Business Tenants - Insurance

Tenants who occupy business premises will usually find that the buildings insurance is taken care of by their landlord, even though they will probably be called upon to pay the premiums in with their annual service charges.

However, when operating a business there are many other types of insurance which you should consider if you want to be fully covered. Most insurers provide business insurance in a business combined package which can be tailored to individual business needs.

Adequate insurance cover is more important than ever when you are engaged in any form of business activity. Don't be tempted to skimp on your business risks insurance or you could lose everything.

First and foremost the business tenant should be concerned about the substantial risks now posed by third party liabilities.

In the litigious society in which we now live, anyone operating a business can easily find themselves on the wrong side of a lawsuit which can seriously damage your wealth, and probably your health as well!

You only need to watch day-time TV for a brief spell to see how many law firms are touting for the business of anyone who has the slightest inkling of a claim.

Some forms of liability insurance are now a legal requirement. For example, businesses must take out Employers' Liability Insurance, under the Employers' Liability (Compulsory Insurance) Regulations 1998.

Employers' Liability Insurance will protect a business against claims from employees for accidents or sickness through work. Insurance certificates should be displayed in the workplace and  the legal minimum cover is £10 million.

Most businesses also have Public Liability Insurance, but this is not a legal requirement. This type of cover protects businesses if it they are held to be liable for death, personal injury or damage to third party property.

Public Liability:

Public liability insurance covers claims made against the business, in cases where the owners, directors or employees can be shown to have been negligent in some way.

The insurance will also include cover for any legal costs associated with defending claims against the business. Cover required will depends on the type of business, turnover and number of employees but is usually for a minimum of £5m

Small business owners working regularly from home (and Landlords often come under this category) should check with your home buildings and contents insurers to make sure that their liability cover is sufficient to cover business activities. You may need to extend your household policy to be fully covered.

Employers' Liability:

All employees (and this includes casual workers) should be covered by insurance whilst they work for you. Employers' Liability Insurance involves a legal minimum amount of cover and is currently (2004) £10m against bodily injury, illness or disease sustained in the course of employment.

Professional Indemnity:

Anyone providing a service to clients where professional services or advice are involved should have some form of Professional Indemnity Protection.

This protects against any action by clients who believe they received bad or negligent services, and incurred a loss as a result.

Most of the professional bodies have some from of group professional indemnity cover for the benefit of members - in some professions it is compulsory.

Key Person Cover:

It is often the case that small firms are heavily dependent on the skills and expertise of a very small number of key people. This insurance cover can provide short-term financial help in the event of the loss of one of these key people to the company.

Product Liability:

If you supply defective products to the general public, or to other businesses, and this results in damage or injury, then you could be liable to pay damages.

Generally it is the manufacturer of a product that is liable if the product goes wrong and causes loss or injury, but the supplier of the product can also be held liable where the manufacturer goes bankrupt.

Business Interruption Insurance:

If you have say a fire or a floor you should be well covered for the damage if you have adequate insurance. However, your normal property insurance will not cover you for losses caused through the interruption to your normal work routine.

Business interruption insurance will cover your for such things as increased working costs and overtime working etc, extra professional's fees and ultimately loss of profits through the disruption etc.

Goods in Transit

When a company is involved in shipping or transporting large quantities of goods there is obviously a risk that sooner or later losses will be suffered due to loss or damage on route.

A good business insurance package will therefore include goods in transit insurance

Buildings Cover:

Buildings insurance can be on a specified perils or all risks basis.

Building should to be covered against all risks to the full replacement cost, including the cost of clearing the site after complete destruction and all professional's fees.

In the case of rented property the Landlord normally arranges and pays for this cover for the building, collecting the premiums from the business tenant.

It is in the tenant's interest to make sure that the building is adequately covered.

Remember, the replacement cost is not necessarily the same as the market value of the property or the purchase price! If the building is under insured the owner could fall victim to the insurers averaging - you will not get the full amount of any claim (see Insurance Principles) so work out the replacement value accurately.

It should also be remembered that where commercial property adjoins other property any loss is likely to affect adjoining properties. Any under insurance will mean that the liability to other property owners will also be affected by averaging.

You can get an accurate insurance valuation if you go to the Association of British Insurers (ABI) website and their Building Costs Calculator for home owners. Better still and particularly in the case of unusual properties such as old, listed, conservation area, thatched or other specialist properties get a professional insurance valuation done by a chartered building surveyor (see Directory for Chartered Surveyors)

In the case of commercial property it is always advisable to get a professional valuation.

Most insurers will index link the annual premiums to the Retail Price Index so that an accurate insurance value is maintained over time, but of course this is dependent on the owner getting the value right in the first place.

It's important to remember to get permission in writing from your mortgage lender, your insurer and you landlord (leasehold property) before you let or sublet your property to tenants. This is very important as your insurance cover could be nil and void if you fail to do this.

Perils Covered: The specific perils usually included in most building risks policies include risks such as: Burglary and Theft, Bursts and Water leaks, Fire, Smoke, Storm and Flood, Subsidence, Vehicle Impact, Aircraft Damage, Lightening, Explosion and Malicious Damage - see Business Combined Policy below.

All risks cover will gives wider protection including any accidental damage or loss not specifically excluded. However, remember that insurance on an All Risks basis does not cover normal wear and tear, breakdowns on electrical and mechanical equipment and gradual depreciation of assets.

Contents insurance including business assets and equipment:

Plant and machinery is normally insured on either a "new for old" or an indemnity basis.

Engineering insurance can be included which covers mechanical or electrical breakdowns and this can including computers and computer network systems.

It is a legal requirement that some items of industrial equipment have regular checks and inspections: things like steam boilers, lifts and lifting equipment must be inspected regularly by a qualified engineer - your insurers will advise.

Tools and Equipment Insurance covers the loss or damage to tools specific to the trade owned by the business, its employees or when hired or borrowed.

Stocks can be insured against loss or damage on a cost price basis.

Contents are normally covered against theft providing there has been forced entry to the premises. Also covered is the damage caused by the forced or attempted forced entry.

Legal Expense Insurance covers the legal costs involved in a variety of legal disputes commonly encountered by businesses. These might include - contract disputes including landlord and tenant, employment disputes etc.

Theft by employees is not normally covered in the contents' policy.  Additional fidelity guarantee cover can be arranged for employee dishonesty.

Loss of money including cash, cheques and other valuable documents can be covered on the business premises, in transit and at homes of the owners, directors or employees.

Book Debts Protection provides cover in the event of losses arising out of the loss of the businesses accounting records.

Personal Accident Insurance covers for losses in the event of death or serious injury of insured individuals resulting in permanent or temporary disablement, medical costs etc.

Employee Benefits Insurance includes cover for the welfare of the business' most valuable assets - its employees and their families. This provides things like group life assurance, group critical illness protection, group income protection, group private medical cover.

Assaults & Attacks insurance covers assaults and attacks on individuals may be included in a typical business package. This type of cover provides compensation for owners, directors or employees if injury results during theft or attempted theft.

A Business Combined Insurance Package:

Standard business combined packages are available which can be tailored  to suit your own requirements - typical cover includes:

• buildings and contents insurance

• employers' liability cover

• public liability cover

• professional indemnity insurance

• products' liability cover

• personal accident cover

• goods in transit

• contracting works

• tax and vat investigation cover

• book debts

• business interruption

• legal expenses

• equipment, machinery and tools

• equipment breakdown

• loss of licences

• money cover

• event cancellation

• copyright cover

• business interruption

• engineering material damage

• fidelity guarantee - employee dishonesty

• libel and slander