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- According to the Association of Certified Fraud Examiners, the average organization loses 6% of its total annual revenue to fraud and abuse committed by its own employees-an average of $9 per day per employee.
- Despite the headlines about terrorism, natural catastrophes and corporate malfeasance, fire is still the most common cause of business losses. Some statistics available from fire prevention sources suggest that almost half such fires result from arson. According to the Insurance Information Institute, arson caused $1.5 billion in insured property losses in 2000 (U.S.). According to the National Fire Protection Association, there were 75,000 structure fires of incendiary or suspicious origin in the same year.
- The size of Directors and Officers liability settlements and judgments has increased dramatically in the last three years. Losses excess of $100 million have become more common and the value of smaller settlements has inflated accordingly. Recent stock market troubles will no doubt accelerate the trend. This is a prudent time to review your coverage and limits.
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| Advice for employees traveling overseas |
With all the unrest in the world, travelers (especially those on business) have become wary of airports, hotels and crowded areas. However, except in certain obvious locations, terrorism is usually a remote threat. The risk of kidnap/ransom is more serious to traveling business people.
Even more serious in terms of exposure is crime. Few seem to realize that ordinary street crime poses a greater risk than any other intentional act. Surprisingly, risk may actually be lower in some countries where local politics or philosophies might be of concern. Many such locales take a very dim view of crime and have managed to control it better than more "open" realms.
Nevertheless, crime can occur anywhere. Here are some tips for traveling employees:
- Carry two wallets - one a dummy with small amounts of currency and expired credit cards. Hand it over if threatened.
- Use the hotel for booking taxis. Check the fare before boarding.
- Do not accept a room on the ground floor. Second through seventh are best.
- Plan to stay in larger hotels that have more elaborate security.
- Meet visitors in the lobby, not in your room.
- Do not give away personal information.
- Remain alert to your surroundings.
- Avoid areas "off the beaten path" unless escorted by someone you trust.
- Drive cautiously and "blend in."
- If driving, observe following vehicles.
- Make two photocopies of your passport identification page, airline tickets, driver's license and the credit cards that you plan to bring with you. Leave one with friends at home; pack the other separate from valuables.
- Consider getting a telephone calling card.
- Find out if your personal property insurance covers you for loss or theft abroad.
- Check on whether your health insurance covers you abroad.
The U.S. Department of State has a web page with many more tips and words of advice for business travelers: http://travel.state.gov/asafetripabroad.html. The site includes contact information for consular services, trip planning advice and links to other valuable resources.
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| ADA rulings clarify employer obligations |
When it first became law, many viewed the Americans with Disabilities Act as likely to be one of the biggest sources of litigation ever and a major threat to employers. While there has been litigation, the amount of it and the degree of the threat has been less than many expected. Three recent U.S. Supreme Court rulings have further limited employer obligations under the Americans with Disabilities Act.
Chevron USA vs. Mario Echazabal makes clear that ADA does not require employers to place workers in jobs that could cause them serious injury even if the employee is aware of the hazards and wants the work. Both the company doctor and Echazabal's physician said the job could aggravate his existing liver condition. The Court held that it was reasonable to let one set of objectives and rules (OSHA) take precedence over another (ADA) when it makes sense.
US Airways vs. Robert Barnett establishes that company seniority systems take precedence over ADA claims in determining job assignments. Barnett applied to keep a mailroom job to which he had been transferred after a back injury. He lost the job to a worker with more seniority. The Court upheld the employer's action.
Toyota Motor Manufacturing, Kentucky, Inc. vs. Ella Williams held that a worker's inability to perform a specific job does not automatically mean he or she is entitled to ADA protections. Williams, an assembly line worker, developed carpal tunnel syndrome. She was, however, able to perform "major life activities," which the Court cited as personal care tasks (brushing teeth, etc.). Because of this, the Court held she did not qualify for protection under ADA as "disabled."
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| Layoff risks and their treatment |
Layoffs are a fact of life in the 21st century business world. Mergers, bankruptcies and globalization all contribute to the trend. In most cases, economics dictate reductions in staff - either survival economics or pressure to show profit. Whatever the cause, layoffs create risk for the organization.
Some of the most obvious risks come from the employees who are released. Employment practices liability claims and workers' compensation claims often jump after or just before a layoff. Acts of sabotage are not uncommon, especially in places where many organizations are vulnerable, such as information systems. Sophisticated, disgruntled ex-employees may even attempt to damage reputation or affect market values by spreading rumors on the Internet.
Another set of risks arise out of potential damage to a publicly held organization's image/brand/trademark. If not "spun" properly in the media, layoffs can cause a loss of confidence in the organization that could result in depressed share value. Privately held companies could suffer damage to their image or trademark that could result in reduced sales, especially if the layoffs are handled poorly and the press takes note.
There are some practical ways to reduce the likelihood of loss arising out of layoffs.
- Consider hiring a public relations consultant specializing in this form of communication.
- Communicate the reasons for layoff to employees in simple economic terms.
- Be sensitive. Don't announce, for example, that the purpose of the layoff is "to cut deadwood."
- Avoid any expenses not absolutely necessary. This is not a good time to announce executive bonuses.
- Provide an outplacement service through a contractor or through organizational resources. Include retraining if practical.
- Provide severance packages - as generous as the organization can afford.
- Extend health benefits longer than required by law.
- Work with legal counsel to develop a claim defense strategy that includes recognition of the positive efforts of the company to assist laid-off workers.
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| Do you need builder's risk insurance? |
Property under construction needs special insurance. "Builder's risk," or "course-of-construction" is the name given to property insurance for buildings in progress. This coverage may also be appropriate for additions to an existing structure, remodeling projects or other forms of improvements.
Because the property may be only partially complete, its structural integrity may be compromised. In other words, it is more susceptible to common perils such as earthquake, water, fire and crime. Insurers have special underwriting concerns about property being built.
Because the values change as more construction is completed, premium pricing is more complex in course-of-construction. You don't want to pay based on the full completed value when the property obviously is worth less prior to completion.
A separate type of policy may be issued for builder's risk exposures. The property owner can purchase such a policy. However, a general contractor (depending on the size of the project) often purchases the coverage on behalf of the contractor and the property owner. Usually, the owner decides who will arrange the coverage. Remember that anything in a contractor's bid usually contains a markup.
Under some circumstances, property insurers may be willing to add coverage to an organization's existing property insurance policy for additional property under construction. When this is possible, there may be some cost savings. Another advantage of this approach is that the transition from course-of-construction to completed property insurance tends to be smoother.
If your organization is building a new facility, adding to an existing one, or substantially remodeling, you should check to see if builder's risk insurance is needed or if your current policy can cover. You also need to decide who will arrange coverage - you or the contractor. Keep in mind that if a loss occurs you might prefer to deal with your insurer rather than the contractor's. Whatever approach you decided to take, remember that you need to do something. Most property policies will not automatically cover property under construction.
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| Tenant improvements can cause landlord insurance problems |
Determining who is responsible for insuring real property in a lease can be complex. Usually, the landlord insures the property and the tenant insures any improvements or betterments it adds. Some agreements, such as "triple-net" leases, can make the tenant responsible for all. If you are a landlord, you should give some careful thought to how you go about negotiating insurance for improvements.
When the landlord insures the basic property and the tenant insures the improvements, the landlord needs to be aware of possible insurance problems. Under most realty laws the improvements become the property of the building owner. The owner's property insurance policy usually defines the insured property to include all additions, fixtures and permanently installed equipment and machinery.
When viewed in conjunction, these two factors make it likely that an insurer would argue that the improvements are part of the total value of the property. The addition of improvements can bring the total value up to a level where a coinsurance penalty applies, if the policy contains such a provision.
Coinsurance penalties, when found in property insurance policies, apply when the insured fails to report to the insurer a required percentage of actual value. The penalty is applied to reduce the insurance recoverable to the ratio that the reported value has to actual value. So, if your tenant's improvements increase the total building values by 50% (not uncommon in manufacturing and other environments) the penalty could reduce a recovery to about 2/3 of the loss.
There are several ways for the landlord to deal with this risk. Here are a few of them.
- Insure all property yourself (including improvements) and charge rent accordingly
- Have your policy endorsed to exclude the improvements
- Obtain an "agreed amount endorsement" that eliminates coinsurance penalties (probably at greater cost and you still will need to report values if asked)
- Let the tenant insure everything (may be OK in a triple net lease but may NOT be in other types of leases)
As in every contract (including leases) each situation is different. As the landlord, you need to pay attention to values insured when tenants construct improvements. Give us a call if you need help in this area.
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| Include your most valuable asset in continuity planning |
Most businesses engage in some kind of continuity planning, formally or otherwise. Companies draft disaster recovery plans, have succession plans and may use insurance products ("key man" life) to assure continuation of the business.
What is sometimes overlooked is one of the most valuable resources of any organization - the employees. Continuity planning should include the human resource element. Here are some of the ways to make sure HR planning is involved in the continuity. These apply whether or not your organization has a formal HR department.
- Link the plan to a personnel database or find a way to keep it updated for contact information. If the contact information is out of date and you cannot contact key people, recovery will be extended.
- Evaluate staff positions in terms of how critical each is to the mission. Who will be needed when and who is vital? Take special measures to ensure availability.
- Map business processes to identify weak points so that you can address the needs in an emergency.
- Review confidentiality agreements. Are they adequate for protecting your company from the loss of key employees during a crisis?
- Review your security procedures. Could security be affected by the absence of certain positions? Plan to address weaknesses.
- Include training and employee assistance program resources in your planning. Emergency training or employee assistance and support may become critical in a recovery operation.
Continuity plans often include such items as information systems alternatives, media relations, duties for key executives and other elements, but fail to address the human resource needs for recovery. Make sure your plan considers this aspect. An excellent source of information for recovery planning is found at www.globalcontinuity.com.
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