Pepper, Johnstone & Company Blog

Restaurant Insurance: Who Pays When Something Goes Wrong

Tue, 22 Sep 2026 21:28:40 GMT

Restaurant owners are more than used to operating under pressure. Unfortunately, that also means most restaurant insurance gets bought under hard deadlines without a second thought. The landlord wants a certificate of insurance before releasing the keys, and the lender wants proof of coverage before funding. Or else it’s the health department, the liquor board and the city all wanting something on file now.

So operators forward the lease exhibit to whoever can bind coverage fastest, the certificate clears the file and the doors open. But that won’t necessarily cover you when a fryer ignites at 9:00 on a Friday or a guest who left the bar causes a wreck two miles down the road.

Insurance is already one of the costs operators feel most. More than 9 in 10 operators named food, labor, insurance and energy among their most significant challenges in 2026. But paying for coverage that doesn’t actually cover you is the most expensive version of that problem.

What Insurance Does a Restaurant Need? Key Takeaways

A lease sets minimum insurance requirements to protect the landlord, not the operator.
General liability excludes alcohol-related claims for businesses that serve alcohol, which is why liquor liability is written separately.
Cooking equipment causes three out of five structure fires in eating and drinking establishments.
Business income limits should be built from actual seasonal revenue and a realistic rebuild timeline.
Delivery runs, catering and supply trips create commercial auto exposure that personal auto policies exclude.

Coverage	What Triggers It	Where the Gap Usually Is
General Liability	A guest injured on your premises or a foodborne illness claim	Assault and battery is often excluded by endorsement
Liquor Liability	A claim arising from alcohol your restaurant served	General liability will not respond, so it has to be written separately
Commercial Property	Fire, water damage, theft, vandalism, wind and hail	Equipment breakdown and spoilage require endorsements
Business Income	A closure that follows a covered property loss	The restoration period ends at repair, not at recovered sales
Workers’ Compensation	An employee injured on the job	State rules may not match IRS worker classification
Commercial Auto	An accident involving a vehicle used for restaurant business	Employee personal vehicles need hired and non-owned coverage

What Your Lease Requires From Your Restaurant Business Insurance Policy

A typical restaurant lease insurance exhibit asks for a handful of specific things:

A general liability limit, commonly $1 million per occurrence and $2 million aggregate
The landlord named as an additional insured
A waiver of subrogation
Primary and noncontributory wording
A certificate delivered before occupancy as proof of insurance

Each of these provisions protects the landlord’s building and balance sheet. It says nothing about your build-out, your income during a closure, your equipment or whether your liquor limits match the way you actually operate.

Who Insures a Restaurant Build-Out?

The build-out phase is a common gap in a restaurant’s insurance program. In policy language, it’s called tenant improvements and betterments.

You paid for the hood system, the walk-in, the bar, the grease trap and the millwork. Those are permanent alterations to a building you don’t own, and you can’t take them with you when the lease ends. While the work is still in progress, that exposure belongs to builder's risk, and improvements coverage picks up once the work is finished and in use.

From there, most leases transfer ownership of the build-out to the landlord at the end of the term. But that doesn’t help you while you’re still operating, because you’re the one who paid for it and the one who has to replace it after a loss.

Make sure to read the lease provision and confirm which party is insuring the build-out.

Why Your Insurance Agent Should Read the Whole Lease

Indemnification language, casualty provisions, rent abatement and repair obligations all change the insurance analysis. A lease can obligate a tenant to restore a building they don’t own or to keep paying rent through a closure they didn’t cause.

An independent insurance agent who reads the full lease before coverage is bound can catch a requirement your policy doesn't currently meet. A quoting portal only sees the coverage you asked for.

Commercial Property Insurance for Restaurants: Risks in the Kitchen

On average, 7,400+ structure fires are reported in eating and drinking establishments every year, costing more than $165 million in direct property damage. Commercial property insurance is what pays to rebuild afterward. It covers three categories: the building if you own it, your business's personal property and the improvements you made to a space you lease.

Business personal property is the bulk of it for most restaurants: ranges, fryers, refrigeration, dish machines, POS terminals, furniture, smallwares and food inventory. The building is often someone else's problem entirely, since most restaurants lease.

Of course, fire is the peril operators think about, but it isn’t the only one commercial property covers. Water damage from a failed supply line, theft, vandalism, wind and hail all sit under the same coverage.

Equipment Breakdown Coverage for Restaurant Kitchens

Property coverage responds to damage from an outside cause. Something like a walk-in compressor that simply fails doesn’t count. That’s a mechanical breakdown, and standard property forms treat it as excluded.

Equipment breakdown coverage comes in here, added by endorsement or through a business owner's policy. Spoilage is commonly available under the same endorsement, which is an option worth considering because the compressor failure and the $9,000 in product it ruins are two separate losses.

Spoilage sublimits are often set at a few thousand dollars and never revisited. Check yours against what is actually in the walk-in on any given Friday.

General Liability Insurance for Restaurants: Claims That Start in the Dining Room

General liability insurance protects your business from third-party bodily injury and property damage claims. These are situations like a guest slipping and falling on tile near the server station, a hot plate burning a customer, a fixture coming loose over a four-top or even water from your dish pit damaging the tenant space next door.

Claims arising from foodborne illness cases land here, too. When a guest alleges your food made them sick, defense costs begin accruing whether or not their allegation holds up. In fact, research shows that the cost of a foodborne illness event can range from the thousands to the millions in lost revenue and legal fees.

The Assault and Battery Exclusion in Restaurant Liability Coverage

Insurance companies writing hospitality insurance policies frequently attach an assault and battery exclusion by endorsement. It isn’t part of standard general liability, so its presence depends entirely on which carrier wrote your policy and how they classified your operation.

If you employ door staff, host live music or serve past midnight, you’ll need to ask whether that exclusion is present, bought back by endorsement or capped at a sublimit below your primary limit. Most operators only discover the answer after an incident.

Liquor Liability Insurance: Why General Liability Isn’t Enough

The standard commercial general liability form contains a liquor liability exclusion that applies to anyone in the business of manufacturing, distributing, selling, serving or furnishing alcoholic beverages. A restaurant that sells or serves alcohol falls into that category. That means liquor liability has to be written as a separate policy or added by endorsement.

The details will vary considerably based on your:

Percentage of receipts that come from alcohol
Closing hours (before or after midnight)
Entertainment and dance floor offerings
Security staffing
Documented server training

That last point is important. Several states offer incentives for participating in beverage service training programs, including a defense in dram shop actions and discounts on liquor liability insurance.

How Dram Shop Laws Affect Restaurant and Bar Insurance

Most states impose some form of commercial host liability, commonly called dram shop liability. In essence, these laws allow people to sue businesses for serving them alcohol under certain circumstances. For example, an intoxicated customer leaves your restaurant, and they go on to harm themselves or others.

The standards vary considerably throughout the nation and often change. But in insurance terms, they can affect where your policy will come from. Insurance carriers file their rates with each state, and those filings assume a fairly standard restaurant. A place doing most of its revenue at the bar until 2 a.m. with a dance floor and door staff is considered riskier, so many carriers decline it outright.

Your business is still insurable; it just moves to what the industry calls surplus lines, a market for risks that fall outside standard rate filings. Reaching those markets takes an agency with access to them. An agent working with a single carrier has one answer to give you, while an independent insurance agent can work to find the right placement across multiple options.

Business Income Insurance for Restaurants: What a Closed Kitchen Costs

A restaurant closed for six weeks after a kitchen fire still has to pay rent, insurance, debt service and the salaried people it can’t afford to lose. Business income insurance is calculated based on net income plus continuing normal operating expenses, measured over the restoration period until the property is repaired or replaced.

Of course, a dining room that has been closed for two months doesn’t typically return to full sales on reopening day. An extended period of indemnity endorsement can cover the ramp. Our breakdown of how business income insurance coverage is calculated walks through the mechanics.

Additional Endorsements to Consider for Restaurant Closures That Aren’t Fires

Utility service interruption responds when a power failure spoils inventory and closes the doors.
Civil authority responds when access is blocked by an incident nearby.
Dependent property responds when a single-source supplier or an anchor co-tenant goes down.

Workers’ Comp Insurance for Restaurants: Burns, Cuts and Falls

Employee injuries are a class of their own, especially in industries where exposure is in the job itself: fryer oil, sheet pans coming out of 450° ovens, boning knives, wet tile, ice, repetitive lifting and a high turnover workforce—to name a few.

Workers’ compensation insurance covers medical bills and wage replacement for those injuries and, in most states, removes the employee’s right to sue the employer over them.

Workers’ Comp Requirements by State and Who Counts as an Employee

Requirements vary by state, usually by employee count, and may not align perfectly with IRS classifications for tax purposes. That means someone hired as a seasonal or 1099 worker may still need to be covered, depending on where you work. Restaurants with locations in multiple states must comply with the workers’ comp laws of each state in which they operate.

Check out our recent guide on workers’ compensation requirements by state for more details.

Commercial Auto Insurance for Restaurant Delivery and Catering

Commercial auto insurance covers vehicles the restaurant owns, leases or uses for business. Delivery vehicles, catering vans or trucks that run to the produce supplier all count. Personal auto policies exclude business use, so an owned delivery vehicle has to be scheduled on a commercial policy before it leaves the lot.

Catering also changes your risk profile. Alcohol served off your licensed premises, venue contracts requiring additional insured status at specific limits, and equipment in transit can all put you outside of what standard policies cover. In these cases, it’s crucial to have someone on your side who can assess each exposure you face and help you find the right coverage for total peace of mind.

Hired and Non-Owned Auto Coverage for Restaurants

If an employee uses their own car to pick up an emergency order of produce, they’re on restaurant business, and their personal policy isn’t likely to cover any claims that may arise from an accident.

Hired and non-owned auto liability addresses this problem. It’s inexpensive relative to the exposure and frequently absent from restaurant programs.

Hospitality Insurance Lines Restaurants Add Later

Employment practices liability insurance, given the wage and hour, scheduling and harassment claims common to this industry
Cyber liability insurance, given the payment card environment running through your point-of-sale system
Commercial umbrella insurance to extend coverage above general liability, liquor liability and auto, which is critical for serious dram shop claims.

Building a Restaurant Insurance Program That Closes the Gaps

Every insurance requirement handed to a restaurant at opening comes from a party protecting its own position. The landlord protects the building, the lender protects the loan and the state protects injured workers and third parties.

No one’s protecting your build-out, your income or your personal exposure. Unless you work with an independent insurance agent who can build a program as one structure that covers everything your business realistically faces.

A handful of policies bought from one big-name carrier will have gaps at the seams, and restaurant claims land in exactly those seams. Building the program as one structure is what closes them.

Review Your Restaurant Insurance Before You Sign

If you’re opening a location, adding delivery or catering or renewing coverage without a clear picture of what changed, a coverage review is well worth the time. Pepper, Johnstone & Company can review the lease and the policy together, then build the program around how your restaurant actually operates. Request a quote online or call 866-381-5821 to talk it through with an advisor.

Workers' Comp for Small Business: Who’s Actually Covered?

Mon, 31 Aug 2026 05:00:00 GMT

TL;DR: Workers' compensation covers people, not companies. Whether any given worker is covered depends on how their state classifies them and where they physically work, which is why a small business can be fully compliant for its headquarters and uninsured for its subcontractors, remote employees or owners.

A nine-person HVAC company and a six-person accounting firm can have the same workers’ compensation problem for completely different reasons.

The HVAC company subcontracts overflow installs to two crews it pays on 1099s. The accounting firm has a bookkeeper who moved across a state line last year and kept working. Both businesses carry a policy, and neither policy covers everyone doing the work.

Too often, workers’ comp insurance for small businesses gets treated as a single yes-or-no decision. In practice, it’s a series of separate decisions person by person, and a company can be fully compliant for one group while carrying uninsured exposure for another.

But you might miss that fact until an annual premium audit comes around, or worse, when someone gets hurt. By then, the correction is retroactive. That’s why understanding which people your policy reaches is one of the more consequential parts of business insurance and one of the easiest to get wrong.

Quick Facts: Workers’ Comp Insurance Requirements by State

State coverage triggers range from the first employee to five or more, and part-time, seasonal and temporary workers usually count toward the threshold.
Paying a worker on a 1099 doesn’t remove their status as employees because states apply their own classification tests and several presume a worker is an employee.
Workers’ compensation obligations attach in the state where the work is physically performed, not the state where the company is registered or headquartered.
An owner or officer exemption removes that individual from the policy and leaves the business’s obligation to cover its employees fully intact.
Carrying required coverage preserves the exclusive remedy rule, which bars most employee injury or illness lawsuits against the employer.

Who Qualifies for Workers’ Comp?

Workers’ compensation covers medical care, lost wages, ongoing occupational or physical therapy and death benefits after on-the-job injuries. It covers individual people, not the company, and whether they need to be covered depends on two facts:

How that person is classified under the law of the state involved
Which state they physically perform the work in

A single policy can cover both correctly for your office staff but overlook everyone else. That’s why, when it’s time to build a policy, you need to have your roster in mind more than just the workers' compensation premiums themselves.

List every person who performs work for the company. Then sort them into three groups: W-2 employees, workers paid on 1099s, and owners or officers. Each group involves a different risk.

If you need a refresher on the mechanics of the coverage itself, our guide to how workers’ comp coverage works explains benefits, claims handling and employers’ liability. In this article, we’ll talk about who falls inside the policy and who doesn't.

Is Workers' Comp Insurance Required by Law?

In nearly every state, yes, once you have employees. Four factors can set the obligation in motion.

Your first employee: In many states, coverage is required the day you put one person on payroll. Revenue, profitability, and years in business have nothing to do with it.
A certain number of employees: A smaller group of states sets the bar at three, four or five employees.
An industry carve-out: Construction and agriculture are commonly treated differently, often with a one-employee threshold, while other industries get more leeway. Some states apply separate rules to domestic and seasonal workers.
A contract you signed: A general contractor’s subcontract, a landlord’s lease or a government contract can require proof of coverage regardless of what state law says.

Which States Require Workers’ Comp for Small Businesses?

Most states require coverage with the first employee, including part-time workers. A smaller group sets the threshold at three, four or five, and Texas leaves it optional for most private employers.

State thresholds change through legislation, but as of 2026, here are the workers’ comp insurance requirements by state, including notable exceptions:

Workers' Compensation Coverage Thresholds by State

State	General Threshold
Alabama	5 or more employees
Florida	4 or more employees non-construction, 1 or more construction; 6 or more regular employees and/or 12 or more seasonal employees agriculture
Georgia	3 or more employees
Kansas	When gross payroll exceeds $20,000
Mississippi	5 or more regular employees
Missouri	5 or more employees non-construction, 1 or more construction
New Mexico	3 or more employees non-construction, 1 or more construction
North Carolina	3 or more employees
South Carolina	4 or more employees
Tennessee	5 or more employees generally, 1 or more in construction or coal mining
Texas	Optional for most private employers
Virginia	2 or more employees
Wisconsin	3 or more employees
All other states	1 or more employees

Thresholds current as of August 2026. State requirements change through legislation. Confirm with the applicable state agency before relying on this table.

Which States Require Workers’ Comp from a State Fund?

North Dakota, Ohio, Washington and Wyoming operate monopolistic systems, which means coverage has to be purchased from the state fund and can’t be added to a private policy.

Can a Contract Require Workers’ Comp Before State Law Does?

Yes, and for smaller businesses, it may very well be the first thing that triggers an obligation. A three-person shop bidding as a subcontractor receives an insurance requirements exhibit, and workers’ compensation is right there on the list next to general liability. At that point, the requirement is contractual, and the job can’t start without a certificate of insurance showing coverage in place.

Pro Tip: Binding coverage under deadline pressure can produce a different program than you’d get by planning ahead. Companies in that position tend to accept whatever can be issued quickly at the minimum limits the contract will allow, but that approach can leave you dangerously exposed.

Who Counts Toward Your Employee Count?

More people than your payroll headcount suggests. Part-time employees generally count, and so do temporary and seasonal workers. Some states count unpaid interns, and several treat family members working in the business as employees unless a specific exemption is filed.

States also differ on how they measure. Some look at anyone employed on any day during the year, and others apply a regularly employed standard over a defined period. For example, Florida requires coverage for agricultural workers employed for more than 30 days.

Do You Need Workers’ Comp Insurance for 1099 Contractors?

Sometimes. A 1099 is a tax form rather than a determination of status, and a company can be correct for federal tax purposes and wrong for state workers’ compensation on the same person. Either the state or your own premium auditor can overrule how you’ve classified someone.

While most states don’t require businesses to cover properly classified 1099 workers, some have broad enough definitions of “worker” to effectively make it a requirement.

For example:

Florida requires construction industry businesses to cover all workers, including subcontractors and 1099 workers.
Pennsylvania considers all workers to be traditional employees unless proven otherwise under strict tests.
Ohio, one of several states with universal or near-universal definitions, applies workers’ comp rules to anyone performing labor if an employment relationship is found to exist.

What Is the ABC Test for Independent Contractors?

States apply their own tests to determine whether independent contractors are exempt from workers’ comp obligations. California, New Jersey and Massachusetts are among the states that use versions of an ABC test, which presumes a worker is an employee unless the hiring company satisfies every prong:

Control: The worker operates outside of the business’s control, meaning the company does not dictate when, where, or how the work is performed.
Core Business: The worker completes tasks that are not considered central to the business’s primary operating model
Independent Business: The worker is typically engaged in services of the same nature through an independently established trade or business.

If even one of these three prongs falls through, you are obligated to cover that person.

Why Are Contractor Payments Appearing on My Insurance Premium Audit?

Because payments to uninsured subcontractors and 1099 workers are generally pulled into your payroll base unless you can produce a valid certificate of insurance for each one.

When this happens, it’s a documentation failure—an expensive one that results in a retroactive premium bill. Collecting certificates at engagement costs nothing and protects you from having to reconstruct them a year later during an audit.

An exposure of this kind is more serious if someone gets hurt. When a worker is later determined to have been misclassified, the claim is generally not covered by the employer’s policy, which leaves the business paying the loss directly while also facing state penalties.

If you regularly hire outside crews, our discussion of whether your contractors are covered walks through what to collect and when.

Does Workers’ Comp Cover Remote Employees in Other States?

Only in the states your policy lists. Hiring across state lines creates a workers' compensation obligation in each state where someone works, and your state of registration is moot.

A company incorporated in Georgia but operating out of Alabama, with engineers in Ohio, Florida and Colorado has employer duties in four states. And without the right advisor, they may only have a policy that names one.

Does My Policy Cover Employees in States It Doesn’t List?

Usually not. Every workers’ compensation policy has an Information Page, where Item 3.A lists the states where the policy provides primary coverage. Those are the states the insurance company has rated and priced.

Item 3.C, Other States Insurance, is the backstop. It typically applies where an employee is working temporarily in a state not listed in 3.A and where the employer was not required by that state’s law to carry coverage there.

A permanent remote employee doesn’t fit that description. They work in that state on an ongoing basis, so the state will require you to insure locally. If you hire a worker in a monopolistic state (North Dakota, Ohio, Washington, Wyoming), you’ll have to open a separate state fund account before that person starts work.

Does a PEO Handle Multi-State Workers’ Comp?

A PEO usually handles the administration of workers’ comp but not the obligation.

A PEO, or Professional Employer Organization, co-employs your staff and typically carries the workers’ compensation benefits, which is why owners assume the question is settled. Your business generally remains the common-law employer, so the state’s recourse can still run to you if a filing is missed. Ask which entity holds the workers' compensation account in each state, and get the answer in writing.

Adding states is also where the choice of carrier comes into play. A carrier can only write in states where it's admitted and has filed rates, and a regional carrier that fits your business well at home may have no authority in the state you just hired into.

Pepper, Johnstone & Company represents multiple carriers and reviews the Item 3.A schedule against where employees physically work. We work with you to explore your actual risk profile and build policies that truly protect your business.

Are Owners and Officers Exempt from Workers’ Comp?

Not automatically. In most states, corporate officers are included under the policy by default and have to file a specific election with the carrier or the state board to be left off. Conversely, sole proprietors and partners are generally excluded by default, with the option to elect in. However, states differ on the minimum ownership percentage required, which officer titles qualify and how many officers may be excluded.

Several states also apply a substance test rather than accepting a title. Washington, for example, requires that an officer be voluntarily elected or appointed in accordance with the corporate bylaws, hold stock issued in their own name and exercise substantial control in the daily management of the corporation.

What Happens If You Don’t Carry Required Workers’ Comp?

You lose what’s called exclusive remedy. Workers’ compensation is a trade in which injured employees receive quick medical and wage benefits without having to prove the employer was at fault, and in return, they generally give up the right to sue the employer.

That protection only exists if you carry the coverage the state requires. Without it, an injured worker can pursue the business in civil court for full damages, including categories that workers’ compensation never pays, like pain and suffering.

These claims are seldom small enough for a small business to take on easily. The average workers’ compensation claim was $47,316 for accidents occurring in 2022 and 2023, and bearing the brunt of a single uncovered claim of that size is difficult to recover from.

Then there are the penalties that come on top of that. For example, in Illinois, an employer that knowingly and willfully fails to obtain coverage may be fined up to $500 for every day of noncompliance with a $10,000 minimum, and corporate officers can be held personally liable for the amounts due.

What Happens if You Opt Out in Texas?

Not only are you wide open to legal recourse for injuries, but three common legal defenses also disappear. Under Texas Labor Code Section 406.033, an employer without workers' compensation coverage cannot argue that the employee was contributorily negligent, that the employee assumed the risk or that a fellow employee caused the injury. The employer isn't defenseless, but it puts all the more risk exposure on them.

Non-subscribers also take on ongoing paperwork. They must file an annual notice with the Division of Workers' Compensation, post notice of non-coverage at the workplace, tell new hires in writing and report injuries once they reach five or more non-exempt employees.

Check the Roster Before You Buy the Policy

Every mechanism in this article costs almost nothing to address before a hire but a great deal to address after a claim.

Adding a state to Item 3.A is paperwork, and collecting a certificate of insurance from a subcontractor takes one email. Filing an owner exemption correctly just takes a form. Left undone, all of them become a retroactive premium bill, an uncovered claim or a personal liability question once an accident happens.

Businesses that get this right stop treating workers’ compensation solely as an annual renewal item and start treating it as a hiring checklist item. Every new employee, every subcontractor engagement and every relocation is a moment to ask whether the policy still covers everyone it needs to. An annual insurance review catches what’s left.

Review Your Coverage with an Independent Insurance Agent

If you’re hiring across state lines, paying subcontractors regularly or are unsure whether your owners were correctly included or excluded, that’s a conversation to have before an audit or claim forces your hand. Pepper, Johnstone & Company works with small and midsize businesses to structure workers’ compensation programs correctly around who is doing the work and where. Request a quote online or call 866-381-5821 to speak with an advisor.

Medical Practice Insurance: A State-by-State Guide

Fri, 31 Jul 2026 05:00:00 GMT

Only seven states legally require physicians to carry malpractice insurance. But that doesn’t mean medical practice insurance is optional. Hospitals, payers and state programs typically enforce it long before state law does, and the cost of going without far outweighs the cost of coverage.

Nearly three in ten physicians get sued at least once in their career. That figure climbs to over half for surgeons in high-risk specialties like OBGYNs and general surgeons. Even if the suit ends up being dropped, the legal fees still pile up while you wait for dismissal.

Malpractice claims also aren’t the only troubles medical professionals need to worry about. These days, general liability, workers’ compensation and cyber liability now function as close to mandatory as malpractice does, with healthcare data breach costs rising higher than any other industry.

Quick Facts: What Coverage Do Healthcare Professionals Need?

Seven states require medical malpractice insurance by law, and hospitals, payers and credentialing committees enforce it almost everywhere else.
Malpractice premiums can run four times higher in some states than others for the same specialty, since location and litigation environment drive cost more than any state’s legal minimum.
General liability insurance is effectively mandatory for medical practices, not only because most commercial leases require proof of coverage but also due to the exposures that health care organizations face.
The average cost of a healthcare breach is $7.42 million, making cyber liability insurance a baseline component of any medical office insurance program.

What Is Malpractice Insurance and What Does It Cover?

Medical malpractice, or medical professional liability insurance, covers claims that a physician’s clinical judgment caused a patient harm. That can include missed or delayed diagnoses, treatment errors and informed consent disputes, among other claims. This type of coverage helps with financial losses after a claim is made, from legal fees to settlement payments.

Occurrence vs. Claims-Made Policies

Most malpractice policies are written on a claims-made basis, meaning coverage applies only if the policy is active both when the incident happened and when the claim is filed. Occurrence policies cover the incident date, regardless of when a suit is filed later.

The distinction matters most when a physician changes carriers or retires, since a gap between policies can leave old claims uncovered. Read our full breakdown of occurrence vs. claims-made insurance to learn more about how tail coverage fits in.

Why Healthcare Provider Insurance Requirements Vary by State

Two separate authorities govern the requirements for professional liability insurance for medical practices (commonly referred to as malpractice insurance). State medical boards regulate licensing and scope of practice, while state insurance departments and legislatures decide who has to carry coverage and how much. The thing is, these authorities don’t coordinate.

That’s why the rules look inconsistent from one state to the next. Some states set a flat dollar minimum, while others tie coverage to a patient compensation fund that caps what a plaintiff can collect. A few states don’t mandate anything at all and instead let hospitals and payers enforce it through credentialing.

Is Malpractice Insurance Required? Mandatory States vs. States That Leave it to the Market

Seven states require malpractice coverage as a direct condition of licensure. Minimums generally start around $500,000 per occurrence and reach $1 million per occurrence with $3 million in aggregate in most of these states.

A second group doesn’t mandate malpractice insurance outright. Instead, physicians who carry a private policy up to a set base coverage limit get access to a state fund that pays any judgment above it, capping their personal exposure.

That means if you skip the private policy in one of these states, you also lose access to the fund that caps personal liability above it. So, going without coverage in these states is legally allowed but financially reckless.

Category	States	What's Required
Direct Mandate	Colorado, Connecticut, Kansas, Massachusetts, New Jersey, Rhode Island, Wisconsin	Malpractice insurance required as a condition of licensure, generally $500,000 to $1 million per occurrence, up to $3 million aggregate
Tied to a State Fund	Indiana, Louisiana, Nebraska, New Mexico, New York, Pennsylvania, Wyoming	Not mandated outright, but opting out of a base private policy forfeits access to the fund that caps liability above it
No Mandate	All other states	Coverage enforced through hospital credentialing and payer contracts

Does My State Require Malpractice Insurance If I’m Self-Employed?

Even in a state without a strict mandate, hospital credentialing bylaws and most payer contracts require proof of coverage before a self-employed physician can bill through them. Going without it is rarely optional once you look beyond the state statutes.

How Healthcare Professional Liability Insurance Premiums Vary by Specialty and Location

Medical liability premiums have risen for seven straight years, according to the American Medical Association, with nearly 40% of reported premiums increasing in 2025. Because OB-GYNs and general surgeons see the most frequent claims, costs for physicians in these specialties tend to be considerably higher, up to quadruple in some areas.

Location can affect your insurance costs as much as your specialty does. An internal medicine physician in Los Angeles may pay a premium of around $8,000, while the same specialty in Miami-Dade County could see premiums reaching almost $60,000.

Example Premiums for Medical Malpractice Insurance, 2025

Location	Internal Medicine	General Surgery	OB-GYN
Los Angeles, CA	$8,274	$41,775	$49,804
Miami-Dade, FL	$59,736	$243,988	$243,988
New Jersey	$18,410	$63,366	$94,640
Philadelphia, PA	$26,542	$102,187	$135,974

Source: American Medical Association analysis of Medical Liability Monitor Annual Rate Survey data, 2025.

Why Is Malpractice Insurance So Much More Expensive in Some States?

States with caps on non-economic damages, like California, consistently report lower premiums across every specialty. So, it’s not always about the underlying risk of practicing medicine. The litigation environment is the major reason the same coverage options cost so much more in some states than others.

Why Every Practice Needs General Liability Insurance, Too

General liability insurance isn’t tied to a state medical mandate the way malpractice sometimes is, but it’s functionally universal. Most commercial leases require it before a practice can even sign, and it covers the everyday risks that malpractice doesn’t.

Common Claims at Medical Offices

Bodily injury claims, like slip-and-fall injuries to patients or visitors, are the most common general liability claim at a medical office, with an average claim cost above $51,000. General liability also covers property damage to a vendor’s equipment and advertising-related disputes, none of which fall under a malpractice policy.

Cyber Liability Insurance for Healthcare and HIPAA Breach Exposure

Most people think about tech businesses or major retailers when they think about cybersecurity. But in fact, healthcare has topped every industry in data breach costs for over a decade now. The average healthcare breach now costs $7.42 million, or about $398 per exposed record. Worse, breaches at healthcare organizations take longer to detect and contain than in any other sector.

Cyber liability insurance is built specifically to cover what happens after this kind of event.

What a Breach Actually Costs a Small Health Professions Business

The average ransomware demand against medical care providers in 2025 was $615,000, a number that has fallen but is still crippling to many providers. And while attack volume against direct care providers has stayed roughly the same year over year, attacks on the vendors that practices depend on (such as billing services, imaging providers and medical tech companies) rose 25% in the same year.

Of course, the ransom demand is a small piece of what a breach actually costs. Detection, business interruption, patient notification and recovery are what push the average healthcare breach to its industry-wide $7.42 million. A Texas behavioral health clinic, Spindletop Center, found that out directly when it faced a $1.65 million ransom demand in September 2025.

Does HIPAA Compliance Mean I Don’t Need Cyber Insurance?

HIPAA compliance reduces the odds of a breach, but it doesn’t pay for the aftermath. Violations can now run as high as $73,011 per incident and $2.19 million per year for repeated violations of the same provision. That’s before breach response, patient notification or ransom negotiation costs, which is what a cyber liability policy covers the cost of.

Workers’ Comp Insurance for Medical Practices: What’s Required

Nearly every state requires employers to carry workers’ compensation insurance. Texas is the one state where it’s optional, and employers who don’t carry it become “non-subscribers,” a status they have to disclose to employees and file with the state every year.

State Thresholds and Where Practices Get Miscounted

Requirements are split roughly three ways. California and New York require coverage from the first employee, with no thresholds at all. Alabama and Mississippi exempt employers until they reach five employees, and Missouri does the same, except for construction work, where the threshold drops to one.

A practice that hires its way past one of these thresholds without noticing is the most common way small groups end up out of compliance.

Matching Coverage to Practice Type and Growth Stage

A solo practice and a multi-state group carry different real exposure, even inside the same state’s rules. A solo physician’s risk concentrates in malpractice and general liability. A growing group adds employment practices liability and a more complex workers’ comp picture as headcount rises. A multi-state system needs a coordinated healthcare professionals' insurance program across several carriers, since not every carrier is licensed everywhere the practice operates.

Building a Program That Matches Your Actual Risk

State law tells you what types of insurance you must carry, but it doesn’t tell you what you should carry. Unfortunately, the gaps are usually discovered during a lease negotiation, a credentialing review or a claim. But with the right insurance agent, you can be covered well before the worst happens.

If your practice is expanding into a new state, adding telehealth services or simply hasn’t reviewed its program in a while, Pepper, Johnstone & Company is ready.

Request a Quote for a Comprehensive Medical Practice Insurance Program Today

We work with medical practices navigating exactly this kind of multi-state, multi-specialty risk. Request an insurance quote online or call 866-381-5821 to speak with an advisor today.

D&O Insurance for Startups: The Stage-by-Stage Risk Guide

Fri, 12 Jun 2026 14:17:40 GMT

TL;DR: Once outside capital enters your company, every board-level decision carries personal liability for the people making it. D&O insurance covers directors, officers, and executives against claims of mismanagement, investor misrepresentation, and regulatory violations. Most institutional investors require it before closing a round. Limits should scale with your funding stage, and the policy structure matters as much as the coverage itself.

It’s all too common for a startup founder to find surprises in a term sheet. A funding round will be nearly complete when, somewhere in the investor covenants, you find line items like: “the company shall obtain directors and officers liability coverage within 90 days of closing.” Suddenly, startup insurance isn’t just an abstract future decision but a closing requirement with a hard deadline.

But what is directors and officers (D&O) liability insurance and what’s the difference between one policy and another? Understanding why it’s required and the consequences of choosing the bare minimum puts you in a much stronger position, especially if you’re trying to bind coverage during diligence.

Quick Facts: Directors and Officers Liability Explained

D&O insurance protects covered individuals and companies by paying legal fees—including defense costs, settlements and judgments—on their behalf.
A D&O claim can reach personal assets of founders, executives and independent directors, regardless of whether the company indemnifies them.
D&O insurance policies protect against a broad set of claimants, which can include investors, employees, vendors, regulators and competitors.
Coverage limits should scale with funding stage; seed-stage companies typically need $1M to $2M, while Series A may require $3M to $5M, and so on.
D&O does not cover every legal exposure that leadership may face; working with an independent insurance agent helps you build coverage that meets your real needs.

What Does D&O Insurance Cover?

Directors & officers insurance (D&O) protects the personal assets of company leadership (and their spouses) against legal claims alleging they committed wrongful acts. Covered claims typically include:

Mismanagement allegations
Breach of fiduciary duty
Misleading statements made to investors
Regulatory violations

More than 1 in 4 private companies have reported experiencing a D&O loss within a three-year period. And only about 23% of those claims come from shareholders. The rest come from employees, vendors, customers, regulators, competitors and other third parties.

You don’t need public shareholders or institutional investors to face a D&O claim. Every hiring decision, vendor relationship, regulatory filing and even pitch deck representation opens founders and executives up to personal financial losses from the earliest days of a company’s life.

Customers

54%

Vendors / suppliers

37%

Government / regulators

27%

Competitors

27%

Shareholders / partners

23%

Percentages exceed 100% because a single claim can involve multiple claimant types simultaneously. Source: Chubb 2016 Private Company Risk Survey.

The Three D&O Coverage Sides: A, B, and C

Most D&O policies are structured around three insuring agreements, commonly referred to as Sides A, B and C. All three typically share a single combined policy limit.

Side A: Individual Coverage

Side A protects directors and officers directly when the company either cannot or will not indemnify them. The most common scenario is insolvency: if your startup goes bankrupt during a dispute, the company can’t pay your legal costs but Side A can.

But insolvency isn’t the only risk here. Suits alleging breach of duties, equity compensation discrepancies and misrepresentation often name individuals, not just the company itself.

That’s why this is the most consequential coverage in the policy for early-stage founders. It’s a backstop that protects personal assets when the corporate shield fails.

Side B: Company Reimbursement

Side B reimburses the company after it has advanced defense costs on behalf of a covered director or officer. Most D&O claims at private companies go through Side B. The company pays first, and then the policy repays the costs.

Side C: Entity Coverage

Side C covers the company itself when it is named in a lawsuit alongside its directors and officers. Private company D&O policies typically have a broader Side C scope than public company policies. An investor misrepresentation claim that names both the company and its founders, for example, would look to Side C for the company’s legal costs.

How to Choose Between A, B, and C Insurance Coverage

The shared-limit design can create a practical problem: a large Side C settlement reduces what’s available under Side A for individual protection. Startups with larger programs sometimes purchase a separate Side A tower specifically to prevent that issue. The right insurance agent can assess your company’s actual risk profile and recommend a policy structure best suited to your needs.

When Is D&O Coverage Required? A Breakdown by Funding Stage

D&O insurance is a contractual condition in many Investors’ Rights Agreements, which govern the terms of the investor-company relationship post-close. Though the coverage requirements differ by funding stage, the liability exposure arises much earlier than many founders realize.

Pre-Seed and Seed

D&O coverage isn’t always contractually required at this stage, but that doesn’t mean you don’t need it. Pitch deck representations, verbal commitments to early investors and private placement memoranda all create personal liability for founders before a formal board exists.

A misrepresentation claim tied to a seed-round conversation can surface years after the fact. If you buy coverage now, you also lock in an earlier retroactive date, which makes a difference if a claim ever references decisions made in the earliest days of the company.

Series A

Most institutional VCs require coverage at this stage. The firm putting a partner on your board of directors wants that partner’s personal assets protected before they vote on anything. That’s because board members can be personally named in investor suits, employment disputes and regulatory actions.

Most institutional investors set a minimum limit range and require the policy to be bound within 60 to 90 days of closing. Some term sheets name preferred carriers or require A-rated insurers.

Series B and Beyond

At these stages, investor composition grows more complex. While that’s great for business, having multiple classes of investors means multiple sets of governance expectations, and each new investor is a potential claimant.

Later-stage investors and strategic partners increasingly treat D&O program reviews as a formal diligence step. A program that satisfied a Series A investor may not stand up to Series B scrutiny.

Board Observers Carry Risk, Too

Board observers, who attend board meetings and receive company information without holding a voting seat, can still be named in governance-related claims. Experienced independent directors and VC-appointed observers frequently require D&O to be in place before accepting a role. If your program isn’t bound before board formation, you may find yourself unable to recruit the directors your next investor requires.

How D&O Limits Should Scale with Your Funding Stage

Stage	Typical limits	Investor requirement	Primary exposure
Pre-seed	$1M – $2M	Not always required; some investors include customary coverage language	Pitch deck representations, early investor communications, PPM liability
Seed	$1M – $2M	Increasingly expected; board formation is the key trigger	Governance decisions, early employee disputes, founder conduct claims
Series A	$3M – $5M	Required by most institutional VCs; policy bound within 60–90 days of close	Board governance disputes, investor misrepresentation, employment claims at scale
Series B+	$5M – $10M+	Required; program review often part of formal diligence; separate Side A tower common	Multi-class investor disputes, regulatory scrutiny, complex board governance
Pre-IPO	$50M – $100M+	Stacked coverage towers; underwriting driven by S-1 disclosures and sector	Securities liability, SEC scrutiny, public shareholder class actions

Limit ranges are general benchmarks, not guarantees. Actual requirements vary by investor, sector, and company risk profile.

Limits are frequently inadequate because founders treat investor minimums as a ceiling rather than a floor. The minimum that satisfies a term sheet requirement and the limit that actually covers a real claim are often very different numbers.

Here’s a broad example of how this might scale:

Pre-seed and seed: $1M to $2M is often a reasonable starting point. The governance structure is lean, and claims exposure is primarily driven by early investor communications and founder conduct.

Series A: $3M to $5M is commonly what investors require to close the round, but you should think about what would actually cover a real claim. A single contested investor misrepresentation suit can exhaust $3M in defense costs alone before a settlement is reached. If the shared policy limit covers Sides A, B and C, an entity-level claim can quickly deplete what's available for individual director protection.

Series B and beyond: Requires $5M to $10M or more, and limit-setting at this stage becomes a structural question. With multiple investor classes at the table, the risk of a large entity-level claim drawing down individual coverage is meaningful enough that some programs add a separate Side A tower. Pre-IPO programs can reach $50M to $100M+ across stacked towers.

What D&O Insurance Doesn’t Cover

D&O may be essential coverage, but it’s just as important to understand its exclusions. If you assume D&O covers all leadership-related legal exposure, you’re likely to find out otherwise at the worst possible time.

Intentional fraud and criminal acts are excluded, though defense costs are typically advanced while a fraud claim is being contested. If a final adjudication establishes the misconduct, the carrier can claw back those costs.

Bodily injury and property damage belong under general liability insurance, not D&O. A workplace injury, a damaged vendor shipment or a slip-and-fall at your office are all general liability claims.

Professional services failures are an errors & omissions matter. D&O covers how the company was governed, not what the product or service did. For example, if your software causes a customer’s operations to fail and they sue, that claim would fall under your Tech E&O policy.

Employment-related claims at the organization level, including wrongful termination, discrimination and harassment, generally fall under Employment Practices Liability insurance (EPLI). However, some D&O policies provide coverage for employment-related claims at the individual level.

The insured-vs.-insured exclusion means claims brought by one director or officer against another are generally excluded. Carve-backs exist for whistleblower actions, bankruptcy trustee claims and derivative suits not solicited by an insured, so verify which of these your policy includes.

Because D&O, EPLI, Tech E&O and cyber liability all address adjacent but distinct risk categories, a gap in one policy can create unintended pressure on another. Structuring these policies together, rather than buying them separately and assuming they’ll coordinate, is critical.

Build the Program Before You Need It

D&O insurance lets founders, executives and board members make critical decisions without risking personal financial ruin for being wrong. Companies that treat it as a governance tool, rather than a compliance hurdle, build programs they can actually depend on when something goes wrong. Those who wait for a term sheet requirement typically end up with whatever coverage can be bound quickly, under time pressure at the minimum limits an investor will accept.

If you're closing a round, forming a board or reviewing whether your current program matches where your company actually is, Pepper, Johnstone & Company works with venture-backed companies at every stage. Request a quote online or call 866-381-5821 to speak with an advisor.

What Insurance Do Startups Need? A Pre-Seed & Seed Checklist

Fri, 15 May 2026 05:00:00 GMT

Most founders treat startup business insurance as a problem for later stages. It isn’t. The moment you sign your first client contract, bring on a W-2 employee or close your first round with outside investors, you’ve created real liability exposure.

The right coverage determines whether your company can survive a disputed client engagement, a data breach or an investor claiming mismanagement. Without it, those events can end the company or put your personal assets directly in the crosshairs.

This checklist covers the exact policies pre-seed and seed-stage founders need to secure: what each one covers, what triggers the obligation and what gaps are likely to appear in client contracts, term sheets and compliance requirements before you expect them.

For a full breakdown of how coverage needs evolve as your business grows from seed through Series A and beyond, see our complete startup insurance guide.

Key Takeaways: Business Insurance for Startups

General liability insurance is the baseline. Most contracts, office leases and client agreements require it before you can move forward.
Add D&O insurance before bringing on outside investors or board members. Once equity changes hands, founders face personal liability for management decisions.
Cyber exposure starts on day one. Any startup collecting customer data, payment information or employee records carries cyber liability, regardless of company size.
Read your contracts before you need coverage. Client MSAs and enterprise deals specify coverage types and minimum limits. Missing them can cost you the deal.
Workers’ compensation is a legal requirement. Most states mandate it from your first W-2 hire.

What Triggers Small Business Insurance Obligations for Startups?

For most early-stage founders, insurance isn’t something they seek out proactively (even though it should be). Three situations tend to create the most urgency.

The first is funding. Institutional investors, particularly at Series A and beyond, request evidence of Directors & Officers insurance (D&O) as part of diligence. Some seed funds have started asking for it earlier.

The second is a client contract. Enterprise and mid-market companies almost always include insurance requirements in their master service agreements. Without coverage, you may not have the opportunity to bid via the typical RFP process.

The third is hiring. Workers’ compensation becomes a legal obligation in most states the moment you bring on a W-2 employee.

Understanding what triggers each coverage need tells you which coverages to prioritize now versus which ones can wait until you scale.

The Core Pre-Seed & Seed Business Insurance for Startups Checklist

Required Get this now Add now Prioritize at this stage Expand Review and increase limits — Lower urgency

Policy	Pre-seed No employees, no raise	Seed First hires, first clients	Series A Scaling, investor board
General liability Required by most leases & contracts	Required	Required	Expand
Professional liability (E&O) Any service, software, or advice	Add now	Required	Expand
Cyber liability Any customer or employee data	Add now	Required	Expand
Directors & officers (D&O) Before equity or board formation	—	Add now	Required
Workers' compensation Legally required with W-2 employees	—	Required	Required
EPLI Employment claims, discrimination	—	—	Add now
Commercial umbrella Extends limits of underlying policies	—	—	Add now

General Liability Insurance: Get This First

General liability insurance covers third-party claims of bodily injury, property damage and advertising injury. If your startup has an office, uses co-working space or meets with clients in person, you likely need this type of coverage before you sign a lease or a client agreement.

Most commercial landlords require this type of business insurance, and most enterprise client contracts specify a minimum limit. That’s typically $1 million per occurrence and $2 million aggregate. General liability is the first policy you'll be rejected for if you don’t have it, so get it early.

Professional Liability (E&O): Required If You Deliver Services or Advice

Professional liability insurance (a.k.a. Errors & Omissions or E&O) covers claims that your work caused a client financial losses, whether due to a mistake, a missed deliverable or advice that didn’t produce the expected result. It covers separate exposures from general liability and requires a separate policy.

Here are just a few example scenarios that would fall under E&O rather than general liability:

A SaaS platform that goes down and causes a client to miss a deadline
A consultant whose recommendation leads to a bad outcome
A developer whose code introduces a critical bug

According to a 2023 study by the U.S. Chamber of Commerce Institute for Legal Reform, small businesses account for just 20% of commercial revenue but bear 48% of commercial tort costs, totaling $160 billion in 2021. Businesses with revenues under $1 million bear an estimated 74% of their tort costs without any insurance coverage to absorb them.

For service-based startups, that exposure begins with the first client engagement. That’s why professional liability insurance is increasingly specified in enterprise client contracts, particularly for technology and professional services companies.

Directors & Officers (D&O) Insurance: Before the Cap Table Gets Crowded

D&O insurance protects the personal assets of your company’s directors and officers from claims alleging wrongful acts in managing the company. Those claims can come from investors, employees, regulators or competitors.

The moment you bring on outside investors, add a board member or issue equity to a cofounder, you’ve created D&O exposure. According to Chubb’s Private Company Risk Survey, more than 1 in 4 private companies reported experiencing a D&O loss over a three-year period, with an average reported loss of $399,394. More than half of these companies had not purchased D&O insurance.

Many seed-stage founders assume D&O is a Series A problem. By that point, you’re already wide open to these kinds of risks. D&O is what stands between your personal finances and a co-founder who exits acrimoniously, an early investor alleging mismanagement, a regulatory action targeting a business decision you made… the list (and the risk) goes on.

Cyber Liability Insurance: Non-Negotiable If You Touch Customer Data

Cyber liability insurance covers costs associated with data breaches, ransomware attacks and other network security incidents, including:

Breach notification
Legal defense
Regulatory fines
Recovery costs

Small businesses are disproportionately targeted because their security infrastructure tends to lag behind their data footprint. In fact, 43% of all cyberattacks are aimed at them. Worse, the average cost of a data breach for organizations with fewer than 500 employees reached $3.31 million per incident in 2023. Attackers often prefer smaller companies precisely because they’re under-defended and have fewer resources to fight back.

For 1 in 5 companies, a successful breach would force them to shut their doors. Cyber liability insurance is how you make sure it doesn’t.

Workers’ Compensation: Required Before Your First W-2 Hire

Workers’ comp covers medical expenses and lost wages for employee injuries that happen on the job and protects the company from related lawsuits. In most states, it’s legally required from the moment you hire your first W-2 employee, with requirements varying by state (several states only require it after you reach 3-5 employees; in Texas, it is not required, though highly encouraged).

Some early-stage startups begin by hiring only 1099 contractors, assuming that puts them in the clear. But worker misclassification is one of the most common and costly compliance errors at the early stage. If there’s any uncertainty about how your contractors are classified, connect with an advisor before assuming the exemption applies.

What to Know About Business Insurance Coverage Requirements in Contracts

Before signing any client contract, read the insurance requirements section carefully. Enterprise MSAs almost always include them, and they typically specify more than just the type of business insurance required. They specify minimum limits, and they often require your client to be named as an additional insured on your policy.

Common requirements at the seed stage include:

General liability at $1 million per occurrence and $2 million aggregate
Professional liability at $1 million minimum
Cyber liability at $1 million minimum
Workers’ compensation at applicable state statutory limits

Policy	Client injury or property damage	Professional errors or missed deliverables	Data breach or ransomware	Executive or board claims	Employee injury on the job	Employment disputes
General liability GL	✓	—	—	—	—	—
Professional liability E&O	—	✓	—	—	—	—
Cyber liability	—	—	✓	—	—	—
Directors & officers D&O	—	—	—	✓	—	—
Workers' comp	—	—	—	—	✓	—
EPLI	—	—	—	—	—	✓

A certificate of insurance confirms a policy exists, but it is not confirmation of coverage. Your client will request a COI with their company named as the certificate holder. Confirm your policies actually meet the required limits before the COI is issued. Failing to meet contract requirements can void indemnification clauses that protect you if something goes wrong during the engagement.

What Insurance Can Wait Until Series A?

Some coverages grow in proportion to team size, revenue, and operational complexity. The policies below matter, but they’re lower urgency at the pre-seed and seed stages. For a detailed breakdown of what a full Series A program looks like, our complete startup insurance guide covers that ground in depth.

Employment practices liability insurance (EPLI) covers claims of discrimination, wrongful termination and harassment. A single bad hire can produce an employment claim at any headcount, so don’t treat this as irrelevant until you reach a specific number of employees. The exposure compounds as you scale, so it warrants a formal policy before significant hiring begins.

Fiduciary liability insurance covers errors in the administration of employee benefits plans. It applies once you’re sponsoring a 401(k) or similar plan, which is rarely a seed-stage issue.

Commercial umbrella insurance extends the limits of your underlying policies, triggering when a primary policy’s limit is fully exhausted. For startups with active client contracts and growing headcount, it’s worth evaluating at the seed stage, though it isn’t always contractually required at this point.

Frequently Asked Questions About Pre-Seed & Seed Stage Startup Insurance

What insurance do I need before raising a seed round?

Most seed investors don’t formally require insurance at close, but institutional investors increasingly want D&O coverage in place before or shortly after. At minimum, general liability should be secured before the round closes, since office leases, vendor agreements and client contracts will likely require it. Professional liability is worth adding early if your company delivers any form of service or software.

Do I need professional liability insurance if I only sell software?

Yes, in most cases. SaaS products and technology platforms create professional liability exposure when software underperforms or causes a client financial harm. General liability won’t cover these claims. Technology E&O, a specialized form of professional liability for tech companies, covers claims arising from software errors, system failures, and professional services delivered alongside the product.

When does D&O insurance become necessary for a startup?

D&O becomes necessary once you have a board of directors, outside investors or co-founders with equity. Any of these parties could bring a claim against directors or officers for alleged mismanagement, breach of fiduciary duty or other wrongful acts. Without it, the personal assets of founders and board members are directly exposed.

What does a certificate of insurance actually prove?

A certificate of insurance confirms that a policy exists and provides basic details about coverage types, limits, and policy dates. It does not confirm that a specific claim will be covered, that the policy hasn't been modified, or that coverage meets all contract requirements. Always verify your actual policy limits against what your contracts require before issuing a COI.

How much does startup business insurance cost at the pre-seed stage?

Cost varies significantly based on industry, team size, revenue, and coverage limits. The most accurate way to benchmark cost is to work with an independent advisor who can quote across multiple insurance companies. Contact Pepper, Johnstone & Company for a quote built around your actual profile.

Working With an Independent Agency

Startup business insurance programs built on generic small business templates tend to have gaps. An independent agency like Pepper, Johnstone & Company has relationships with multiple specialty carriers, which means coverage can be structured around where your company actually is, rather than a standard assumption.

If you want to protect your business based on the risk you actually carry, request a quote online or call 866-381-5821 to get started.

SaaS Company Insurance: What a BOP Won't Cover

Wed, 06 May 2026 16:48:41 GMT

A SaaS company can sign its first enterprise contract, close a seed round and onboard a dozen employees before anyone asks whether the insurance program actually matches the exposure.

A Business Owner’s Policy covers a slip-and-fall here, a damaged server there. It does not cover a client lawsuit when your software miscalculates their payroll, a data breach that exposes thousands of customer records, or an investor claim that your board misrepresented the company’s financial position. Those are the risks that define liability for software businesses, and they require purpose-built coverage.

This guide explains the three policies at the center of a SaaS insurance program: Technology Errors & Omissions (E&O), cyber liability and directors and officers insurance. We’ll talk about what each covers, where they interact, and what gaps founders most often discover too late.

Key Takeaways: Technology Company Insurance

A BOP is a starting point, not a program. General liability and commercial property insurance do not cover professional errors, data breaches or investor claims.
Technology E&O is not the same as standard professional liability. SaaS companies need a policy form designed for software products and service failures, not advice-based professional services.
Cyber liability requires a standalone policy. Endorsements added to a BOP are not designed for the complexity of an actual breach response.
VC and PE investors typically require D&O coverage as a condition of funding. Board formation is the right time to put this coverage in place.
All three policies are written on a claims-made basis. When you change carriers or are acquired, tail coverage becomes a critical decision.

What a Standard Business Owner’s Policy Leaves Exposed

Most early-stage SaaS companies start with a Business Owner’s Policy (BOP). A BOP bundles general liability and commercial property coverage, and it addresses the basics: third-party bodily injury, business property damage and interruption of business operations tied to a covered physical loss.

That’s a reasonable foundation for a business with a physical location and foot traffic. For a company delivering software to enterprise clients, processing payment data and operating under a board that answers to investors, it leaves three significant gaps uncovered.

Professional liability. When your product fails and a client loses money, general liability insurance doesn’t respond.
Cyber liability. A BOP endorsement for data breach is not the same as a standalone cyber policy, and the difference becomes apparent at the moment a claim occurs.
Management liability. Once investors are involved, the personal assets of your executives and board members are exposed in ways that no property or liability policy addresses.

Each of these unique risks has a specific solution. Understanding how they work and interact is what separates a functional insurance program from a patchwork of minimums.

Technology E&O Insurance for SaaS Companies

What Tech E&O Insurance Covers

Technology E&O insurance covers claims that arise when your software, platform or technology services cause a client to suffer financial losses. This is distinct from standard professional liability, which is a type of insurance designed for advice-based services like accounting or consulting. Tech E&O is built for products and deliverables that can fail mechanically, not just through bad counsel.

Here are just a few examples of what that can look like in practice:

A workflow automation bug delays a client’s product launch, leading them to sue for lost revenue
A calculation error in your financial reporting software produces incorrect numbers, which a client then relies on for a board presentation
A scheduled software update causes an unplanned outage during a client’s peak transaction window

What Tech E&O Doesn’t Cover

Standard Tech E&O forms exclude bodily injury and property damage (those stay under general liability), intentional acts or patent infringement. Some carriers will add limited intellectual property (IP) infringement coverage by endorsement, but it isn’t standard.

IP disputes can include situations like patent claims from competitors, trade secret allegations from former employees or open-source licensing disputes. These aren’t uncommon exposures for SaaS companies, and general liability’s IP exclusion leaves them entirely uncovered.

Confirm the specific exclusion language and available endorsements with your insurance advisor before assuming any IP protection exists in your policy. A standalone Intellectual Property policy may be another insurance product to consider or it may be covered under a well-designed Director & Officers policy.

The Claims-Made Trigger for Tech E&O Policies

Nearly all Tech E&O policies are written on a claims-made basis. That means the policy in force when the claim is filed is what responds to the loss, not the policy that was in force when the error occurred.

This creates a practical problem when a company changes carriers or is acquired: coverage can disappear for past work if an extended reporting period (tail coverage) isn’t purchased. A software bug introduced in Year 1 that doesn’t produce a client claim until Year 3 will fall under your Year 3 policy, or fall outside coverage entirely if you’ve changed carriers without securing tail coverage (aka extended reporting coverage).

Cyber Liability Insurance for Tech Companies

Cyber Liability Exposures Explained

SaaS companies are a specific kind of breach target. Unlike a retailer that holds only its own customer data, a SaaS platform often holds data from dozens or hundreds of clients simultaneously. A single breach can trigger notification obligations, regulatory inquiries and litigation across every client relationship at once.

According to IBM’s 2025 Cost of a Data Breach Report, the global average cost of a data breach is $4.4 million. For tech companies, the cost structure includes breach investigation, client notification, regulatory defense, legal fees and business interruption, none of which a BOP is designed to absorb.

First-Party vs. Third-Party Coverage

A standalone cyber liability policy covers two distinct categories of loss, and a SaaS company needs both.

First-party coverage addresses the company’s own costs: forensic investigation to identify the source and scope of the breach, notification to affected individuals, public relations and crisis communications, regulatory fines and ransomware response costs.

Third-party coverage addresses claims from clients, partners or individuals whose data was compromised. When a breach exposes client data and that client sues, third-party coverage pays defense costs, settlements and judgments.

A BOP endorsement for data breach typically provides only a sublimated version of first-party coverage. It isn’t structured to handle the complexity of a multi-client breach response, and it almost never includes meaningful third-party coverage.

Sublimits and Coinsurance in Cyber Insurance

A $5 million cyber policy can leave a company partially self-insuring a $3 million ransomware demand. That's not a hypothetical edge case. It's the practical result of how carriers have restructured ransomware exposure through sublimits.

The increase in ransomware claims has prompted insurance companies to cap their exposure to these cyber risks within an otherwise larger policy. If your policy carries a $1 million ransomware sublimit and the demand exceeds it, you have to cover the costs, regardless of what the headline limit says.

Some carriers have also introduced coinsurance provisions on ransomware claims, requiring the insured to absorb a specified percentage of the loss while the insurer covers the rest. The total policy limit doesn't change—but your share of a large claim does.

This is why policy comparison requires more than reviewing headline limits. An independent agency can evaluate sublimit structures and coinsurance provisions across multiple carriers and policy forms. Two policies with identical limits can produce very different outcomes when a claim actually occurs.

Directors and Officers Startup Business Insurance

What D&O Insurance Covers

Directors and officers insurance protects the personal assets of a company’s executives and board members against claims that they mismanaged the company, breached fiduciary duties or made decisions that harmed investors.

When an investor sues alleging that the board misrepresented the company’s financial position during a fundraising round, or that leadership’s decisions destroyed shareholder value, D&O coverage covers legal fees, settlements and judgments.

For privately held SaaS companies, the relevant form is typically a private company management liability policy. This bundles D&O coverage and, often, employment practices liability insurance into one policy. It’s structured differently than public company D&O, which includes securities coverage that a private company doesn’t need yet.

The two components that matter most for a VC-backed startup are:

Side A coverage: Protects individual directors and officers when the company cannot or will not indemnify them
Side B coverage: Reimburses the company for indemnifying its leadership

Both matter when investor relationships are involved.

Who Needs Directors and Officers Insurance?

Institutional investors commonly require D&O coverage as a condition of funding. The National Venture Capital Association’s Model Investors’ Rights Agreement includes standard insurance covenants, and D&O coverage appears in that framework as a board-level governance requirement.

Coverage should be in place at or before board formation. Waiting until a term sheet requires it puts a company in the position of purchasing coverage reactively, under a timeline set by someone else, which affects both terms and limits.

Tail Coverage on Acquisition

When a SaaS company is acquired, D&O coverage does not automatically extend to claims arising from acts before the acquisition date. The acquiring company’s policy covers its own directors and officers going forward; it does not pick up liability from the target company’s prior management decisions.

A run-off policy (tail coverage) is required to cover pre-acquisition conduct. This is a negotiated term in most M&A transactions, and failing to address it leaves the acquired company’s former leadership personally exposed to claims that surface after the deal closes.

How the Three Policies Work Together to Protect Your Business

Tech E&O, cyber and D&O cover three distinct exposure categories and don’t overlap in ways that create redundancy. They interact when a single event triggers multiple claims.

For example, a data breach at a SaaS company can simultaneously trigger:

A cyber liability claim (breach response costs and client data exposure)
A Tech E&O claim (if the breach resulted from a software security failure that the company was contractually obligated to prevent)
A D&O claim (if investors allege that leadership failed to implement adequate security protocols, harming company value)

All three policies respond to different aspects of that same event. A commercial umbrella policy sits above the underlying limits of each, triggering when a primary policy’s limit is fully exhausted.

For a SaaS company managing enterprise contracts and investor relationships simultaneously, umbrella coverage adds protection across the entire program without requiring a dramatic limit increase on every individual policy.

Common Coverage Gaps in Tech Company Insurance Programs

Buying Only What a Contract Requires

The most common gap in SaaS insurance programs is reactive purchasing. A company that purchases Tech E&O to satisfy a single contract will likely set limits based on that contract’s requirements, not on the realistic cost of a multi-client failure. The result is a program structured around minimum thresholds rather than actual risk, and insufficient limits that can’t be changed when a larger claim arrives.

Assuming a BOP Endorsement is Enough for Cyber

A cyber endorsement on a BOP gets a company to a policy number quickly. It doesn’t provide the coverage structure that a real breach response requires. First-party sublimits cap notification and response costs at levels that don’t reflect what a multi-client breach actually costs. Third-party coverage is often absent or severely restricted.

The distinction between an endorsement and a standalone cyber policy matters most when a claim occurs, which is the worst time to discover it.

Waiting on D&O Until There’s a Problem

D&O claims don’t always arrive quickly. An investor allegation about misrepresentation during a fundraising process may surface a year or more after the round closed. Because D&O is a claims-made policy, coverage in force at the time the claim is filed is what matters. A company that lets D&O lapse or never purchased it in the first place has no coverage for those prior acts.

Working with an Independent Insurance Agency

SaaS companies don’t fit standard small business insurance templates. The liability exposures are different, the policy forms are more specialized and the stakes of a coverage gap are higher when enterprise contracts and investor relationships are involved.

Pepper, Johnstone & Company works with specialty carriers that build programs for technology companies and venture-backed startups. That means access to Tech E&O forms with the right coverage triggers, cyber policies with sublimit structures that reflect what a breach actually costs, and D&O programs structured for private company governance rather than public market requirements.

If you’re building a SaaS company and want to understand where your current program leaves you exposed, request a quote online or call 866-381-5821 to speak with an advisor.

For a broader look at how insurance needs evolve from pre-seed through Series A and beyond, see our Complete Guide to Startup Insurance.

Professional Liability Insurance for Consultants & Accountants

Tue, 14 Apr 2026 18:30:56 GMT

A client hires you for your expertise. You deliver the work, but they lose money anyway—and decide you are responsible. That scenario plays out thousands of times a year across professional services, and the costs are significant.

According to Swiss Re's 2024 Sigma report, U.S. liability claims have risen 57% over the past decade, driven largely by rising litigation costs and shifting jury attitudes. For consultants and accounting firms, this isn’t a distant risk to brush off. It’s the operating reality of selling advice for a living: one you can and should be covered for with professional liability (a.k.a. errors and omissions) insurance.

Key Takeaways: E&O Insurance for Consultants & Accountants

E&O and general liability cover different things. GL covers bodily injury and property damage. E&O covers financial harm caused by professional advice, service failures and missed deadlines.
Claims don't require intentional wrongdoing, only financial harm. Bad recommendations, tax filing errors, missed deadlines and scope creep are among the most common triggers.
The cost of defense alone can threaten a firm's survival. Defending a professional liability claim can run into the hundreds of thousands in legal fees before any settlement is reached, even when the claim is ultimately dismissed.
Coverage needs to grow as the firm grows. E&O limits, cyber liability, EPLI and tail coverage all require active attention as headcount, contract size and service offerings expand.

Professional Liability / Errors and Omissions Insurance Explained

Professional liability insurance covers the financial fallout when a client claims your work (or your failure to act) caused them harm. It’s designed to cover defense costs, settlements and judgments in claims involving:

Negligence
Errors in professional judgment
Failure to deliver promised services
Missed deadlines

This is distinct from the physical harm general liability insurance covers, like bodily injury, property damage or personal injury. Instead, professional liability is built to cover financial harm.

How Does Professional Liability Insurance Work?

A covered claim under a standard E&O policy typically involves a client alleging that your professional services caused them a financial loss. The policy responds with coverage for legal expenses, such as:

Attorney fees
Court costs
Expert witness fees
If applicable, settlement or judgment payments

Most policies pay legal defense costs inside the policy limits, meaning those costs reduce the amount available for settlement. In a contested claim, legal defense costs alone can consume $150,000 to $400,000 before any settlement is reached.

That exposure is the primary reason that small businesses in professional services can’t treat E&O coverage as optional.

Is Professional Liability the Same as Errors and Omissions?

Yes. Professional liability insurance and errors and omissions insurance (E&O) are the same coverage, just referred to by different names. "Professional liability" is the broader industry term, while "errors and omissions" is the name most commonly used for consultants, technology firms and accountants.

What Does Errors and Omissions Insurance Not Cover?

Common exclusions on E&O policies include:

Intentional acts
Bodily injury and property damage
Employment-related claims
Known prior claims
Criminal conduct

Cyber events and data breaches typically require a separate cyber liability policy, even if the breach is connected to professional work.

One structural detail worth noting: most E&O policies are written on a claims-made basis, meaning your policy has to be active when the claim is filed, not just when the incident happened. If you cancel your policy, you’re no longer covered for any new claims that arise, potentially leaving years of prior engagements exposed.

The Most Common Claims Under Professional Liability Insurance for Consultants

Management consultants, IT consultants, HR advisors, and financial consultants all operate in an environment where clients connect their losses to the advice they received, regardless of whether that connection is fair.

Bad Recommendations

Bad recommendations are the most common trigger. When a client’s revenue falls short, a project runs over budget, or a strategy fails to produce the promised results, the consultant who shaped that strategy often ends up in the crosshairs.

The claim doesn’t require proof of fraud or bad faith. It requires only that a client suffered a financial loss and believes your work contributed to it.

Missed Deadlines

If you miss a project milestone, your client’s losses become your liability. Breach of contract claims most commonly arise when a deadline is missed, whether due to an unreliable subcontractor, a technical failure, a supply chain disruption, or any other issue.

Your client doesn’t have to prove intent, only that the delay caused them measurable financial harm.

Scope Creep

Scope creep is a quieter but equally serious risk. When project scope expands without formal documentation, you lose the contract clarity that protects you from claims that additional work caused delays or unanticipated costs. Many E&O claims against consulting firms trace directly to informal agreements that were never put in writing with official client sign-off.

IT and Technology-Specific Exposures

IT consultants face an added layer of exposure beyond standard consulting risks. Tech-focused firms can face claims involving software failures, system migrations that cause client downtime, security implementation errors and intellectual property disputes, among others. Any of these can generate legal fees that dwarf the original contract value.

For this reason, many carriers offer technology-specific E&O products that bundle professional liability with third-party cyber coverage in a single policy.

Common Claims Under Professional Liability Insurance for Accountants & CPAs

Accounting firms carry a distinct claims profile, and the financial fallout is significant enough to matter in any risk conversation.

Tax Filing Errors

In 2024, tax services accounted for 77% of the claims asserted against CPA firms in AICPA’s Professional Liability Insurance Program.

Common triggers include:

Missed filing deadlines
Overlooked refund opportunities
Incorrect deductions
Aggressive tax strategies
International form errors

IRS penalties for cases like this can reach hundreds of thousands of dollars each.

Missing Engagement Letters

In 2024, less than 50% of tax claims made against firms in the AICPA Professional Liability Insurance Program included an engagement letter. The absence of that single document is the most consistent risk factor in accounting malpractice claims.

Without a clearly defined scope of service, firms have limited ability to establish what they are and are not responsible for. That’s precisely what plaintiffs exploit when a claim arises.

Audit Failures

Audit failures are less frequent but far more costly. Third parties, primarily lenders and sureties who relied on audited financials, brought over half of audit and attest claims in 2021.

One documented case involved a bank demanding more than $10 million from a CPA firm after an audited manufacturer defaulted, alleging that the firm’s audit had misstated the business's financial condition.

Reduced Scope Doesn’t Mean Reduced Liability

The risk extends beyond full audits. CAMICO documents a case in which a company reduced its services from audits to reviews to cut costs. A CPA working on the account found discrepancies but didn’t follow up, reasoning that fraud detection falls outside the scope of a review engagement.

The controller exploited that reduced oversight to falsify payroll statements over an extended period. A jury found the firm negligent and awarded $1.2 million in damages.

Advisory and Consulting Services

Advisory services are the fastest-growing practice area in public accounting. As firms expand into transaction support, business valuations, M&A consulting and wealth management, the professional liability exposure expands with them. Your firm carries E&O exposure across every service line you add, whether or not your coverage has kept pace.

Professional Liability Coverage Limits & How Insurance Programs Should Be Structured

Professional liability insurance needs change as a firm grows in headcount, in contract size and in the complexity of services it delivers.

Starting Out: Solo Practitioners and Small Firms

Coverage limits for solo consultants and small practices typically start at $1 million per claim / $1 million aggregate. A $1M/$2M structure is the more common baseline recommendation. Enterprise and government contracts often specify minimum E&O limits as a contract condition, and a business owner who can’t meet those thresholds may not have the opportunity to bid on the project via the typical RFP (request for proposal) process.

For accountants, solo and small practices generally carry $1 million per claim at a minimum. At this stage, a BOP that bundles general liability insurance with commercial property coverage typically sits alongside the E&O policy as a separate purchase.

Growing Firms: Adding Coverage as Exposure Increases

Mid-size firms commonly carry E&O limits of $2 million to $5 million. As the number of employees grows, employment practices liability insurance (EPLI) becomes a meaningful addition. If the firm has outside investors or a formal advisory board, D&O insurance should be part of the conversation as well.

For technology-focused types of businesses like IT consultants, SaaS providers and managed service firms, policies that bundle E&O with third-party cyber liability eliminate the coverage gap between a professional error and a data event.

Larger Firms: Layering for Higher Exposure

Larger firms doing significant audit work or handling complex advisory engagements may need $5 million to $10 million in professional liability insurance coverage, often achieved through excess professional liability layers rather than a single primary policy.

Standard commercial umbrella policies don’t extend over professional liability. When a firm needs higher coverage limits than its primary E&O policy provides, it must purchase a separate excess professional liability policy that follows the form of the underlying E&O.

The umbrella and the excess E&O sit side by side. They serve different purposes and don’t substitute for one another.

Tail Coverage: The Insurance Gap Most Firms Don’t Plan For

Tail coverage (also called an extended reporting period) is a consistently overlooked but important element of protection. Because E&O policies are written on a claims-made basis, a claim must be reported while the policy is active. When a firm dissolves, sells or changes carriers, tail coverage extends the window to report claims for work done during the prior policy period.

Every firm approaching a transition needs this conversation before the deadline arrives, not after.

Best Advice: Work With an Independent Insurance Advisor

Pepper, Johnstone & Company works with consultants and accounting firms to structure professional liability programs that reflect how those businesses actually operate, not just what looks good on a certificate. If your current coverage hasn't kept pace with your service offerings, it may be time to take a closer look.

Request a quote online or call 866-381-5821 to get started.

General Contractor Insurance: A Complete Coverage Guide

Tue, 14 Apr 2026 18:26:42 GMT

In 2019, a summer storm sent a construction crane crashing through an apartment building in Dallas, killing a 29-year-old woman sitting on her couch. Four years later, a jury found the developer negligent and awarded her family more than $860 million. The crane operator walked free.

Most people in construction understand they need insurance. Fewer understand exactly what they need, what their contracts require, and where their current program has gaps. This guide covers all three.

Key Takeaways

General liability alone isn’t enough. A standard $1M/$2M policy won't cover employee injuries, stolen equipment, professional errors or post-completion defects without additional coverage in place.
Contracts set the floor, not the ceiling. Project owners specify exact insurance requirements, and meeting minimums isn't always enough on larger commercial work.
Certificates of insurance have real limits. A COI proves a policy exists, but it is not confirmation of coverage.
Uninsured subcontractors become your problem. If an uninsured subcontractor causes a loss on your job site, your own insurance carrier will likely absorb the cost of the claim; however, you may also be canceled or non-renewed by your insurance carrier for working with an uninsured subcontractor.
Umbrella limits need a fresh look. Nuclear verdicts against construction businesses have surged, and limits that felt adequate five years ago may not hold up today.

Construction Liability Exposure Is Unlike Most Industries

Construction sits near the top of every industry liability ranking. OSHA's "Fatal Four" — falls, struck-by incidents, electrocutions and caught-in/between accidents — account for the majority of construction fatalities each year. Water-related claims have compounded the problem; losses exceeding $1 million have tripled since 2015.

General contractors sit at the center of it all. You're not just managing your own crews; you're absorbing liability for subcontractors, owners and third parties on or adjacent to your job site every day.

The Core Construction Insurance Coverages Every GC Needs

General Liability Insurance: The Baseline

General liability covers third-party bodily injury, property damage and personal injury arising from your operations. The standard minimum is $1 million per occurrence / $2 million aggregate, which is what most contracts and licensing boards require.

Products and completed operations coverage is part of a standard general contractor liability insurance policy and responds to defect claims that surface after project delivery. For example, a leaking roof, a failed mechanical system, or a structural issue that shows up in year three. In this type of business, litigation can begin long after the work is done.

An occurrence-based policy is almost always the right structure for construction company insurance. It covers any incident that happens during the policy period, regardless of when the claim is filed, which is critical for long-tail completed operations exposure.

Workers' Compensation Insurance: Legally Required, Financially Critical

Workers' compensation is mandatory in 49 states and required by virtually every commercial contract. It covers the costs of job-related injuries, illnesses and lost wages.

The average lost-time workers' comp claim costs more than $47,000. Amputation claims, which aren't uncommon in high-risk trades like construction, average over $125,000. Severity has been climbing across the trades, making safety investment a financial decision as much as an operational one.

Builders Risk Insurance: Protecting the Project

Builders risk covers the structure under construction against fire, theft, vandalism and other covered perils. It typically includes materials, installed components and embedded labor. It's project-specific and ends at substantial completion.

Who procures it matters. Standard contract language typically assigns builders' risk to the project owner, but GCs frequently purchase it when the owner doesn't. If both parties assume the other has coverage and neither does, that oversight exposes the project, leads to disputed claims, and can halt work while you sort out the details.

That’s why confirming who holds the policy before work starts is crucial.

Inland Marine Insurance: Protecting the Equipment

Standard commercial property insurance doesn't follow your equipment to the job site. A contractor's equipment floater—sometimes called tools and equipment insurance—is a type of inland marine coverage that protects owned and rented machinery wherever it travels.

Fewer than 25% of stolen construction equipment is ever recovered, according to the National Equipment Register and NICB, making theft a near-certain total loss without this type of coverage.

Commercial Auto Insurance: Personal Policies Don't Cover Business Use

Commercial auto insurance is required on any vehicle used for business purposes. Personal auto policies exclude business use entirely, which means an employee running materials to a job site in their own truck and getting into an accident faces a denied claim. The standard contract requirement is a $1 million combined single limit.

A hired and non-owned auto endorsement covers employees using personal vehicles for work. Most general contractors have this exposure, but not enough address it.

Commercial Umbrella: Why Your Current Limits Deserve a Fresh Look

A commercial umbrella policy extends limits above general liability, auto and employer's liability once an underlying limit is exhausted. For contractors, it's the policy that determines whether a serious claim is manageable or catastrophic.

Limits set years ago deserve a fresh look. Nuclear verdicts in civil litigation reached $31.3 billion in 2024, with construction and engineering accounting for $2 billion of that figure. A limit that felt adequate when you last reviewed your program may not hold up against today's litigation environment.

Does My General Liability Coverage Include My Subcontractors?

Generally, no. Your general liability policy covers your operations, not the independent work of subcontractors on the same job. Each sub should carry their own general liability policy and list your company as an additional insured.

If an uninsured sub causes bodily injury or property damage on your construction project, the claim lands on your insurance program. That's why requiring a certificate of insurance both before awarding work to your subcontractors and before remitting final payment to your subcontractors isn't just an administrative task; it's a financial control that benefits you.

What Is a Certificate of Insurance and Why Do Contractors Need One?

A COI is a one-page summary of a policy's coverage types, limits, effective dates and policy numbers. It proves coverage exists, and is essential before beginning any work.

However, it does not confirm that the right endorsements are attached nor is it a confirmation of coverage. Coverage disputes at claim time often trace back to missing or incorrect endorsements, none of which a COI would have revealed in its entirety.

Where GC Programs Most Often Break Down

Unverified Subcontractor Coverage

This is the most common problem. When an uninsured sub causes a loss, the GC's policies absorb the cost, and premiums reflect it at renewal.

Missing CG 20 37 from Subcontractors

Two endorsements make additional insured status work correctly: CG 20 10 covers ongoing operations, and CG 20 37 extends that protection to completed operations after the project finishes. A subcontractor that provides CG 20 10 but not CG 20 37 leaves no additional insured protection for post-completion defect claims.

Inadequate Umbrella Limits

A $1 million umbrella made sense for small businesses when median verdicts were far lower. However, limits set years ago need a fresh look given the litigation severity in the construction industry today.

No Professional Liability on Design-Build Work

Commercial general liability insurance policies exclude professional services entirely. A GC providing drawings, specifications or engineering decisions needs a separate errors and omissions policy. General liability will not respond to a design error claim.

Build a Program That Holds Up at Claim Time

A certificate of insurance is not a coverage review, and checking a contract requirement box is not a risk management strategy. At Pepper, Johnstone & Company, we work with contractors to analyze actual exposure, verify subcontractor compliance and structure programs that work when a claim happens, not just when a bid goes out.

If you're a residential, commercial, or artisan contractor and want a real look at your coverage options, contact us for an insurance quote today.

Startup Insurance: A Complete Guide for Founders

Sat, 31 Jan 2026 06:00:00 GMT

Most startup founders can tell you their burn rate, their CAC and their runway down to the week. Ask them about their insurance program and the conversation gets vague fast. But the moment you bring on employees, sign a client contract or take outside capital, you carry real liability exposures.

The insurance coverage decisions made early in a startup's life can define what you're protected against when something actually goes wrong. This guide walks through the full landscape of insurance for startups: what business insurance coverage you need at each stage, how investor expectations affect your program and where founders most often leave themselves exposed.

Key Takeaways

Insurance needs escalate fast. The right coverage will look very different for a pre-seed startup and a Series A company.
Investors often set the floor. Many VC and PE-backed startups must carry directors and officers insurance and professional liability insurance as a condition of funding.
General liability insurance alone isn't enough. E&O, cyber liability and D&O are critical additions.
Cyber exposure starts on day one. Any startup handling user data, payment information or employee records has cyber liability.
An independent insurance advisor changes the outcome. Specialty programs designed for early-stage companies go well beyond what a standard business owner's policy provides.

Where Most Founders Start with Business Insurance (and What They Miss)

At the earliest stage, most founders default to a Business Owner's Policy (BOP). A BOP bundles general liability and commercial property insurance into a single policy. It also typically includes business income (business interruption) coverage. It’s a reasonable starting point for a new business with an office, business property and basic slip-and-fall exposures.

However, there’s a lot it doesn’t cover, like professional mistakes, data breaches, executive conduct or employment disputes. For a SaaS company or a tech startup with even one client contract, those exposures are a part of doing business.

Workers’ compensation insurance is the other early-stage requirement most founders overlook. It becomes legally required the moment you have employees, with thresholds varying by state. Beyond compliance, it covers medical expenses and lost wages for employees injured on the job. Many startups miss this until they're adding employees quickly, which is precisely when a lapse has the greatest financial impact.

What Other Business Insurance Policies Do Startups Need?

Errors & Omissions (E&O) / Professional Liability Insurance

If your startup delivers any kind of service, software or advice to clients, you carry professional liability exposure. Errors and omissions insurance covers claims when your professional services cause financial losses. For example:

A missed deadline that costs a client a contract
A software bug that disrupts operations
A consulting recommendation that backfired

These are all examples of errors and omissions coverage claims, where general liability doesn’t help.

Many startups don't purchase E&O until a client contract requires it. By then, the policy is reactive rather than strategic. Buying this type of business insurance earlier means you control the terms and policy limits, rather than scrambling to meet a client's minimum thresholds on a tight timeline.

Small business owners who wait often find themselves purchasing a policy separately for each client requirement, which is both more expensive and harder to manage.

Cyber Liability

The average cost of a data breach globally was $4.4 million in 2025, according to IBM's Cost of a Data Breach Report. Startups and small businesses are frequent targets precisely because their security infrastructure tends to lag their data footprint. A cyber liability policy typically covers breach response costs, legal fees, notification expenses, regulatory fines and business interruption losses tied to a cyber event.

Critically, adding a cyber endorsement to a BOP isn’t the same thing as having a real cyber program. Endorsements carry their own sublimits and are not built for the complexity of an actual breach response, especially for tech startups. That said, policy structure matters even in standalone cyber coverage.

What are sublimits & coinsurance in cyber liability insurance?

Most buyers evaluate a cyber policy by its total limit, but the more important number is often buried inside it. Ransomware has forced carriers to rethink how much exposure they're willing to absorb, and the result shows up in policy language.

For example, a company might purchase a cyber policy with a total limit of $5 million and find that ransomware-related losses are subject to a separate sublimit of $1 million. That means a $3 million ransomware attack may only be covered up to that $1 million sublimit.

Some insurers are now adding coinsurance clauses as well. A coinsurance provision on a ransomware claim requires the insured (that’s you) to pay a specified portion of the loss out of pocket, with the insurer covering the rest.

This is why policy comparison matters. An independent insurance agency can review sublimit structures, coinsurance provisions and coverage triggers across multiple carriers rather than defaulting to a single form. The difference between two policies with the same headline limit can be significant when a claim actually occurs.

What Insurance Do Startups Need When Investors & Employees Enter the Picture?

Raising outside capital adds a layer of risk that most founders don't fully account for: the decisions made by company leadership are now subject to scrutiny by shareholders, board members and, in some cases, regulators.

Directors & Officers Insurance (D&O)

Directors & officers insurance protects the personal assets of executives and board members against claims that they mismanaged the company, breached fiduciary duties or made decisions that harmed investors.

Many institutional investors require D&O coverage as a condition of funding. Even when it's not contractually required, a company operating without D&O is asking its leadership team to accept personal financial risk, which creates its own governance problems.

For startups with VC or PE backing, D&O coverage should be in place at or before board formation. The insurance policy needs to be structured to cover both the company and its individual executives, and the limits should reflect the size of the capital raised and the company's stage.

Employment Practices Liability Insurance

Employment disputes are among the most common and most expensive legal expenses businesses face. When an employee sues over wrongful termination, discrimination or harassment, the cost to defend that claim can cost hundreds of thousands of dollars, regardless of outcome. Employment Practices Liability Insurance (EPLI) covers those defense costs and any resulting settlements or judgments.

For young companies scaling headcount quickly, EPLI is often an afterthought until there's a complaint. A company that goes from 5 to 50 employees in 18 months has substantially more employment exposure at 50, and the organizational culture decisions made during that sprint often determine whether a claim materializes.

Commercial Umbrella: The Policy Binding the Rest

Each of the essential policies above carries its own limits. A commercial umbrella policy extends those limits, triggering when a primary policy’s limit is fully exhausted.

For a startup with active client contracts, investor oversight and growing headcount, an umbrella adds a crucial layer of protection above the underlying coverage without requiring you to dramatically increase limits on every individual policy.

The Most Common Startup Insurance Mistakes

Buying Only What’s Required

Many founders purchase small business insurance reactively: workers' compensation because the state requires it, E&O because a client demanded it. The result is a patchwork program with gaps that nobody notices until there’s a claim, at which point it’s too late to secure coverage and may also prevent you from securing coverage in the future if the claim is currently active.

Underestimating Cyber Exposure

A startup with 200 users and a basic product still has data liability. Email credentials, payment data and employee records are all targets. Cyber coverage should be part of the conversation from the beginning, not after a breach.

Choosing Limits Based on Minimums

A $1 million general liability insurance policy may satisfy a landlord's requirement, but a single bodily injury claim or property damage lawsuit can exhaust that limit fast. Limits should be set based on actual exposure, not on the minimum threshold.

Opting for a higher deductible to reduce premiums is a reasonable trade-off in some cases, but only if your company can actually absorb that deductible when a claim occurs.

Having a true risk management partner makes a world of difference in this regard. Independent brokers can help you navigate business insurance costs, weighing all the factors as your business grows.

Choosing Speed Over Expertise

The insurance industry has seen a wave of digital platforms and "InsurTech" companies marketing directly to founders with fast quotes and instant online startup business insurance.

For very basic needs, those tools can get you to a policy quickly. What they can't do is analyze your startup's unique risk profile, flag exposures you haven't considered or advocate for you when a claim is denied by the insurance carrier. Experienced entrepreneurs tend to prioritize insurance earlier and more deliberately than first-time founders, often because they've seen what a coverage gap costs.

Insurance companies that specialize in tech and early-stage businesses build programs to address the risks those companies actually face. Working with an independent agency means gaining access to the best of those insurance options rather than defaulting to a checkout flow that wasn't designed with your exposure in mind.

How Should Insurance Coverage Evolve as a Startup Grows?

The right insurance coverage looks different depending on where your company is. Here's how to think about it by stage:

Pre-seed: BOP (general liability coverage + commercial property insurance, covering business property, equipment and leased space), workers' compensation if applicable.
Seed: Add E&O, cyber liability, consider D&O if board is forming. Evaluate whether commercial auto insurance applies if employees use vehicles for business.
Series A and beyond: Full D&O program, EPLI, commercial umbrella, expanded cyber limits, key-person life insurance, and other specialty insurance coverage as needed.

Each transition point is an opportunity to review your business insurance coverage through a risk management lens. Most startups that skip that review find out at claim time what they were missing.

Working With an Independent Insurance Agency

Insurance for startup businesses isn't a one-size-fits-all category. An independent agency like Pepper, Johnstone & Company has relationships with multiple specialty carriers, which means we can structure the right coverage that fits where your company actually is, not where a standard form assumes it should be.

If you're building a company and want to understand your current exposure, we're glad to take a look. Request a quote online or call 866-381-5821 to get started.

Year-End Risk Review: 5 Insurance Gaps to Fix in 2026

Mon, 29 Dec 2025 06:00:00 GMT

Running a business already takes most of your time. Reviewing your insurance coverage usually sits at the bottom of the list, until a claim exposes a weakness you didn’t know was there. A year-end risk review creates a deliberate pause to identify those gaps now so they don’t turn into six-figure surprises in 2026.

Many growing companies carry the prototypical policies such as commercial general liability, commercial auto liability and workers compensation but overlook other risk exposures tied to cyber liability, employment practices, social engineering fraud and the like.

In this guide, we’ll walk through five areas that deserve a closer look and how Pepper, Johnstone & Co. can help you tighten things up before the new year.

At a Glance

Standard policies often leave gaps in liability, cyber, and employment-related risks.
Commercial umbrella insurance extends liability limits above your general liability, auto, and other core policies.
Cyber and EPLI insurance respond to evolving operational and legal exposures like data breaches and employment claims.
Business auto, property, and income coverage should adapt alongside growth.
Pepper, Johnstone & Co. partners with 60+ insurance carriers to help you find and close gaps before renewals.

Why a Year-End Risk Check Matters for Growing Businesses

Businesses rarely stay static. Revenue grows, headcounts increase, contracts change, vehicles are added and operations expand. When revenue, payroll and assets increase, limits that felt sufficient five years ago may be woefully insufficient today.

A year-end review creates a natural checkpoint to step back and ask:

What changed in my business this year?
Where did we take on new risk (contracts, locations, vehicles, employees)?
Are the current policies and limits in sync with the size and complexity of the organization?

Understanding how coverage responds—and which insurance carrier is backing each policy—matters. The insurance brokers at Pepper, Johnstone & Company serve as advisors, not captive agents, which allows coverage options to be evaluated across multiple carriers rather than confined to a single provider. That flexibility supports more thoughtful risk decisions as businesses grow.

5 Most Common Insurance Gaps for Small Businesses

Gap #1: Liability Limits That Haven’t Kept Pace Without Commercial Umbrella Insurance

General liability and commercial auto form the foundation of most insurance programs. The challenge is that claims don’t always respect their limits. Jury awards, medical expenses, and extended legal defense costs can exhaust primary coverage faster than many organizations expect.

Commercial umbrella insurance is designed to address that exposure.

What is Commercial Umbrella Insurance?

Commercial umbrella insurance provides additional liability limits above underlying policies. Think of your general liability, auto and employer’s liability (the liability portion of workers’ compensation) as the first line. The umbrella sits above them and kicks in when a covered claim exceeds those primary limits.

In practice, umbrella coverage helps prevent a single severe claim from disrupting cash flow, forcing asset liquidation or creating long-term financial strain.

Gap #2: Cyber Liability That Hasn’t Kept Up with Operations

These days, almost every business relies on cloud platforms, email, remote access or digital payment systems. Those efficiencies introduce cyber risk that traditional policies were never designed to address.

Industry claims data continues to show that while the frequency of claims may fluctuate, the severity of cyber losses remains high, with many incidents reaching six figures once forensic investigations, legal costs, notification requirements and downtime are factored in.

Despite what many business owners assume, general liability and property policies typically do not cover the costs of:

Ransomware and extortion demands
Data breaches involving customer or employee information
Business interruption if your systems go down
Notification, credit monitoring, and regulatory response

A meaningful cyber review looks beyond limits alone. It examines your tech stack (POS systems, remote access, cloud tools) and examines how data moves through the organization, where access points exist, and how quickly operations could recover following a disruption.

Gap #3: Weak EPLI Insurance for Employment Claims

As organizations grow and employment regulations evolve, employment-related claims tend to rise alongside them. EPLI (Employment Practices Liability Insurance) helps cover defense costs and settlements tied to allegations such as harassment, discrimination, wrongful termination and retaliation.

A productive EPLI check with your agent should cover:

Current headcount and hiring trends
Use of contractors, temporary staff or remote employees
Organizational changes or restructuring
Prior complaints, claims or internal disputes

If you’ve added locations, grown your team, or had tense employment conversations this year, ask for a fresh EPLI quote or a coverage review.

Gap #4: Business Auto and Driver Exposure

Any time your people drive for work, you carry the risk. That includes company-owned vehicles and employee-owned autos used for errands, site visits or client meetings. Personal auto insurance usually excludes accidents that happen during business use, so relying on it can leave a costly coverage gap.

During your year-end review, go over:

All vehicles titled to the business
How often employees drive their own cars or rentals for work
Changes in travel patterns or territory
Driver screening, MVR checks, and safety practices

Strong auto and umbrella limits help keep a single accident from becoming a long-term financial problem.

Gap #5: Property, Business Income, and Contract Requirements

Property insurance does more than protect buildings and equipment—it supports continuity after a loss. Rising construction costs, equipment upgrades, and inventory growth can quietly create underinsured values when policies aren’t updated.

Two areas often need attention at year-end:

Updated Property Values

Have construction costs risen since your last appraisal?
Did you add new equipment, vehicles or inventory this year?
Did you open or expand into a new location?

Business Income Coverage

Could your business keep paying payroll and bills if a covered loss shut you down for weeks or months?
Does your policy limit match your current net income and expense level?

Contracts add another layer of complexity. Leases, loan agreements and client contracts often require specific limits or coverage forms. When insurance programs drift out of alignment, compliance issues tend to surface after a loss.

How Pepper, Johnstone & Co. Helps Clients Close Coverage Gaps

We approach insurance as a risk management exercise, not just a product transaction. As an independent agency, we work with 60+ insurance carriers, so we can structure coverage around your unique operations, contracts and growth plans.

During a year-end risk review, the focus is on:

Explaining how commercial umbrella insurance works and interpreting how it applies across liability exposures
Reviewing cyber, EPLI, auto and property coverage together
Identifying gaps between current policies and real-world risk
Aligning your insurance program with plans for the year ahead

This kind of review provides you with a comprehensive understanding and a sound gameplan you can feel good about going into the new year.

Insurance gaps usually don’t show up in quiet years. They appear after a lawsuit, a bad accident, a cyber event or a catastrophic storm that halts operations. A thoughtful year-end risk review helps you spot these weak spots in your liability, cyber, EPLI, auto and property coverage while there’s still time to correct them.

Schedule Your 2026 Risk Review with an Independent Insurance Advisor

If you’re uncertain how your coverage would respond to a serious claim—or whether your limits still reflect your exposure—Pepper, Johnstone & Company can help. A year-end risk review provides clarity, context, and a practical path forward.

The goal isn’t just more coverage. It’s coverage that aligns with how your business operates today and where it’s headed in 2026. Request a quote today to get started.