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Paul Zimmerman
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A Bit of Coverage on Coverage: Insurance 101 for Juvenile Products Manufacturers

For many, just the mention of the word is enough for eyes to glaze over and minds to wander. Bring it up as fodder for cocktail party conversation, and the universal response is oftentimes a collective yawn. But insurance, though not the sexiest of topics, is a critical cog in the wheel of commerce, and one that cannot be ignored. And that is because this intangible product is an invaluable tool that allows businesses, including those in the juvenile products space, to manage the risk of financial loss – catastrophic and otherwise – by transferring it to third parties (read: insurance companies).

Of course, this transfer of risk comes at a cost, in the form of insurance policy premiums, which is not insignificant. Neither is the complexity of coverages that can leave juvenile products manufacturers scratching their heads. With that in mind, this article seeks to demystify the subject and provide practical considerations for insureds in the juvenile products industry.

Why Insurance Is So Vital

For any juvenile products manufacturer – large or small – the necessity of adequate insurance protection cannot be overstated. Why? Because inherent in the business are risks to consumer, employees, property and revenues that can have severe and lasting financial consequences if left uninsured.

The possibilities for loss are endless, and the potential for exposure, both legal and to the bottom line, seems to lurk around every corner. This is particularly true given the extraordinarily litigious nature of our society. Lawsuits and liability claims are an unfortunate inevitability for any business, and without proper insurance coverage, the associated costs could be insurmountable.

The reasons why insurance is a must do not end there. For instance, the law in most states obligates employers to obtain certain types of coverage (e.g., workers’ compensation, unemployment and disability), and the failure to carry legally required policies could result in civil or even criminal penalties, among other things. Likewise, lenders demand that corporate borrowers be sufficiently insured before agreeing to loan funds. And even some non-financing-related contractual relationships may include insurance requirements.

Less tangible, but as important, is the peace of mind that comes with suitable insurance coverage – peace of mind borne of the assurance that financial losses in the wake of a mishap, liability or act of God will be prevented or otherwise reduced, risk will be shared and business will continue unabated. Which begs the question, what policies should juvenile products manufacturers have in place to ensure such a sense of security and to safeguard consumers, employees, property and the like?

Essential Policies

What follows is a brief summary of several of the key coverages typically obtain in the business context.

Commercial General Liability Insurance. A commercial general liability (CGL) policy shields companies from financial losses caused by their services, operations or employees that result in property damage or bodily, personal or advertising injury to others. The insurance typically covers the costs of a business’s legal defense, as well as monetary damages if and when legal liability attaches (up to the policy limits, of course). When purchasing a CGL policy, juvenile products manufacturers should be sure to include a broad form endorsement and coverage against liability arising out of the corporate ownership or operation of motor vehicles (in the alternative, stand-alone commercial automobile policies are widely available).

Commercial Property and Business Interruption Insurance. Commercial property insurance protects against damage to a business’s physical property, including buildings, signage and landscape, as well as to personal property (e.g., equipment, inventory, furniture). Thus, in the event of a covered disaster – say, a fire or storm damage – a standard policy will help pay for rebuilding or replacement. And because a catastrophe could disrupt the flow of business income, a juvenile products manufacturer should always consider adding an endorsement or rider to its commercial property policy that extends coverage to business interruption losses. Insurance covering product in third-party warehouses should also be contemplated.

Worker’s Compensation Insurance. Workers' compensation insurance is state-mandated and provides valuable benefits to employees, all the while protecting juvenile product manufacturers from legal exposure. The coverage pays for an employee's medical expenses, lost wages and rehabilitation services that result from a work-related injury or illness. Workers receive benefits regardless of fault, and in the event of death due to a workplace accident, funeral costs and benefits are oftentimes paid to the deceased employee's family. Of note, worker's compensation requirements can vary significantly from state to state.

Employment Practices Liability Insurance. Juvenile products manufacturers, in their capacity as employers, are subject to a broad range of employment-related litigation. More commonly known as EPL insurance or EPLI, these policies furnish employers coverage against employee-made claims alleging discrimination – gender, sexual orientation, race, age, disability, etc. – wrongful discipline, wrongful termination, sexual harassment and other similar issues, such as the failure to employ or promote. 

Commercial Crime Insurance. Crime – namely theft and fraud – is a frequent threat to any business, and when it happens, it can be devastating. Yet such losses, including those due to employee dishonesty, forgery and credit card fraud, theft of money, burglary, robbery and computer fraud, are not ordinarily covered by commercial property policies. Commercial crime insurance fills the void by covering such losses.

Cyber Insurance. Technological innovations continue to place personal and corporate information at risk, which explains the ongoing spate of invasive data breaches that impact companies of all sizes, not to mention their customers. To combat what is fast becoming an “if, not when” landscape of cybercrime, more businesses than ever are purchasing cyber insurance. These policies help mitigate risk exposure by offsetting costs involved with recovery after a cybersecurity event.

Commercial Umbrella Insurance. Commercial umbrella insurance offers liability coverage above and beyond the limits provided by a company’s CGL or EPLI policies. This “worst case scenario” protection is activated in the event of a catastrophic loss, delivering excess limits of insurance when underlying liability policies are exhausted by the payment of claims.

In Closing

These enumerated policies represent some, but not all, of the insurance products available to juvenile products manufacturers. Of course, it is imperative to understand that the insurance-related requirements of a business are unique to that entity's circumstances. As such, would-be insureds are advised to foster interaction between qualified insurance brokers and attorneys while in the process of assessing and binding coverages.

Sir Richard Branson, founder of the Virgin Group, has said, “You can’t run a business without taking risks.” This is undoubtedly true in the juvenile products space, where risk is not necessarily a bad thing – so long as it is insured.

This blog post is not offered as, and should not be relied on as, legal advice. You should consult an attorney for advice in specific situations.