Insurance

Don’t be a cheapskate and underinsure your property

Broke 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?

Tornado 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.

Will The Blues Bring Lightning?

36876579 Is it just me or do you have the blues too?  It has to be Spring, children are playing soccer, baseball, running track, and even flag football.  I've even seen a robin so it must be true.  The Drake Relays have come and gone. 

Spring is here but it has not sprung.

With spring comes your favorite meteorologist telling you about the crazy weather patterns.  The weather drives insurance companies crazy.  Believe it or not, insurance carriers look at weather data and records from years past and try to predict if it will be a profitable month or not.

Since insurance companies and meteorologists can't predict the weather patterns, it’s good thing we can all carry insurance.  Bad weather and the bad news that sometimes comes along with it, can strike at any time.

Late at night you see a flash in the sky and hear the thunderous boom and say to yourself, "Wow, what did that hit?"  You wake up the next morning and head to work.   When you arrive you fire up the coffee pot, start your computer, and turn off the phone recording system for the day.

Houston, We Have a Problem   

Nothing is working...

This is where your morning might get worse. Your agent said the policy you have is an all-risk policy, so you automatically make the assumption you are covered.

In this particular situation you don't know the exact cause of the loss.  You think it was lightning, tell your agent it was lightning, and he says, "Lightning is covered." 

After further investigation of the cause of loss by the insurance company you are informed that you have no coverage.  Lightning did cause a loss but it was not on your premise, it was actually a power surge from an electrical station four blocks away.  And you’re not covered for that.

Uh oh.

As the Spring storms approach, take a few minutes to check up on the wording of your policy when it pertains to lightning and its effects.

Spring cleaning for safety

Cleaning_1 How safe is your workplace?

  • Do you inspect hand and power tools regularly for wear and tear?
  • Do all four feet of your stepladders rest on the same surface area?
  • Are you able to move around your stockroom easily without moving things?
  • Are your sprinklers visible and fire extinguishers easy to reach?
  • Do your employees wear proper clothing when working with materials such as resins, adhesives, cement, concrete, fiberglass and insulation?
  • Have employees been provided with the appropriate protective gear (aprons, face shields and gloves)
  • Is your workplace adequately ventilated?
  • Do you have a safety plan and an emergency evacuation plan in place?

If you answered “no” to any of the questions above, then a little spring cleaning may be just what you need to clean up your workplace and reduce your loss ratios.

This is the perfect time of year to get updated and organized.

If you are unsure of where to start, log onto the internet or take a look at your insurance carrier’s website.

There is a wealth of information available to you and the majority of it is free. 

Look for categories such as “risk management” or “loss prevention” and you’ll be surprised by what you will find. Most information will be separated by industry with extensive detail on the do’s and don’ts in the workplace.

You will also find webinars (online classes) and DVD’s available for purchase along with links to government sites and others such as National Highway Transportation Safety Administration and the National Safety Council.

So make sure you are maximizing the benefits that your insurance offers and get your workplace cleaned up today.

Terrorism Act extended

World_trade_centerMany of you no doubt have recently received new Terrorism Disclosure notices and endorsements from your insurance companies or agents.  “What’s this all about,” you might be thinking.

It all began, of course, on September 11.

The insured property loss from the attack on the World Trade Center has been estimated at $20.3 billion by the Insurance Services Office (ISO). 

They also estimated that there were 49,000 property loss claims.  Of the total - 30,000 were for personal property, 15,000 for commercial property and 4,000 for auto damages. 

The insurance industry had clearly been unprepared for the devastating losses that occurred that day.  Policies contain a war exclusion which has been standard for many years. But was September 11 a war? 

The conclusion of the courts was no – a war is a course of hostility between sovereign nations – so the exclusion did not apply.  The property losses were settled as acts of vandalism. But the amounts were staggering for insurers whose pricing models had never contemplated such losses. 

If insurers can’t reasonably predict when and where a terrorist event might take place and how much it might cost, it seems unlikely they will be able to accurately factor such an event into the cost of insurance.

Perhaps the federal government will be permanently in the business of providing a backstop for the insurance industry when it comes to insuring terrorism.

The Terrorism Risk Insurance Act (TRIA) was created as a temporary measure to allow time for insurance companies to develop their own solutions and products to insure against acts of terrorism.  But late in 2007, President Bush signed legislation enacting a seven-year extension to the act. 

The law extends the federal program that creates a shared system - public and private compensation for insured losses resulting from acts of terrorism.  And now, domestic terrorism is included as well as foreign terrorism.

Are you covered?
Currently, workers compensation policies do not exclude loss due to terrorism or war. That means that employers with a lot of white collar workers located in office buildings are now viewed as high-risk accounts.

From a property standpoint, more than 60% of large and mid-size firms carry property terrorism insurance and the trend continues to grow. 

To view the current nationwide threat level - visit The Terrorism Research Center.

An employee benefits mishap

Twins Are you a small business owner who struggles with having to wear many hats – including handling HR and benefits?

Sometimes it’s a tough balancing act to make sure you’re offering your employees a good benefits package – and still bringing business in the door.

Imagine this ...

As you walk in the office door thinking about your busy day, you’re greeted by one of your employees, Kim. She’s just returned to work after giving birth to twins. Kim gives you a quick update on the kids - they are doing great and it is wonderful to be back in the office. 

You reply in a friendly voice, “So glad to have you back and wonderful to hear the children are doing great.”

Have you just been given notice that an employee now has two new members in the household?  Do you have any responsibility to make sure that those children are on the company’s health insurance plan and you are collecting premium?

Two months go by and one day you overhear some employees talking about Kim’s twins  who are in the hospital with a respiratory illness.  All of a sudden that light bulb goes off in your head.  You never added them to the company’s group health insurance plan. 

It’s time to call your insurance agent!

After a brief discussion you are relieved.  You purchased Employee Benefits Liability

Under this coverage form, your policy would provide coverage if you were found legally obligated to pay under certain circumstances.

For example, if health insurance coverage HAD been in place for the twins and $2,500 would have been paid for by the health insurance carrier -  you may be found legally obligated to pay the $2,500. Generally speaking, your employee benefits liability insurance would cover expenses that should have been covered if the health insurance was in place.

This may also apply to other benefits that you offer such as disability, vision, and 401(k).

Mistakes do happen and it is nice to know you are covered when something serious does go wrong.  In a case like this, you could lose a good employee if you forgot to add new family members to their health insurance plan. 

What would you have done if the children were diagnosed with a more serious illness?  Would you have had enough coverage?

Will your business auto policy cover you in a rental car?

Car_map Here’s a short quiz:

1. Are you a business owner that uses your vehicle for both business and personal use?
2. Is your vehicle titled to your business entity?
3. Is your vehicle insured under your business auto policy? 

If you answered “yes” to these questions, then you will be surprised to learn how this affects you when renting a vehicle.

This subject was sparked by a recent meeting I had with a prospective client. As we discussed his vehicles and coverage, I learned that all of his personal vehicles were titled to his business.

While he had them insured under a business auto policy, he did not have the proper endorsement that would cover him should he rent a vehicle.

Now, you might be thinking "how often does that happen?"

Well in my most recent spring break travels, like many others, my family took a road trip this year. As we were driving down the freeway, I noticed many rental vehicles on the road. At the hotel, we met a family that owned a small business in Texas. We ran into them again later at a nearby outlet mall and I noticed that they were traveling in a rental vehicle. After noticing that, I wondered if they were at risk.

So what does this mean to you? Well, it’s simple. If you answered “yes” to the questions above, you may not have coverage if you rent a vehicle.

What can be done?

Just be sure that you have the hired auto endorsement on your policy.

The cost is minimal and will ensure that your liability insurance is carried over in the event that you need to rent a vehicle. It is also a good idea to review your vehicle use with your agent.

As Brian mentioned in a previous article, keep personal, personal. Therefore, if you no longer use your vehicle for business, then it may be beneficial to re-title the vehicle and insure it under a personal policy.

This can give you broader coverage and save you money.

Be "flood smart"

Flood_3 Well, we’re finally seeing some of the snow melt away - and I for one am happy to see it go!

But with the melting away of winter and the soon-to-follow spring rains, I’m reminded of the potential for flooding that can occur. 

Ever wondered what your “flood risk” is?  There’s a great way to find out!  Just log onto floodsmart.gov - enter your business address and you’ll get the information.

Some fast facts, courtesy of Floodsmart.gov:

  • Floods and flash floods happen in all 50 states
  • Hurricanes, winter storms and snow melt are common (but often overlooked) causes of flooding
  • Just an inch of water can cause costly damage to your property

And, to add to the dilemma, flood loss is excluded under nearly all commercial property forms. So what’s the solution?

Sometimes flood can be added to your business insurance policy by endorsement.  But since many insurers are unwilling to provide flood insurance, the National Flood Insurance Program is often the best source of flood insurance available to a business owner. 

Flood loss can be catastrophic - yet the cost of flood insurance when compared to the damage it can wreak is fairly inexpensive.  A good rule to use when deciding on the purchase of insurance – why risk a lot for a little?   

An interesting statistic to consider when weighing the odds – the average paid claim for the last 10 years (1997 to 2006) was $46,168.  Compare that to a $100,000 flood insurance premium, which is about $500 a year. 

What makes good sense to you?

Building Damage and the Canceled Lease

Lease_building My landlord doesn’t want my money. 

As crazy as it may sound it could happen.  You ask how and why?  In my last blog post I mentioned I would discuss a coverage form that would cover financial losses a tenant might incur if his lease is canceled because of damage to the premises by an insured peril.

Did you read the small print?
Cancellation of a lease may cause the tenant (lessee) to suffer a financial loss in a few of the following circumstances:

  1. In my prior post, I spoke of improvements and betterments.  You are a business owner and have improved your space by the tune of some $50,000 and a fire loss occurs to the strip mall you’re in that causes the landlord to cancel the lease.  Would your tenant’s use value of the improvements and betterments be a loss you want covered?  You just spent $50,000 and your landlord is canceling your lease.  I’d be pulling my hair out.
  2. You are a tenant that has a rental rate much lower than the current rental value of comparable premises.  What would your loss be if the landlord canceled your lease?  Did you have a long-term lease?  The loss would be the additional cost to rent an equivalent premise for the duration of the current lease.  I might have something to say about that if my landlord canceled my lease.
  3. As a tenant, you paid advance rent that is not recoverable under the terms of the lease in the event of cancellation.  What is your loss?  The loss would be the value of the advance rent.  Would you want that back?

The small print
Some leases of premises permit the landlord (lessor) to terminate the lease if  (1) the building or premises are damaged by fire or other perils to a stated percentage of value of the building or premises, or (2)  the amount of time required to repair or replace the damaged property exceeds a stipulated period in the lease.

How do you protect yourself?
You need to have leasehold interest insurance on your policy.  This covers the total amount of net leasehold interest of the insured for the unexpired period of the lease. 

Here’s an example: if you’ve paid a year’s rent in advance and have your lease canceled after two months because of damage, etc. mentioned above – the lessor must refund you the remaining 10 months of rent.

The amount of insurance is automatically reduced during the life of the lease.  If you are in a long-term lease or in an area where rents are rising sharply, the cancellation of a lease could pose a substantial threat to your business.

Sound confusing? It can be. That’s why it’s a good reason to work closely with your agent and review your lease to make sure you’re covered.

Building improvements - when your walls come tumbling down

Wall Congratulations! You are a new business owner. 

You have secured financing from your local bank and are ready to find that perfect location to operate your business.  You find out that retail space is very expensive and somewhat limited but decide on space in a new strip mall going in close to your residence and in an area that has great curb appeal.

You meet with the landlord and find out that your space is actually a rectangle consisting of 1200 square feet. 

“Where are the walls?” you ask. 

After a little more discussion, you find out that they can be put in to meet your specifications. The cost is $25,000.  Yes, this is your cost.  Let’s call it an improvement or betterment.

Although a tenant may have made or paid for improvements and betterments, they ordinarily become part of the property of the landlord as soon as they are attached to the building. 

Finally, things are in place and everything is running smoothly.  Customers are starting to notice your prime location and you are getting walk-in traffic.  Then the unexpected happens. 

There is a car accident involving two cars that occurs in the front of your building.  One car ends up in your store causing damage to your office by fire.  The owner of the car that went through your store is uninsured and has no assets.  Where do you turn for coverage?

You call the landlord and he says he carries insurance and will call his agent. 

Meanwhile you also call your agent because you have no place to work. 

Your agent files a claim as well. You have some business interruption and extra expense coverage that will soon be kicking in.  As time goes by you notice that reconstruction of your office is underway. 

You walk in but there is no ceiling, no walls, no fixtures.  Remember, this is a new building and your landlord did not add to his policy any work that you did to improve the location. 

When you called your agent, he came in and never asked about any improvements to the location.   They thought that was the way it was when you signed the lease.  Welcome to your 1200 square foot space again.

In past blogs I have spoken of business interruption and extra expense.  I have also mentioned it is in your best interest to read your lease and communicate with your landlord as much as possible. 

In this case, I want to point out a coverage that can help you.  The coverage is improvements and betterments. 

This category covers a tenants, "use interest"  in improvements and betterments that the tenant has added to the landlord’s building.  These improvements generally change the property and enhance its value and ordinarily become the property of the landlord as soon as they are attached to the building. This is where the term "use interest" comes from.

This leads into the Leasehold Interest Coverage Form that will be discussed in my next blog.

Your duties when a loss occurs

Unhappy_man_on_phone I know it might sound a little strange to some, but as an insured you still need to secure your property to the best of your ability when a loss occurs.

It is also the duty of the insured to cooperate with the insurer in the investigation and settlement of the claim. I will briefly touch on some important areas concerning this duty.

#1 Notice of Loss
You should notify your insurer promptly of the loss. In other words, as soon as reasonably possible, the insurer must also be given details of how, when, and where the loss occurred. Why collect such information, you ask?  It helps make an accurate determination as to whether the loss involved a covered location and a covered peril occurring during the policy period. With today's technology, I always suggest taking some digital pictures of your loss. A camera phone can be a great resource at the scene of an accident.

#2 Police Report
If a law has been broken, notify the police. This helps to assure that questionable circumstances are recorded.

#3 Preservation of Property
Let's take a roof loss for this example.  Suppose your roof was blown off in a windstorm and you had computers and electronic equipment in that room. As an insured, you must take all reasonable steps to protect the property from further damage. Remember, the costs of emergency and temporary repairs are included in the settlement of the claim, subject to the limit of insurance.

#4 Inventory Inspection
The insurer may require a complete inventory of damaged and undamaged goods.  The insured must allow the insurer to inspect the property and to examine the records proving the loss. This helps in applying the coinsurance clause. This will also reduce the number of fraudulent claims. 

#5 Proof of Loss
You might be required to sign a sworn proof of loss containing information requested by the insurer.  The insurer will give the insured 60 days to comply and if the insured does not comply within the 60 days, the company may invalidate the insured's claim. Sometimes an extension will be granted for the insured.

#6 Examination Under Oath
The policy requires any insured to submit to questioning under oath. If there is more than one insured they will be questioned while not in the presence of the other. This is a very effective tool to in discovering and/or combating fraud.

Review
This is a very brief explanation of what an insured should do in the event of a loss. Make sure your first calls are to your insurance agent - and the police (if necessary). They can help you through the next steps in getting back into business.

Claims-made policies – a simple explanation

Injury As a policyholder, you can run into situations where you have a claims-made policy.  The claims-made policy was introduced because many insurers believed that the occurrence form was unsuitable for insuring certain types of risk.

For example, Employment Practices Liability Insurance (EPLI) covers risks such as hiring, firing, sexual allegations, and discrimination. The occurrence policy covers injury that occurs during its policy period, regardless of when the claim is made. 

A claims-made policy covers only claims first made against the insured during its policy period.  A claim, made after the policy expires is not covered by that policy unless the claim is made during an extended reporting period provided in the policy or by an endorsement.

Let’s see if I can clear things up for you.

XYZ Corporation purchased a one-year, claims-made commercial general liability (CGL) policy with an inception date of February 1, 2000. 

At the renewal, the retroactive date was changed to February 1, 2001.  On February 1, 2001, the policy was renewed for an additional year.  Remember, the retroactive date was changed to February 1, 2001 (which is not a recommended practice). This may occur if:

  • the insured wants to save money
  • if he feels that no claims would be made for the prior time period
  • if the insured changed carriers and it happened by mistake

On March 15, 2001 a claim was made against XYZ Corporation for an injury that actually occurred August 3, 2000.

In this particular situation the named insured, XYZ Corporation, does not have coverage for such a claim.  The claim occurred prior to the retroactive date.  XYZ Corporation may have saved a little money on premium but opened themselves up to losses that occurred during the 2000-2001 policy period.

The insurer is not allowed to advance the retroactive date without the consent of the insured, and then only if at least one of the following has occurred:

  • the insured has requested the change
  • the insured has changed insurers
  • the insured's operations have changed
  • the isnured failed to reveal certain material information

Always check your insurance policies for any type of retroactive date.  Many professional liability policies will be written on a claims-made policy.  Make sure you have a clear understanding of this concept when discussing your insurance coverages.

Is Spiderman Covered Under Workers’ Compensation?

Spiderman_2_2 The visual that comes to mind is in Spiderman II when Peter Parker is having trouble with his powers. 

The doctor said, “Peter, have a clear mind and focus.”  That little conversation with the doctor leaves Peter sprinting across the top of a high rise building, jumping off, and yelling, “I’m back.”

Peter is descending very rapidly and slams into the side of a brick wall, bounces off a car, and hits the pavement. 

Still dressed in street clothes Peter Parker gets up and grabs his back.  He’s hurt pretty bad.  Good thing he’s Spiderman, because any normal human being would not have gotten up from a fall like that.

Spiderman is a volunteer who fights crime. And, under the standard workers’ compensation policy, would not be covered. Or would he? Could he have his day in court?

The city of New York could have placed an endorsement on their workers’ compensation policy to cover voluntary compensation and employers’ liability.  When workers sustain job-related injuries, they usually are compensated pursuant to the workers’ compensation laws of their state.  How would the people of New York view Spiderman?  Volunteer ….  Super Hero….

On a more serious note

We will leave Spiderman out of the picture and focus on the fact that volunteers can be valuable assets to special events and nonprofit organizations.  Out of good faith, it might be in the best interest of the organization to cover their volunteers. 

  • Have you ever held an event and used volunteers? 
  • What if one of the volunteers was a good friend and somehow suffered a severe injury?
  • How would you feel if they sued you?  Would you care, or brush it off and say they assumed the risk? 

Workers’ compensation laws are in effect in all 50 states.  Coverage can be found by using private insurers, state funds, or assigned risk plans.  There are some states that require you to purchase coverage exclusively through the state.

Iowa is not one of those states.

A great resource on workers compensation in Iowa is www.iowaworkforce.org

Flickr photo by Amadika

Going, going, gone - the case of the missing data

Frustrated It was over the holiday break and my son was doing his homework for school.  I thought something was wrong at first then I looked at the calendar.  School was back in session the next day.  My son, Gabe, is ten and was selected to create a powerpoint presentation that a group of four students had put down on paper. 

I would peek in on him every now and then and ask if everything was o.k. 

Response….  Yes Dad!  I could tell the pressure was getting to him just a little as the sky started to darken and the clock revealed it was two hours later.

When all of the sudden I heard screaming and crying and a possible word that I had to question. I ran into the office and found my son lying on the floor in tears. 

I asked, “What happened?”  Gabe revealed that he saved all the information to the CD and couldn’t find it now.  A good 20 minutes of trying to get him to calm down went by.  Then I spoke up as any proud and confident father would do in this particular situation and the words came out --  "Everything will be just fine; I guarantee it." 

This has now become an episode of "Home Improvement" with Tim Allen.  My only problem was, I didn’t have Wilson to turn to for advice.

Everything was lost and could not be found.

I’m sure there are many business owners out there who have experienced something very similar to this situation with crucial media that is needed for their permanent records. 

For the most part the information can be recreated but it is the cost of recreating it that most people don't consider.  In my case, with my son, we had to spend another two hours re-entering all the data that had already been entered.  This was human error and would not be covered under an insurance policy.

Risk management

I would like to make a suggestion. 

As a business owner, please backup all your data.  It should be done every night but make sure to take a copy off premise.  It does you no good to keep it at your place of business.  With offices going paperless and records being shredded it might make sense to have an offsite data storage facility as well.

Are you going to lose business income if you have to spend a week recreating your lost data?  My son should have been saving the information periodically to the hard drive or an external device like a jump drive.

Look at your policy

Many business owners’ policies (BOP) have the capability to add by endorsement some type of coverage for media.  It is usually an additional charge but every now and then it might be included in the policy. 

The question is at what value

It is important to pay close attention to this coverage if you are in a business that must keep records.  You just might be in a situation where you need to increase the limits.  Look at your exclusions first.  Then try and find the coverage in the policy language.

Borrowed equipment

Crane What contractor doesn’t let someone else use a piece of machinery every now and then? 

Big Diesel Construction Company loaned its mobile crane to Bill, an independent contractor.  While Bill was driving the crane from a job site of Big Diesel Construction, he ran a stop light and struck a car, injuring its occupants.

Could It Get Worse?
The crane then swerved off the road and sliced and diced a few power lines and phone lines, which shut down the operation of a nearby telecommunications firm for a day.

What Kind Of Claim Would This Turn Out To Be?

  • Injured occupants of the car made claim against Bill for the obvious physical auto damage, medical expense, loss of personal income, and the ever most frequent pain and suffering.
  • Business income claim made by the telecommunications firm for an entire day.
  • Who needs to pay for the crane?  A claim will be brought against Bill for the damages to the crane by Big Diesel Construction.

This sounds like one big mess!

To make matters worse, Bill’s insurance had lapsed and was not in force during the time of the accident.

You Won’t Believe It
Bill is an insured under Big Diesel Construction’s policy because he was driving on a public road with Big Diesel Construction’s permission.  Big Diesel Construction’s policy will pay for the damages to the car and its occupants and the claim made by the telecommunications firm.

What It Won’t Cover
The crane!  The commercial general liability policy excludes damage to property owned by the named insured.

A sad tale of cold weather and work exclusion

First_aid_kit With the recent bad weather we have been having, you may have experienced the need for insurance. 

~ It could have been a recent slip on the ice requiring you to visit the emergency room.
~ Maybe you had a branch that came crashing down on top of your home causing roof damage.   
~ You may own the innocent car on the side of the road that was used like the side bumper of a billiards table.

Let’s look at a recent situation 

Mike, a sole proprietor operating a sign installation business, erected a sign on a tall steel pole for a convenience store.  Mike provided both the sign and the tall steel pole.  The next day, freezing rain came down and ice accumulated on the sign that Mike had installed.  Bob, the owner of the convenience store, noticed his sign was starting to resemble what looked like a very large popsicle.  And with each gust of wind, the sign would start to sway back and forth.   

Later that day, the sign fell on the convenience store and injured a worker.  Bob, had damage to the store, a worker, and a very expensive sign.

What is Bob going to do?

  • File an insurance claim
  • Sue Mike
  • Worry about his worker

An investigation of the accident revealed that the sign and the steel pole were blown down because Mike had failed to secure them properly.

Bob sued Mike for the damage to the building and resulting business interruption.  The worker sued Mike for medical expenses, income loss, and pain and suffering.

What damages would Mike’s policy cover?

Mike’s policy would cover all damages claimed except the cost of replacing the sign and steel pole which were “his work.”

Pay close attention to the damage in your work exclusion.  It eliminates coverage for property damage to “your work” arising out of that work or any part of it.  It prevents the insurer from replacing faulty work of the named insured.

If you have not checked with you insurance carrier -- now is the time.  Some carriers are allowing you to buy this very important coverage.

That's an expensive cup of coffee

Coffee How many times have you been the first one to arrive at the office and you venture to the break room and find the coffee machine has been on all night and the glass coffee pot is caked with burnt coffee.  Just what you wanted to do -- clean the coffee pot.

With winter upon us now I’m sure the consumption of this hot beverage is up.  By now you are probably scratching your head trying to figure out how coffee and insurance go together. 

It might resemble a very similar relationship between a police officer and a doughnut. 

I’m not sure of a business owner or a business out there that does not have a coffee pot sitting somewhere.  Maybe even a hot plate on a desk sitting next to a stack of past reports.  Whatever the case may be, you should pay close attention to those items before you leave for the night.

Why?

Because of Fire Legal Liability Coverage.

To give you a visual, Penelope Quick Print leases and occupies the first floor of a multi-tenant building valued at $1,000,000. Through the negligence of Penelope Quick Print’s employee who left the coffee pot on, a fire started in Penelope Quick Print’s premises. 

The fire did $300,000 worth of damage to Penelope Quick Print’s premise and also caused $400,000 worth of damage to other parts of the building.

If the fire damage limit for Penelope Quick Print was $50,000 the insurer would only pay that part of the $300,000 in damage to the part of the building occupied by Penelope Quick Print. 

Penelope Quick Print needs a higher fire damage limit. 

A lot of small business owners ask what this coverage is for.  What needs to be understood is the fire legal liability coverage is subject to a separate limit.  Insured’s have a tendency to think this is covered under property damage and it is not. 

You will find that it is typical to see only $50,000 in coverage unless you and your insurance agent discuss the value of the amount of space you occupy.

Here is a simple formula to consider:

You occupy 5,000 square feet of a 30,000 square foot building valued at $3,000,000.  In other words, you occupy 1/6 of the building. 

Using this simple formula would give you a minimum value of $500,000 needed for insurance coverage.  Once the fire leaves the space you lease or rent, any subsequent damage would be covered under the Per Occurrence Limit of your policy.  You also have the ability to insure against perils other than just fire. 

All of this over a cup of coffee.

Tis the season ... update your equipment

Computer_desk As you look around the office, you might notice you are in need of updating some of your equipment. 

  • Are your computer monitors the size of your desk?
  • Do you need to shake the cartridges to your photo copy machine every time you wish to make a dark copy?
  • Are you still operating with a standard typewriter?  (Yes, they still exist.)

It could be your systems are outdated, running slow, needing continuous maintenance, and it is time to make that upgrade before the New Year.   What will cause you to jump and make the purchase?

  • A sale sign in the local retail shop
  • Equipment that malfunctions during a major presentation

Electronic Data Processing (EDP) Coverage

If you make a purchase - new or upgrade, be sure to talk to your agent about EDP coverage. Why is this important coverage to consider? 

  • Because you are going to pick up some broader coverage like mechanical or electrical breakdown. 
  • It also covers property while in transit. 
  • Usually it includes some extra expense coverage as well. 
  • It might offer some business income coverage.
  • Typically, you are going to get coverage for equipment, data, and media.

Equipment
A typical policy definition is “your electronic data processing equipment, word processing equipment, and telecommunication equipment, including their component parts.  This definition includes but is not limited to mainframe computers, minicomputers, terminal, monitors, printers, disk drives, and modems.

Data and Media
Data is information that has been converted to a form usable in EDP equipment.  Data includes both computer programs, which direct the processing of data and data files like your customer mailing lists or inventory.

Media are the material on which data is stored, like discs and tapes.  Media can be very valuable because of the information they contain.

What Else
If you were to glance around your office what else might be covered under this type of policy?  You might notice your:

  • heating systems
  • ventilation systems
  • cooling systems
  • alarm systems

Don't forget:

  • fax machines
  • telephone systems
  • switchboards
  • word processors
  • related surge protections devices and their component parts
  • computerized production equipment and related software

Are You Aware
An EDP policy is very broad and can cover a number of items you may have never thought of.  Sure, you do have some coverage under business personal property and building coverage forms but it could be limited. 

Take time to discuss with your agent the benefits of an EDP policy – including the valuation of your items. It doesn’t take long for most equipment to become outdated.  An EDP policy could save you some headaches. 

Is that worker actually an employee?

Help_wanted Let’s take a minute and look at a few industries where an apparent employee might not be an employee.  Today we’ll focus on businesses that are seasonal in nature or that have high turnover. 

Hard to think of an example? I’ll help you out – restaurants and landscapers.

Picture a college town where you have students who need jobs.  In college towns you have restaurants and plenty of part-time help.  The only problem is getting them there and keeping them employed.  Turnover is usually quite high.

The leased worker
Because of high turnover and the lack of reliability the restaurant owner, who we will call, Frankie, decides to outsource wait staff through the local staffing agency.  Now the owner can focus on the restaurant and not the hiring, firing and training of staff.

The incident
Frankie is walking through the kitchen while the beeper is going off for someone to remove the daily special from a boiling pot.  In the spur of the moment, Frankie decides to just remove the pot from the burner and a waitress just happens to be turning around at the same time.  Frankie splashes hot boiling water on the worker “Karen” as they both turn into each other. 

This is definitely going to leave a mark. 

Frankie is OK – but the leased waitress is burned badly.

Who covers the work comp claim?
The staffing agency pays for the workers’ compensations benefits that are due to Karen. But due to the severity of the injury, the leased waitress feels the need to bring action against Frankie. 

Confusion
Frankie turns in the claim to his general liability carrier only to receive a denial letter because the waitress is a “temporary worker” and not an employee.  Now an argument
between the insurance carrier and Frankie pursues and Frankie is just beside himself. 

The insurance carrier wants to classify Karen as a leased worker not a temporary worker

Remedy the situation
When you, as a business owner, use a staffing agency that provides workforce on a short-term or long-term basis, carefully review of the details of the arrangement. 

Do not hesitate to call your insurance agent and discuss options on how to provide insurance coverage. The definitions of leased and temporary employee need to be understood by all parties involved.

For the purpose of simplicity, I have taken a very complicated situation and briefly touched on the ways workers are classified in insurance policy language.  A worker could be classified as a 1099 or subcontractor, a leased worker, temporary worker or even a volunteer.   

What? I have no coverage?

Covered We always want to know what is covered in our insurance policy.  Does anyone ever really know what is not covered in their insurance policy?

What’s excluded?
An exclusion is a provision in an insurance policy that eliminates coverage for certain risks, people, property classes, or locations. Why are there exclusions? Several reasons including:

  • Eliminating coverage for uninsurable loss exposures
  • Eliminating coverages not needed by most insureds
  • Eliminate coverages with special treatment
  • Reduce coverage duplications
  • Maintain premiums at a fair level
  • Reduce the probability of moral and morale hazards

In the Commercial General Liability Policy there is an exclusion for contractual liability.  To better explain the idea of an insured contract, two examples of contracts are provided.

One example includes a contract that fits the definition of an insured contract.  In the second example, the contract does not fit the definition of of an insured contract.

When is it an insured contract?
A local lawn service company contracts with a local hospital to mow the grass and trim the trees and shrubs on the grounds of the hospital.  The service contract for the lawn service company makes them responsible for any property damage or bodily injury caused by their employees.  If the lawn service company leaves a limb or pile of branches on the sidewalk and a passerby trips and is injured and then sues the hospital, the insurance carrier of the lawn service company would respond.

When is it not an insured contract?
A developer of a medical clinic contracts with a construction firm to erect the building according to particular specifications of a medical clinic.  If the construction firm does not adhere to the specifications in the contract, the medical clinic developer may sue the construction firm for breach of contract. 

The construction firm would have no coverage under their commercial general liability policy since the contract does not involve tort liability assumed by the construction firm.

Exclusions are always overlooked until claim time. 

However, claim time is not the time you want to find out you have no coverage. 

As a reminder, read your insurance policies.  I know, boring!

Just think how you would feel after a loss if you found out that the current exclusion could have been removed with an endorsement to your policy.

Are you driving your personal car for business?

Woman_driving_2 Have you ever been in your vehicle and noticed someone talking on their cell phone, writing things down, and piles of samples packed into the back seat of the car?  If you have not, then you are paying way too much attention to the road while driving.

Imagine this …

Acme Plumbing Company employs multiple sales representatives who use their own autos to make sales calls at customers’ premises.  This could be a business premise or an individual premise, the location does not matter.   

It’s how they are getting there that matters.

While driving to a customer’s factory, John, one of Acme’s sales reps, carelessly changed lanes on the Interstate while talking on his cell phone, running another auto off the road and severely injuring the driver and passenger.  Since John was on the phone, he is not aware of what has happened. 

Can a claim be made?

Of course!  But who is going to be sued? 

The victims made claim against both John and Acme Plumbing Company.  Acme Plumbing Company’s business auto policy provides coverage for “any auto” for liability coverage.  Will this auto policy cover Acme Plumbing as well as John against the described claim?

Who’s covered?

Unless Acme’s business auto policy has been modified to include the employees as insured endorsement, it will cover Acme Plumbing only. 

John, you are on your own.  John, have you started to worry yet? 

One victim in this case is in need of a wheelchair for the rest of their life. 

Where does John turn?

Hopefully John has a personal auto policy that is paid up and in good standing.  The one thing John has done is tell his insurance company he drives his car to work 3 miles. John has heard that his premium will be less if he only drives his car to work and John is all for paying less premium. 

Can the company deny this claim? John uses his car for business sales calls but didn’t tell his insurance company. 

Is the agent now responsible?  Oh, I forgot to mention, John purchases all his insurance over the internet. 

I hope things work out for John. 

Medical payments - and the trip to the store

Angry_parent The other day I was in the grocery store minding my own business when two children came out of nowhere and ran right into the side of me. 

I gave them that look any parent would give –  and they ran off around the aisle. I then heard a sneaker squeak, a thud, and then crying.  Under my breath I’m muttering, “where is their mother or father?” 

I quickly walk around the corner and see the young boy has fallen and cut his head on the shelving of the store.  His head is bleeding quite a bit and I’m not quite sure what I should do other than try and care for this little boy.

Do I shout 911 and make a scene?

Being an insurance agent my mind starts to wonder about the potential things that could happen in this situation. 

  • Did this boy slip on water? 
  • Was there something else that was in the area that caused this injury to occur? 
  • Am I going to be asked to testify? 
  • Maybe I shouldn’t be helping. 

Finally someone from the store comes over and pulls some items off another shelf and starts to clean up the child.  Further investigation reveals he is going to need some stitches.  Mom arrives after an announcement over the intercom asking for the guardian of the child to come to the aisle we are in.

What happens next?  Is the store going to be sued? 

The store will more than likely make sure the boy is taken care of and pay the medical expenses. 

Why would they do this? 

Medical payments coverage is not liability insurance. 

In that sense, medical payments are viewed as a means of making prompt settlements, satisfying potential liability claimants, and avoiding possibly larger liability claims. 

  • What does it cover?
  • First aid administered at the time of an accident.
  • Necessary medical, surgical, X-ray, and dental services, including prosthetic devices.
  • Necessary ambulance, hospital, professional nursing, and funeral services.

The only way I will ever know if the store is being sued is if I get a knock at the door. 

I have to tell you though that the floor was not wet. The children were horsing around and I could not see what exactly happened.  In this case I would think the store went out of its way to provide care and would not be sued.

Or will they?

Time to Move - Maybe

Office_move The Excited Business Owner
Acme Printing has been waiting to get into their new office space that Tooltime Contractors is constructing for them.  The problem is, Acme’s current lease expires in a week and Tooltime Contractors is feeling the pressure to get the job done before Acme moves in.   

The Dilemma
You guessed it. Acme Printing decides that the office space is completed enough for them to move in over the weekend.  I know this doesn’t sound like much of a problem.  But for the insurance agent who does nothing but read policy language and have nightmares about losses this is an ulcer waiting to happen. 

Monday arrives, Tooltime Contractors shows up to work on the building and finds Acme Printing moved in and working away. 

This is not a good situation for the Tooltime Contractors but it does happen. 

At the end of the day, the owner of Acme Printing stays a little late and turns on the furnace because it is getting colder.  The problem is the exhaust vent is not hooked up and the owner gets very sick from the carbon monoxide.

Who should be concerned Tooltime Contractors or Acme Printing?  I know this doesn’t sound like a big deal but let’s look a little deeper.

You would think that Acme Printing would now assume responsibility if something went wrong but it is a completed operations hazard for Tooltime Contractors. 

Should Tooltime tell Acme they can’t be there because the work isn’t completed? As soon as Acme moves in, the work is considered completed because it is being put to its intended use - regardless of whether Tooltime Contractors has actually finished the work.

That means that Tooltime is liable for any mishaps that result from the work they were doing.

What’s the moral of the story? If you’re a contractor, you’ll need to make sure the work is completed on your terms. That may mean addressing some sticky situations with your customer who may feel rushed – or simply excited – about moving into their new or renovated space.

When Your Brand New Chair Breaks ...

Chair_4 This is a continuation of my prior post about Products and Completed Operations Coverage.

I want you to imagine that you went to your favorite furniture store to shop for a new desk chair. You’re giving a few of them a trial run and, as you sit in one plush leather chair you begin to put pressure on the back of the chair, it gives out on you. 

As you stand up, you notice that your back really hurts and you think you may have injured yourself.  You end up suing the furniture store for damages resulting from the accident in the store.

Is this a Products or a Premises Claim?

Here are some general guidelines for determining if it’s a products claim or a premises claim.

  • Was the chair in your possession (had you bought it when the mishap occurred)?
  • Or did you fall backwards out of the chair while “trying it out” in the store?

In the example above, this would be a premises claim against the furniture store because the chair:

  • Was on their premise
  • Was owned by the store

But what if you order the chair, it’s in your office and then it breaks when you sit in it?

Any claim payment would now be paid under products-completed operations.

What if a client is visiting your office and tumbles in one of your chairs? Or a table collapses on them? That’s another instance when Products and Completed Operations Coverage is important to have.

I know – fascinating stuff.  Just because insurance isn't always a scintillating topic, doesn't mean it isn't vital to your business.

Just wait until I cover Completed Operations. If you’re hiring a plumber, electrician or similar contractor – you’ll want to know about this coverage.

Playing It Safe

Bankruptcy_court Many small business owners that are just starting out feel they can not afford to protect themselves against every risk. 

I wonder what business owners are thinking when they feel they do not need Products and Completed Operations Coverage.  I usually get the response, “Well, that stuff is just too expensive and if something goes wrong I’ll just file for bankruptcy and start over.”

My question is, “What do you do if you have a product that is wonderful and just needs a little twist here and there to put you on the next cover of Time magazine?” 

You just filed bankruptcy and have no way of getting this product back into production with the correction it needs. And now a competitor has made alterations and gets it out into mass production. 

If you had purchased Products Liability Coverage there is a good chance that you could have sustained the loss and continued on in business.

If you are a small business owner that makes a product, do not overlook this particular part of your coverage.  It is very important to look at your overall risk factors and determine where to spend your premium dollars. 

I know in the news recently that a very well-known baby crib manufacturer is having one million cribs recalled.  Turn on your television and you’ll hear about all the toy manufacturers that are going through recalls due to dangerous levels of lead.

If it can happen to the big businesses it can happen to the little ones, too.

Look to the next post for more details on Products Liability Coverage and further discussion concerning Completed Operations Hazard.

Flickr photo by Hess Kennedy

Employee or Independent Contractor?

My fellow author, Rush Nigut, touched on some very important issues concerning W-2 employees and independent contractors.  A great reference tool can be the www.irs.gov  web site or the Iowa work force development website as well, www.iowaworkforce.org

These two sites can be your guide in your decision process.  But of course, always consult with a tax advisor.

What does this have to do with insurance you ask?

The first words out of my mouth would be, “A tremendous amount.”

Man_in_suit If you have employees who receive a W-2 you’ll be purchasing workers’ compensation insurance. If you think you’ll get around that (and save yourself some money) by saying they’re “independent contractors” – think again.

Let’s say you require your employee – maybe an office manager – to be in the office from 8 a.m. to 5 p.m. Monday through Friday. And that person has several tasks you expect them to do at a certain each day – pick up the mail, make deposits, etc.

Does that sound like an independent contractor?

What about a sales person - someone who has flexible hours and who generally has an end result (sales) rather than specific tasks at each time each day?

The sales person may be considered an independent contractor for insurance purposes. But probably not the office manager.

As a business owner, it’s always a good idea to understand how one thing (like how you classify employees)  affects something else (like insurance). Make sure you’re keeping both your tax advisor and your insurance agent informed. If they understand your business, they’ll be a great partner.

Remember Y2K?

Computer_payment_2 Let’s take a look back at December 31, 1999.  Reports were coming out that when the clock struck midnight, every elevator, VCR, television, computer, microwave and many other items were not going to work.  Companies spent thousands of dollars – even hundreds of thousands of dollars – to prepare for this event. 

Overall, did the world shut down?  I don’t think so.  Don’t get me wrong, some companies needed to do some serious upgrades. 

What else was happening around the world? E-Commerce!  Or utter chaos to the insurance industry. 

It was obvious that companies were relying more and more on the internet to conduct business. That meant it was critical that their internal computer systems and networks were reliable – and secure – in order to keep things running smoothly. 

A few insurance carriers developed liability policies that covered claims for third party liability – things like:

  • injury or damage because of a wrongful act, error, or omission in regard to professional services
  • spread of computer viruses
  • infringement of some form of intellectual property right.

Other carriers developed first-party policies.  These polices covered the insured if they lost income or had extra expenses due to the crash of their own systems, software, or web site.

Today, insurance companies look at activities like:

  • E-Business: e-mail and internet site accessibility.
  • Performance of Professional Services: design and installation of networks, monitoring and repairing such systems, system security issues.
  • Media Activities: broadcasting of content, downloads, hold harmless agreements, corrupt files.

The insurance industry has identified some of these areas of risk and changed the wording of the insurance contract itself.  The definition of “property damage” now gives identity to the word “data” which limits insurance coverage.

If you perform any of the three mentioned activities – e-business, professional services, and media activities – please review your insurance policies and language with your agent. 

Photo from Stock.xchng

Auto Manufacturer Parts versus After-Market Parts

Mercedes_1_2 I always try and throw in a true story every now and then to keep things interesting. I was out at Glen Oaks for a golf tournament - watching, not playing, of course.  The day had started to wind down and I was walking back to a friend’s house where I had parked.

It was hard not to notice this beautiful, white 2006 Mercedes Benz CLK Class convertible parked at the very bottom of one of the driveways I passed.  Now, the cost for this vehicle is somewhere between $54k and $83k.  A small car but not a small price tag!

As I walked by, I heard loud music and the engine of some supped up, jacked up truck. The very young driver of this pickup started backing down the driveway when all the sudden I heard what sounded like a tin can crumpling in someone’s hand. 

The truck had struck the Benz and was hung up.  The driver - not knowing what had happened - began to give it a little gas. That's when I saw the entire front quarter panel on the driver's side of the Mercedes peeled back like a banana. 

The driver - still hung up - must have thought it would now be better to go forward. His pickup was too high and so he couldn't see the little convertible that he was hung up on.  It was like an electric can opener magnetically taking the lid off of a can of green beans.  I could see clear inside the car. May I remind you of the $83,000? 

What should the insurance carrier use to fix the car?

The controversy is this: does the insurance company use original equipment (OEM) or after market (non-OEM) parts.  How would you feel about your expensive little Mercedes getting after market parts on it?  Is a replacement headlight OK?  What about the hood or front quarter panel?  This is a huge on-going debate.  Check out this article and read more about this ongoing debate.

If you think you know what your auto insurance covers - whether personal or business - take another look. And ask some questions.

Joint Venture Coverage - No Big Deal

Handshake Many small businesses owners look for ways to leverage their business. Here’s what I mean.  Take two business owner’s with skills that the other needs.  Certain situations may arise where it is in their best interest to form a joint venture to capture a project. For example: It is a benefit for small business owners to collaborate when increasing their capital or financial resources could help land that deal of the century. 

Two companies come together and form a joint venture. No big deal, right?   Wrong! 

Business owners need to pay close attention to the scope of coverage a policy provides for joint ventures.  You might be the lucky one, purely by coincidence, and have a policy that automatically includes the your joint ventures as insureds. 

The most common form only covers joint ventures that are specifically listed on the policy. 

Where joint venture coverage is provided, it is typically limited to your liability arising out of your participation in the joint venture.  Joint venture partners are not covered for their liability arising out of the project.  That’s why it’s important for the business owner to add the joint venture to the policy before any services are performed. 

When it comes to insurance coverage for joint ventures I’ve made it seem very simple … but the policy also contains exclusions pertaining to performance guarantees, faulty workmanship, and damage to owned property. I will leave out any discusses concerning contractual liability at this time. You may also be dealing with claims-made coverage triggers. 

That new project you’re considering may be a great idea.  But be sure to call your agent to discuss any joint venture possibilities you may have in the works.

Photo on Flickr by Pisco Bandito

A Knock On the Door

Door_knocker_2_2 It makes no difference if you are a small company with a few employees or a major corporation with thousands working for you.  The risk is real!  You could have an attorney knocking on your door tomorrow.  “Why?” you ask.  It all comes down to dollars and cents.  Claims are being paid ... and paid in a big way.

Have insurance companies created their own monster?  Lawyers structure continuing education classes around finding ways to attack insurance policies.  Books are being published out there that discuss trial tactics.  In reality, we need each other – attorneys and insurance companies, that is.

The problem that has been created is that the employee who could only obtain an attorney on a retainer basis can now find a law firm that is more than willing to work on a contingency fee basis.  Statistics vary from resource to resource but labor law firms report that if an employment-related claim goes to trial the employer will lose 60% of the time.  Are you willing to flip a coin? Heads you win, tails you lose.

Employment practices liability insurance coverage is a coverage every company should look into no matter what the employee count might be.  Claims arise from race discrimination, wrongful termination, race discrimination in compensation, promotions, hostile work environment, harassment, retaliation, discipline as well as sexual harassment.

Risk Management
Employers are targets and need to have a defense mechanism.  That mechanism is risk management.  A wise man once told me, never ever is everything covered.  Knowing that, a good risk management program can eliminate some of the risk. 

For example, do you have processes in place for job applications, employee evaluations, and disciplinary procedures?  These should all be outlined in your employee handbook to help eliminate some real headaches. 

Maybe you want to consider outsourcing your human resources.  You might not want to be the one to fire an employee.  Leave it to someone who is more experienced and who has no real relationship with that employee.  It might not seem personal to you, but an employee may take it personally if you terminate them.

If you aren’t managing your risks, be prepared for the knock on the door.

Bonds - and I'm not talking Barry!

Delivery_truck_2 You just purchased carpet from your favorite floor covering store and can't wait until you're walking barefoot on that plush carpet. You hired a contractor to install it - and got his business card from the wall of cards posted at the home improvement store.

The only problem now is that it's 2 p.m. and the contractor was supposed to be there at 8 a.m. to install the carpet. Where could he be?

It turns out, he never shows up and you don't have your carpet.

In my last post, I talked about contractors delivering carpet or appliances to your residence. This brings up a serious discussion about suretyship.

Surety bonds are used in a wide variety of circumstances, including public private and commercial situations.

The three C's of a contractor are Character, Capacity and Capital. Before a surety bond will be issued, the three C's are considered.

What type of contract bonds are there?

Bid bond - This is given by a bidder for supply or construction contract to guarantee that the bidder, if awarded the contract within the time stipulated, will enter into the contract and furnish the prescribed performance bond.

Peformance bond - This guarantees faithful peformance of the terms of a written contract for furnishing supplies or for construction.

Payment bond - A contractor gives this to guarantee payment for the labor and material used in the work which he is obligated to perform under the contract.

Maintenace bond - The normal coverage provided by a maintenance bond is a guarantee against defective workmanship or material.

Is it better to pay a little more for a job and know that it is going to be completed? Or do you want to take a chance and be completely without?

Check out the Surety Bond Blog for more details.

You'll find more information about Surety Bond programs here: Surety Bond Guarantee Program helps contractors grow.

What's personal is personal

Home_business_2 Small business owners, young entrepreneurs, and even independent salespeople (for example, Silpada distributors), face some of the same questions when it comes to insurance coverage. 

Think about insurance this way: What’s personal is personal and what’s business is business. It all sounds like simple logic but seems to get very confusing and can be when it comes time to submit a claim.

Your everyday exposure
For example:  Everyone seems to have a computer these days at their home and is looking to make a quick dollar here and there.  At what point are you running a business out of your home?

E-bay has become the portal for many entrepreneurs to sell their product.  If your house catches fire and your computer goes up in flames, how are you going to collect on your money that is floating out there?  Is your computer even covered?  Who has coverage if you are having a Silpada party at someone’s home and a candle gets knocked over and causes a small amount of damage to the home that is hosting the event?

Off to that presentation
Let’s examine a personal auto policy.  You are a small business owner or entrepreneur and are driving to your destination for that great presentation.  Your cell phone rings and you realize it’s on the other seat, you reach for it and at that split second the car in front of you stops.  The crash occurs! 

Your sales samples and laptop fly forward and are damaged severely.  Not a problem, right?  You’re insured. Well, the personal auto policy excludes loss to business or office equipment, or articles which are sales samples or that are used in exhibitions.

What about that handyman contractor?
I’m not picking on contractors but they love their pickups (so do I). And they are a necessity if you are a contractor or handyman. 

Have you seen a pickup lately?  They have huge aftermarket rims, tires, lift kits, and running boards.  I can only guess an added cost in upwards of $10,000. 

Are these items covered under your personal auto policy?  As a contractor, do you ever carry items that might be business related?  Examples are dishwashers, ovens, countertops, even water heaters.  Are these items covered? Are these items you pick up for the homeowner?

These examples are very generalized and they only way to make sure you’re covered is to talk to your agent.  Don’t worry if you feel like your insurance agent is interrogating you.  Questions need to be asked in order for an insurance agent to do his or her job.  I don’t know very many insurance agents (or companies for that matter) that don’t want to write business.  I do know they don’t want to lose business due to lack of coverage.

Who Needs Money?

Closed_sign_2 June 22, 2007 brought storms throughout central Iowa.  If you picked up any local newspaper, damage from tornado, lightning, fire, windstorm, and even flooding were reported. 

Natural occurrences such as these take place frequently. The problem is - we can’t predict the severity of the loss. The real question is, how long will it take for the repairs and when will you be back in business making money?

Imagine that your office building sustains the damage and you have no place to operate your business.  The building is boarded up and the city is going to have to determine whether you need to tear it down or rebuild it.  The insurance company is trying to calculate the dollar amount of your loss to see how much is going to be paid out.  But you need money now!

One very common but overlooked (or underestimated) insurance coverage is business interruption insurance.  This can be the most important form of indirect damage coverage you obtain for your business.  There are several forms available:

  • Business Interruption
  • Extra Expense
  • Combined business interruption and extra expense
  • Consequential Damage

How do you determine what coverage is needed? There are several things to consider. Download business_income_coveragesample.pdf

Don’t scrimp on your business insurance. Mother Nature doesn’t always play nice.

davepatten photo from Flickr

When Your Dream Car Turns Into a Nightmare

Mercedesbenzslr_2 It took a month for you to pick it out.  You looked at every magazine you could find to make sure you were making the right choice.  Consumer Reports solidified your decision.  You ventured to the dealership and let them know you would like the new Limited Edition Mercedes SLK55 AMG.

You ask the new car salesman if the car can be equipped with all the amenities you can think of.  Don’t forget those special order 17” rims and low profile tires! Finally …you have put together your dream car.  You write the check and the salesman lets you know that the vehicle is on back order and you can expect to have yours in 30-40 days.

So you wait. Then the call comes, telling you your car is in. You make arrangements to pick it up over lunch.  Do you call your agent? Or do you make the general assumption that everything is covered?

Then, just a few days later you wake up, look out your front window and someone is getting into your new car.  You rub your eyes one more time and see the car being backed out of your driveway.  What’s going on?

You call 911 and they tell you to call the police.  Can you ever find the number to the police station when you need it?

What is going to happen next?  You call your insurance company and report the claim.  You need a car; you are late for a very important business meeting across town.  Your insurance company sends over a Ford Focus with no power steering and a manual transmission.  This is not anything like your dream car! 

Your rental reimbursement coverage is $25 a day for a max of 30 days with a max payout of $750 and they did not want to exceed your limit of coverage.  A question to discuss with your agent will be about your rental coverage and the limits you currently have.

The insurance adjuster assigned to your case lets you know that a stolen car usually turns up in a chop shop or is found in a few days. 

Then you get a call saying they found your car, however, it has been in a police chase and has hit a telephone pole.  The adjuster says they can fix your car and things will be O.K.  You feel relieved - until you see your car.  Pictures reveal that the telephone pole was actually pushed back as far as your dashboard. 

In your mind, there’s no way they can fix the car. But the adjuster explains that due to the value of the car they have to fix it.   Of course this leads to many phone calls and discussions with your agent. 

What next?  You never dreamed this could happen.  You call your agent and explain that the rental car company has picked up your car because coverage has run out on your policy.  Your agent explains you only have rental car coverage for 30 days and the rest is out of your pocket.  The agent also lets you know that those rims and tires on the car were not insured and the front two need to be replaced.   Confused yet? 

In the same conversation your agent lets you know that he heard through the grapevine that your car may take a little while to get fixed.  Months go by and you have now been making your car payment as well as a rental car payment of $45 a day because you wanted a car more comparable to your dream car.  And there’s no word on when your car will be repaired.  What is going on?

Remember that your Limited Edition vehicle was on back order to begin with.   So where do you think your auto repair shop and insurance company are going to find parts when the auto manufacturer is still in the production phase of vehicles?  They won’t be able to.

Oh – and don’t forget about your deductible.  Are things starting to add up for you? 

This is a very short rendition of a very long, drawn out claim.  And it doesn’t end when your car is returned to you. What if you don’t like the way your car handles after it is fixed?  What if you have further damage that the insurance company did not find until you start driving it?

Whether this is a company car or a personal car, the claim could be very similar. Or it might even be worse if it is a corporate car and it’s needed for the operation of your business.

There are many things to consider when you purchase a new car. Don’t take for granted that the car is adequately covered by your insurance carrier.

Photo from Creative Commons

Can you do the math for coinsurance?

Math_2_3You may be familiar with coinsurance if you have a health care plan.  With your property insurance – it’s a little bit different, but a good concept to know about.

With property insurance, coinsurance is the percentage of value that the policyholder is required to hold.  If a policy has an 80% co-insurance clause, and a building is valued at $100,000, the individual (or business) needs to insure the building’s value at $80,000 as a minimum.

Sounds like it might be a good way to save a few dollars on insurance, doesn’t it?

Maybe not.

For simplicity, let’s say you insure your building for $80,000 and the value is $100,000.  Then a fire loss occurs that causes $10,000 in damage.  The claim is calculated by dividing what was purchased ($80,000) by what should have been bought ($100,000).  The result in this case is 80%.  Then the amount of the loss ($10,000) is multiplied by 80% which equals $8,000.  That’s the amount you’ll receive to cover your claim minus any deductible.  Let’s use $1,000 deductible for this case.  You’ll need to foot the bill for the remaining $3,000.

That might not be a big deal to some (or maybe $3,000 is a big chunk of change for you). But just consider how you’d feel if you discovered that the value of your building had increased over the years – but you hadn’t increased your insurance coverage.  So now your building is valued at $150,000 but you still only have $80,000 in coverage.  That’s only about 53% of insurance.  At best, you may receive $5,300 toward your fire damage of $10,000 minus that $1,000 deductible.

Your insurance carrier may require you to have 80% coverage to receive any money at all. Is it really worth taking that chance just to save a few dollars on your insurance premium?

Almost all property insurance policies include a coinsurance clause.  Building insurance, contents coverage, inland marine policies, and equipment or tool floaters may all contain a penalty clause.

You don’t need to be a math whiz to use this formula.  But make sure you’re making the right decisions for your business.  If you are a new business, is it really worth taking a chance just to save some initial premium dollars spread out over 12 months or getting stuck with a large bill that you have not budgeted for.

We are guilty until proven innocent

Gavel_3 Did you know that lawsuits and the fear of getting sued cost small businesses in the U.S. $98 million in 2005? That statistic comes from the U.S. Chamber Institute for Legal Reform. It includes money spent on:

  • damage awards
  • settlements
  • legal costs
  • liability insurance premiums
  • costs incurred by insurance companies on behalf of policyholders

That same study reported that the fear of lawsuits is affecting decisions made by business owners. How?

  • 48% of small businesses are concerned about frivolous and unfair lawsuits
  • 46% have been threatened with a lawsuit
  • 34% have been sued in the past 10 years
  • 62% have made business decisions to avoid lawsuits

As a business owner, are you willing to take a chance with percentages?

I know if I owned a business it would help to know if my defense costs were outside my limits of insurance coverage. What good is $500,000 in coverage if my defense is costing $300,000? I know we all have an attorney as a friend, but do you know one who really wants to work for free?

I started by saying we are guilty until proven innocent. Why? Because you can be accused of doing just about anything - and until you prove your innocence you are guilty by being accused.

By purchasing an umbrella policy you are possibly picking up broader coverages and elminating some possible headaches. Unless you have this conversation with your insurance agent, you might have gaps in your protection. You might find out you're in need of professional liability or director's and officer's insurance.

Big Event, Big Investment – Protect It

Bank_2 I’ve been watching the neighborhood lately as it swarms with teenagers and families headed to nearby graduation parties. My guess is that most of us have been invited to one or two recently – or at least have driven by the busy streets with cars parked for blocks on end.

Most of us may plan get-togethers and worry more about the menu, the music and the people we invite. But as a business owner or homeowner, you have more at risk to protect if something goes wrong. Or at least if things don’t go as you had planned.

You may not need specialized insurance to protect you from every possible thing that could go wrong. But there are some situations that may be worth considering – and discussing with your agent to make sure you’re covered.

For example, what if you decide to hire a band because the iPod just won’t do? No problem.

It's the day of your event and you watch the truck with a trailer circling the area until it pulls up to your door. As the band starts unloading their gear, you get a little nervous about the damage to your property as the items are being unloaded.

During your event, a female guest (who happens to be a good friend), loses the padding off her high heel shoe. The next day, you notice that your new cherry hardwood floors look like a hail storm hit the area!

Do you sue for property damage? It's your friend - so how do you handle a touchy situation like that? Maybe your current policy has coverage for such damage. But you're not even sure where to start.

Of course, we all know that Mother Nature isn’t always reliable (at least not in Iowa). Have you ever thought about what you might do if you plan an extravaganza outdoors – with no indoor contingency plan? You invest money and probably make deposits on things like a caterer, some tables and chairs, maybe a tent.

And then the winds and the rain kick in. Big time. It looks like monsoon season.

Can you get your money back? You know as well as I do that the answer in most cases is "no."

So what do you do? If your investment is big enough, it may be time to protect yourself in case the worst happens. In some cases, it is better to be safe than sorry. Purchase special event coverage.

Evidence of Insurance - Can You Prove It?

Copier_4_2

In an earlier post, I explained about Certificates of Insurance – when they’re needed and why. I’ve discovered over the years that there's a bit of confusion between Certificates of Insurance and Evidence of Insurance. If you know up front what type of verification you need, you'll get what you need when you need it.

So here’s what you should know about Evidence of Insurance.

As a business owner, you may have some expensive equipment that you’ve decided to lease rather than buy. Maybe it’s a copier, computers, a phone system or specialty equipment for your industry.

The company you’re leasing from will probably ask for Evidence of Insurance. Basically, they want to make sure that the equipment will be insured if something happens to it. For example, the lending company wants to be covered if the equipment is damaged or destroyed in a fire, from vandalism, etc.

Having the name and address is crucial in making sure the Evidence of Insurance gets to the right person.

Because you have purchased a new piece of equipment, it may lead to a discussion with your agent about additional coverage like equipment breakdown insurance.

When you’re signing a lease, some companies may offer to purchase the insurance on your behalf – and then bill you. That may sound like an easy option – but check out the details before signing off on this type of agreement.

In some instances, the insurance may be more costly than if you buy it yourself. And some lease agreements allow the lending company to continue billing you for insurance – even if you’re no longer leasing the equipment. Once you are no longer leasing the equipment, be sure to cancel the insurance.

Time for a party?

As the weather turns warmer, you might be thinking about hosting a neighborhood barbeque. Or maybe you’re planning an event to say “thanks” to your clients.

Whether it’s business or personal, holding an event may mean more than just sending out an invitation. With some planning, you can make sure it’s a safe one.

Location
Figuring out where to hold an event may be the easy part. Of course you want to know if the space will accommodate the number of people who will attend. Also find out if there’s enough parking.

Other things to consider - do you have guests with special needs (handicap, elderly, etc.) to consider? What things do you need to think about from a safety standpoint (lighting, potential for slips, etc.)?

You may want to ask about the insurance coverage for the facility that will be hosting your event. What insurance do they have? Does it cover your event? Does your personal or business insurance provide necessary coverage?

Depending on your event, you may want to ask about insurance for special events.

Alcoholic beverages
We’ve all heard the horror stories – and probably think it won’t happen to us. No one at our party will get into an accident after having a few beers. But what if it does?

If you’re having an event off-site, find out if you’re allowed to serve alcoholic beverages. If so, do you need a special permit? And what consumption laws should you know about?

Do you need to plan for a designated driver (or other transportation) if someone needs it? Who will be responsible for monitoring consumption – in case someone is “over-served?”

In some instances, liquor liability insurance may be an important safeguard. It provides coverage for bodily injury or property damage when an insured is held liable for such things as:

  • Causing or contributing to the intoxication of a person
  • Furnishing alcoholic beverages to a person under the legal drinking age
  • Violating any laws relating to the sale, gift, distribution, or use of alcoholic beverages
    Whatever the celebration, it pays to be cautious – and prepared.

A little bit of insurance can go a long way in protecting you, your event and your business. Make sure your event goes off without a hitch. Better yet – make sure it’s a safe event that everyone enjoys!

Who needs a Certificate of Insurance?

Remodeling_2 If you’re hiring someone to do work for you (building, remodeling, etc.) – you’ll want to make sure they have sufficient insurance coverage while they’re doing that work. A Certificate of Insurance will indicate what levels of insurance they have.

You don’t want to hire someone who doesn’t have adequate insurance. Here are some good questions to ask:

  • What’s considered "enough" coverage?
  • If you lease space, does your lease agreement specify what is required of a contractor or subcontractor?
  • Do they have workers’ compensation coverage? If not, will you be responsible if the person you hired is hurt and blames you?
  • Who do you ask for a Certificate of Insurance? The contractor? Their agent?

Be certain to ask questions and review the actual Certificate of Insurance. It’s a good idea to get the Certificate of Insurance during the bidding process. And make sure it’s an original – not a photocopy.

Here’s a sample of a Certificate of Insurance. How do you know it’s an original? Make sure your name is in the box in the bottom left corner.  Download sample_cert_of_ins.pdf

Flickr photo by lambdachialpha

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