Whether your company has physical operations in another country or only engages in international sales, you have what is known in the insurance world as foreign exposure. And that means you should be intentional about how you arrange your international insurance; otherwise, you may end up with gaps in coverage.
There is no one-size-fits-all foreign general liability insurance program. Determining the right program for your business depends on your exposure or the extent of your operations outside of the US and your risk management appetite. In this blog, we will examine your options.
Protecting Your Exposures: International Sales from a US Operation
If your assets and operations are solely located in the US, but you sell products or services to other countries, you may think you can rely on your US commercial general liability policy. However, some exposure that may not be covered, or the coverage may not respond as you think it might. Your US commercial general liability policy will only cover bodily injury or property damage that occurs outside of the US if a claim is brought within the US.
You can solve this claim problem by purchasing a foreign liability policy. In addition to providing third-party liability coverage, this type of policy can be extended to provide excess auto liability as well as foreign voluntary workers’ compensation (FVWC) coverage. Foreign liability coverage will respond to claims brought outside of the US but on a non-admitted basis (more on non-admitted coverage below).
Protecting Physical Operations Outside of the US
If you have physical locations and assets located outside of the US, you have a few options to cover your foreign exposure.
In determining the best solution, it is important to understand the differences between “admitted” and “non-admitted” coverage.
Non-admitted insurance is insurance provided by an insurer that is not licensed within the country in which coverage is provided and therefore no local policy is issued. Non-admitted coverage is illegal in many countries and makes local claims service difficult, if not impossible. Non-admitted coverage prohibits the insurer from providing defense and indemnity coverage outside of the US. In this scenario the insurer would be involved in selecting local legal counsel but would only reimburse you for approved defense and indemnity in the US. You would need to determine how to remit monies to the foreign location, and there might be tax consequences.
Admitted insurance is insurance provided by an insurer that is licensed within the country in which coverage is provided. A local policy is used, and a corresponding premium is collected along with any required taxes and fees. If you experience a loss, the insurer on an admitted basis would be involved in selecting local legal counsel and in the event of judgement or settlement would pay on your behalf per the terms of the locally admitted policy.
Deciding between admitted and non-admitted insurance programs depends on the size and scope of your international operations and the local insurance regulations.
Foreign General Liability Policies and Non-Admitted Coverage
Your first option is to purchase a foreign general liability policy providing non-admitted coverage outside of the US Non-admitted coverage is typically used when exposure outside of the US is minimal.
Local Admitted Coverage
A second option is to purchase “admitted” coverage. There are a couple of ways in which you can purchase admitted coverage:
- Purchase a foreign liability policy (similar to the one mentioned above) and include locally admitted policies in specific countries. With this scenario, you are controlling the program and setting the limits/premium for each country. This is administratively easy, and you are assured of consistency in coverage country by country.
- Purchase a foreign liability policy and have the insurance carrier recognize locally issued policies that are purchased by your foreign locations. The disadvantages of this approach are: (a) each location purchases its own policy, so you are not getting any “buying power” with the insurance carriers; (b) this approach is administratively burdensome; and (c) many insurers will mandate that claims issues be fully resolved locally before any corporately controlled policies will respond.
A well-structured foreign program includes a combination of admitted and non-admitted coverage, such as what I’ve described above. When purchasing locally admitted coverage, we recommend using a master policy approach that controls the premium and reduces administrative costs with your local offices.
How to Structure a Foreign Liability Insurance Program
In each of the above options, it’s critical that you schedule your foreign liability limits—list them—under your umbrella/excess coverage tower. Here are some other important steps to take:
- Research and comply with any compulsory coverages such as auto and workers’ compensation. Your broker should be able to assist with this.
- Work with your local offices and their brokers to obtain exposure information (payroll, property values, revenue) and coordinate the appropriate insurance coverage with your corporate program.
- Understand what is admitted and non-admitted insurance in each country. Be aware that with non-admitted insurance, payment on a claim won’t be made in that country.
Most US organizations understand the legal risks and exposures they face here at home. However, when you do business in other countries and with foreign companies, you may encounter unfamiliar laws and customs that extend the liabilities you face. A broker experienced in building foreign insurance programs will help you take these factors, as well as your operational set-up, into account in structuring your international insurance program.
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