General Liability Insurance

The purpose of general liability insurance is to provide protection for bodily injury and property damage that comes out of the operation of your bank. The policy will provide coverage for slip and fall claims and other accidents. Most policies also include coverage for personal injury — libel, slander, defamation, and wrongful arrest. Some examples:

A customer falls on your walkway or parking lot.

An employee accidentally injures a customer.

A piece of candy you give away makes a customer sick.

An employee wrongfully accuses a customer of theft.

Occurrence Limit

The general liability insurance policy responds to events that occur during the policy period. The occurrence limit is the coverage amount that is available for each occurrence or accident. One million dollars is the usual minimum limit. Think of this as your limit of coverage for each event.

General Aggregate Limit

The general aggregate limit is the total coverage available for the combination of all occurrences in a policy period. At a minimum, you will want two times your occurrence limit here. Three times is better.

As claims are paid, you use up your aggregate limit. Once the aggregate amount is spent, the policy will no longer pay claims. You will be “out” of insurance.

Products Aggregate Limit

Products liability insurance pays for the bodily injury and property damage that comes from products you sell. The aggregate limit is the most the policy will pay for the combination of all product liability occurrences in a policy period. Buy two or three times the occurrence limit.

Personal and Advertising Injury Liability

I usually describe personal injury coverage as protection against lawsuits for hurt feelings. Most policies include coverage in this section for libel, slander, defamation, wrongful eviction, and false arrest.

Advertising injury is coverage for events similar to personal injury items, but occurring specifically in the field of advertising. Coverage is included for infringement of copyright in an advertisement.

The coverage amount is usually the same as the occurrence limit.

Damage to Premises Rented to You

This section provides coverage for damage to a building you occupy or rent from others — also called fire legal liability, or fire damage liability. The general liability policy excludes damage to property in your care, custody, or control. This section of coverage brings back protection for damage to property you occupy but don’t own.

If you rent an office that represents 40% of a building, that part of the building is under your control. If your coffee pot causes a fire that destroys the building, your landlord’s insurer may (depending on your lease) expect that you will reimburse them for the loss. Your general liability insurance has no trouble paying for the 60% you do not control. It’s your part of the building that is the problem. Hence the reason for this coverage section.

Most policies provide $100K, but you may need more.

Medical Payments

I often call this section of the general liability policy “goodwill insurance.” The section provides coverage for medical bills incurred because of an accident at your premises. It pays regardless of fault or liability. The idea is to take care of an injured person’s doctor bills quickly, without fuss. Theoretically, fast action should reduce the chances of a lawsuit.

The most common coverage limit is $5K, although more is available.

While this seems like a small amount of coverage, recall that if your negligence caused the accident, you turn to the coverage per occurrence, where the limit is most often $1 million.

“Med pay” is most often used for slip-and-fall accidents.

Exclusions

Here are the common issues not covered by general liability insurance:

-pollution (for coverage, buy pollution insurance).

-employment practices (discrimination, wrongful discharge).

-asbestos, mold, or fungi.

-contractual liability.

-employee benefit plan errors (buy fiduciary responsibilities liability insurance).

-professional liability (buy professional liability insurance).

-injuries to employees (covered by workers’ compensation).

-automobiles (covered by auto insurance).

-aircraft — both owned and non-owned.

-owned watercraft and non-owned watercraft over twenty-six feet.

-liquor liability for those in the business of making, selling, or serving alcohol

Named Insureds

Review the entities named on your policy to be sure protection is extended to holding companies, subsidiaries, and any charitable foundations managed by your bank.

The best rule of thumb is that if they are not listed on the general liability policy, they are not covered.

Employees as Insureds

Most general liability policies include employees, officers, and directors as insureds. Look for the section of your policy that is titled, “Who is an insured.”

Joint Ventures

Joint ventures with other businesses should have their own insurance program. Most general liability policies exclude outside entities and partnerships. Speak with your insurance adviser.

Contractors and Subcontractors

Contractors working for the bank should provide certificates of liability, workers’ compensation, and auto liability insurance. This includes plumbers, snowplow operators, electricians, carpenters, landscapers, and HCAC contractors.

Data processing operations and contractors working on your computer systems should provide evidence of professional liability insurance so that you are assured there is coverage for their mistakes that can damage you.

Here is a sample form you can use to enforce certificate requirements:

Contractor Management Process – Certificates Of Insurance – Sample Letter:

<<YOUR NAME>>

Insurance Requirements for Outside Contractors and Vendors

______________________________________________________ (hereinafter “Contractor”), as a condition of our contract of work, agrees to indemnify and hold harmless <<YOUR NAME>> for all claims for property damage and/or damage for personal or bodily injury, including death, which may arise from acts by Contractor, its agents or associates, and its subcontractors and their agents and associates. Contractor agrees to maintain adequate insurance, in form and with companies acceptable to <<YOUR NAME>>, to insure against the aforesaid, as follows:

Type of Insurance                                             Minimum Limits of Liability

Workers’ Compensation                                 Statutory Limits

General Liability (including                           $1 million each occurrence,
contractual liability, completed                   $2 million aggregate
operations, and contingent liability            $2 million products/completed operations aggregate
for acts of subcontractors)

Automobile Liability                                         $1 million combined single limit

Umbrella Liability Coverage                           $3 million

If excavation work is to be completed, no policy may exclude excavation, collapse, or explosion.

Insurance companies must hold a “Best Rating” of A- or better.

The insurance coverage provided hereunder shall be primary to and noncontributory with any other available insurance of <<YOUR NAME>>. Contractor’s general liability and automobile liability insurance policies shall name <<YOUR NAME>> as additional insureds and shall provide <<YOUR NAME>> with a thirty-day notice of cancellation. Certificates of insurance evidencing the above shall be forwarded in advance of any work to:

<<YOUR NAME>>

<<YOUR ADDRESS>>

<<YOUR PHONE NUMBER>>

<<YOUR FAX NUMBER>>

<<YOUR EMAIL ADDRESS>>

Contractor Signature: __________________________________________ Date: ________

Name: ____________________________________________ Title: ______________________

Contractor Firm Name ______________________________________

Boats and Planes

Review your bank’s use of watercraft and aircraft.

The general liability policy excludes coverage for owned watercraft and non-owed boats over twenty-six feet. Aircraft of any type are excluded (except where you are a fare-paying passenger).

It is not uncommon for banks to host chamber of commerce functions or customer/employee events on large party boats. You may also have loan officers or executives with large boats. Entertaining bank customers or employees may be a normal part of business. If the boat is over twenty-six feet, the bank may be exposed to a lawsuit if an accident occurs.

I have several bank clients who own planes. Using an executive’s Cessna to go to a bank association event might put the bank in a situation where there is no liability insurance in case of a crash. Again, talk with your insurance advisor.

Pollution Exclusions

Most general liability policies exclude coverage for any form of pollution liability.

The bank’s heating oil tank leaks into the neighbor’s basement—no coverage.

A gas station the bank owns through a foreclosure has a leaky storage tank—no coverage.

A vacant lot taken in foreclosure is found to be contaminated by industrial waste — no coverage.

Special pollution liability policies are available. Few banks purchase such coverage. Look at your own situation. Identify possible sources of pollution and take action to prevent incidents (regular fuel tank inspections). Review the hazards that exist on properties before you foreclose.

Some attorneys are starting to recommend that banks put REO property into separate entities to protect the bank’s assets. That entity (most often a limited liability company) should have its own insurance program — property, general liability. Only your attorney can tell you if this is a valid strategy. It does not solve the insurance problem, but could segregate assets to limit what a claimant can get access to.

Construction Defect Exclusions

I’ve been talking about this issue for a few years now: construction defect.

Here is the scenario. Your bank loans money to a developer for an apartment complex. Prior to completing the project, the developer goes under. You foreclose and sell the project to developer number two, who finishes the buildings and sells them. Two years later, it’s found that the windows are improperly installed and that there is $1 million of mold damage that needs to be repaired. As the bank was, during the REO stage, an owner of the property, you get sucked into the suit.

Your general liability policy has no coverage for this exposure. Neither does your lender liability or executive liability.

As with the pollution issue mentioned above, some attorneys are starting to recommend that banks put REO property into separate entities to protect the bank’s assets. Again, it does not solve the insurance problem, but could segregate bank assets to limit what a claimant can get access to.

Liability Coverage for Special Events

The general liability insurance policy provides broad protection for bodily injury and damage to the property of others that arises out of your bank’s normal operation. Coverage includes both your day-to-day activities and special events such as customer appreciation events, anniversary celebrations, and community event sponsorships. There is generally no need to buy special coverage to protect the bank for these types of parties, assuming that you have adequate limits of insurance.

Invasion of Privacy

Violations of privacy become a greater issue almost every day. Look to your general liability insurance for coverage under the personal and advertising injury section for liability that comes from “publication” of private data.

This is no coverage for a data breach.

Most policies will specifically include coverage for “oral or written publication, in any manner, of material that violates a person’s right of privacy.” There is a standard exclusion for “personal and advertising injury caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict personal and advertising injury.”

Some insurers are adding exclusions to bank insurance for damages caused by an invasion of privacy. Most insurers now offer data breach and privacy liability protection in the directors’ and officers’ insurance as well as in e-banking liability coverage.

Talk with your insurance adviser.