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- Dispose of unwanted computer equipment properly, not in the dumpster. CPU's printers and even computer monitors contain toxic substances that are not permitted in landfills.
- Company cars should be equipped with reflective triangles rather than flares. Flares can start brush fires, for which your company could be held liable.
- Your record retention program should include saving all liability policies and fidelity bonds indefinitely.
- When you hire a security guard, choose the firm with the most complete screening and training program even if the cost is higher. Poorly trained guards can be a liability, not an asset.
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| Does your firm depend on one key person? |
The most important asset of almost any company is its people. Certain people or groups of people, however, are so vital that their loss would cause a sharp slump in profits. A key person may not be just the president or one strong executive. It could be a star salesperson, or a charismatic, famous CEO. Certainly, the founders in a startup situation or the owners of a small firm qualify as key persons.
To estimate the effect on the organization of a key person, consider:
- Can this person be replaced fully, partially or not at all?
- What is the impact on the firm's revenue stream, short-term? Long-term?
- Will additional salary or benefits be needed to attract a replacement?
- Will a search firm be used? What will the total costs of finding a replacement be?
You can insure at least part of this risk with key person life insurance. But, life insurance will not address disability situations such as heart attack or stroke, or a key person's sudden resignation. Therefore, in addition to insurance, you need a disaster plan.
A good key person disaster plan should address two components of the person's value: skills and information. The skill component could include attributes such as relationships with important clients, or experience with a particular job. Reduce this risk through cross training and by developing teams or designated backups to support the superstars.
Sometimes, a person is important because of what they know. Your key people may keep critical information "between their ears" or squirreled away in files that are impenetrable to anyone else. A corporate records retention program should emphasize that all information is company information, and needs to be kept in a form that is accessible to others. Then, designate a corporate records person to follow up and make sure this happens.
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| If you sublease to others |
Sometimes, tenants need to sublease a portion of their premises. This could happen because of business cutbacks, or when leasing a large facility with the idea of growing into it as the business expands.
If you sublease to others, you need to create a sub-lease contract that passes along the obligations imposed on you in the master lease. That includes requirements to carry insurance and to indemnify you and the owner for claims triggered by the sub-tenant. Depending on the circumstances, you may or may not want to pass along responsibility for building maintenance.
If you are not skilled at writing leases, you might be tempted to just copy the master lease and just change the names. This may not be a good idea. Some master leases are well drawn and comply with current law. But what if it is a form that the landlord has used for decades without updating it to match current law?
Common problems in outdated leases include:
- Indemnity wording that does not conform to current law
- Insurance requirements that don't conform to current insurance usage
- Failure to address environmental issues.
If the rental income is important to you, you may want to require a payment bond or other form of guarantee. If the subtenant's business uses hazardous chemicals, you could be stuck with the cost for hazardous waste cleanup if something goes wrong. You need to require appropriate environmental liability coverages.
Sub-lease situations can be tricky. You are giving control of the sub-leased premises to another party, but you remain responsible to the landlord for the rent and for any damage to the premises. Engage an experienced real estate attorney to protect your interests, and let us help you design appropriate insurance requirements to use in the sub-lease agreement.
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| Liability risks and power outages |
These days, rolling blackouts have become a fact of life in California, and President Bush has stated publicly that power shortages are possible elsewhere in the next few years. As power outages are now commonplace, don't expect a jury to be merciful if someone is injured or suffers emotional distress because you failed to plan for this contingency.
Many people are afraid of dark places and become claustrophobic quickly when the lights go out. Their discomfort can quickly become panic if others jostle them or if they become disoriented and cannot find an exit. Standard emergency lighting as required by local building codes may not be sufficient for certain foreseeable circumstances.
Picture a big warehouse store filled with customers. One of your employees is operating a forklift lowering pallets of goods from high rack storage. When the lights go out, the lift is overhead, with a heavy load. Children begin roaming and some head down the aisle toward the forklift.
Or, imagine a big health club with patrons in the weight room, the swimming pool and the locker room. When the lights go out, a patron with poor eyesight stumbles over weights left on the floor. Others caught in the shower can't find their way to their lockers. Their choice is to wait in the dark, or to fumble their way toward the lobby, wrapped only in a towel.
Don't assume that, because your building is up to code, you have sufficient emergency lighting to prevent trip-and-fall injuries or emotional distress situations. When the premises are closed for business, try turning off all the lights and turning on any emergency lights you have.
Is the emergency lighting bright enough to allow gym patrons to find their lockers? Can parents readily see their children, or only dark silhouettes? Does the forklift operator have specific instructions for securing the equipment in the dark?
If in doubt, upgrade your emergency lighting. You can readily install battery-operated lights that go on automatically when power shuts off. For small offices, you can even buy inexpensive battery lights that require no installation; just plug them into existing outlets. Don't rely on flashlights unless your employees intend to carry them on their belts. Otherwise, they probably won't be able to locate them in the dark.
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| The federal bonding program |
Your firm's fidelity bond does not cover any employee whom you (the employer) know to have committed a dishonest act, whether that act was on the job, off the job, or previous to employment. This creates a problem if you would like to hire someone who has been convicted of a crime.
It could also be a problem if you learn that your trusted bookkeeper was dishonest in a previous job, or stole funds from her church. As soon as you learn of such dishonesty, your fidelity bond ceases to cover that person. But, what if that person confessed those discretions, has made restitution and is not likely to steal from you?
The answer could be a government program called the Federal Bonding Program. Any potential employee who would be able to get a job except for a history of dishonesty, or any employer who would like to hire this person, may apply to get a special bond. It also applies to a person who would be laid off solely because of inability to be bonded.
This U. S. Department of Labor Federal Bonding Program will provide a bond to the employer at no cost to the employer or the employee for six months. The goal is to provide the minimum limit required to make the person employable. Usually, the bond is provided with a limit of $5,000, but in special cases limits up to $25,000 can be provided on special request from the employer.
The federal bonding program is managed in most states through the state department of labor, which buys the bonds in bulk from the federal program, then arranges for their issuance for individual job applicants.
For more information about the program, call 800 233-2258, or visit the website at www.bonds4jobs.com.
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| Home-based businesses need insurance |
If you or a family member operates a home-based business, don't assume that your homeowners insurance will provide adequate coverage for your business property and operations.
The first problem is proper coverage for business stock and equipment. You may be storing goods in the garage. The family room is the nerve center of the business, with newly purchased computer equipment, copy machine and telephone equipment. Homeowners insurance may provide a low limit such as $2,500 for business equipment. That's not nearly enough to replace all of that stock and equipment.
Also remember that a fire at home could stop operations cold. You may need business interruption insurance to reimburse lost income. You can also purchase coverage for valuable papers and records lost in a disaster. However, don't let the purchase of insurance be your excuse for failing to back up your computer records in a safe, off-premises location. If you don't trust Aunt Minnie with your backup records, rent a safe deposit box. The cost is a tax-deductible business expense.
Last, and perhaps most important, is appropriate liability insurance. Expect to purchase commercial general liability coverage. Depending on the nature of your business, you may also need professional liability insurance.
All of this sounds expensive, but the costs may not be as high as you think. The insurance industry has recognized the growing number of home-based businesses. Depending on the nature and size of the business, your homeowner's insurer may endorse your policy to add liability coverage and a higher limit for business equipment.
If your business does not qualify for such endorsements, the next step up is a separate policy designed for in-home businesses. Depending on the limits purchased, the cost may be only a few hundred dollars a year. However, the insurer may require that you also purchase your auto and other personal insurance from the same source, and the coverages do not suit the needs of every small business.
If you or a family member is operating a home-based business, give us a call and we will be happy to review insurance alternatives with you.
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| Are D & O judgments increasing? |
Suits against directors and officers have continued to grow in size, and seem headed for the stratosphere. A 1999 case against a major corporation and its board reached $2.89 billion. This case offered the worst circumstances: huge damages plus allegations that the company had committed accounting fraud, which eventually resulted in financial restatements. The corporation's financial statements mentioned another huge settlement, as well.
Until a few years ago, the "glass ceiling" on D & O judgments seemed to be $100 million. In the past two years, though, several cases have exceeded $1 billion. Several upcoming cases will exceed probably $100 million and possibly $200 million.
Unfortunately, these huge cases seem to be pulling up the settlement levels for smaller cases, as well. Pundits in the field say that smaller cases that might have cost $5 million may now cost $10 million or more. In any case, the trend is clearly up - way up!
This might be a good time to re-examine your limits for directors and officers liability. Claims are getting bigger, even for small companies.
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| Know how your deductibles apply |
The fine print of deductible clauses can have a major effect on your claim payment. The critical variables: how many times the deductible applies in one occurrence, and how the deductible applies to defense costs.
Ideally, deductibles should apply only once per occurrence. Then, no matter how many claims may arise from the one event, you only pay once.
Sometimes, though, deductibles apply "per claim." This can be a real problem if you are the subject of many suits arising from the same event. Imagine painters spray-painting a building overlooking a freeway during windy weather. The deductible would apply separately to every passing car damaged by the wind-borne paint. Even a small deductible could be painful if it applies separately to each claim.
A subtler example would be a manufacturer presented with multiple suits arising from one bad batch of product. Is the bad batch one event subject to one deductible, or is every customer's negative experience a separate event? If you are at risk for "bad batch" claims, you may need special wording negotiated with the insurer that specifies that this situation will be deemed one occurrence, with the deductible applying only once.
Property insurance policies can also apply multiple deductibles to one loss. Watch out for separate deductibles for building and business income loss. Or, a deductible could apply "per location." Several locations could be damaged in the same windstorm, flood or earthquake.
The other variation in deductibles is how they affect defense expenses in liability policies. Often, defense expenses are paid by the insurer and are not part of the deductible calculation. A few insurers apply the deductible to claim payments and defense costs, combined. This means that even if the claim is settled with no payment, you could be liable for the insurer's defense expenses up to the amount of the deductible. The worst variation is where the insurer has no responsibility for defense expenses unless the indemnity portion of the claim exceeds the deductible. You could be stuck with a very expensive defense and never see a penny from the insurer.
When comparing quotations from several insurers, make sure that you consider any variations in how deductibles apply before you make a decision. If you have any questions or are uncertain about how your deductibles apply, be sure to ask us right away.
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