Business Insurance & Liability Flashcards

A chimney sweep operates in a state that requires proof of liability insurance to obtain a business license. What minimum coverage type typically satisfies this requirement?

Answer: Commercial general liability insurance

States that require insurance for business licensing typically mandate commercial general liability coverage to protect the public from third-party bodily injury or property damage.

What does 'aggregate limit' mean on a general liability policy?

Answer: The total maximum amount the insurer will pay for all covered claims during the policy period

The aggregate limit is the total cap on all payouts for covered claims within a policy period; once reached, the insurer will not pay additional claims until the policy renews.

A chimney sweep subcontracts a portion of a large job to another sweep. If the subcontractor causes damage, who is most likely to be held liable by the homeowner?

Answer: The general contractor (original sweep), who may then seek indemnification from the subcontractor

Homeowners typically look to the party they contracted with—the original sweep—who then has the right to seek indemnification from the negligent subcontractor.

Why should a chimney sweep maintain accurate written records of every job performed, including inspection findings and recommendations?

Answer: To provide evidence of professional conduct and scope of work if a liability claim is later filed

Detailed job records documenting what was inspected, found, and recommended serve as critical evidence demonstrating the sweep acted professionally if a lawsuit arises months or years later.

A chimney sweep's policy has a $500 deductible. A claim is settled for $3,200. How much does the insurer pay?

Answer: $2,700

The insurer pays the claim amount minus the deductible: $3,200 - $500 = $2,700; the insured is responsible for the deductible portion.

What type of insurance would cover a chimney sweep's loss of income if a fire destroyed their equipment storage facility and halted operations for two months?

Answer: Business interruption insurance

Business interruption insurance replaces lost income and covers ongoing expenses when operations are halted due to a covered physical loss, such as fire destroying a business facility.

A chimney sweep advertises a service guarantee. If the guarantee creates a financial obligation beyond normal liability, what type of coverage might the sweep need?

Answer: Surety bond or warranty insurance

A surety bond or warranty insurance product can back a service guarantee, ensuring the sweep can fulfill financial obligations to customers if the guaranteed work fails.