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- Your fiduciary liability policy should cover all plans regulated by ERISA rather than (or in addition to) simply listing specific plans.
- If a loss occurs that might be covered by two policies, don't try to decide which policy applies. Report the claim to both and they can resolve coverage later.
- Business income coverage may be needed for long after the premises are restored. Many policies allow only 30 days. If profits cannot be brought back to normal in that time, have the time period extended.
- Safety committee members should represent all parts of the organization. The committee should meet at least monthly, keep minutes, assign items for follow-up, and make periodic reports to management.
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| Insurance-purchasing, a philosophy |
Insurance professionals generally agree that two simple principles apply to most insurance purchases:
- Transfer those risks which involve crippling potentials, and
- Assume risks that can be funded without difficulty.
It is all too common to see insurance programs that omit protection for such multi-million dollar risks as earthquake, flood, hurricane, employment practices liability and the like, yet insure auto physical damage with a $50 deductible.
An old saying is "Take it off the bottom and put it on the top," meaning that little things should be self-insured and the premium savings applied to insuring catastrophic risks. It is always a temptation to insure minor events that can be expected to occur, but those are precisely the ones best handled without the additional cost of insurance.
Start by determining how much risk you can really afford to lose on an uninsured loss. With that information, we can help you re-examine deductibles, insurance limits and major risks that you may be currently self-insuring, to help assure the most cost-efficient program of insurance protection.
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A recent front-page newspaper photo showed one workman and two firemen up to their shoulders in dirt at the bottom of a trench. What happened?
The caption of the photo said that the workman had become partially buried when the six foot deep trench caved in while he was working. A fire and rescue truck arrived and two firemen hopped into the collapsed trench to rescue him. Immediately, the trench collapsed further and all three were buried up to their shoulders.
The photo showed the rest of the rescue squad working frantically to save the three victims. Fortunately, they all walked away with minor injuries. It was a close call, though, as they all came very close to being completely buried and dying of suffocation.
They had all violated basic safety rules regarding trenches. OSHA regulations specify that trenches must be properly shored to prevent just such cave-ins. When a cave-in does occur, rescue teams should never just jump into the trench, as sudden movement can cause further collapse. Trench rescue is dangerous work and rescuers can easily be killed.
Trenching may occur on your property for many reasons. Installation or repair of pipes, cables and electrical service are the most common. Make sure all workers in the area know and follow OSHA regulations and other appropriate safety procedures before the first shovel of dirt is lifted.
If safety procedures are ignored, you could face criminal charges if someone is killed. This actually happened to a contractor in South Dakota about ten years ago. A trench collapse killed two employees. It was the second such collapse in four days. The contractor was sentenced to six months in jail.
Also consider public safety issues when trenching. Children find holes and trenches exciting places to play. You are responsible if they are injured. At night passersby can stumble or drive into an unsecured hole. Therefore, when work is done for the night, at minimum, cover the trench, post warning signs and lights and lock gates to the area. If you have security guards, ask them to include the area in their regular rounds.
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| Commonly overlooked coverages |
Here's a checklist of the most common coverage oversights that we see:
Property perils: Are you in a region affected by earthquakes, landslides, sinkholes, windstorms or floods? These perils often need special coverages. Are you dependent upon machinery, electrical installations, air conditioning or heating equipment? If so, you may need boiler and machinery insurance. Hackers are a recent peril. Some insurers offer special protections for cyber risks.
Categories of assets: You probably have more at risk than just buildings and contents. How about valuable papers, special equipment, or property of others in your custody? Don't forget to insure your revenue stream. Business income insurance can cover loss resulting from damage to your own property, or property of key suppliers or customers. A below-market lease is also an insurable asset; leasehold insurance reimburses you for the differential if the building is damaged and you have to re-rent at market rates.
Valuation problems: Property policies usually pay only to replace destroyed property as it was at the date of loss. If your buildings do not conform to current building codes, you will probably have to spend extra to re-build to the current higher standard. Special property such as fine arts, valuable records that cannot be reconstructed, or important but old machinery may need special valuation wording.
Special liability risks: One common oversight is the failure to purchase employment practices liability for claims brought by workers alleging discrimination, harassment, or wrongful discharge. If you offer any employee benefits programs, you probably need employee benefits errors and omissions insurance plus fiduciary liability coverage.
Fidelity bonds: Creative employees can steal surprisingly large amounts of money over time, especially employees in the accounting department. You need employee dishonesty insurance, with depositors forgery coverage added on. If you have any employee benefits programs subject to ERISA, you also need to add an endorsement to the dishonesty bond naming the benefit plans.
This is not intended as a complete list, just some of the most common mistakes that we see. That's why it's a good idea to go over your risks and your insurance coverages at least once a year with your insurance representative.
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| Named Insureds and additional insureds |
As businesses re-engineer themselves, it is a good idea to periodically re-check the names listed on insurance policies to be sure all the appropriate parties are protected and that names are accurate.
Liability policies, primary and excess, should include all current and past entities. Claims arising from discontinued operations can arise many years later. This is a particular problem for real estate developers. Some excess policies automatically cover all entities named in underlying policies, but others only cover entities specifically listed. Partnerships and joint ventures must be specifically named if their operations are to be covered.
Property policies should name all parties that have an interest in the covered property. For example, it is common for the owner of a small company to hold title to the building housing the business in his or her own name rather than the name of the business. If the property insurance policy names only the company, the insurer can deny payment for damage to the building. If the business leases equipment, the owner of the equipment should be named as respects the equipment.
Workers compensation policies should name all entities with payroll, not just the parent. Failure to name all employing entities could be a technical violation of state workers compensation laws.
Often, you may be required by the terms of a lease or other contract to protect a landlord or other outsider on your liability insurance. Insurance companies call these outsiders "additional insureds." They are only protected for claims that arise out of the designated relationship. For example, a landlord would be protected only for claims arising out of the ownership, maintenance or use of the leased premises. A contractor's customer would only be protected for liability arising from the work of the contractor.
Contact your insurance representative immediately if your insurance policies do not name all parties that should be covered. We need to have the exact name of the entity. If the party is an additional insured, we will also need to know the nature of the relationship.
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| Business income insurance for property in transit |
Imagine that your new electronic toy line requires certain components imported from the Far East. If you don't receive the shipments on time, you lose sales. How can you insure that loss of revenue?
Cargo policies that might be used to insure the components while in transit cover only direct damage to the property, not loss of income arising from that damage. Standard property forms used to insure business income don't cover property away from your premises.
If this type of risk is a standard aspect of your business and you don't have a lot of real property, you may want to use a special property form intended for your kind of business, known as a manufacturers output policy. It covers all of your property wherever it is, including in transit and even overseas. Another option is to continue a traditional property insurance program, but adjust the cargo policy's valuation clause to pay for replacement of the components plus a hefty additional percentage that corresponds to the value of the lost net income.
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| Why you should read the fine print in contracts |
Here is a case history of why you or someone on your behalf should read all contracts carefully before you sign. A firm that installs security systems might use a standard printed form with a section as follows:
"Subscriber agrees to and shall indemnify, defend and hold harmless Company, its employees and agents for and against all claims … sustained by entities other than parties to this agreement. This provision shall apply to all claims … caused by the Company's negligent performance, whether active or passive and to all claims based upon defects in design, installation, maintenance, operation or non-operation of the alarm system, whether those claims be based upon negligence, active or passive, warranty, or strict or product liability on the part of the Company, its agents, servants, or employees."
If you sign this contract, you could be assuming liability for any dumb thing done by the security company. In many states, contracts that purport to transfer the sole negligence of one party to the other party are not enforceable, but that is not universal. At best, it could take years of litigation to resolve the dispute.
Ideally, have an attorney read all draft contracts first. If this is not feasible, read all contracts carefully before you sign. Although we do not give legal advice, we would be happy to help. We can provide general insights, such as what risks you might be assuming that your insurance does or does not cover and whether insurance requirements are properly phrased.
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Conduct a fire drill at least once a year and more often if you have high worker turnover or many short-term workers. All workers need to recognize the sound of your fire alarm and know where the safe exits are, particularly in large buildings or in high-rise structures. To verify their knowledge, plan to run an un-announced fire drill this month. Immediately after the drill, ask how evacuation plans could be improved.
As preparation for the drill, check exit signs to make sure their placement and visibility are adequate. Interior rooms and work areas may be several doors and corridors away from the nearest exit. If so, install additional exit signs. Mark closet doors and other dead-ends "Not an exit."
Make sure that interior corridors are equipped with emergency lighting. If lights go out during an emergency evacuation, workers may become confused and waste precious seconds, or may mistakenly go the wrong way in the dark. Install enough lights to assure that no area will be in total darkness should one lighting unit fail.
Check exit doors to verify that they open outward, have emergency "panic" bars, and are not obstructed, chained shut or locked. Areas outside the emergency doors should be clear of obstacles and tripping hazards, to allow fast-moving evacuees to move at least 100 feet away from the building quickly. Consider designating a meeting place for each department, so everyone knows quickly if fellow employees are safe.
A final tip: identify any disabled workers who would need help with an evacuation. This could include mobility limitations such as wheel chairs, temporary injuries such as a broken leg, or visual impairments. You may need special arrangements to assure their safety.
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Everyone who has gone through the agony of a fire knows how much junk and debris must be torn down, pushed around, piled up, and carted away. These costs can mount up to a substantial sum, particularly if asbestos debris must be hauled to a hazardous waste dump. You can expect this if you have an old building with asbestos in the walls.
Fortunately, the fire insurance policy covers this cost automatically, but subject to special limits. The first is a sub limit equal to twenty-five percent of the direct damage limit.
This applies, though, if the hazardous waste is part of the building, such as asbestos. If the contamination can arise from another source, such as leakage from chemical tanks, you may need special pollution cleanup and removal coverages.
If you have established your property insurance limits based solely on replacement values of damaged property, there might not be enough money left to cover replacement plus a high debris removal cost. Many property forms also provide an additional, but small, limit specifically for debris removal. This may only be $10,000 though.
If you might incur high debris removal costs due to special circumstances, let us know. We can adjust your coverages and property limits accordingly.
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