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- According to a report by the U.S. Pharmacopeia MEDMARX program, nearly 20% of medication errors in health systems involved automation. However, according to a report by USP, a standard-setting organization, facilities that use computerized order entry systems for prescriptions reported fewer harmful errors.
- According to a survey by MarketScout, an online insurance exchange, directors and officers liability insurance rates decreased by 15% in November 2004. On average, all coverages with premiums of $500,000 or more declined by an average of 9% except for certain coastal and offshore energy insureds.
- Some smaller businesses may not know that deductibles can save money in general liability insurance. Options often are either "per claim" or "per occurrence." The per claim option saves the most premium, but can result in the highest deductible cost if a single incident produces multiple claims. Your insurance professional can obtain quotes at several levels so that you can compare discounts.
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| Changes affect coverage for mobile equipment |
If your company owns mobile equipment it probably has liability coverage under a general liability (GL) policy. The GL policy automatically covers some forms of mobile equipment used off road (although it excludes autos). An endorsement to the policy has been available for equipment occasionally used on public thoroughfares. If your equipment is licensed for use over public roads it probably is covered under an auto policy.
Now, because of changes in standard policy forms and endorsements effective December 2004, the general liability policy's automatic coverage for off road equipment will disappear in some instances. These changes have been put in place by the Insurance Services Office ("ISO") - an organization that develops standard insurance forms.
The issue revolves around state financial responsibility laws. Such laws often require uninsured/underinsured motorist protection and personal injury protection. In recent years this coverage has become the subject of numerous lawsuits and costly judgments. Some state laws include various types of mobile equipment under financial responsibility laws.
ISO apparently believes that this risk (arising out of vehicle financial responsibility laws) is more appropriately insured under an auto policy than a general liability policy. Therefore as of the end of 2004, the standard GL policy has been amended to define vehicles subject to financial responsibility laws as "autos," not as "mobile equipment." There is an exception when the equipment is not operated over roads but is used only as equipment such as on a job site.
To help make the transition from general to auto liability, ISO has developed or modified several endorsements. One extends coverage to mobile equipment subject to financial responsibility laws. This endorsement is mandatory. The other endorsement schedules (adds) the equipment on the auto policy.
For some companies, these changes could have major implications, only a few of which can be discussed here. Probably most important is the increased potential for coverage gaps. Such gaps could come from several sources. One source is different policy periods for general liability and auto liability policies. If the general liability policy expires before the auto policy, the interim could result in no coverage under either policy for mobile equipment subject to financial responsibility laws.
Another potential gap could occur if state laws governing financial responsibility change mid-term. Equipment not scheduled on the auto policy could suddenly come under the exclusion in the general liability policy. Equipment used in multi-state operations could also be problematic.
If your operations involve mobile equipment, your company should pay close attention to this issue. Before renewal, be sure to discuss the subject with your insurance professional.
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| Workers compensation premium |
In reporting workers compensation payroll, some employers may feel that their employees belong in lower risk payroll categories than the insurance payroll auditors would like to apply. Sometimes there is discussion and negotiation between the two parties.
Trying to "beat the system" can have dire financial consequences as one business owner found out. Two "Professional Employer Organizations" (PEOs) under the same ownership developed a plan to avoid workers compensation premiums. The PEOs claimed they could reduce workers compensation premiums by 50%.
The plan involved payment of "K-1 Dividends" as part of employee compensation. Dividends usually are paid to shareholders. In this case, the employees received two checks, one for wages and the other for "dividends." The PEOs did not report the dividends as wages.
The insurer, the State Compensation Insurance Fund of California, discovered the plan in an audit. Thereafter, the Fund cancelled the policy and sued the PEO promoter. The County Superior Court awarded $14.6 million against the PEOs. The judgment included $1.3 million in unpaid premium owed and the rest as a form of punitive damages authorized by statute. The State Fund is pursuing additional actions against two of the four defendants in the case.
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| Superfund liability suits limited |
Responsibility for cleanup of a polluted site can have dire consequences. When an entity becomes aware of such potential responsibility, the first action is often to look for others to share the pain. That is what happens when companies sue others that may be liable for some of the cleanup.
Acting under authority assumed under Section 113 of the Superfund law (the Comprehensive Environmental Response, Compensation and Liability Act of 1980), many companies adopted the practice of suing others for recovery. These actions were especially common when one engaged in voluntary cleanup. Now, the U.S. Supreme Court has issued a ruling barring such actions unless federal regulators have brought a civil action against a party.
Some legal authorities believe that companies may still be able to bring action under state law or under section 107 of the Superfund law without an EPA suit. However, the type of action struck down by the Court was the most common and provided the most certainty. Future attempts to involve others in cleanup costs prior to government action may be less certain.
As a result, some fear that voluntary cleanup actions will diminish and that companies will wait to be sued before initiating cleanup. Other sources argue that there are many incentives for voluntary cleanup (such as tax-favored treatment) that still stand.
This decision reverses nearly 20 years of accepted practice in allocating cleanup costs under the Superfund law. Opponents of the decision argue that it is against the intent of the Act which was to encourage cleanup efforts and find ways to equitably allocate costs. One effect of the ruling may be to increase the level of scrutiny of property purchases and possibly to increase the demand for "cost cap" insurance. That type of policy covers the cost of cleanup if such cost exceeds the estimates of technical specialists called in to analyze the risk pre-purchase.
The case is Cooper Industries Inc. vs. Aviall Services Inc., Supreme Court of the United States, No. 02-1192.
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| Identity theft coverage for business owners |
Identity theft is a growing problem for individuals and companies. In addition to the potential for loss arising out of access to credit, the cost of repairing credit history and identity records can be substantial. A report from the Federal Trade Commission estimates that victims spent nearly 300,000,000 hours trying to recover from identity theft. The cost to businesses was $48 billion in 2002 and $5 billion out-of-pocket expense from individuals.
A company can be liable to employees, clients or others if it inadvertently lets out sensitive information. Some states have enacted laws requiring notification of all potentially affected parties if such information gets out. For example, in California, Civil Code § 1798.29 requires business and government agencies to notify individuals when unencrypted personal information in the categories of Social Security Number, driver's license number, account number, or credit or debit card number has been accessed in a computer security breach.
In response to this situation, some insurers are now offering forms of "identity theft" or "identity recovery" insurance. Some offer stand-alone policies. Others offer a form of "reinsurance" that is added on to existing business owner policies or, in some cases, personal policies. When the coverage principally benefits employees, some employers characterize the coverage as an employee benefit.
Such programs have various components. One is insurance to cover the damages incurred by the victim, such as lost wages, various fees, phone expense, etc. Another component may be defense of liability suits. Often, the policies include a variety of services for identity recovery and restoration of credit. Some of the recovery services include help in dealing with various governmental agencies and institutions.
In some cases, coverage is available retroactively, i.e., if a theft has occurred but no losses are yet known.
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| Fatigue-related liability |
In today's economy, employees often are asked to do more. Sometimes that extends to hours of work. Increasingly employers are finding themselves liable for accidents in which fatigued employees cause accidents.
One of the best known cases involved an McDonald's employee in Oregon who worked three straight shifts. He was killed in a head-on collision on the way home from work. The other driver sued and received a $400,000 award from the company. The employee's mother sued the company and was allowed to seek tort damages instead of workers compensation because the accident occurred after work.
The family of a Tennessee state trooper killed when a fatigued tractor-trailer rig driver fell asleep at the wheel sued the company and driver for $20 million. A Seattle construction foreman suffered brain injury when he ran his car off the road after working 36 hours straight. His company paid a "substantial settlement."
There are many other such cases. The lesson is that a decision to reduce staffing that can result in increased workloads needs to be weighed against the possibility of additional liability that can result. Aside from liability for auto accidents, there is also the risk of increased workplace accidents resulting in workers compensation claims, possible property damage and lost production.
One of the particular problems with the auto liability risk is that the employer may not have coverage for the loss if it arises out of a fatigued employee operating their own vehicle. General liability policies exclude auto-related liability. Auto policies, depending on the scope of coverage (symbol) chosen may not cover liability arising out of use of employee vehicles.
Fatigue is a risk factor that needs to be managed. This is especially true when motor vehicles are involved as the potential consequences are severe and coverage may be in question.
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| Directors may have liability for pollution risk |
The Sarbanes-Oxley Act increases personal responsibility for directors and officers of corporations. One way in which it can impact the company's fortunes involves pollution liability and the directors' responsibility for oversight. Here are just a few of the ways the Act can cause problems in this area:
- Product liability litigation threatens the company's solvency
- The company fails to recognize as liabilities, obligations for abatement in existing facilities (such as asbestos and lead) thereby overstating asset values
- Prosecutors bring criminal actions because of violations, affecting share price
- Cleanup cost overruns, uninsured, create financial difficulty or insolvency for the company
Sarbanes-Oxley provides for director personal liability beyond the common law. In most cases, the company can indemnify a director or directors and officers (D&O) insurance will cover defense. When the alleged breach of duty involves pollution, the matter becomes complicated. First, D&O insurance usually excludes claims that involve pollutants. Second, D&O policies increasingly exclude coverage for claims involving failure to maintain insurance. Thus, if a shareholder suit is based on such failure, coverage could be excluded under that provision.
This is one of the many potential pitfalls involving Sarbanes-Oxley and director liability. Undoubtedly, many more will surface as time passes since enactment of the law. Directors should take a personal interest in management of corporate risks arising out of pollution and ensure good internal systems of financial control and environmental risk management. Environmental assessments by outside specialists may be prudent.
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