Business Record - Iowa Biz

A severed finger, a lawsuit and the right insurance policy

Panic is never a good business strategy. Just ask any savvy business owner.

The same theory can apply to insurance. Insurance is there to protect you and your assets in the event of an unfortunate incident. Let’s face it, with the way the economy is – a tornado, a flood, a natural disaster or a lawsuit could crumple any size business. However, there is no need to panic if you have the right insurance in place.

There was an article in the Des Moines Register this week about a local magician/actor/hand model who is suing Martha Stewart. Why? It appears that he had an unfortunate incident with a chair made by her company that was recalled back in 1997. This incident is alleged to have caused him significant injury. The article indicates that he has named Martha Stewart’s company and Kmart in the lawsuit.

If Martha has the right insurance coverage in place, she will not need to panic because her insurance company will provide a defense for her to help protect her assets. The same applies to Kmart.

That is the whole premise of insurance: to help you protect your assets.

• If you are sued, it can provide you with defense costs.
• If you are unable to occupy your space, it can help cover costs until you’re back in business.
• If you lose all of your merchandise and can’t operate your business, it can cover you for lost income.

There are many other benefits as well.

The intent of insurance is to restore you to your pre-loss condition. However, the key element is that you need to have the right coverage in place in order to reap any benefits.

This is where having good communication with your agent is so important. So don’t hold back information. Sometimes business owners think that if they tell their insurance agent too much then it is going to cost them more.

Now I am not going to say that doesn’t happen, but most of the time it is a misconception. When information is withheld, then the client can be put into the wrong product and that can cause everyone to panic should a loss occur.

Insurance for employee lawsuits

Wouldn’t it be great to see your company’s name on the front page of the newspaper? Or on the evening news?

Not if it was because a former employee was suing you.

Everyone thinks it’ll never happen to them. But are you and your business protected if you’re sued by a former employee?

Many business owners don’t realize the benefits that insurance can provide them. I often come across insurance policies that are very generic and essentially do not provide much coverage beyond general liability.

This concerns me, especially now during the economic crisis that we are facing. One lawsuit can easily ruin a business even during good economic times. Imagine what it can do when times are tough.

While I understand the concern to not be over insured, I do feel it is important to be adequately insured.

A coverage that is available now and that can help a business owner in a situation like this is Employment Practices Liability Insurance (EPLI).

Recognizing that smaller companies need this kind of protection, some insurers provide this coverage as an endorsement to their businessowners policy (BOP). The coverage limit is typically minimal so, depending on your company size, a separate EPLI policy may need to be purchased.

EPLI provides protection against many kinds of employee lawsuits, including claims of:

• Sexual harassment
• Discrimination
• Wrongful termination
• Breach of employment contract
• Negligent evaluation
• Failure to employ or promote
• Wrongful discipline
• Deprivation of career opportunity
• Wrongful infliction of emotional distress
• Mismanagement of employee benefit plans

In addition to paying a judgment for which the insured is liable, it also provides for legal defense costs, which can be substantial even where there has been no wrongdoing. This is a major benefit of this coverage as the cost of defense can sometimes be the largest cost factor of the claim.

Are you insured in case of lawsuit from a former employee?

If your answer is “I don’t know,” you might want to take a look at your policy or contact your agent to find out. And be sure you have an attorney who understands business law.

In this case the benefits can outweigh the costs.

Eight ways to reduce your insurance costs (without compromising coverage)

It’s no surprise that everyone is feeling the financial crunch these days – especially if you’re a small business.

You may need to find some creative ways to save some money any way you can. Here are a few ways that both small businesses and consumers may be able to cut down on the costs of their insurance premiums without compromising their coverage.

1. Shop around.
   Prices vary from company to company, so it pays to shop around. The easiest way to do this is to work with an independent agent who has access to a variety of carriers. Make sure you work with someone who understands your business.  It is also important to pick a company that is financially stable. Check the financial health of your potential insurer with rating companies such as A.M. Best and Standard & Poor’s.
2. Look at group rates.
   Purchasing your insurance through a business or professional organization can save you money. The savings typically outweigh any member dues. General business organizations, such as your local Chamber of Commerce and the Better Business Bureau also offer business insurance discounts. Your local home-based business association may offer lower prices on home-based business insurance.
3. Choose a higher deductible.
   Deductibles represent the amount of money you pay before your insurance policy kicks in. The higher the deductible, the less you will pay in premiums for the policy.
4. Consider a package policy.
   A Business Owners Policy (BOP) is often significantly less expensive than a self-designed plan. BOPs include: property insurance for buildings and company owned contents; business interruption insurance, which covers the loss of income resulting from an insured event (such as a fire) that disrupts the operations of the business; and liability protection, which covers a company's legal responsibility for the harm it may cause to others.
5. Set up a risk management/loss reduction program.
   Insurers will often lower your rates if you put a program into place that will minimize losses from fire, theft and employee and customer injuries. These can include workplace safety training programs, disaster preparation and human resource intervention. Consider installing a security or fire system. If your line of business uses vehicles, install anti-theft devices and hire drivers with good driving records.
6. Consider relocating your business.
   Deciding whether to relocate depends, to a large extent, on what kind of business you operate and where you move to. Moving from a downtown area to a suburb, for example, may reduce premiums on your property and vehicle insurance, and even your workers compensation insurance.
7. Work closely with your agent or broker.
   An insurance professional can provide invaluable advice to help protect your business. It is important to keep your insurer informed about any changes in your business operations. This includes major purchases, expansions or changes in hiring or in the nature of your operations.
8. Have the right amount and type of coverage.
   Having the right amount and type of coverage along with a carefully developed business plan that includes disaster preparedness can save you money in the long run. Be sure to keep your agent fully apprised of any changes within your business that might necessitate changes to your insurance coverage. Such changes may include: adding employees, expanding your business, increasing your inventory or materials, and purchasing major equipment such as tools or vehicles and adding suppliers.

Now some of these items may sound simple. However, I continually visit with consumers and small business owners and often find that they overpay on their insurance. I have discovered incorrect addresses, coverage for buildings, personal property and vehicles that the owner no longer owns and policies that are pieced together rather than packaged.

These are items that can greatly affect your insurance premium.

I know, many of you don’t like to deal with your insurance, but that is why you have an insurance agent. Now is a great time to pick up the phone and set up a time to review your coverage – to make sure you’re getting the most for your money.

One word can change the meaning of your contract

Whether you are signing a lease for some office space, purchasing a home, bidding on a job, or selling your business, you’ll have to sign a contract.

When you do … be aware of the small print.

Many contracts have a hold harmless agreement or indemnity clauses that can cause future repercussions to you after you have signed your lease, completed your contracted work, or even sold your business.   

So what does this have to do with insurance?

Surprisingly it has a lot to do with it.

Often times there will be insurance requirement language as well as a request for the leasing company or business to be added to your policy. This is typically done through an endorsement.

Agents are often asked to add an additional insured to an insurance policy and/or provide clients with a certificates of insurance. This endorsement actually provides coverage to those additional parties should a loss occur and can protect their interest as well.

Now make no mistake, we are not attorney’s. However, your insurance agent should be your adviser to help you manage your risk.

Your agent should be aware of the language in your contract, not to advise, but to ensure that your policy is endorsed properly and that you are protected.

Managing risk is vital to any business owner. If you don’t have coverage in place when you need it, it can be detrimental to your business -- not only with liability, but with all other costs associated with a loss.

Most people only associate insurance with liability, but in reality it is so much more than that. It’s protection for loss of income, extra expenses you could incur, reimbursement for your property damage, defense coverage and more.   

Unfortunately, sometimes people don’t read their contracts before they sign them. Maybe they compare it to reading their insurance policy. A lot of words that may not make sense, so why bother?

What is really concerning is when they don’t have their attorney review it prior to signing. This is where problems can begin.

So the next time you enter into a contract, you may want to think about having an attorney look it over.

An attorney can consult with your agent, review and explain the contract to you and offer suggestions to make sure that your best interests are protected.

You may be surprised by this … but contracts are negotiable. So if you happen to find yourself entering into a contract and are seeing words like: 

• any
• all
• persons
• whatsoever
• nature
• whole
• wholly
• directly
• indirectly

...you may want to seek your attorney’s advice prior to signing it.

Recalls and more that can close your door

According to a recent article I read,  the Centers for Disease Control and Prevention estimates that there are 76 million cases of food-borne illness that occur each year. There has been an alarming number of food contamination outbreaks in the past two years putting America’s food supply under intense scrutiny.

Just earlier this year, we had the largest beef recall in history. The U.S. Department of Agriculture ordered 143 million pounds of beef to be recalled from Chino-based Westland/Hallmark Meat Co.

Westland/Hallmark provided meat to the National School Lunch programs and about 150 school districts. It also provided meat to two fast food chains: Jack-in-the-Box and In-N-Out Burger.

So what does this mean to the retailer or restaurant owner?

• Who is liable?
• Do you have coverage for this under your insurance policy?
• Wouldn’t your General Liability coverage cover it?
• What other ramifications are there?

Well, the law is clear. Everyone in the chain of distribution is liable.

If someone becomes ill while eating at your establishment or from food they purchase at your store, you can be sure the first person they will name in a suit will be the store/restaurant owner. Things will just progress from there.

In regards to insurance, the area that a business owner with this type of risk should be concerned with is the Products and Completed Operations Coverage. This is an area of coverage that I have noticed that does not get much focus.

This type of incident is a huge exposure for distributors, manufacturers, processors, retailers and restaurant owners – these industries can’t afford to have mediocre limits for this coverage. The Products and Completed Operations limits is the part of the policy that will come into play should a loss like this occur.

Other ramifications can be business interruption. Often times the establishment(s) can be shut down while the appropriate agencies complete their investigation. Loss of revenue is immediate should this occur. Having business interruption coverage on your policy can help to keep your monthly income coming in while your investigation is underway.

Brand image can also be damaged. With having the proper business interruption coverage in place it can also help the establishment stay afloat while it rebuilds its reputation in the community until it reaches its pre-loss operating condition. The rebuilding phase can be the most fragile one. If proper business interruption coverage is not in place, many companies may have to close their doors.

Even if you're not in the restaurant/food industry - you may face situations that put your business at risk.

I encourage all business owners to be aware of their risks, consult with their agents to ensure that they have the proper coverage for their industry.

Are you prepared after a loss?

In light of our recent, major catastrophic events that have occurred with tornadoes, flooding and hurricane Gustav, you not only have to be prepared before the loss happens, you need to be prepared after the loss happens.

For small businesses, many claims will be due to loss of business income. Good record keeping will help you recreate your records and have the information available to submit to your claims representative. So what else can you do?

Well, the Insurance Information Institute offers the following suggestions:

• Contact your insurance company or agent. Your insurance company will have representatives available to take your information and get your claim assigned to a qualified adjuster who will contact you as soon as possible to inspect the damage.  Your agent can also report the loss to your insurance company or provide you with the appropriate claim contact information.  If you have had to evacuate, make sure to give your  insurance representative or agent a telephone number where you can be reached. 
• Take photos of the damaged areas. These will help you with the claims process and will assist the adjuster in the investigation.
• Prepare a detailed inventory of all damaged or destroyed personal property. Be sure to make two copies—one for yourself and one for the adjuster. Your list should include a description of the items, dates of purchase or approximate age, cost at time of purchase and estimated replacement cost.
• Collect canceled checks, invoices, receipts or other papers that will assist the adjuster in obtaining the value of the destroyed property.
• Make temporary repairs if you are able to access your property. Cover broken windows, damaged roofs and walls to prevent further destruction. Save receipts for supplies and materials you purchase. Your insurance company will reimburse you for reasonable expenses in making temporary repairs. (This is called mitigating your damages and it is something you must do to protect it from further harm.)
• Get a detailed estimate for permanent repairs from a reliable contractor and give it to the adjuster. The estimate should contain the proposed repairs, repair costs and replacement prices.

Now, you might be thinking that you are doing all of the work with a list like this. However, many insurance companies put together special phone lines for victims to call in order to help expedite their claim process and they often dispatch CAT Teams to assess the damage  and provide extra support for their local offices.

Depending on the damages, they may even set up additional drive-in locations that can expedite many claims for customers.

Analysts predict that the damage from Gustav appears to be lower than previously expected. So, not to worry right? Well, there is still some concern. Even though this particular loss maybe less than expected, catastrophe losses add up. With four more storms on the horizon – we need to be prepared.

And if you think you've survived the summer storms - remember that winter is right around the corner!

Are you protecting your customer's identity?

Do you have protective measures in place to guard your customer’s information?

Just recently, the Department of Justice “busted” one of the largest identity theft cases they have ever prosecuted – 40 million credit card numbers were stolen from nine major U.S. retailers.

Now, you might think this type of thing only happens to small retailers.

It doesn’t. In this particular case Office Max, Sports Authority, Barnes & Noble, Forever 21 and DSW Inc. were among the companies targeted.

Maybe you think this can only happen to large companies.

Well, hackers do not discriminate. If they find a weakness, they will capitalize on it regardless of the size of your business.

So what can you do?

For the business owner:

1. Make sure your Data Security Standards are compliant with the PCI Standards.
2. Test your computer systems (several companies specialize in computer security).
3. Do business with companies you know and trust.
4. Educate your employees about avoiding scams.
5. Complete background checks on your employees. Many cases of identity theft come from employees.
6. Review your insurance policy. I know, I know, no one wants to read it – however, the information you will find can be extremely pertinent should you have a situation occur. Insurance companies have different interpretations of what electronic data means and policies have limitations on coverage for employee dishonesty as well as exclusions.

On a personal level:

• Monitor your checking accounts and credit card balances regularly.
• Shred documents you no longer need. Thieves will go through your trash.
• Guard your personal information - don't give information out over the phone in an unsolicited call.
• Request a copy of your credit report at least annually.

For added protection, you can also purchase some identity theft insurance. This can be a separate policy, or simply added on to your homeowner’s insurance policy. Contact your local insurance agent for more information.

The limits of an Identity Theft insurance policy can vary among carriers and will typically include:

• Lost wages reimbursement
• Help pay for attorney fees
• Costs incurred to repair credit
• Costs for certified mail to law enforcement, et cetera

How is the government helping you?

In 1999, The Justice Department established its Internet Fraud Initiative. In 2006 the president formed an Identity Theft Task Force and directed it to develop a coordinated strategic plan to combat identity theft. This includes ways to improve the awareness, prevention, detection and prosecution.

Check out their website - there is a ton of information available.

On the local front – Iowa Attorney General Tom Miller has enacted several policies and procedures that provide solid resources to the public:

• A free guide to victims of identity theft.
• One free credit report per year from each of the credit bureaus.
• Consumers can now freeze their credit reports.
  

For more information check out their website.

Are you hiring?

Whether you need a full-time employee, part-time employee or someone to work on a special project or two … there’s more to know about hiring than you may think.

One of the most important things a business owner needs to know is the difference between an employee and an independent contractor … especially as it pertains to your insurance coverage.

This is how the IRS defines it:

The general rule is that an individual is an independent contractor if you, the person for whom the services are performed, have the right to control or direct only the result of the work and not the means and methods of accomplishing the result.

Consider this example from the IRS:

Vera Elm, an electrician, submitted a job estimate to a housing complex for electrical work at $16 per hour for 400 hours. She is to receive $1,280 every 2 weeks for the next 10 weeks. This is not considered payment by the hour. Even if she works more or less than 400 hours to complete the work, Vera Elm will receive $6,400. She also performs additional electrical installations under contracts with other companies that she obtained through advertisements. Vera is an independent contractor.
How can this affect your insurance?

It can affect your insurance in several ways:

• Risk classification.  Most General Liability policies for contractors are classified on a payroll basis as well as the percentage (%) of sales paid to subcontractors.
• Workers Compensation premiums. Since premiums are payroll based, if you are using Independent Contractors (i.e. subcontractors), they are not eligible for Workers Compensation benefits.
• Certificates of Insurance.  Many insurance companies require the general contractor to obtain copies of the Certificate of Insurance from the subcontractor. They often require the same limits of liability and the General Contractor must be listed as an additional insured. This is probably the most important step that is overlooked when it comes to protecting the business owner from liability.
• Audits. Insurance companies typically conduct annual audits to check for proper classifications and review certificates of insurance. If this information is not accurate, you may be subject to pay a substantial amount of back premium.

So what is happening in the industry?

Well according to inc.com’s recent article, Governor Culver has recently created a task force to gauge the extent of employee misclassification and report back with recommendations within 60 days. Iowa lawmakers are cracking down on employers who misclassify workers as independent contractors to avoid payroll taxes and benefits.

So if you are a business owner who makes it a practice to use independent contractors, make sure you educate yourself on this definition and review your policies for proper classification.

It is typically less expensive to make any necessary adjustments now rather than later and be subject to any additional fees or fines.

Don’t be a cheapskate and underinsure your property

Now, I don’t want to be redundant or beat a dead horse so to speak. However, in light of the recent flooding in Iowa and the fires in California, it still surprises me when I hear about people who did not have enough coverage on their property.

In the business arena, most insurance carriers require that a policyholder have their property insured for at least 80% of the value.

What I see in the market is that business owners will often insure their buildings for the amount they owe on it. Maybe they negotiated a good price or purchased a foreclosure and got it for under the assessed value.

Then they insure the building for what they paid for it instead of what the property is worth or what it would cost to replace it.

Why not?

They don’t have much invested in it and what do they have to lose if it burns down? They got a good deal on it. Well, in the event of a loss, the business owner is faced with an underinsurance issue.  This can be a substantial cost to the business owner should a loss occur.

Let’s do some simple math …

• You have a building that is worth $150,000
• There’s a fire and the cost to repair is $40,000
• The building is insured for $105,000
• Your deductible is $500

Well – the minimum amount of insurance to meet your coinsurance requirement is: $150,000 x 80% = $120,000

Looks like we have a problem since you currently only have coverage for 70% of its value ($105,000).

Now what does that mean for the $40,000 loss?

Well, it means that the insurance company is only going to pay 70% of that amount - $40,000 x 70% = $28,000 less your deductible $500 = $27,500.  So who is going to have to pay the remaining $12,500 worth of repairs?

Well, the answer to that is the business owner. Ouch!

How can this be avoided? It’s really just some common sense and a little bit of time.

• Make sure that you visit with your insurance agent at least annually.
• Be informed. Be proactive. This is your business - your bottom line.
• Ask questions to ensure that you understand the coverage on your policy.

Often times, I talk with business owners and they have no idea how the amount of coverage they are carrying was derived. They are also not aware of the coverage they have and/or what it means.

They are mainly concerned about the cost of their premiums.

Now, I completely understand the economy we are faced with today. We are all trying to save as much as we can one way or another. However, this is a large price to pay to try and save a few dollars off your premium should this loss happen to you.

Are you prepared for a catastrophic event?

When discussing insurance, you may think insurance agents always want to ask you questions that are so far fetched. I mean really, you’ve never filed a claim, so how likely could something catastrophic happen to you?

I don’t know this for sure, however, I feel pretty confident that the residents of Parkersburg did not think such an event would happen to them either.

I have been in the insurance industry for 10 years and am still amazed when an event such as this occurs. The devastation that the residents of this community are going through cannot be put into words. Their homes and businesses are destroyed - simply wiped out in a matter of minutes. These people have lost everything they own and then some.

So what can you do? Well for one, you need to review your coverage.

The purpose of your insurance policy is to be there for you in the event of a loss. If you are not reviewing your insurance policies with your agent on an annual basis, you are doing yourself a disservice. 

Many things change in the course of a year. Your business could grow faster then you originally projected. Perhaps you purchased new business equipment or rented a storage building. All of these changes need to be considered on your insurance policy.

The next thing is to ensure you have the right coverage in place.

If you are a business owner, ask yourself, if a similar situation as in Parkersburg happened to you:

• Would your business be affected?
• Could you incur any additional expenses?
• Could you recreate your records or accounts receivables?

If any of these questions are a concern for you, then you may want to review your policy with your agent and make sure you have adequate accounts receivable coverage, business income and business expense coverage.

What about documentation?

• Do you have an itemized list or photos of your business or personal property?
• Where are you keeping them?
• Do you back up your records?
• If so, where are you storing your back up files? 

As you can see with Parkersburg, it’s not going to do you any good if you are backing up your records and keeping them in your office. If your office is destroyed, so are your records. You may want to look into backing them up and storing them offsite. There are several companies that offer this service for both business and personal records.

I don’t mean to be ominous and this is not a ploy to get everyone scared so they buy more insurance. I am just being realistic.

A recent article at Entrepreneur.com says that 4 out of 10 business professionals admit to not being prepared for a disaster. Why? Because it's not a priority and they're not quite sure what to do.

Take the first step - talk to your insurance agent. Having good communication with your agent can ensure that you have the right coverage in place when you need it.