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15.1: Introduction

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    In the preceding four chapters, you read about property and liability exposures generally and how families insure home and auto exposures specifically. Now, we will delve briefly into business, or commercial, insurance. Commercial insurance is a topic for an extensive separate course, but its importance has been reflected to a great extent throughout the previous chapters. Employers who take unnecessary risks or who do not practice prudent risk management may not only cause job losses, they may also cause the loss of pensions and important benefits such as health insurance (discussed in later chapters).

    As members of the work force, we drive our employers’ cars and spend many of our waking hours operating machines and computers on business premises. Risks are involved in these activities that require insurance coverage. A case in point is the damage caused by mold in many commercial buildings and schools as well as in homes. Mold can cause headaches, discomfort, and more serious problems. Employers’ property coverage was of great help in remedying the problem. However, as a result of the many claims, insurers have excluded mold coverage or provided very low limits. This and more pertinent issues in different types of commercial coverage will be discussed in this chapter. Issues such as the complexities of directors and officers coverage due to the improper behavior of executives in many large corporations, like AIG, Enron, and WorldCom, are discussed in this chapter, as are the dispute over the limits of coverage of the World Trade Center. The interested student is invited to study in depth and explore the risk and insurance news media for current commercial coverage issues. Also, Case 3 in "23: Cases in Holistic Risk Management" relates to the types of commercial coverage embedded in integrated risk programs. The programs described in the case use similar commercial packaged policies that are described in this chapter, which covers the following:

    1. Links
    2. Commercial package policy and commercial property coverages
    3. Other property coverages
    4. Commercial general liability policy and commercial umbrella liability policy
    5. Other liability risks

    Figure \(\PageIndex{1}\): Links between the Holistic Risk Puzzle and Commercial Insurance Source: ISO Common Policy Declarations Form IL DS 00 09 08. Includes copyrighted material of Insurance Services Office, Inc., with its permission.


    At this point in our study, we are drilling further down into specific, more complex coverages of the commercial world. Many types of coverage are customized to the needs of the business, but many more use the policies designed by the Insurance Services Office (ISO), which have been approved in most states. We have moved from the narrow realm of personal line coverages, but the basic premises are still the same. The business risks shown in Figure \(\PageIndex{1}\) do not clearly differentiate between commercial risk and personal hazards. The perils of fire and windstorm do not separate personal homes from commercial buildings, as we saw from the devastation of hurricanes Katrina, Rita, and Wilma in 2005. Our business may be sued for mistakes we make as employees because the business is a separate legal entity. We cannot separate between the commercial world and our personal world when it comes to completing our risk management puzzle to ensure holistic coverage.

    Figure \(\PageIndex{1}\) shows how the picture of our risk puzzles connects to the types of commercial coverage available as a package from the ISO. We use the common policy declarations page, which illustrates the mechanism of this packaged policy. This program permits businesses to select among a variety of insurance options, like a cafeteria where we can choose the items we want to eat and reject those we do not. The program is considered a package because it combines both property and liability options in the same policy, as well as additional coverages as listed in the common policy declarations page in Figure \(\PageIndex{1}\). Within each of the property and liability coverages are various options available to tailor protection to the particular needs of the insured, as you will see in this chapter.