One of the most common questions we get from the companies we meet is how they can mitigate risk when entering the US market. For this reason, we asked an insurance broker to give us advice on what a typical insurance coverage should look like. This blog post focuses solely on corporate operational risks. Employee welfare strategies and risks will be handled in a separate article.
The United States of America, like many countries, offers many opportunities and challenges for foreign companies looking to establish operations within its borders. Operations can begin in several ways, but we primarily see two common approaches: 1) Independent contractor sales teams using resources or products provided by your foreign entity, and 2) Creation of a subsidiary or related U.S.-domiciled entity (often a Limited Liability Corporation, or “LLC”) with true employees.
The two approaches summarized above follow similar principles of risk management and insurance, but also may require different insurance products or risk mitigation protocols.
Liability and Property – Both Approaches
Basic business insurance programs for nearly every U.S. operation should incorporate General Liability coverage, including product liability and operational liability, as well as Property coverage, for theft or other loss of inventory, laptops, etc. This insurance is almost always required by landlords, lenders, distribution partners, and customers, and they regularly require U.S.-based policies. Similar to other countries, liability and property coverages are often “packaged” into one single policy for convenience and to achieve a lower premium threshold.
Common Limits: USD $1M per occurrence or claim for Liability as a minimum – review your individual risks to determine the appropriate amount; Full replacement cost value of Property
Employees – Primarily U.S. Entity Approach
In the United States, employers are required to provide Workers Compensation Insurance for their employees and the coverage is regulated by each individual state, rather than the federal government. If your company contracts with Independent Contractors (IC), make sure that your engagement with the IC workers meets the Internal Revenue Service compliance definition for Independent Contractors or the workers will be considered your employees and your company will be responsible for providing them with Workers Compensation Insurance (see our blog post on the ABC test here). If you engage true Independent Contractors, they must provide their own Workers Compensation Insurance, or your company may be held liable for medical expenses and lost wages associated with injuries suffered while they are performing services for your company. You should verify their Workers Compensation coverage by requiring proof of insurance in the form of a Certificate of Insurance provided by their insurance agent or broker.
Common Limits: USD $1M Employers Liability; Statutory Benefits according to states of hire.
Coverage Territory – Both Approaches
You may already have product and operations liability insurance as well as property insurance, but does your policy’s coverage territory include areas typically covered by U.S. policies: United States, Canada, and U.S. Territories? If not, you should be able to work with a U.S. broker to find coverage via local U.S. policies.
Licensees – Primarily Independent Contractor Approach
Occasionally we see companies licensing their product and brand to independent contractors, who may create their own U.S.-based corporate entities. In this case, we recommend ensuring the licensees have their own U.S. policies and that those policies name your foreign entity as an “Additional Insured”, thereby extending their liability coverage to your company if you become entangled in a legal matter that originated with the licensee’s operations or products.
Auto – Both Approaches
The U.S. is known for its litigious society, and the most frequent claims we see, aside from workers compensation incidents, come from the use of autos in the course of business. The use of employee-owned or rented autos, as well as corporate-owned or leased vehicles, creates risk. In this case, liability from an at-fault (employee or IC) auto accident that results in bodily injury or property damage can result in a lawsuit against your company and/or its U.S.-based subsidiary. For operations that don’t involve corporate-owned or leased vehicles, Auto Liability and Physical Damage insurance coverage is often packaged into the main Liability/Property insurance program.
Common Limits: USD $1M per accident for Liability; Optional physical damage for rental cars or owned/leased vehicles at the depreciated value of the auto
Depending on your business, additional coverage and/or limits may be advisable. For example, Cyber Insurance is recommended to all of our clients regardless of industry. Errors & Omissions Liability, Patent Infringement Liability, Employee Travel Accident Benefits coverage, Management Liability, Trade Credit, Pollution, Bonds, Earthquake/Flood, and more may be required by customers, regulation, or others and can be explored with a trusted broker adviser – your legal counsel may have recommendations as well.
