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- Check employment manuals for wording that promises more job security than you can deliver. Such wording can be held against you after a layoff.
- Values reported for business income coverages are often inadequate. Be sure your business income risk assessment is accurate.
- Require contractors working for you to have auto and general liability limits of at least $1 million. Verify existence of workers compensation insurance. If they have access to valuable property on your premises, also require dishonesty insurance.
- Continue to name inactive entities on your liability coverage for at least ten years.
- Store backup media for your computers away from the operating area so a single fire will not destroy all copies of your data. Many operators violate this rule because they like to keep backups "handy."
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| Is your employee faking an accident? |
On-the-job accidents can happen and they can happen at your workplace. But, that doesn't mean that every injury claim is legitimate. Things to watch for:
Layoffs and shutdowns Some workers may be tempted to file a workers compensation claim if they expect a layoff. A few rationalize such claims as "the company owes me something."
Suspicious circumstances This includes unwitnessed accidents even though other workers were nearby, accidents reported weeks or months late for no good reason, or fuzzy explanations that make no sense even after careful investigation. Be particularly vigilant for Monday morning "strain-and-sprain" accidents that are un-witnessed. They may be an attempt to get compensation for injuries incurred over the weekend.
Unlikely aftermath Some fraud is instigated by unethical medical providers or by "professional" claimants who move from job to job, filing claims as they go. Watch out for suspicious claims patterns that involve the same provider or the same claimant. Always maintain close contact with workers who are on disability. Be suspicious if they fail to show up for scheduled medical appointments, or if they frequently are not reachable at home. They may be fishing or even working at another job.
None of these warning signs are absolute proof that a claim is fraudulent. If the circumstances of an accident or a claim seem suspicious, share your concerns with your workers compensation insurer. They can deploy trained investigators to look into specific claims, and can also help you establish pro-active anti-fraud programs to head off future problems.
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| Small business goes global |
Would you like to do business overseas but don't know where to begin? If so, you can minimize your risks and maximize your results by doing your homework first.
Your first educational stops should be the web sites of the U. S. Department of Commerce and the Small Business Administration. These sites offer you a wealth of detailed, up-to-date information on everything from trade regulations to investment climate and even potential customers.
The Department of Commerce site at www.export.gov leads the visitor through the entire thought process for deciding if global business is right for you. It starts with the basic questions: "Where should I export? How do I get ready to export? How do I find a trade partner? What about the details?"
You can look up market research by region, prepared by U. S. trade embassies around the world. Then, you can zero in with country-by-country analyses that cover economic trends, political environment, trade regulations, business contacts such as banks and trade associations, and even tips on business travel and a schedule of conventions and trade events.
If you don't know how to find customers overseas, don't worry. The Trade Leads section of the web site lists specific hot leads, from a winery in Australia seeking oak chips and wine barrels to the Sierra Leone Roads Authority, which seeks road equipment and desktop computers. Just enter the category of product or service that you want to sell and a global list of leads pops up.
Want more hands-on help? Try the website of the Small Business Administration's Office of International Trade at www.sba.gov/OIT. In addition to lists of international trade events, it offers a directory of SBA offices near you, a volunteer service corps of retired executives available to coach small businesses, and access to capital through a variety of trade finance programs.
And, don't forget to call us to arrange coverage for your overseas activities.
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| Firms going public need special insurance |
Many medium-size firms raise cash by selling stock to the public in an IPO (Initial Public Offering). The firm may already carry directors and officers liability insurance to protect its management against claims for wrongful acts. But, such policies often exclude stock offerings or Securities and Exchange Act violations.
If you are considering an IPO, let us know as soon as possible so we can arrange appropriate insurance. SEC rules may not allow the corporation to indemnify its management for claims alleging SEC violations, so insurance may be their only protection.
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| International accounting standards - what you need to know |
Accounting standards - the rules underlying financial statements - are not the same throughout the world. In today's global economy, every manager and investor needs to understand how to read financial statements regardless of where they are prepared.
The two dominant standards are GAAP and IASC. U. S. accountants use Generally Accepted Accounting Principles (GAAP) promulgated by the Financial Accounting Standards Board based in Norwalk, Connecticut. Accountants in over 100 other countries use rules developed by the International Accounting Standards Committee (IASC) in London. IASC standards are promulgated in English, but published in many languages, including Romanian, Polish and Chinese.
Let's say that your management decides to purchase a foreign company and operate it as an autonomous subsidiary. If they are not aware of differences in accounting standards, they could seriously misjudge the financial strength of the enterprise. Or, they could mis-state the subsidiary's results in the corporate consolidated financial statements. This could trigger stockholder suits against directors and officers.
GAAP versus IASC standards can also be a nightmare for anyone who must develop insurable values for insurance purposes. GAAP requires tangible assets such as buildings and equipment to be valued at their historical cost (e.g. acquisition cost), and then depreciated. IASC standards permit use of either historical cost or revalued amounts. For an old building, the revalued amount could be dramatically different from the historical cost.
The variations between these two standards are significant enough that the U. S. Securities and Exchange Commission is studying adoption of the IASC's standards in the U. S. Its findings have been issued for public comment but a final decision is still a year or two away.
In the meantime, make sure that your management understands that financial information prepared overseas must be reviewed with these differences in mind. Also, when developing insurable values on overseas risks, make sure you understand the basis of the valuation.
For more information about IASC standards visit the IASC's web site at www.iasc.org.uk. The SEC's discussion of the issue can be found at www.sec.gov/rules/concept/34-42430.htm.
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When you hire a contractor, you expect the job to be completed in a timely manner and performed according to the job specifications. Sometimes, things don't go according to plan. A few examples:
- You accept the lowest of three bids for a headquarters building. The winner realizes that his bid was ridiculously low, and refuses to undertake the work. Meanwhile, you incurred financing costs and waived your right to renew the lease for your existing rented space.
- The contractor starts the work, then discovers that he underbid the project and walks out. You could sue, but this could take years to resolve and the contractor does not have enough assets to make litigation worthwhile.
- The contractor is most of the way through your project when he takes on several other assignments and suffers cash flow problems. Your building is left unfinished.
- The contractor completes the job but is unable to pay the workers, subcontractors or material suppliers. They may secure a lien on your property and force you to pay them, even if you have already paid the contractor.
- A few months after you move in you discover that the roof leaks and is about to collapse due to substandard materials or construction. The contractor is unwilling or unable to correct the problem.
Contractor bonds protect the project owner from such risks. Performance bonds guarantee that the contractor will complete the job according to the specifications. Payment bonds guarantee that suppliers and workers will be paid. The contractor arranges for the bond with its own bond underwriter, and provides the bond to you.
If you require bonds from contractors, expect that they will build the cost into the bid, and ultimately, you will pay the cost. But, don't forgo them unless you are sure that the project is small, low risk, and you can quickly and easily find a replacement contractor.
If you have any questions about bonds for contractors, call us. We would be happy to help.
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| Tenants may have to pay owner's loss |
If you are a tenant in a building, be sure the lease contract has a "hold harmless" provision whereby the building owner agrees you will not be responsible for damage to the building that is covered by insurance. Failure to follow this simple rule resulted in one tenant becoming responsible for fire loss to the building.
In this case, the lease agreement had these provisions:
- The tenant was required to indemnify owner from claims arising from use of the property, and
- The tenant had to reimburse owner for fire and liability insurance taken out by owner.
You would think that provision (2) would protect the tenant because it paid part of the premium. Not true. The insurer, Allstate, paid the claim, then said it wanted reimbursement from the tenant because the fire originated on the premises of the tenant.
There is a doctrine of law that says an insurer has no right of subrogation against a tenant if a policy is for the mutual benefit of owner and tenant. Here, the court said the mere fact that the tenant paid part of the premium didn't mean the policy was to benefit both. It upheld Allstate's claim.
If you are stuck with such lease provisions, increase fire damage legal liability limit in your commercial general liability coverage to match the replacement value of the premises that you occupy. Or, ask us to help you structure appropriate property insurance. This option costs more, but also gives you a lot more protection.
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Renting a car brings up a number of risk management questions, one of which is: "Who may legally drive the car?" This question is answered by the fine print of the rental contract. Usually, the contract restricts drivers to the renter, the renter's spouse, and members of his or her household. Some contracts limit driving privileges to specified individuals only. Business associates are not included unless specified on the rental agreement.
What happens when you surrender the rented car to a valet parking service at a hotel or restaurant? When you hand over the keys, you violate the rental contract. Then, if the parking attendant damages the car or injures someone, the rental car company's policy (if it would otherwise apply) would probably refuse coverage. Then the rental car company would doubtless charge you with all the damage as well as loss of use of the car.
You can close some of the potential coverage gaps in this situation by adding endorsement CA 20 54 02 99 titled "Employee Hired Autos" to your auto policy. It amends the definition of "insured" to include your employee while operating an auto hired or rented under a contract or agreement in that employee's name, with your permission, while performing duties related to the conduct of your business. You can add coverage for physical damage to the rented vehicle, as well.
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