Moral hazard in commercial insurance arises when the insured’s behavior changes after obtaining insurance, potentially increasing the likelihood or severity of a loss because they are now protected. For example, a business owner might become less diligent in maintaining fire safety protocols after securing a commercial property insurance policy, knowing that the insurer will cover fire damage. Insurers mitigate moral hazard through various methods. Underwriting processes involve thorough risk assessments to identify potentially dishonest applicants. Policy provisions like deductibles and coinsurance require the insured to share in the loss, discouraging carelessness. Inspections and loss control services help identify and correct hazards. Oregon Revised Statute (ORS) 743.036 addresses misrepresentation in insurance applications, allowing insurers to void policies if material misrepresentations are made with the intent to deceive or if they affect the insurer’s acceptance of the risk. Furthermore, ORS 742.003 outlines the principle of indemnity, ensuring that insurance aims to restore the insured to their pre-loss condition, preventing them from profiting from a loss, which could incentivize moral hazard.

An “occurrence” policy covers incidents that occur during the policy period, regardless of when the claim is made. A “claims-made” policy covers claims that are first made during the policy period, provided the incident occurred after the policy’s retroactive date (if any). A business might prefer an occurrence policy for long-tail risks, such as latent defects or environmental contamination, where the damage may not be discovered for many years after the incident. This ensures coverage even if the policy has expired. A claims-made policy might be preferred for risks where claims are typically reported promptly, such as professional liability, and can be more affordable. Switching from an occurrence to a claims-made policy can create coverage gaps. Incidents that occurred during the occurrence policy period but are reported after its expiration would not be covered by the new claims-made policy. To address this, businesses can purchase an extended reporting period (ERP) endorsement (also known as “tail coverage”) on their expiring occurrence policy, which allows them to report claims for incidents that occurred during the policy period for a specified time after the policy’s termination. Oregon insurance regulations require insurers to offer ERP options under certain circumstances, as outlined in ORS 742.450, to protect policyholders from such gaps.

Business income coverage, also known as business interruption insurance, protects a business against the loss of income resulting from a covered cause of loss that damages its property. The key components of a business income loss include: net profit or loss before the damage occurred, continuing normal operating expenses (including payroll), and extra expenses incurred to minimize the interruption and resume operations. The amount of loss is typically determined by analyzing the business’s financial records, including profit and loss statements, tax returns, and payroll records. Insurers often use a “period of restoration,” which is the time it takes to repair or replace the damaged property, as the basis for calculating the loss. To substantiate a business income claim in Oregon, a business must provide detailed documentation, including: financial statements for the period before the loss, documentation of continuing expenses, receipts for extra expenses, and records of lost sales or production. Insurers may also require an independent forensic accountant to verify the loss. Oregon law, particularly ORS 742.030 regarding proof of loss requirements, mandates that insurers provide clear and reasonable instructions to policyholders on the documentation needed to support their claims.

An endorsement is a written provision that amends, modifies, or limits the coverage of an insurance policy. It is attached to the policy and becomes part of the insurance contract. Endorsements are used to tailor the policy to the specific needs of the insured. Three examples of common endorsements include: 1. **Ordinance or Law Coverage:** This endorsement provides coverage for the increased costs of construction, demolition, or remodeling required to comply with current building codes or ordinances after a covered loss. Without this endorsement, the policy may only cover the cost of replacing the damaged property to its original condition, which may not be compliant with current regulations. 2. **Additional Insured Endorsement:** This endorsement adds another party as an insured under the policy, providing them with coverage for liability arising out of the named insured’s operations. This is commonly used when a business hires a contractor or leases property and is required to provide insurance coverage to the other party. 3. **Waiver of Subrogation Endorsement:** This endorsement prevents the insurer from pursuing subrogation rights against a specific party after paying a claim. Subrogation is the insurer’s right to recover the amount of a claim payment from a third party who caused the loss. Oregon insurance regulations, particularly ORS 742.005, require that endorsements be clear and unambiguous and that they be attached to and made part of the policy.

Subrogation is the legal right of an insurer to pursue a third party who caused a loss to the insured, in order to recover the amount of the claim payment. It prevents the insured from receiving double compensation for the same loss. For example, if a delivery truck insured under a commercial auto policy is damaged in an accident caused by another driver’s negligence, the insurer will pay for the repairs to the truck. The insurer then has the right to subrogate against the negligent driver or their insurance company to recover the amount paid for the repairs. Oregon law recognizes the insurer’s right to subrogation. However, there are limitations. For instance, an insurer cannot subrogate against its own insured. A “waiver of subrogation” is a contractual provision where the insured agrees to waive the insurer’s right to subrogate against a specific party. This is often used in construction contracts, where parties agree to waive subrogation against each other to avoid disputes and streamline the claims process. If a waiver of subrogation is in place, the insurer cannot pursue the responsible party, even if they caused the loss. ORS 742.031 addresses the general principles of subrogation in insurance contracts in Oregon.

Fidelity bonds and surety bonds are both types of insurance that provide financial protection, but they serve different purposes. A fidelity bond protects a business from losses caused by the dishonest acts of its employees, such as theft or embezzlement. A surety bond, on the other hand, guarantees the performance of a contractual obligation. A business might require a fidelity bond if it handles large sums of money or valuable assets, such as a bank or a retail store. The principal is the employee who is bonded, the obligee is the employer who is protected, and the surety is the insurance company that provides the bond. A business might require a surety bond if it is performing a construction project for a government entity or if it is required to obtain a license or permit. The principal is the contractor or business owner who is obligated to perform the contract or comply with the regulations, the obligee is the government entity or other party who requires the bond, and the surety is the insurance company that guarantees the principal’s performance. Oregon Revised Statutes (ORS) Chapter 742 governs surety insurance, outlining the requirements for surety bonds and the rights and obligations of the parties involved.

Vicarious liability is a legal doctrine that holds one party responsible for the negligent actions of another party, even if the first party was not directly involved in the negligent act. In the context of commercial auto insurance, a business can be held vicariously liable for the negligent actions of its employees while operating company vehicles if the employee was acting within the scope of their employment. For example, if a delivery driver, while on their delivery route, negligently causes an accident that injures another person, the business that employs the driver could be held vicariously liable for the driver’s negligence. This is because the driver was acting within the scope of their employment at the time of the accident. To mitigate its exposure to vicarious liability claims in Oregon, a business can take several steps: implement thorough screening and hiring practices to ensure that employees are qualified and competent; provide comprehensive training on safe driving practices and company policies; maintain vehicles in good working order; monitor employee driving records and take corrective action when necessary; and secure adequate commercial auto insurance coverage, including uninsured/underinsured motorist coverage. Oregon law, specifically ORS 30.115, addresses employer liability for employee torts, outlining the conditions under which an employer can be held responsible for the actions of its employees.

The “separation of insureds” condition, also known as the “severability of interests” clause, is a crucial element in CGL policies. It essentially treats each insured as if they have their own individual policy, preventing the actions or knowledge of one insured from being imputed to another for coverage purposes. This is particularly important when multiple individuals or entities are listed as insureds under the same policy. Under Oregon law, this clause is generally interpreted to mean that coverage applies separately to each insured, subject to the policy’s overall limits and exclusions. For example, if a corporation and its employee are both insureds under a CGL policy, and the employee negligently causes an injury, the corporation’s coverage is not automatically barred simply because the employee was at fault. The corporation’s liability would be assessed independently. However, if the corporation’s own direct negligence contributed to the injury (e.g., negligent hiring or supervision), coverage for the corporation might be affected. Oregon Revised Statute (ORS) 742.031 addresses policy provisions generally, and while it doesn’t explicitly mention “separation of insureds,” it underscores the principle that policy language should be interpreted reasonably and in accordance with the insured’s reasonable expectations. The separation of insureds clause helps to ensure that each insured receives the coverage they reasonably expect, given their individual circumstances and potential liabilities. The specific wording of the policy is paramount, and any ambiguities are typically construed against the insurer.

The fundamental difference between “claims-made” and “occurrence” CGL policies lies in the trigger for coverage. An “occurrence” policy covers incidents that occur during the policy period, regardless of when the claim is made. A “claims-made” policy, on the other hand, covers claims that are first made against the insured during the policy period, provided the incident occurred after the policy’s retroactive date (if any). “Tail coverage,” or an extended reporting period (ERP), is crucial for claims-made policies. Without it, claims made after the policy expires, even if they arise from incidents that occurred during the policy period, are not covered. Oregon insurance regulations, as interpreted by case law and the Oregon Department of Consumer and Business Services (DCBS), emphasize the importance of clearly disclosing the limitations of claims-made policies to insureds. Insurers must provide adequate notice of the availability and cost of tail coverage upon policy termination. ORS 742.450 addresses liability policies and requires that they contain certain provisions. While it doesn’t specifically mandate tail coverage, it implies the need for clear and unambiguous policy language regarding coverage triggers and limitations. Failure to adequately inform the insured about the need for and availability of tail coverage could potentially lead to claims of misrepresentation or negligence against the insurer or agent. The length and cost of tail coverage can vary, and insureds should carefully consider their potential exposure when deciding whether to purchase it.

“Business income” coverage, also known as “business interruption” coverage, protects a business against the loss of income sustained due to a covered cause of loss that damages its property. It essentially replaces the income the business would have earned had the damage not occurred. “Business income with extra expense” covers both the loss of income and the extra expenses incurred to minimize the interruption and resume operations as quickly as possible. These extra expenses might include renting temporary space, expediting repairs, or paying overtime. “Business income without extra expense” only covers the loss of income; it does not reimburse for extra expenses. The “period of restoration” is the timeframe during which business income losses are covered. It typically begins on the date of the direct physical loss or damage and ends when the property should be repaired or replaced with reasonable speed and similar quality. Oregon law, particularly case law interpreting insurance contracts, emphasizes the concept of “reasonable diligence” in determining the period of restoration. Insureds are expected to take reasonable steps to mitigate their losses and resume operations as quickly as possible. Delays caused by factors outside the insured’s control, such as permitting delays or material shortages, may extend the period of restoration. However, delays caused by the insured’s own negligence or inefficiency may not. The specific policy language and the facts of each case are critical in determining the appropriate period of restoration.

Commercial crime insurance protects businesses against financial losses resulting from criminal acts, such as employee theft, burglary, robbery, forgery, and computer fraud. Employee dishonesty coverage is a key component, protecting against losses caused by dishonest acts of employees with the intent to cause the insured to sustain a loss and to obtain financial benefit for the employee. Typical exclusions in commercial crime policies include losses resulting from inventory shortages without physical evidence of a covered cause of loss, losses caused by partners or owners (unless specifically endorsed), and losses resulting from indirect or consequential damages. Under Oregon law, the “manifest intent” requirement for employee dishonesty coverage means that the employee’s intent to cause a loss to the employer and to obtain a financial benefit for themselves must be clearly evident. This often requires proof beyond mere suspicion or circumstantial evidence. The insurer typically bears the burden of proving that the employee acted with manifest intent. Oregon courts have generally held that the insurer must demonstrate a clear and unambiguous intent on the part of the employee to both harm the employer and benefit personally. This requirement is designed to prevent coverage for situations where an employee’s actions, while perhaps negligent or unauthorized, were not motivated by a deliberate intent to commit a crime.

“Bailee” coverage protects a business against loss or damage to property of others that is in their care, custody, or control. A bailee is someone who temporarily holds property belonging to another, such as a dry cleaner, repair shop, or warehouse. This coverage is essential because a standard commercial property policy typically excludes property of others unless the insured is legally liable for it. Bailee coverage fills this gap, providing protection even if the bailee is not legally liable but still suffers a loss to the customer’s property. For example, a dry cleaner in Oregon has a fire in their shop. The fire damages not only the dry cleaner’s equipment but also the customers’ clothing that was being cleaned. Without bailee coverage, the dry cleaner’s policy might not cover the loss of the customers’ clothing unless the dry cleaner was negligent in causing the fire. Bailee coverage would cover the loss, regardless of negligence. Key considerations for determining the limits of bailee coverage include: the average value of property held at any given time, the maximum value of property that could be held at any one time, the type of property held (some property may be more valuable or susceptible to damage), and any contractual obligations the business has to its customers regarding the care of their property. The business should also consider the potential for a catastrophic loss, such as a fire or flood, that could damage a large amount of customer property simultaneously.

A “builders risk” insurance policy is a specialized form of property insurance designed to protect buildings and structures under construction or renovation. It covers physical loss or damage to the building, materials, and equipment used in the project. It is typically purchased by the property owner, contractor, or subcontractor involved in the construction. Builders risk policies typically cover a wide range of projects, from single-family homes to large commercial buildings. Common exclusions include losses resulting from faulty design, faulty workmanship (although resulting damage may be covered), wear and tear, inherent vice, and earth movement (unless caused by a covered peril). Oregon law requires that an insured have an “insurable interest” in the property being insured. This means that the insured must have a financial stake in the property, such that they would suffer a financial loss if the property were damaged or destroyed. For builders risk policies, this requirement is typically met by the property owner, contractor, or subcontractor, as they all have a financial interest in the successful completion of the project. ORS 742.005 defines insurable interest and emphasizes that the insured must have a legitimate economic interest in the preservation of the property. Without an insurable interest, the policy is considered a wagering contract and is unenforceable.

Errors and omissions (E&O) insurance, also known as professional liability insurance, protects professionals against financial losses resulting from claims of negligence, errors, or omissions in the performance of their professional services. It covers legal defense costs and damages awarded to the claimant. Professions in Oregon that typically require E&O coverage include: architects, engineers, accountants, lawyers, insurance agents, real estate agents, and consultants. These professions provide specialized services and are exposed to the risk of being sued for professional negligence. Common claims covered by E&O policies include: failure to meet professional standards, negligent advice, errors in calculations, and omissions in providing services. For example, an architect might be sued for designing a building that violates building codes, or an accountant might be sued for making errors in tax preparation. Typical exclusions in E&O policies include: intentional acts, fraud, criminal activity, bodily injury, property damage (these are typically covered by CGL policies), and prior acts (unless specifically endorsed). E&O policies are typically written on a claims-made basis, meaning that the policy must be in effect both when the error or omission occurred and when the claim is made.