Wells Fargo Insurance Services

Expanding internationally?

Check your insurance coverage first

Doug SingerBusiness Development Officer

Commercial Insurance Division

Wells Fargo Insurance Services USA, inc.

100 West Washington Street, 4th Floor

Phoenix, AZ 85003-1808

Phone: 602.528.3072

douglas.c.singer@wellsfargo.com

Indications that foreign coverage is warranted:

International travel or exhibitions

International sales manager

International sales (Internet sales?)

U.S. employees working overseas

International shipments

International operations

International Third Party Manufacturing

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Expanding internationally?Check your insurance coverage firstIncreasingly, U.S. firms are venturing beyond American borders to accept work in other countries. This brings exciting, new opportunities, but it also creates new and unfamiliar exposures.

To take on international projects, some firms collaborate with foreign contingents in joint ventures or other types of partnerships. Others form their own foreign operations by creating legal entities, opening offices, and hiring U.S. expatriates or local nationals.

Regardless of the approach, firms should review their insurance program before working and traveling abroad. If they don't, they'll discover too late that most standard policies leave international operations extremely vulnerable.

The four most common areas of exposure include:1. Property: Before working internationally, firms should make sure their

property policy has a worldwide coverage territory. Typically, domestic policies are written to insure property only in the U.S., Puerto Rico, and Canada. So if an employee travels to Asia on a business trip and a laptop is stolen, the property wouldn’t be covered under most U.S. policies.

2. General Liability: Laws and potential liabilities are different in other countries. That’s why it’s important to have a general liability insurance that can respond to an event that happens anywhere in the world. In particular, the policy should respond to lawsuits brought anywhere in the world, as an injured party typically files suit in his or her local country, not necessarily in the U.S..

Coverage under domestic liability policies varies by carrier. Typically, policies provide coverage only for events occurring in the U.S. and for claims brought in the U.S., Puerto Rico, or Canada. While some domestic policies do provide coverage for worldwide events, none of them cover lawsuits brought outside the U.S., Puerto Rico, or Canada.

3. Auto: The stand domestic auto policy applies to the U.S., Puerto Rico, and Canada. So if an employee rents, leases, or owns a vehicle outside this territory and has an accident, the policy would not provide coverage. Notably, auto rental is a leading exposure for many U.S. firms, due to differences in international driving patterns – from driving on a certain side of the road to reading signs in foreign languages.

It’s advisable to purchase liability coverage when renting vehicles outside of the U.S., but keep in mind that some rental car coverage terms can be restrictive. For example, the coverage may not respond if the driver is speeding, drinking, or otherwise in violation of the local law. In addition, insurance limits purchased at the rental counter vary from one country to the next – and from one rental company to the next. What if the car hits a bus or a train? The firm may need umbrella or excess liability limits over the policy purchased from the rental company.

4. Workers’ Compensation: When U.S. employees are injured while traveling overseas on short term business trips, the domestic workers’ compensation policy is the first and primary form of coverage. However, the U.S. workers’ compensation policy will not respond if someone is sent on a long-term assignment outside of the country, and there is no definition in the policy for “temporary” or short-term assignment. U.S. workers’ compensation policies exclude endemic diseases, such as malaria or SARS, and do not provide any emergency services for an injured worker.

The practical solution for these four coverage gaps is a foreign package

policy.

This policy can be designed to cover property outside of the U.S., provide worldwide liability protection, add excess liability for auto policies purchase at the rental counter, and include U.S. workers’ compensation benefits for U.S. expatriates, cover endemic disease, pay for medically required emergency medical transportation to another country, and provide toll free numbers to employees for medical assistance. The foreign package policy should be scheduled beneath the firm’s umbrella policy, ensuring that excess limits apply to claims anywhere in the world.

Foreign Credit Insurance

When doing business with a Foreign Corporation that is new to you or when the Foreign Corporation resides in an economically struggling economy consider Foreign Credit Insurance.

This insurance provides coverage in case of a foreign company declaring bankruptcy or not paying for products or services received from you. The underwriting structure is arduous and any company you are seeking to do business with will have their financials and procedures reviewed. Any company or firm not listed on the policy is not covered, making this policy much different from other insurance policies you carry. Most financial institutions will require this coverage when setting up credit lines, or loans for foreign operations.

Ocean Marine Insurance

When Importing or Exporting goods who is providing coverage for the goods and at what point in the transaction does ownership of the goods transfer? These questions are always pertinent and should be set forth in the contract. How are the goods to be insured, at what value, is Duty included? Many times goods are shipped using multiple modes of transportation; Ship, Air Cargo, Rail, Truck. The Ocean Marine contract can be drafted to cover any or all of these methods. Be certain that you or your agent understands all of the many facets of Ocean Marine as it is a very specialized coverage.

Additional insurance considerations:

Professional liability: In addition to general liability, firms should confirm that their professional liability policies are written with a worldwide coverage territory and will respond to claims brought outside the U.S.

Foreign locations: If a firm has international operations, securing the right level of coverage can be a major challenge. For example, most U.S. based multinationals try to protect their global operations with worldwide insurance policies written by American carriers. These policies typically offer centralized control and uniform coverage, limits, and deductibles for exposures around the world. However, if U.S.-based coverage is the only insurance, the coverage may be insufficient.

That's because, in insurance terms, U.S.-based global policies are considered non-admitted insurance by regulators outside of the U.S. As a result, many countries do not allow these policies to act as legal insurance within their borders. Ultimately, if a company suffers a loss or has a claim against it in another country, its global insurance carrier may not be able to respond on its behalf because the policy is considered non-admitted. For instance, the insurer may not be able to directly defend the insured, post a bail bond, or otherwise pay for settlements or judgments.

Even more, when the global policy pays the claim in the U S, transferring the money to the international subsidiary could be considered a capital infusion, taxable by the local government. Plus, relying solely on a U.S.-based policy may lead to fines, penalties, and tax liabilities because the U.S.-based insurer is not recognized as a legal insurance carrier by the foreign insurance regulator.

Compulsory requirements: Some countries have compulsory insurance requirements to ensure companies are covered for certain events, such as industrial or workplace accidents. And even if a country allows non-admitted insurance, a U.S. based policy will not meet the local requirements for compulsory insurance. Instead, if a firm has international operations, it must make sure the design of its insurance program keeps the international entities compliant with each country's insurance and tax regulations.

Working overseas

Some tips for success:

Do your homework about the local culture. Just as we expect foreigners to understand our culture, they expect us to understand theirs.

Respect and engage your partners. Don’t try to impose an approach.

Be on time. But prepare for others to be late.

Respect celebrations and traditions.

Manage expectations. Keep in mind that business protocols, procedures, and the overall pace of work are different outside of the U.S.

Before taking a business overseas, it’s important to thoroughly research the operating environment and plan for success:

• Business plan: Develop a comprehensive international business plan that outlines the goals, objectives, and the game plan for achieving them

• Business licenses and visa: Examine local licensing laws and regulations that govern design services

• Payment terms and procedures: Avoid disputes by developing clear, precise payment terms that are tied to the scope of services

• Taxes: The tax implications in a foreign country can be very complex. Remember to comply not only with the host country’s tax laws, but also the U.S. laws and tax treaties

• Legal system: Determine which legal traditions are different from Anglo-American common law. In European countries, for example, civil law governs transactions. Other countries may not have a well-developed body of commercial law as they transition to capitalism

• Insurance policies: Examine professional liability coverage and other insurance policies to determine whether they adequately cover international exposures.

International checklist for companies

“All business proceeds on beliefs, or judgments of probabilities, and not on certainties.”

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− William Hewlett

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