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Getting to know your commercial general liability policy.

Some say success breeds success. Using college basketball as an example (down to the Final Four of the NCAA tournament as this is being written), it is easy to see a possible connection. The last four colleges or universities that played had pretty strong reputations for good academic and athletic programs, which helps them recruit college-bound athletes. But even young athletes, well short of their college years and picking where they will attend, are forming allegiances from the media exposure these schools are getting for being part of the Final Four. Their current reputation carries into the future unless something dramatic changes. This holds true for businesses as well.

What is the value of your reputation if you have a negative incident? Could it impact your ability to compete for customers? And if you are losing customers, can you withstand the loss of revenue? Believe it or not, insurance, which is a hedge against financial loss, can potentially assist in defending your reputation after an incident. Most commercial liability insurance policies address personal and advertising injury; a few specialty liability insurance policies address reputational injury. Let's explore the impact these policies could have on your ability to compete.

The commercial general liability policy protects businesses for incidents where there are allegations involving bodily injury or property damage. Sometimes overlooked is the fact that the protection for legal liability also is extended to personal injury. Types of personal injury incidents covered include false arrest, detention or imprisonment; libel, slander, defamation or product disparagement; malicious prosecution (which may include abuse of process); wrongful eviction, wrongful entry or violation of right of private occupancy; and invasion of or violation of right of privacy. The most common of these claims are libel, slander or product disparagement. The protection is there if another party claims you have done this to them, but it is not protection against a third party speaking or writing falsely about your company. So, if your reputation is damaged by another and it is done without any validity, your response would be legal action and would not come through your insurance policy.

The protection under the commercial liability policy also is extended to advertising injury. The types of incidents covered that may be caused by your advertising include: libel; slander; invasion of privacy; copyright infringement; trademark or trade dress claims; and certain misappropriation claims. The fact that the incidents are limited to advertising takes a lot of value from the coverage, and it is further limited by the point that this is again coverage for acts you are alleged to have done to others. It is not protecting you against others violating your business. Still, this coverage, much like personal injury, is valuable in that defense and indemnification of such acts done by one of your employees could be costly.

Certain specialty liability policies have added terms to cover the expenses to eliminate reputational damage that a firm suffers due to a covered loss, and this seems to be a natural extension of the legal defense and indemnification that are part of the basic protection offered. This reputation injury defense or public relations expense is added protection and is not part of the personal or advertising injury already reviewed.

This coverage has not been widely adopted yet, but this approach can be found in at least one commercial liability policy and in a few cyberliability policies (sometimes called network security and data liability policies). The rationale for coverage when the insured has an incident that is covered by the liability policy is that they could also suffer a reputational injury. As examples of reputational challenges, if the insured has a data breach and all their customers' information is exposed, the insured might be thought of as untrustworthy. If the insured has an at-fault job-site accident and a person in the area is fatally injured, that could lead to a reputation for lack of safe operations. In cases like these, specialty policies offer the insured the opportunity to hire a public relations firm to launch a campaign that restores their name. The policy picks up the cost to the set limit.

Studies have shown that the result of certain incidents will lead to a loss or churn of customers. Potential new customers will avoid a business after an incident. So there is a competitive advantage--or disadvantage--to a business when it has a reputation for being a good member of the community or bad. For brands like Hewlett Packard, JP Morgan and BP bad PR drove investors away in great numbers. It hindered their ability to compete but did not completely break them.

They were large enough to weather the storm to some degree, but are you? If you are not financially strong enough to survive reputational injury, do you have all the protection you need in your insurance program for the often overlooked risks that could affect your ability to compete? Your answers could be the difference between survival or failure.

Peter J. Elliott is president and chief executive officer of Telcom Insurance Group. Contact him at
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Title Annotation:RISK Manager
Author:Elliott, Peter J.
Publication:Rural Telecommunications
Date:Jul 1, 2015
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