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- Never discard a liability insurance policy, even after 20 years.
- Try to have all primary and excess liability policies renew on the same anniversary date, to avoid problems with aggregate limits.
- Is each insurance policy file complete with all endorsements and correspondence? This is a continuing effort because such files should be maintained forever. Liability claims (and some fidelity claims) can arise many years in the future.
- On property policies, list all addresses of all buildings. If it's not listed, it's probably not covered.
- Test disaster plans under simulated conditions of emergency at least once a year.
- Update your company policies to require all drivers to wear seatbelts and to use headlights at all times when driving on company business.
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The final premium for some liability and workers compensation policies is determined from an audit by the insurer of the base figure used to develop the premium. The base figure could be payroll by employee classification (for workers compensation) or perhaps sales or square feet of space (for liability insurance). Your initial premium is based on an estimate of final values, but adjusted at the end of the year to reflect actual figures.
Your workers compensation payroll records may or may not correspond to the classifications on which rates are based. Whether they do or not, it helps to set up in advance a payroll audit worksheet showing the categories from the insurance policy with corresponding figures from your payroll records. Have a senior officer verify payroll classifications to be sure the lowest rated category is used, if applicable. This is important because it is not always clear just what category a certain person fits.
The liability policy may be rated on sales. If so, don't just assume this means gross sales. Talk to your insurance representative about whether you should exclude inter-company sales, foreign sales (if the policy does not cover foreign activities), and simple paper transactions that generate no liability exposure. Then, have the policy endorsed to specify exactly what is ratable for premium purposes and what is not.
A few property policies may also be subject to audit: ocean and domestic transit policies, for example. Keep careful records so non-reportable shipments (shipments made at the other party's risk and on the other party's insurance) are not included.
Be sure all those who handle records are thoroughly familiar with all policy and audit requirements.
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| The company Christmas party |
As the year-end holidays come upon us, here are a few tips for making the annual Christmas party a pleasant and safe event for everyone.
Start by remembering the goal of the party. It should be fun and relaxing for everyone. If you require attendance, shy people or those who prefer not to socialize with co-workers will be placed in a very uncomfortable position that can only spell trouble. Make sure your invitation allows a graceful "out" for anyone who would rather be elsewhere. Discourage comments about who showed up and who didn't.
Hire an experienced professional bartender to manage the bar. Don't allow amateurs to dispense alcohol. Many states impose legal liabilities on those who continue to serve alcohol to intoxicated people. An experienced bartender knows how to spot trouble and quietly pass the word to your designated employee in charge at the party.
If the party does involve alcohol, plan alternative arrangements to get people home safely. You can treat employees to hired taxis or limos, or arrange for designated drivers.
Ask some employees to abstain from alcohol and act as designated drivers. Reserve a few hotel rooms nearby for people who aren't able to get home safely.
Limit the number of drinks each employee consumes. Also, close the bar an hour before the end of the party to give everyone a chance to get their heads together.
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A manufacturer of sprinkler heads has announced a voluntary recall of approximately 35 million sprinkler heads with O-ring seals. According to the company's recall announcement: "Under certain circumstances, these sprinklers may fail to activate in a fire." This follows a 1998 recall by the same manufacturer of other sprinkler models.
The announcement goes on to state that these potentially defective sprinklers were installed in a wide variety of buildings, including houses, apartments, hospitals, day care facilities, schools, dormitories, nursing homes, supermarkets, hotels, parking garages, warehouses and office buildings. The affected model numbers and types were manufactured from the mid 1970's to 2001, and include both "wet" and "dry" systems. This means that you could have some in your building, either as original equipment, or replacements.
If you own a building with a fire sprinkler system, or if your building lease makes you responsible for maintenance of such a system, you need to check your sprinkler heads.
The company has established a website at www.sprinklerreplacement.com. The site includes details of model numbers, downloadable identification brochures and recall information and claim packets. Or, call 800 871-3492 and ask that a packet be mailed to you.
While you are at the web site, also take a look at the information on maintenance tips and the latest NFPA (National Fire Protection Association) standards for sprinklers. The NFPA will be tightening its standards to require more frequent inspections.
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| Does your auto policy cover employees? |
Business auto policies are so broad that they tend to be taken for granted. But, they don't cover everyone or all circumstances.
Coverage applies to the named insured and to "Anyone else while using with your permission a covered auto." If someone doesn't have permission, there is no coverage. You can protect your company by developing a written policy governing use of company vehicles. For example, it should forbid use of the vehicle by anyone else. Thus, if an employee's teenager borrows the keys of dad's assigned vehicle and causes a serious accident, the company can show that this was done without approval. The policy would still cover the company, but not the teenager.
Though permissive users are covered, certain persons are specifically excluded. These include (1) the owner or other person from whom you hire or borrow an auto, and (2) an employee or partner using his own car for business (though the business is covered).
Some employers choose to extend the organization's auto policy to cover employees driving their own vehicles. This is rare though. The employee's personal auto policy covers both personal and business use, and many feel that liabilities arising out of a personal auto should be the employee's responsibility.
Whatever your choice, be sure to communicate it in writing to all employees. Most employers address it in the employee handbook. The employer simply points out that mileage reimbursement is intended to include the employee's cost of insurance.
Sometimes, the employer may provide a vehicle for an employee, with the intention that the vehicle be available for personal use. If that is the only vehicle in the employee's household, the corporate auto policy can be extended to include "Drive Other Car Coverage." This inexpensive endorsement extends the employer's policy to provide personal auto coverage for the designated employee regardless of what vehicle is driven.
Although the auto policy is a broad contract, please call us if you have any special circumstances involving employee vehicle usage. We would be glad to help you tailor appropriate coverage.
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| Business income: what about lost customers? |
You may already know that business income insurance pays you for lost revenues and expenses incurred while your business is shut down. But what happens after the property is rebuilt? Your plant and equipment are back in good condition and you are now producing. But will all your customers come back immediately?
Many businesses find that if they do not operate for a few months, customers may go elsewhere. This happens not only to retailers but also to many manufacturers.
The normal business income policy pays until the property is restored and for up to 30 days after. But consider the worst possible case. Are you sure customers can be restored in 30 days? If not, the time for this "Extended Business Income" provision can be extended for as many months as you require to get revenues back to pre-loss levels.
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| The latest in check theft |
The press recently reported the story of an employee who stole both incoming and outgoing checks from her employer. She never altered the stolen checks, but merely submitted them as payment for her own credit card bills. Astoundingly, the credit card company never questioned the checks even though they were made out to unrelated parties. The employer's bank also processed the checks without question, subtracting the amounts from the employer's account.
The company's CEO discovered the fraud many months later after creditors kept insisting that their bills were unpaid. The guilty employee is now in jail, but the company has not recovered its money from the bank that cashed the checks, and very little from the credit card company that submitted them.
In most jurisdictions, the Uniform Commercial Code governs the bank's responsibility. The current version of the Code relieves the bank of responsibility if the customer's negligence contributed to the loss. In this case, the bank says that the customer should have done a better job in its hiring and oversight.
Bankers say that the problem is due to modern mechanized processing. Human eyes do not compare the names on payment coupons to the names on checks. Therefore, even obvious scams like this one readily pass unnoticed. Although the company may eventually win in court, litigation can take years and legal fees are expensive.
Your first line of defense should be good insurance. You need both employee dishonesty coverage and depositor's forgery coverage. Then, you submit the claim to your insurer. It's the insurer's problem to sue the bank.
You should also practice good preventive measures. Accountants usually advise their clients to:
- Reconcile bank statements as soon as they are received.
- Separate duties for signing checks, opening mail, and reconciling bank statements.
- Have checks mailed by someone other than the one who prepares them.
- Have an employee other than the bookkeeper maintain a daily list of checks received, then reconcile this list with the cash receipts journal of the bookkeeper.
- Don't allow employees who handle finances to forego vacations.
- Schedule periodic audits of accounts payable and accounts receivable procedures. Be sure all procedures are enforced.
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| Experience modifications and your comp premium |
Workers compensation probably represents the largest single part of your insurance costs. It is also the line of insurance most susceptible to your control by careful attention to detail, especially if you have a considerable number of claims.
Premiums are subject to experience rating. Your losses are compared to those of all others in your classification to develop an experience modification that raises or lowers your premium. The date on which claims data are combined to put into the rating formula is called the loss valuation date. It is nearly always 6 months before the effective date of the modification, which is usually the policy anniversary date. Your goal is to be sure all data going into the formula are correct and current. Here is what you can do:
- Check each open claim to see whether it can be closed. You will know whether a worker has returned to work before the adjuster does. If no further medical treatment is necessary, the claim may be closed.
- If the employee is still receiving treatment, verify that the reserve represents a reasonable estimate of future costs.
- Look for errors. Computer operators sometimes hit the wrong key. Are all of those cases really your employees?
If anything is wrong, corrections must be submitted before the loss valuation date. We would be happy to help you with this analysis.
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