Sterling Seacrest Partners: When Business and Personal Risks Collide
Thursday, March 14th, 2019
Distinguishing between personal, social and business activities can be difficult for some business owners. Civic activities are an expected part of your position, working from home is common, and entertaining clients is as much social as it is business. In light of today’s litigation prone society, protecting yourself and your business from liabilities created by such activities is good risk management.
One of the most common risk exposures individuals face is the liability incurred when serving on the board of a not-for-profit organization. While business leaders may join not-for-profit and religious institution boards for altruistic reasons, their participation opens them to law suits raised by the organization’s members, injured parties served by the organization, or by vendors selling to the organization.
Most not-for-profit organizations provide Directors and Officers (D&O) liability insurance as a means of protecting its board members (paid and volunteer); however, it is not uncommon to find new organizations that have overlooked this issue or older organizations with policy limits that have not kept up with recent trends.
While you may have been asked to join a board due to your position as president of a prominent local company, your participation in this organization is not covered by your company’s general liability, umbrella or D&O policies. The first line of defense in the event of a management-related claim is the organization’s D&O policy; the second source of protection may be your personal umbrella policy. Your company’s commercial liability policies usually will not provide any protection for this exposure as your participation on the board is not directly related to your company’s operations.
Some insurers will provide coverage for service on not-for-profit boards under a personal umbrella policy, but you need to discuss details with your insurance broker as coverage terms vary widely. Personal umbrella policies are one of the most affordable coverages on the market today. In most instances, individuals can purchase umbrella policies with limits of $1 million to $5 million for several hundred dollars.
When purchasing a personal umbrella policy, confirm with your broker/agent any underlying policy requirements, such as automobile liability and homeowner liability limits. In most situations, consolidating all three policies – – homeowners, automobile and personal umbrella – – with a single insurance company is recommended as this strategy eliminates the potential for delays and disputes between various insurers.
Host Liquor Liability
Entertaining clients, business associates and employees at one’s home is a common practice for many business people. For many such events, alcohol is provided by the host, thus introducing another risk exposure for the unwary. While some occasions are clearly company-sponsored functions, such as an office holiday party at the president’s home, other events, such as a casual dinner with a mix of social and business acquaintances, blur the line between business and personal activities.
Most commercial general liability policies provide coverage for host liquor liability situations such as office parties, company picnics and home entertainment, assuming the event does not involve the sale of alcoholic beverages. Regardless of the business connection to the event, the host is personally exposed to lawsuits if a guest or unrelated party is injured as a result of alcohol being served at the event. The expense of hiring a personal attorney in this situation can be staggering (no pun intended), thus another reason to consider purchasing a personal umbrella policy.
One caveat: neither a business liability policy or a personal umbrella policy will provide protection in the event you are deemed to have knowingly served alcohol to underage drinkers or to persons already under the influence of alcohol. As the host, you are responsible for those serving alcohol to your guests therefore you should always clearly state to servers your expectations regarding underage guests and guests who appear to be intoxicated.
Business Property at Your Residence
Most commercial policies provide coverage for company property such as laptops, computers, printers, manufacturer’s samples and financial records while stored at temporary locations such as an employee’s home. However, self-employed individuals who work from home may not have appropriate coverage as most homeowner policies limit coverage for business property to $1,000 to $5,000. If you work from home, compare the replacement cost value of your business property to the limits provided in your homeowner’s coverage and request adjustments as necessary.
Note: if clients come to your home as part of your routine business activities, you need to purchase a business liability policy in addition to your homeowner’s policy as the latter will not cover claims for business-related injuries occurring on your property.
Risk is a part of everyday life; it is inherent in everything we do, whether we’re on the job or relaxing in the backyard. Managing your personal risks should be just as important as managing your business risks.
Gail Prescott is a Senior Account Executive with Sterling Seacrest Partners. She can be reached at 912.544.1926 or firstname.lastname@example.org.