Foreign liability insurance guards you against the unexpected
When a U.S. spice company sent its products to Japan, it suffered an unwelcome surprise: A food supplier had irradiated the spice to kill vermin. The irradiation was detected when the spices were screened in Japan.
Tiny amounts of irradiation would not have been a problem in the U.S., but the spice could not make it past border officials in Japan. “Japan cares a great deal about radiation levels in the food it gets,” says attorney Jeremy King, who heads the Olshan Frome Wolosky law firm’s insurance coverage practice in New York City.
With the product unusable, the company filed a successful claim on its foreign property and general liability package insurance policy.
As the spice maker discovered, carrying foreign liability insurance is smart business. An off-the-shelf commercial general liability policy often will not protect a business from situations arising outside of North America without an endorsement expanding the coverage territory, notes King. Typically, say experts, exporters will buy a package policy that is tailored to the situations they may encounter abroad.
Beyond that, in today’s volatile political climate, it is important to be prepared for the unexpected, say brokers.
“You have a new administration that is changing the landscape of geopolitical strategies,” says Jason Turner, CEO of Venbrook Group, a multinational property and casualty insurance firm headquartered in Los Angeles. “There is the potential for a heightened level of risk out there for businesses that do business abroad.”
Nonetheless, purchasing a foreign liability policy can turn into a giant research project. Here is a guide to determining if you need foreign liability insurance, what type you need and how to purchase it.
Do You Need It?
Not every firm needs a global liability policy. To determine if you do, ask yourself four key questions, advises Cathleen Muller, second vice president of Travelers Global Practice in Hartford, Conn.: (1) Does your company plan to have any employees travel outside of the U.S.? (2) Do you sell products or services outside of the U.S.? (3) Do you rely on a foreign supply chain for materials or finished goods? (4) Does your company have its own locations or store products outside of the U.S.?
“If the answer is yes to any, you should think about purchasing a global policy,” says Muller.
It is also mission-critical to look into the insurance requirements in any contracts with export clients. “They must be absolutely sure their insurance matches the contractual obligations within the country where they exporting,” says Simon Cassey, senior vice president of Chesterfield Group, an insurance and reinsurance group in London.
Do You Have the Right Broker?
The broker who sold you your commercial general liability policy may not be the best person for the job. Look for a broker experienced in selling international insurance.
“Your local agent is probably not as well versed in intentional and global exposure as someone that does it all the time,” says Ashley M. Hunter, president of HM Risk Group, an underwriter with offices in Austin, Texas, and London.
One way to find the right broker, says Hunter, is going through your trade organization. “The associations are usually a helpful resource,” says Hunter.
Before you purchase a policy, make sure to interview several brokers, advises Marc Snyderman, an attorney in Cherry Hill, N.J. He advised United Technical Resources (UTRS) Inc., a 250-employee government contractor based in the same town, on purchasing foreign liability insurance as its outsourced general counsel. UTRS, an engineering services firm, assisted in the design of a mortar fire control system for short-range mortars and supports the prototyping and manufacturing of this product by the U.S. Army.
“You want to talk to a couple of different brokers and see who knows the business you are in and has placed that kind of work before,” Snyderman says. “A mom and pop brokerage shop may not have placed an international policy.”
Through his due diligence, Snyderman found his client could get better rates with a larger firm. “In the insurance business, the larger brokers have more access to larger policy pools and they get better rates,” Snyderman says.
If you run a smaller firm, your challenge will be finding a broker that will work with you. “They don’t always take on small companies,” says Snyderman.
Do You Have a Game Plan?
Once you select a broker, give careful thought to the countries where you plan to operate now and plan to trade in the future. Many policies have exclusions for particular countries with which the U.S. has restricted trade. “You need to make sure the countries listed are not the countries you are doing business with,” says Hunter.
Typically, says Hunter, exporters will buy what is known as exporter foreign liability insurance. The two major insurers for whom many brokers write policies are Chubb and XL Catlin. “They specialize in small exporters globally,” Hunter says.
Exporter foreign liability policies may range anywhere from about $7,500 to $100,000 or more, according to Hunter. “It all depends on what the product is and where it is being exported,” she says. “If it’s like a battery going into a Samsung phone, we’re nervous about those things. We’re going to charge you a premium.”
However, the type of foreign liability insurance you purchase must be tailored to your business. For instance, at Venbrook Group, Turner says many clients emphasize political risk coverage and then build on that by adding trade credit insurance and transit coverage.
Snyderman’s client UTRS planned to send staff to Tunisia to train Army personnel, so it purchased an international travel policy that would cover them if, for instance, someone became ill and needed to return home for medical care. The premium cost “a couple of thousand dollars,” based on about five to 10 employees who travel internationally, he says.
Are You Ready to Get Sued?
Make sure you purchase a policy that will give you adequate coverage from legal costs if you get sued, advises Hunter. If the limits on your coverage are, for instance, $1 million, she advises you to ensure your defense costs are outside of those limits. “You don’t want your legal defense costs to come out of the same bucket you have to pay a claim out of,” says Hunter.
Hopefully, you’ll never get sued by your overseas business connections, but you’ll sleep easier at night knowing that if it happens, your company is prepared.
Be Prepared or Be Left Behind