South Dakota Liability Insurance

Liability insurance protects individuals and businesses from financial loss when held legally responsible for injuries to others or damage to their property. Understanding liability coverage is essential for South Dakota insurance producers.

Commercial General Liability (CGL)

Purpose and Coverage

Commercial General Liability insurance protects businesses from:

• Third-party bodily injury claims
• Third-party property damage claims
• Personal and advertising injury claims
• Medical payments (no-fault)

Who Needs CGL:

• Retail stores
• Restaurants and hospitality
• Contractors and service providers
• Manufacturers
• Professional offices
• Landlords and property owners
• Virtually all businesses

CGL Coverage Structure

Coverage A - Bodily Injury and Property Damage Liability

Bodily Injury:

• Physical injury to third parties
• Illness or disease
• Death resulting from injury

Property Damage:

• Physical damage to tangible property
• Loss of use of tangible property

Examples:

• Customer slips on wet floor → bodily injury
• Contractor damages client's building → property damage
• Restaurant patron suffers food poisoning → bodily injury
• Delivery driver backs into customer's fence → property damage

Defense Costs:

• Insurer provides legal defense
• Defense costs paid in addition to policy limits
• Duty to defend even if allegations groundless
• Insurer controls defense and settlement

Coverage B - Personal and Advertising Injury

Covers:

• False arrest, detention, imprisonment
• Malicious prosecution
• Wrongful eviction or entry
• Libel, slander, defamation of character
• Copyright infringement in advertisement
• Misappropriation of advertising ideas
• Infringement of trade dress

Examples:

• Security guard wrongfully detains customer → false arrest
• Business publishes false statement about competitor → libel
• Use copyrighted image in advertisement without permission → copyright infringement
• Property manager wrongfully evicts tenant → wrongful eviction

Coverage C - Medical Payments

No-Fault Coverage:

• Pays medical expenses of injured parties
• Regardless of business's legal liability
• Gesture of goodwill to avoid lawsuits

Typical Limit: $5,000 - $10,000 per person

Covers:

• Medical and surgical expenses
• Ambulance and hospital
• X-rays and diagnostic services
• Dental expenses
• Prosthetic devices
• Funeral services

Time Limit: Expenses must be incurred within 1 year of accident

Purpose:

• Quickly pay minor injuries
• Maintain customer goodwill
• Potentially avoid lawsuits
• Not admission of liability

CGL Policy Limits

Occurrence Limits:

Example: 1M/2M CGL Policy

• $1,000,000 per occurrence
• $2,000,000 general aggregate
• Policy will pay up to $1M for any single claim
• Policy will pay up to $2M total for all claims during policy year (aggregate)

Exam Tip: The general aggregate is the maximum the policy will pay for all covered claims during the policy period. Once the aggregate is exhausted, no further coverage until policy renews.

CGL Coverage Trigger

Occurrence Basis (Standard):

• Coverage triggered when injury/damage occurs
• Doesn't matter when claim is made
• As long as occurrence during policy period
• Most favorable for insureds

Example:

• Injury occurs: January 15, 2024 (during policy period)
• Claim filed: June 1, 2025 (after policy expired)
• Coverage: YES - occurrence during policy period triggers coverage

CGL Exclusions

Key Exclusions:

1. Intentional Acts - Expected or intended injury
2. Contractual Liability - Liability assumed under contract (except insured contracts)
3. Liquor Liability - For businesses in liquor business
4. Workers' Compensation - Employee injuries (separate coverage)
5. Employer's Liability - Employee claims outside workers' comp
6. Pollution - Gradual pollution (sudden and accidental may be covered)
7. Aircraft, Auto, Watercraft - Owned/operated by insured
8. Mobile Equipment - During transport or on public roads
9. War and Terrorism - Acts of war
10. Damage to Your Product or Work - Business's own work
11. Property in Your Care - Property in insured's care, custody, or control
12. Professional Services - Requires professional liability policy

South Dakota Liability Scenarios

Retail Store:

• Customer slips on ice outside entrance → CGL bodily injury
• Customer allergic reaction to product → CGL bodily injury
• Employee damages customer's vehicle in parking lot → Auto liability, not CGL

Contractor:

• Drops paint on customer's carpet → CGL property damage
• Ladder damages customer's siding → CGL property damage
• Faulty electrical work causes fire (after job complete) → CGL products-completed operations
• Defective workmanship on own work → Excluded, need professional liability

Restaurant:

• Customer food poisoning → CGL bodily injury
• Customer slips on wet floor → CGL bodily injury
• Liquor-related liability → Excluded from CGL, need liquor liability policy

Landlord:

• Tenant injured by defective railing → CGL bodily injury
• Fire in rented premises damages building → CGL fire legal liability (sub-limit)
• Wrongful eviction of tenant → CGL personal and advertising injury

South Dakota Workers' Compensation

Requirement and Purpose

South Dakota Requirement:

• Required for employers with 1 or more employees
• Includes full-time, part-time, and seasonal employees
• Covers employees injured during work

Note: This is more stringent than many states (many require 3-5 employees minimum)

Purpose:

• Provide benefits to injured workers
• No-fault system (employee doesn't prove employer negligence)
• Exclusive remedy (employee cannot sue employer in most cases)
• Protects employers from costly lawsuits

Workers' Compensation Benefits

Types of Benefits:

1. Medical Benefits

Coverage:

• All necessary medical treatment
• Doctor and hospital expenses
• Prescription medications
• Physical therapy and rehabilitation
• Prosthetic devices
• Travel expenses to medical appointments

No Limit: Medical benefits unlimited No Deductible: Employee pays nothing

2. Disability Benefits

Temporary Total Disability (TTD):

• Cannot work while recovering
• Pays percentage of average weekly wage (typically 66⅔%)
• Maximum and minimum weekly benefits set by state
• Continues until return to work or maximum medical improvement

Temporary Partial Disability (TPD):

• Can work but at reduced capacity/wages
• Pays percentage of wage loss
• Bridge to full recovery

Permanent Partial Disability (PPD):

• Permanent impairment but can still work
• Scheduled injuries (loss of limb, vision, hearing)
• Unscheduled injuries (back, internal injuries)
• Compensation based on disability rating

Permanent Total Disability (PTD):

• Cannot work again due to injury
• Lifetime benefits (or until retirement age)
• Highest level of benefits

3. Death Benefits

If Work Injury Causes Death:

• Burial expenses: up to statutory limit
• Weekly benefits to dependents
• Percentage of worker's average weekly wage
• Continues until dependent children reach certain age
• Surviving spouse may receive benefits for life or until remarriage

Exclusive Remedy Doctrine

Exclusive Remedy:

• Workers' comp is employee's exclusive remedy against employer
• Employee cannot sue employer in civil court for negligence
• Exception: Intentional acts by employer

Trade-Off:

• Employee gives up right to sue
• Gets guaranteed benefits without proving fault
• Employer avoids potentially large jury verdicts
• Predictable costs for employers

Exceptions Where Employee Can Sue:

• Employer intentionally injures employee
• Employer doesn't carry required workers' comp
• Third party causes injury (employee can sue third party)

Covered Employees

Who's Covered:

• All employees (full-time, part-time, seasonal)
• Must be on payroll
• Working within scope of employment

Independent Contractors:

• Generally NOT covered as employees
• May need own coverage
• Misclassification can create liability

Volunteers:

• May be covered if specifically included
• Check policy provisions

Employer Responsibilities

South Dakota Employers Must:

1. Secure Coverage - Obtain workers' comp insurance
2. Post Notice - Display workers' comp poster at workplace
3. Report Injuries - Report serious injuries to Department of Labor & Regulation
4. Provide Information - Give injured worker claim information
5. Don't Retaliate - Cannot fire/discipline for filing claim

Penalties for Non-Compliance:

• Fines: up to $10,000
• Stop work order
• Criminal penalties possible
• Personal liability for benefits
• Loss of exclusive remedy (employee can sue)

South Dakota Department of Labor & Regulation

Division of Insurance handles workers' comp regulation

Contact:

• Address: 700 Governors Drive, Pierre, SD 57501
• Phone: (605) 773-3681
• Website: dlr.sd.gov

Services:

• Oversee workers' comp system
• Resolve disputes
• Ensure compliance
• Provide information and forms

Professional Liability Insurance (Errors & Omissions)

Purpose and Coverage

Professional Liability (E&O) covers:

• Errors and omissions in professional services
• Negligent acts or advice
• Failure to perform professional duties
• Misrepresentation

Who Needs It:

• Insurance agents and brokers
• Real estate agents
• Accountants and CPAs
• Attorneys
• Architects and engineers
• Consultants and advisors
• Financial planners
• Technology professionals

Claims-Made Coverage

Unlike CGL (occurrence), E&O is typically claims-made:

Claims-Made Trigger:

• Claim must be made during policy period
• AND reported during policy period
• Coverage depends on when claim made, not when error occurred

Retroactive Date:

• Date from which coverage begins
• Claims for errors/omissions before retroactive date NOT covered
• Important when changing insurers

Example:

• Policy period: 1/1/2024 - 1/1/2025
• Retroactive date: 1/1/2020
• Error occurred: 6/1/2023
• Claim made: 6/1/2024
• Covered: YES (claim made during policy period, error after retroactive date)

Example 2:

• Same policy
• Error occurred: 6/1/2023
• Claim made: 6/1/2025 (after policy expired)
• Covered: NO (claim made after policy expired)

Extended Reporting Period (Tail Coverage)

Problem: Claims-made coverage ends when policy ends

Solution: Extended Reporting Period (ERP) or "Tail"

What It Does:

• Extends time to report claims
• Covers claims made after policy expires
• For errors that occurred during policy period

When Needed:

• Retiring from business
• Changing insurers
• Going without coverage

Cost: Typically 100-200% of annual premium for unlimited tail

Exam Tip: Claims-made coverage requires "tail" coverage when changing insurers or retiring to cover claims made after policy ends. This is expensive but necessary to maintain protection.

Common Professional Liability Scenarios

Insurance Agent:

• Fails to obtain requested coverage → client suffers uninsured loss
• Misrepresents policy terms → client files claim against agent
• Doesn't advise on adequate limits → client underinsured

Real Estate Agent:

• Fails to disclose property defect → buyer sues
• Misrepresents property value or condition
• Negligent property inspection or appraisal

Accountant:

• Error in tax return → client owes penalties
• Failed to advise on tax strategies → client loses deduction
• Negligent audit → client relies on inaccurate statements

Umbrella and Excess Liability

Purpose

Provides:

• Additional liability coverage above underlying policies
• "Umbrella" over multiple underlying policies
• Coverage for catastrophic losses

Typical Limits: $1 million - $10 million

How Umbrella Coverage Works

Layers of Coverage:

1. Underlying Policies (first layer)

   • CGL: $1,000,000 per occurrence
   • Auto: 250/500 bodily injury, $100,000 property damage
   • Employer's liability: $100,000 per accident

2. Umbrella Policy (second layer)

   • $1,000,000 umbrella limit
   • Pays after underlying limits exhausted
   • May also provide coverage not in underlying policies

Example:

• Lawsuit judgment: $2,500,000
• CGL pays: $1,000,000 (policy limit)
• Umbrella pays: $1,500,000 (remaining amount)
• Total: $2,500,000 fully covered

Umbrella vs. Excess Liability

Umbrella Advantages:

• May cover claims not in underlying (within umbrella coverage)
• Drops down to pay when no underlying coverage (subject to SIR)
• More comprehensive protection

Self-Insured Retention (SIR):

• Deductible for claims not covered by underlying
• Typically $10,000 - $25,000
• Insured pays SIR before umbrella responds

Umbrella Requirements

Minimum Underlying Limits Required:

Typical umbrella requires:

• CGL: $1,000,000 per occurrence
• Auto: 250/500/100 or $500,000 CSL
• Employer's Liability: $500,000 / $500,000 / $500,000

If underlying limits don't meet requirements, insured may not be able to purchase umbrella or will pay higher premium.

Who Needs Umbrella Coverage

Individuals:

• High net worth (assets to protect)
• Professionals (doctors, executives)
• Landlords with rental properties
• Anyone who wants maximum protection

Businesses:

• Significant assets to protect
• High liability exposure
• Multiple operations or locations
• Contracts requiring higher limits

Summary: South Dakota Liability Insurance

Commercial General Liability (CGL): ✓ Covers bodily injury and property damage to third parties ✓ Personal and advertising injury ✓ Medical payments (no-fault goodwill coverage) ✓ Occurrence-based coverage ✓ Defense costs in addition to limits

Workers' Compensation: ✓ Required for SD employers with 1 or more employees ✓ No-fault system providing medical, disability, and death benefits ✓ Exclusive remedy (employee cannot sue employer) ✓ Penalties for non-compliance: fines, stop work orders, personal liability

Professional Liability (E&O): ✓ Covers errors and omissions in professional services ✓ Claims-made coverage (not occurrence) ✓ Requires tail coverage when policy ends ✓ Essential for professionals providing advice/services

Umbrella/Excess Liability: ✓ Additional coverage above underlying policies ✓ Protects against catastrophic losses ✓ Typical limits: $1 million - $10 million ✓ Requires minimum underlying coverage ✓ May cover gaps in underlying policies