employees or others within the company (“Fidelity”), and to limited extent computers and other technology-related assets (more comprehensive coverage requires specialized policies, known as “Cyber ​​Policy”).

With respect to third-party liability, the most important coverage is found in the general liability policies (“Commercial General Liability” or “CGL Policy”) and automobile (“Auto Policy”). The third-party portion of an auto policy that applies when there is physical damage to persons or property resulting from the insured’s negligence in the use of a covered automobile. Among other things, the most frequently involved third-party coverage of the CGL is for physical damage to persons or property as a result of the general negligence of the insured. There is also coverage for financial damages for certain acts listed as a violation of privacy rights or a physical intrusion into the property of the other. Commonly excluded from coverage there are many risks, including asbestos, environmental contamination, and physical damage to the goods manufactured by the insured. Other exclusions from a CGL reflect, however, that there is another policy that provides the excluded coverage, as in the case of risks related to automobiles or employees, which are excluded from a CGL and included in the Auto and Employer’s Liability policies, respectively. .

  1. Employer’s Liability / Workers’ Compensation / Employment Practices Insurance

Having employees is taking risks, and these are covered (with certain limitations, clearly) with policies particularly contemplated in these situations. And, in this context, there are four different coverages frequently seen in the commercial environment.

With significant variations between states (again, states are seen to have jurisdiction in areas that are under federal jurisdiction in many other countries), there are alternative systems to normal courts for determining compensation due to physical injury sustained by an employed during the act of work. These systems are typically called “worker’s compensation,” and are intended to provide an employee with fair compensation (which is almost always below what they would receive for the same injuries as the normal system) faster and with less expense. In many states, however, an employer cannot take advantage of these systems without “Worker’s Compensation” insurance, which covers severance payments to employees in the alternative system.

The existence of worker’s compensation systems does not mean, however, that lawsuits against an employer are always resolved outside the normal courts. Rather, employers are frequently sued in court for physical injuries suffered to persons not included in the relevant worker’s compensation system. For these claims, many Worker’ compensation policies also include coverage from “Employer’s Liability.” Normal courts also have jurisdiction for lawsuits related to administration and treatment of employees (for example, lawsuits for sexual and/or age discrimination). These risks are covered with another type of policy separate from that of Worker’s Compensation, which is called “Employment Practices Liability Insurance” or “EPLI.”

The fourth category of employer coverage relates to benefits provided to employees. There are two commons. The first policy is called the “Employee Benefits Administration,” and is typically attached to a CGL policy. This coverage applies in cases of negligent errors in the administration of employee benefits. Deceptively similar, but distinct, is the coverage offered by a “Fiduciary Liability Policy.” These policies also provide liability coverage linked to employee benefits, with the difference that the coverage responds in cases of more complex decisions involving discretion on the part of the insured. To give an example of the difference between these two coverages,

  1. Directors & Officers Liability Insurance

The Directors & Officers (D&O) Policies receive a lot of attention because they offer protection to directors and officers in case of direct lawsuits against them (something that in the United States is the exception, because a properly formed and operated corporation offers a lot of protection for directors and officers). But, despite its name and reputation, a D&O Liability policy doesn’t just cover the directors and officers of a company. Rather, a D&O policy has three parts, the first (called “Side A”) covers an insured person (such as a director) when the insured company cannot indemnify the person because it would be prohibited by law or because the company is bankrupt or insolvent. The second (“Side B”) requires the insurer to reimburse the insured company when the company has compensated a person for a covered risk. And finally, the third (“Side C”) provides direct coverage to the insured company. Under all its parts, the coverage offered on a D&O policy is extremely broad but subject to important limitations. For example, many D&O policies exclude physical injury claims, violations of anti-competitive laws, and environmental issues, among other risks.

  1. Other Insurances

While the aforementioned insurances are the most common, there is an almost innumerable number of specialized insurances, including professional civil liability, aircraft, technological errors and omissions, environment, cyber, privacy, media, political risk, to name a few.