By: Sahar Adora

When someone takes a leap, it helps to have a safety net. Likewise, when a small business begins to grow, entrepreneurs should start thinking about the types of insurance they should carry. In most states, there are certain requirements for certain businesses (e.g., workers’ compensation and commercial automobile insurance). Even if not required, other insurance policies are important tools in a company’s risk mitigation strategy like commercial liability insurance and property insurance. This blog contains a brief rundown of insurance policies a startup should consider in Michigan.

Worker’s Compensation Insurance         

Worker’s compensation insurance requirements are determined by state law, and the insurance will cover those liabilities that the state law dictates.[1] In Michigan, an employer must either “self-insure” or, much more commonly, purchase a workers’ compensation policy from a private insurance company.[2] Those employers which choose to self-insure – that is, maintain a fund to pay for liabilities out-of-pocket – must obtain permission from the Michigan Workers’ Compensation Agency.[3]

Which Employers Need Workers’ Compensation Insurance?

In Michigan, almost all employers are required to obtain workers’ compensation insurance. Any private employer with three or more employees, or one employee who works 35 hours per week for 14 or more weeks, is required to have workers’ compensation insurance in Michigan.[4] However, named officers and partners who are shareholders of small, closely held corporations may be exempt from workers’ compensation coverage.[5] Moreover, self-employed sole proprietors are not required to provide coverage for themselves, but must provide coverage for their employees.[6] Finally, employers need not cover independent contractors through workers’ compensation insurance.[7] Employers required to obtain workers’ compensation insurance but which fail to do so may be subject to severe penalties and liabilities in Michigan.[8]

What Does Workers Compensation Insurance Cover?

In Michigan, workers’ compensation insurance can cover medical bills for work-related injuries and diseases, wage replacement when an employee requires time off due to injuries which occur during the course of employment, and death benefits for surviving dependents of employees killed on the job.[9]

The price of workers’ compensation insurance depends on the type of work the covered individuals perform.[10] Employers seeking workers compensation should consider both the price and the services that the insurance company will provide. Moreover, businesses seeking coverage for job-related injury losses beyond worker’s compensation insurance can seek additional employer’s liability insurance.[11]

Commercial Automobile Insurance

Commercial auto insurance protects businesses from liability and physical damage for vehicles used for the business.[12] State laws dictate when a business must retain commercial liability insurance, what types of injury the policy must cover, and how much coverage the business must have.[13] Generally, state requirements for light vehicles (excluding trucks and taxis) are similar to requirements for personal auto insurance.

Which Businesses Need Commercial Automobile Insurance?

Any companies using vehicles for business purposes must maintain commercial auto coverage. “Business purposes” include making deliveries, driving clients, running business errands, and carrying equipment.[14]

What Does Commercial  Automobile Insurance Cover?

Commercial auto coverage protects businesses from the cost of property damage, injury, and liability claims incurred in the use of commercial vehicles. However, larger vehicles such as construction vehicles and semi-trucks require commercial truck insurance. Individuals using commercial vehicles for both business and personal use can be covered for the personal use under the commercial policy. However, individuals driving their personal vehicle to and from work, without additional commercial uses or only occasional commercial use, should retain personal, not commercial, insurance on the vehicle.[15]

Businesses with mixed commercial and personal uses should consult with their insurance agent on whether personal coverage will be sufficient for their business uses. They can also consider hired auto coverage, which can help fill the gap in personal auto insurance for work-related driving incidents.[16] In addition, non-owned auto coverage can help pay for legal expenses when a business is sued over a car accident caused while driving a personal vehicle for business errands.[17]

Required coverage, and the cost of commercial auto insurance, can vary depending on the size of the business and the types and number of vehicles. The cost of commercial auto insurance also depends on the driving records of the individuals using the vehicles.

 Commercial Liability Insurance

 Commercial liability insurance protects businesses from claims of injury by third parties and is particularly important for businesses with significant client interaction.

 Which Businesses Need Commercial Liability Insurance?

 Not all states require commercial liability insurance, and whether or not a business should retain commercial liability insurance depends on the type of business and the amount of risk the business carries.[18] Businesses with a high volume of public interaction tend to consider higher liability coverage.[19] Although not all states require businesses to hold commercial liability insurance, managers should consider the likelihood and potential cost of risks that the business holds when deciding whether to obtain commercial liability insurance.

 What Does Commercial Liability Insurance Cover?

 Typical commercial liability policies cover bodily injury, property damage, personal injury (including libel, slander, and intellectual property violations), injury caused by advertising, and costs from defending against lawsuits.[20] Businesses may choose the exact coverage of their policy and should consider the risk inherent to the business when making coverage decisions.

Commercial Property Insurance

Commercial property insurance can protect businesses from expenses related to damages to buildings and building contents.[21] Property insurance is important whether a business owns or leases its space.

Which Businesses Need Commercial Property Insurance?

Businesses are not always legally required to retain commercial property insurance.[22] However, all businesses should consider it, whether they own or lease their work space or work from home.

What Does Commercial Property Insurance Coverage?

Commercial property insurance generally covers buildings owned or leased by the business, business property on the building premises, and the personal property of others kept on the premises in the care of the business.[23] However, commercial property insurance generally  will not cover losses of tenants renting space in the business’s building.[24]

Businesses may choose the sorts of losses to cover through commercial property insurance and should consider the likelihood of a loss occurring, and the cost of such a loss, when choosing coverage.

Conclusion

The different business insurance options help to minimize the risk of a business paying enormous sums due to unforeseen incidents which are often unavoidable. In considering the types of insurance to retain, entrepreneurs should analyze the types and amount of risk inherent to their business and calibrate coverage accordingly.

[1] Workers Compensation and Employers Liability Policy, International Risk Management Institute, Inc., https://www.irmi.com/term/insurance-definitions/workers-compensation-and-employers-liability-policy (last visited Feb. 18, 2019).

[2] Workers’ Compensation Agency Employer Frequently Asked Questions, Department of Licensing and Regulatory Affairs, https://www.michigan.gov/wca/0,4682,7-191-60874-274438–,00.html (hereinafter Workers’ Compensation Agency) (last visited Feb. 18, 2019).

[3] Id.

[4] Your Complete Workers’ Compensation Guide for Michigan, Trusted Choice, https://www.trustedchoice.com/l/michigan/workers-compensation/ (hereinafter Workers’ Compensation Guide) (last visited Feb. 18, 2019).

[5] Workers’ Compensation Agency, supra note 2.

[6] Id.

[7] Id.

[8] Id.

[9] Workers’ Compensation Guide, supra note 5.

[10] Workers’ Compensation Agency, supra note 2.

[11] Julia Kagan, Employer’s Liability Insurance, Investopedia (Jan. 12, 2018), https://www.investopedia.com/terms/e/employers-liability-insurance.asp.

[12] Commercial Auto Insurance, PROGRESSIVE Commercial, https://www.progressivecommercial.com/commercial-auto-insurance/ (last visited Feb. 18, 2019).

[13] Commercial Auto Insurance Requirements, EVERQUOTE, https://www.everquote.com/blog/business-insurance/commercial-auto-insurance-requirements-by-state/ (last visited Feb. 18, 2019).

[14] Learn Commercial Vehicle Insurance 101, Trusted Choice, https://www.trustedchoice.com/commercial-vehicle-insurance/coverage-faq/#faqitem_2 (last visited Feb. 18, 2019).

[15] Id.

[16] What is Hired & Non-Owned Auto Insurance?, TechInsurance, https://www.techinsurance.com/ask-us/what-are-hired-and-non-owned-auto-coverages/ (last visited Feb. 26, 2019).

[17] Id.

[18] Michigan General Liability Insurance Guide, EINSURANCE, https://www.einsurance.com/insurance-guide/michigan/general-liability-insurance/ (last visited Feb. 18, 2019).

[19] Id.

[20] Id.

[21] Julia Kagan, Commercial Property Insurance, Investopedia (Aug. 27, 2019), https://www.investopedia.com/terms/c/commercial-property-insurance.asp.

[22] Id.

[23] Id.

[24] Id.