Business

As a new small business venture, do I have to register with the state in any way? 
All businesses must register their business name with the North Dakota Secretary of State.

Do I have to get a license to operate a small business? 
It depends upon the type of business you are planning to operate. While most businesses are not required to obtain a license to operate, some are. For example, liquor stores, restaurants, salons, bed and breakfasts, hunting guide services and insurance agents are some that are required to have a license. The license requirement can come from the city in the case of a liquor store, the North Dakota Department of Health in the case of a bed and breakfast operation, the North Dakota Game and Fish Department for a hunting guide service and the North Dakota Insurance Department for an insurance agent.

One license/permit most but not all businesses are required to have is a state sales tax permit. Each business has the responsibility to collect and pay to the state sales tax on the sale of products and services. Failure to comply in a timely manner can result in severe penalties and a requirement to carry a Sales Tax Bond. Contact the Office of the North Dakota Tax Commissioner to learn how to obtain the appropriate sales tax permit.

Does the state require me to carry insurance?
In some cases, the state requires a company to have insurance, but not in all cases.

The state does require all North Dakota registered vehicles to carry automobile insurance. The mandatory minimum requirement for each motor vehicle is:

• Liability - $25,000 per person/$50,000 per accident for bodily injury and $25,000 per accident for property damage.
• Uninsured and Underinsured Motorist - $25,000 per person/$50,000 per accident for uninsured motorist and underinsured motorist bodily injury.
• Personal Injury Protection (no fault) - basic no-fault coverage of $30,000 per person.

This mandate is applicable to commercial or business automobiles as well as personal autos.

While there are some instances where the state has a requirement to carry general liability insurance (for example, the Secretary of State requires a contractor to show proof of insurance in order to do business), there is no broad state requirement applicable to all businesses.

To determine if there are specific requirements to carry general liability insurance applicable to your proposed business, contact the agency (city, county or state) from which you must obtain a license to operate.

What type of insurance do I need to carry?
The specific type of insurance coverage you may need depends on the type and size of your operation. In general, you should consider carrying liability (whether Premise/Operations or Products/Completed Operations or both as described earlier) to protect you from third-party claims, and property insurance to provide coverage on your buildings and business personal property against potential loss or damage.

An insurance agent that specializes in commercial or business insurance can help you assess what you may need and what is available to cover your particular business.

Insurance premiums for a start-up business seem so expensive. Why?
Premiums, as a general rule, are based on the type of business operation (risk). Those types of businesses that pose a higher risk factor will pay higher premiums. Another factor considered by insurance companies that directly impacts a new business is the experience factor. Businesses with no previous experience will likely pay a higher premium since it is believed that they pose a higher risk level than someone who has years of experience. A third factor is that most commercial rating programs have minimum premium requirements and until your operation gets bigger, the cost of the coverage will seem inordinately high compared to your first year's income.

Are there specific amounts of liability insurance I must have on my business vehicle?
North Dakota requires a minimum level of insurance coverage for all motor vehicles. For private passenger type vehicles including pickups and vans, the minimum is:

• Liability - $25,000 per person/$50,000 per accident for bodily injury and $25,000 per accident for property damage.
• Uninsured and Underinsured Motorist - $25,000 per person/$50,000 per accident for uninsured motorist and underinsured motorist bodily injury.
• Personal Injury Protection (no fault) - basic no-fault coverage of $30,000 per person.

Commercial vehicles weighing more than 20,000 pounds are not required to carry uninsured and underinsured motorist coverage. Commercial vehicles used to haul for hire may be subject to the Federal Motor Carriers Act of 1980. Depending on the cargo hauled, the amount of insurance required varies from $750,000 to $5,000,000. Hazardous cargo will require higher limits.

What is a business owners policy (BOP)?
A business owners policy (BOP) is designed to address the needs of small to medium-sized businesses by bundling a variety of auxiliary or secondary coverages with business liability and property coverage. This works to the benefit of both the consumer and the company in that most coverages a business would need are automatically included. This prevents gaps in coverage and reduces the overall cost to the consumer by sharing the risk with all other policyholders.

What is the difference between a BOP and commercial package policy (CPP)?
A BOP is a bundled package of coverages designed for the average small to medium-sized risk. A commercial package policy (CPP) is more of a cafeteria style policy where each coverage is tailored to the specific risk and needs of the business. The CPP is used most often in large businesses and those small and medium-sized businesses that are more unique or with special needs.

My business operation involves the manufacturing of a tangible product. Does a general liability policy protect me?
The general liability (premises/operations) policy would respond to bodily injury and property damage claims that occurred as a result of an accident on the premises or work site, i.e., a slip and fall type claim. Injury as a result of a product manufactured by the business is not covered by the general liability or BOP. Manufacturing type businesses need to carry Products/Completed Operations liability coverage which is specifically designed to respond to claims by people who are injured as a result of the product they bought from or through you.

What is the difference between general liability and professional liability?
A general liability policy covers bodily injury and property damage claims that result from your negligence on your premises or as a result of your operations including actions of your employees. Examples of this would be if you failed to remove ice from an entryway to your store and a customer slips and falls or if an employee using a forklift to help load your customer's purchase in the back of a pickup truck accidentally damages the pickup in the process.

A professional liability policy covers physical and financial injury that may occur to someone as a result of a service provided or a failure to provide in a professional capacity (errors and omissions). Examples of some professions are:

• Architect
• Beautician or barber
• Chiropractor
• Dentist
• Doctor
• Engineer
• Lawyer
• Nurse
• Realtor

An example of this failure would be if a hair stylist tries a new hair treatment on a client and the chemicals in the treatment burn the client's scalp, requiring medical treatment.

When my agent talks to me about a basic policy, a broad form policy or a special form policy, what does this mean?
Your agent is talking about the different policies available to cover property. The basic form policy (named perils) provides coverage for a limited list of events such as wind, hail, theft, fire, vandalism, etc. The broad form policy (named perils) expands the list of events that are covered to include water damage, damage from falling objects and damage from the weight of snow, ice or sleet. A named peril form only pays for damage caused by a named peril listed in the policy. The special form policy differs in that it covers all perils except for those that are specifically excluded. The special form policy is the broadest form you can buy.

Liability

Commercial General Liability (CGL) - premise/operations coverage for bodily injury and property damage (slip and fall type) claims and personal and advertising injury claims. The policy pays medical expenses, cost of defending lawsuits, bonds during legal proceedings and judgments.

Medical Payments - medical payments is included in the CGL and provides payment for medical expenses for a minor injury to a third party regardless of negligence. This is considered a "no-fault" coverage.

Cyber (internet) Liability - coverage for the company who uses the internet to share data. The policy pays for claims due to theft, destruction or unauthorized use of electronic data and failing to safeguard another party's electronic data. Unauthorized access, viruses, attacks on covered systems, theft, extortion, loss of income due to online business interruption and the cost of investigating the reason for the interruption are covered.

Directors and Officers - coverage for the company's board of directors and officers for claims from stockholders, employees and clients for errors in judgment, breaches of duty and wrongful acts in connection with the operation of the company business. Misappropriating a corporate asset for personal use, commingling business and personal assets, breaching their legal duty to the company or failing to disclose any conflict of interest are covered.

Employee Benefit Liability - coverage for the company for claims resulting from the mishandling or misapplication of employee benefits. This includes management of health, disability and retirement funds.

Employer's Liability - coverage for the company for claims resulting from a work-related injury that is not covered by Workers Compensation. Generally, this coverage is written as an endorsement to the CGL policy.

Employment Practices Liability - coverage for the company, directors and officers for the cost of lawsuits brought by an employee, former employees and potential employees. Alleged discrimination, wrongful termination of employment, sexual harassment and breach of an employment contract are covered. May also cover failure to hire or promote, mismanagement of employee benefit plans, wrongful discipline, wrongful infliction of emotional distress and loss of career opportunity. This coverage is specifically excluded in the general liability and workers compensation policies.

Excess/umbrella Liability - a higher limit of liability coverage that sits on top of underlying primary policies such as the CGL, commercial auto, directors and officers, BOP, homeowners and personal auto, etc., providing expanded amounts of coverage. An excess policy provides no broader coverage than the underlying, while an umbrella provides some coverages the underlying policies may not.

Environmental (pollution) Liability - coverage for the company for the cost of claims for injury or damage due to pollution and the cost of cleaning up pollution. Specific types of environmental liability policies are:

• Site Specific
• Contractors
• Environmental Professional Errors and Omissions
• Asbestos and Lead Abatement Contractors
• Environmental Remediation
• Remediation Stop Loss 
• Underground Storage Tank Compliance and Combination Policies.

Intellectual Property Liability - coverage for the company for the cost of claims and lawsuits from copyright, trademark or patent-infringement allegations and loss of intellectual property. This coverage is generally applicable to companies in the information technology field.

Product and Completed Operations Liability - coverage for the company for the costs of judgments, settlements and legal fees resulting from damages or alleged damages caused by a faulty or defective product or faulty to defective work. Manufacturers, sellers and wholesalers are candidates for this coverage.

Professional (errors and omissions) Liability - coverage for the costs of a liability lawsuit resulting from incompetence, errors, omissions or negligence in the performance of professional services. Legal defense costs are included. Examples of professions that are written include:

• Beauticians
• Barbers
• Architects
• Engineers
• Physicians
• Dentists
• Nurses
• Accountants
• Stockbrokers
• Realtors
• Insurance agents
• Financial advisors
• Healthcare providers
• Teachers

Property

Builders Risk - coverage for buildings while the buildings are under major construction. Coverages that may be endorsed include cost of stolen or damaged building materials at the site, materials in transit (installation floater), losses due to ordinance or law, fire department service charges, money for reward program to deter theft, etc.

Cargo (inland marine) - coverage for property in transit, known as an inland marine coverage. Covers loss due to fire, explosion, sinking or wrecks, malicious damage, theft, delay misconduct, overboard losses or water infiltration, piracy, war, riots or terrorism, packing deficiencies and transporter insolvency.

Commercial Property - coverage for a company's buildings, business personal property and personal property of others. Coverage can be on a named peril basis (basic or broad form causes of loss) or on an all perils (special causes of loss) basis. The following coverages if not included in the commercial property policy may be available as an optional add-on coverage to the policy:

• Business Income - coverage for loss of income and extra expenses a company can incur following loss or damage to the property.
• Boiler and Machinery - coverage for damage to a heating system boiler.
• Crime - a variety of crime coverages exist including:
  • Burglary and robbery on and off premises
  • Money and securities
  • Employee dishonesty
  • Forgery
  • Kidnapping and extortion

Equipment Breakdown - coverage for a company for the cost of repairing or replacing a broad range of equipment, technology and machinery necessary to business operations. It covers such things as power surges, short circuits, centrifugal force, mechanical breakdown, boiler overheating or cracking, and loss of income and extra expense to maintain normal operations.

Inland Marine - coverage for property items that are not permanently attached to the building. This includes a broad range of items including stock and merchandise, displays, fine arts, and other items frequently used and moved off premises. It normally provides all perils coverage to covered property regardless of where it is located.

Earthquake - coverage for damage to property caused by an earthquake. The commercial property policy excludes earthquake coverage. Coverage may be endorsed to the commercial property policy or issued as a stand-alone policy.

Flood - coverage for damage to property caused by the peril of flood. Property policies do not cover damage caused by a flood. However, some companies have added limited flood coverage to commercial property policies for large accounts. The primary source for flood insurance is the National Flood Insurance Program (NFIP) which is a federal insurance program. Property and casualty insurance agents can write directly with the federal program, or agents with companies who have partnered with NFIP under the Write Your Own (WYO) program can also issue policies on behalf of the federal program.

Package Policies

Business Owners - coverage for commercial general liability and commercial property have been bundled along with many numerous other coverages for small- to medium-sized businesses. Bundling puts together the most used coverages into one package and reduces the cost to the buyer.

Commercial Auto - coverage for the liability (liability, no-fault, uninsured and underinsured motorist) associated with the operation, use and maintenance of a business vehicle as well as coverage for physical damage to the vehicle. Coverage is available for hired or borrowed autos used in the business.

Commercial Package - coverage for commercial general liability and commercial property along with coverages selected by the insured in a cafeteria-style approach. This approach is generally used for those risks that are not eligible for the business owners policy or large businesses with more specialized needs.

Farmowners - coverage for the dwelling (residence), farm and personal liability, and property coverage for farm buildings, machinery and livestock. Farmowners contains elements of both personal and commercial insurance but due to the business exposure, is treated primarily as a commercial policy.

Garagekeepers - coverage for commercial general liability, commercial property and commercial auto designed for those businesses in the auto market such as auto body repair shops, auto dealers, and recreational and equipment dealers. Any business that takes possession of a customer's auto or vehicle for repair or storage may benefit from this package policy.

Other

Fidelity and Surety Bonds - bonds are a form of financial guarantee and do not work the same as traditional insurance. The bonding company assures that the project will be completed and that there are sufficient financial assets available to complete this project should the principal fail to do as agreed. There are many forms of bonds: contractors, bid, performance, supplies, etc.

Workers Compensation - coverage for injuries that a worker incurs while on the job. Coverage includes medical services, disability, retraining and wages. In North Dakota, workers compensation coverage is provided by Workforce Safety and Insurance.

I am operating a small business from my home. Does my homeowner's policy automatically cover the business activities?
The homeowners policy specifically excludes liability coverage for business operations so it is incorrect to assume that coverage automatically exists. Many companies, however, are willing to add business liability coverage by endorsement to the policy for an additional fee but only for some lower risk types of business operations. If you are operating a business from home, it is important for you to discuss what you are doing with your agent/company so you can determine just what you have coverage for and what you don't. This applies to both business liability and business personal property.

I am operating a non-farm related business from my farm. Does my farmowners policy automatically cover these activities
The farmowners policy liability coverage is designed to cover the business of farming. Business activities you may perform from your farm/ranch that is not the business of farming are not covered. There are many types of business activities ranging from operating a roadside vegetable stand to selling seed that you might think are included within the business of farming. For example, custom farming or custom harvesting is not normally considered the business of farming but rather a separate business operation. It is best to clarify what activities your insurance company will include in that definition and what activities it does not consider to fall within the scope of the business of farming.

Many companies are willing to add business liability coverage by endorsement to the policy for an additional fee for some lower risk types of incidental business operations. If you are operating an incidental or second business from your farm/ranch, it is important for you to discuss what you are doing with your agent so you can determine whether your base policy covers this incidental business or not. This applies to both business liability and business personal property.

I operate a business from my home and store business inventory in my detached garage. Does my homeowners policy cover the inventory in case of loss or damage?
Depending upon the type of homeowners policy, it may provide for a very limited amount of business property used at your residence. This, however, is generally limited to business property you bring from your job to your home. This does not cover business inventory held for sale. In order to adequately cover an inventory of stock, you will need to look to a commercial policy.

I use my personal automobile in my small business. Am I covered if an accident happens?
Private passenger automobile policies will have an exclusion for business use of the vehicle. Typically there would be no coverage for an accident if it occurred while being used for business. Some companies do, for an additional charge, have endorsements for some low-risk types of businesses, i.e., real estate agents, Tupperware sales or insurance agents. Discuss with your agent how your company treats this situation as companies may differ in their interpretation of what constitutes business use. In those situations where the private passenger automobile policy does not respond, you will need to look at a commercial automobile policy.

As a small business owner should I be concerned about lawsuits?
Lawsuits against businesses fall into two general categories: - Premises/Operations and Products/Completed Operations. Premises/Operations lawsuits, also known as "slip and fall" lawsuits, arise out of accidental bodily injury or accidental property damage to a customer or their property and occurs on your business premise or work site. Products/Completed lawsuits are those related to bodily injury or property damage that occurs as a result of your product. Examples could be when a toy manufactured or sold by you malfunctions causing injury to a child, or when a customer who eats at your restaurant gets seriously ill or dies.

The risk of encountering a lawsuit whether legitimate or not continues to grow as our society becomes more litigious and more mobile. It should be noted that while one reason to have liability insurance is to pay for these types of claims should they happen, a more practical reason to have liability insurance is that when a claim is made against you, the insurance company steps in to provide and pay for your legal defense. This factor alone can be what keeps a small business afloat if they get sued.

Businesses that do not carry liability insurance coverage sometimes consider themselves self-insured; however, a more accurate term is uninsured. Uninsured businesses essentially put all their assets at risk.

My business leases a small storefront office from which we operate. Does the landlord's policy cover me for my business operation?
While it could be possible for you to negotiate a requirement in your lease agreement for the landlord to provide or pay for your general liability insurance, that would be the exception and not the rule. In most cases, you will be responsible for your general liability coverage. The landlord will have his own policy but only to protect his interests should a lawsuit include the landlord. Further, the landlord's policy does not provide any coverage for your business property.

If a customer slips and falls in my store suffering only minor injuries, will my insurance pay for the medical expenses?
Your general liability policy provides a coverage called medical payments. The amount of coverage varies from $1,000 to $10,000. You can use the medical payments to pay the medical expenses for the injured customer in situations where the customer does not intend to sue you. Med pay does not require that you be negligent in order to effectuate payment. This is considered no-fault coverage.

We operate a full-service hunting and fishing guide service and seem to have problems getting an insurance company interested in insuring us. What is the problem?
The problem is the insurance industry's low tolerance for high-risk activities. A full-service hunting and fishing guide service generally includes providing the following services: transportation, lodging, meals, equipment, processing, practice range and supplies (including ammunition) to individuals in an outdoor setting and sometimes a physically challenging environment. The probability of something happening that will result in bodily injury is considered to be extremely high. Most insurance companies do not have the appetite for high-risk activities like this or do not feel they can collect sufficient premium to make a profit. As a result, relatively few companies are interested in offering coverage for this type of risk.

My small business has grown so much I have had to hire employees. Are there any special insurance requirements now that I have employees?
North Dakota law requires every employer to carry workers compensation coverage. Coverage is required from the first day and first dollar of employment. The only business exceptions are farmers and clergy. In North Dakota, employers have only one source for the purchase of workers compensation coverage. The source is Workforce Safety and Insurance (WSI). Workers compensation coverage provides both medical and disability coverage to workers who are injured on the job. Employers with questions should contact WSI directly

Two other optional coverages to consider are:

• Employee Benefit Liability Coverage - provides coverage for your handling of employee benefit programs (health, disability or pensions plans).
• Employment Practices Liability Coverage - provides coverage for your handling of employee hiring and firing (discrimination) matters.

How does the insurance company determine what to charge me for my policy?
In general, a company looks at the type of business (risk level), past claims experience (losses), the frequency of claims and the severity of claims to develop estimates of premiums needed to cover the anticipated claims for the next insuring period, the cost of adjusting and settling future claims and general company expenses, including a profit margin, are also included. After applying the general anticipated premium, based on your general class of business, companies then consider more specific rating criteria that can be applied to either increase or decrease the base premium. For example, companies may consider your amount of time in business, previous loss history, loss control programs, etc. In addition, when determining the premium for your property coverage, consideration will be given to the fire protection class, type of construction and levels of coverage needed.

Optional coverage endorsed to the policy are generally priced separately and added to the base premium to arrive at the total.

What sort of things can I do to decrease the cost of my business insurance?
Over the long term, anything you can do to manage, avoid and/or mitigate risk will help in keeping future costs down. More immediately you can check with your agent to see if there are any discounts available to you. Discounts are generally based on you taking some positive action to prevent losses such as fire extinguishers, sprinklers, employee training programs, experience rating plans, etc. Increasing the size of your deductible can lower your premium. Based on your level of risk tolerance you may consider reducing the level of coverage. However, when reducing coverage on business property, be careful of creating conflicts with any coinsurance and replacement cost requirements before doing this. Periodically shopping around may work to your benefit as the market for most commercial business is competitive.

I am on the board of directors of a company and my agent has suggested that the company should consider buying a directors and officers policy. Why would this be necessary if we already carry a general liability policy?

A  directors and officers policy is similar to a professional liability (errors and omissions) policy. Decisions or actions taken by a board may result in personal or financial injury to a customer or in the case of a very large company, to its stockholders. The directors and officers policy would cover these types of claims. The general liability would not respond to these types of claims.