How Much Liability Insurance Is Enough?

There aren’t many activities in life riskier than starting your own business. Two of the biggest risks any business faces are the loss of essential property and personal injury claims. In minor cases, these risks can cause loss of income, but in the worst-case scenario, they can bring your business operations to a screeching halt and force you to close the doors.

Obviously, your success is dependent upon keeping risks and losses to a minimum. Liability insurance helps you lower vulnerability to risk by transferring some or all of the risk responsibility to your insurance carrier. The more risk you can transfer, the less vulnerable you become. That’s why it is so important to evaluate your operation frequently to determine where there is potential risk. Through a risk analysis, you consider all possible risks and determine which are the most significant for your particular business.

There are many types of third-party liabilities that businesses should be covered against. In addition to property loss and personal injury, businesses should be protected against claims such as damage to the property of others, allegations of false advertising, and legal liability stemming from employment practices. In the event that a claim is filed against you, liability insurance will provide you with a legal defense. Should the judgment go against you, your liability insurance will pick up the tab for covered damages up to the policy’s limits. Keep in mind that liability insurance can also serve as the collateral needed to post an appeal bond. A large award can be potentially reduced or reversed on appeal. Without the ability to post a bond, however, your company will not be able to start the appeal process.

Evaluating your level of risk is a complex issue. Although young companies generally have a low level of liability risk, you should buy coverage with an eye toward the future. This is especially important if you are developing products with the potential to impact a large number of people. The greater the potential impact, the greater the possibility your company will find itself as the defendant in a class action lawsuit. Other factors you need to consider include the size of your company’s operations, geographic locations, industry trends, organizational structure, amount of capital at stake, you and your staff’s degree of experience and expertise in the field, and any general industry hazards.

Determining the amount of liability coverage you need should be considered a work in progress. As you expand, you will encounter situations that necessitate increasing your coverage. A review of your risk analysis should be done periodically, perhaps at each renewal. You should also review your insurance needs whenever you business changes in size, diversifies into new markets, or relocates.

Is Your Car a Thief Magnet?

Everybody loves driving a nice car; but not everybody is willing to pay for one.  It is possible that a potential thief may be coveting your car even as you read these words. However, you don’t have to be left vulnerable. The savvy car owner knows that taking a proactive approach can lessen the likelihood of a vehicle being stolen.

The National Insurance Crime Bureau (NICB) is a non-profit organization whose mission is to fight insurance fraud and vehicle theft for the benefit of its member insurance companies, their policyholders, and the general public. As part of their public awareness campaign, they compile an annual list of the top ten most stolen cars. The list for 2003 by make, model, and model year included:

1.                  2000 Honda Civic

2.                  1989 Toyota Camry

3.                  1991 Honda Accord

4.                  1994 Chevrolet Full Size C/K 1500 Pickup

5.                  1994 Dodge Caravan

6.                  1997 Ford F150 Series

7.                  1986 Toyota Pickup

8.                  1995 Acura Integra

9.                  1987 Nissan Sentra

10.              1986 Oldsmobile Cutlass

The NCIB also discovered through its research that in 2003, 1,260,471 motor vehicles were reported stolen at an estimated value of over $8 billion. Since recovery rates are only about 65%, that means a tremendous number of vehicles are either cut up for parts, exported to other countries, or reappear as clones, the latest trend in an ever-growing list of fraudulent car schemes.

But the organization doesn’t stop at compiling statistics. It has formulated what it calls its “layered approach” to auto theft protection by putting together some suggestions to make vehicles less attractive to thieves. NICB’s four layers are:

  1. Use common senseand take advantage of what’s already available to you.  The first line of defense is to use the anti-theft devices that are standard on all vehicles  – the locks. Always lock your car and take your keys.
  2. Having and using a visible or audible warning device is another item that can abort a potential robbery before it happens.
  3. “Kill” switches, fuel cut-offs, and smart keys are examples of how technology can be extremely effective in stopping a thief in his tracks. Chances are, if your car won’t start, it won’t get stolen.
  4. The more expensive high tech tracking devices can alert you and law enforcement the moment an unauthorized driver decides to take your vehicle. Using one of these items will ensure that the local police will apprehend the car thief.

One final thing to remember about auto theft is that it doesn’t always happen when your car is use. It can happen when you take it to the garage for repair. Always be sure that when your vehicle is damaged, that you take it to a reputable repair shop. It is an unfortunate fact of life that some less than ethical garage owners can see your car as supplemental income by having it “stolen” and cut up for parts.  It is important to know whom you are entrusting your car to so that you don’t end up in the market for a new automobile.

Employers Paying the Price for Off-The-Job Injuries

Employers have spent the last few years putting more emphasis on workplace safety, to meet with the ever-increasing demands of safety-based regulations. According to the National Safety Council, their combined efforts have lowered workplace death rates 17% since 1992.  However, while businesses have been working to keep their employers safer and healthier while on the job, their efforts have been thwarted by the rate of fatalities occurring off-the-job, which has risen 14% in that same period. Companies find themselves spending a great deal of money to cover injuries from accidents unrelated to the workplace.

Statistics gathered for 2004 indicate that twice as many workers (which translates to 6.8 million people) were seriously injured while they were away from work than were injured while working. There were 49,000 injury-related deaths in 2004 that involved workers, and approximately 90% of these happened during non-working hours.

During that same period, the cost of employee injuries, both on- and off-the-job, was over $330 billion. Almost 60% of this figure went towards medical costs for injuries that occurred while employees were not at work.  This translates to a $200 billion loss by the companies in payouts to employees who didn’t even qualify for worker’s compensation. In addition, non-work related injuries caused employees to lose 165 million days of work time. Compare that number with the 80 million lost workdays that resulted from actual workplace injuries.

The impact on business is even more significant than may appear on the surface. The Agency for Healthcare Research and Quality discovered that more money is spent on medical care to treat trauma and poisoning for people of working age than for any other health condition including cancer, heart conditions, mental disorders, upper respiratory conditions and asthma. In fact, the fallout from non-work related injuries on businesses is becoming so important that the country’s first “Off-the-Job Safety Symposium” was held at Disney’s Contemporary Resort in Orlando, Florida in early 2006. Businesses are beginning to understand the economic value of keeping their employees safe both on and off the job.

A survey of 1,300 companies conducted by the National Safety Council verified that businesses implementing off-the-job safety training programs are already realizing the benefit: 58% reported a drop in the number of employee injuries that occurred outside of work. Compare this to research presented at the 17th World Congress on Safety and Health at Work in the fall of 2005, which showed that every dollar businesses spent on safety instruction yielded $3 to $6 in savings in future health care costs, proving once again that prevention is the key.

Insuring Your Vacation Rental Car: How to Prevent Being Over or Underinsured

While most people take the time before a vacation to research the best rates on rental cars, they generally forget to research insurance coverage for their rental car ahead of time. This can lead to costly mistakes either by being underinsured or by purchasing too much coverage. 

To prevent either of these scenarios, car renters should spend a few minutes before a trip to make sure they are adequately insured.  Your insurance company will inform you as to what coverage on your own car applies to rental cars.  Generally when renting a car for pleasure, your personal auto coverage applies to the rental car.  However, if you don’t carry comprehensive or collision coverage, you will not be protected if your rental car is stolen or damaged in a collision and you should consider purchasing the rental company’s collision damage waiver.

When paying for the rental with your credit card, the company and/or bank which holds the credit card may also provide coverage.  Call the 800 number on the back of your card for more information.  Generally credit card insurance benefits are secondary to personal insurance policies and any insurance offered by the rental car company.  Be sure to ask for a written copy of the credit card company’s insurance coverage information. 

Once this research has been conducted you should have a clear idea if you need additional coverage through the rental car company.  Costs and coverage varies from state to state, however, renters generally have the following products available to them:

Collision/Loss Damage Waiver
Costing between $9 and $19 per day, this “waives” financial responsibility for theft or damage to a rental vehicle other than for accidents involving such factors as speeding or driving while intoxicated. 

Liability Insurance
While rental companies by law must provide a minimum of liability insurance; the coverage is usually so low that it does not provide enough protection.  Supplemental liability insurance costs between $7 and $14 a day for $1 million in liability coverage.

Personal Accident Insurance
For $1 to $5 per day, this offers you and your passengers coverage for medical bills resulting from a car crash. Your health insurance or auto policy personal injury protection may provide adequate coverage. 

Personal Effects Coverage
For $1 to $4 per day, this insures against theft of items in the car.  Your home or renters insurance policy may also provide this protection.

Private Companies Increasing Risk as Their Scope Widens

Competition is the name of the game in American business, and staying competitive means taking some calculated risks. Everyday, more privately held companies are choosing to take those risks by entering areas that were once considered the exclusive turf of large corporations. Of course, as these smaller players enter the arena of the big leagues, they find themselves part of another once exclusive domain of the large corporation – the liability lawsuit. Add workplace fraud and extortion to the mix, and you can’t tell the players apart without a scorecard.

The existence of this brave, new world of small business is revealed in data presented by the 2005 Chubb Private Company Risk Survey. The data showed that 67% of the private companies surveyed are planning to enlarge the scope of their product offerings, while 20% plan to reduce employee benefits, 21% plan to eliminate workers, 18% plan to take on an outside board member, 27% plan a significant acquisition, and 31% plan to outsource some part of their operations.

Despite their newfound need to push the envelope, amazingly enough, 33% of private companies questioned do not plan to purchase any type of management liability insurance such as directors’ and officers’ liability, employment practices liability, fiduciary liability, errors and omissions, crime, kidnap/ransom and extortion, and/or workplace violence. The two major reasons given for not obtaining coverage were that they didn’t see a need, or they felt there was an extremely low risk of the company encountering a problem. High hopes aside, about two-thirds of the private companies responding to the survey had experienced some management liability situation within the past five years, primarily in the areas of employment practices liability, directors’ and officers’ liability and workplace crime. The 161 companies that admitted to having been a defendant in an employment practices liability lawsuit or Equal Employment Opportunity Commission charge faced an average cost of $1.1 million. Companies that were victims of stolen company funds, equipment, inventory or merchandise saw an average loss of $348,000.

Most of the private companies polled indicated that they had tried to implement business practices that would mitigate risk from a liability lawsuit or crime:

  • 9 out of 10 companies have a written policy regarding employment discrimination and sexual harassment;
  • 73% have policies, procedures and training programs regarding loss prevention;
  • 64% provide employment discrimination and/or sexual harassment training to their employees;
  • Approximately three out of four companies use contracts in dealings with third-party clients;
  • 71% use employee background checks;
  • 44% have a written corporate governance program;
  • 24% have implemented corporate governance rules under the Sarbanes-Oxley Act.

Despite their previously utopian outlook, many executives of these surveyed companies realize that they are entering into much more turbulent waters: 43% indicated concern about a possible lawsuit over termination, discrimination or sexual harassment in the year ahead. However, only 33% of these companies protected themselves by purchasing employment practices liability insurance. The unfortunate conclusions drawn from this data seem to show that companies most vulnerable to a liability lawsuit or crime are the least likely to purchase any type of liability coverage.

Protect Yourself When Taking on a Remodeling Project

Due to sustained record low interest rates, many homeowners have elected to take on major home remodeling projects.  According to the National Association of Home Builders, approximately 26 million Americans spend more than 180 billion annually on home improvements.   In many cases, however, homeowners are not updating their insurance at the same time, leaving themselves extremely vulnerable.

Making sure you are appropriately insured should begin at the very start of a project.   A contractor should not be hired if they cannot produce their certificate of insurance.   The contractor should provide you with a copy of their certificate, which shows the type and amount of their insurance coverage.  This should include general liability, workers’ compensation and auto coverage, and the policy must be current. 

It is equally as important to make sure that any subcontractors that your contractor brings in to the job are similarly insured.  This is particularly important now, as insurance rates for the construction industry have recently risen significantly.  You want to make sure a member of your remodeling team didn’t choose a coverage lapse over a premium increase.

When you choose to take on a remodeling project yourself, you must review your own coverage for liability and property damage issues, particularly when bringing in subcontractors to help with the work.  As the homeowner, you may be liable if they are injured during the scope of your project.  Even if your current policy covers any injuries related to the renovation, we often recommend that homeowners carry umbrella liability coverage, which would cover a claim beyond normal limits.

In addition to liability issues, it is key to increase your homeowner’s coverage based on the added value to your home.  Kitchen and bathroom renovations are the most common and tend to be quite costly.   They also substantially increase the value of a home.

Homeowners should use caution not to over-insure themselves.  Don’t increase your insurance based on the cost of the remodel.  You should determine how much it would actually cost to rebuild your home with the added improvements.  This replacement cost is the amount that needs to be insured.  The cost to remodel also includes tearing out old materials.  Therefore, in some cases, the cost difference to rebuild the home may be less than the actual renovation cost itself. 

The most important item to consider is to contact your insurance agent to increase your homeowner’s limits before, not after, a renovation project.  This will ensure that you are covered should any fire or damage occur during a renovation.

EEOC Casting a Bigger Net to Catch Systemic Discrimination

Commissioner Stuart Ishimaru of the U.S. Equal Employment Opportunity Commission issued a stern warning to American businesses when he spoke at the Employment Practices and Fiduciary Liability Symposium sponsored by the Professional Liability Underwriting Society. He cautioned that the EEOC is shifting its focus from small individual cases to larger systemic issues, even some that will cut across entire industries. He added that the change in emphasis was the result of limited resources that were stretched too thin to fight all potential employment discrimination cases.

Commissioner Ishimaru also noted that the agency needed to choose its targets more carefully, especially in litigation. In order for the EEOC to change attitudes and deter bad behavior in employment practices, targets must be bigger than they’ve been in the past. To that end, the agency has adopted recommendations from an internal task force report that focuses on strengthening its nationwide approach to investigating and litigating systemic cases.

The task force was established in 2005 to examine the EEOC’s systemic program and recommend new strategies for handling this type of employment discrimination. The task force worked for nearly a year, conducting interviews, holding focus groups, and polling EEOC staff. One of the outcomes of their work was a specific definition of systemic cases as a “pattern or practice, policy and/or class cases where the alleged discrimination has a broad impact on an industry, profession, company, or geographic location.”

Another outcome was a plan to revitalize the agency’s systemic program by having district offices analyze data to spot problems within their regions’ industries.Most employers are required to file an EEO-1 report that breaks down race, gender and ethnic composition of employees. These EEO-1 statistics will be used to uncover problem employers and industries. In addition, members of the EEOC Commission and employees involved in outreach will be encouraged to educate employers and other members of the public about systemic discrimination, including trends and issues the agency has identified and cases the agency has handled.

Commissioner Ishimaru also hinted at the possibility of the EEOC using testers either directly or indirectly in enforcement. Testers are job applicants with similar resumes but different races or ethnic backgrounds that apply for the same jobs.

In addition to those changes described above, the Commission also approved some other significant operational changes:

  • Systemic investigations and litigation will be conducted in the field, and the systemic investigation and litigation units in headquarters will no longer exist.
  • Each district in the field must develop a plan that will ensure the Commission is identifying and investigating systemic discrimination in a coordinated and effective manner throughout the agency.
  • The Office of General Counsel should staff systemic cases using a national law firm model, meaning that cases will be staffed with employees who have the expertise suited to each particular case.

The most significant change in this overall shift in focus is the decentralization of the agency. Field offices are expected to handle all systemic investigations and litigation. They will be partnering to share expertise, in order to maximize resources. Headquarters will now assume a secondary role as a provider of assistance and support for the field offices’ systemic program.

Avoid Sewer and Drain Damage to Your Basement

Millions of dollars are spent every year repairing damage to basements caused by sewer and drain backups.  There are some ways these problems can be avoided, instead of having to repair the mess from a sewer or drain backup. 

Make sure your drainage systems are working properly.  The downspouts from your gutters should extend beyond the foundation of your home so that water is not left to trickle down basement walls.  Along those same lines, your yard should gradually slope away from the foundation, so surface water drains directly to the street.  Keep drain lines clear, especially if your gutters connect to storm sewers. 

There are several types of anti-backflow devices that can help reduce the chance of basement flooding.  Check-valve devices allow water and sewage to flow away from the drain, preventing backup into the drain.  Gate-valve devices close and shut off the flow of water and sewage, preventing backup.  Anti-backflow devices are either manually or automatically operated.

Sump pumps are another option to consider.  Single and dual-level sump pump systems are available, and a battery or generator can be used to power the pump in case of a power failure.  Sump pump systems should be checked monthly.  Check local building codes or consult your plumber to ensure your sump pump is connected properly.  Sump pumps should not be connected to your home’s waste plumbing system.

Despite your best efforts, sometimes water will still get in your basement.  Keep storage items off the floor and keep furniture on casters or shims, away from floor drains.  If your basement is finished, ensure that you consult plumbing and building professionals to design a drainage system that will prevent damage to your finished space. 

Despite the amount of damage backups can cause, many homeowners’ policies do not include coverage for sewer and drain losses.  Check with your agent to determine if an additional endorsement can protect you from this costly problem.

Data Shows Slight Decline in Federal Products Liability Lawsuits

Product liability cases can send companies into a financial tailspin as they strike at the very core of a business. A company in the midst of a product liability suit can find itself faced with having to pay punitive and compensatory damages, recall and/or redesign products, respond to regulatory actions, make up for lost cash flow because of the devaluation of its stock, deal with negative publicity and try to stem the flood of employees leaving because of bankruptcy fears.

Given all of these damaging consequences, it’s relieving that information compiled by LexisNexis Market Intelligence database shows a downward trend for the second year in a row in the number of total federal product liability lawsuits filed in the U.S. The number of lawsuits dropped 14 percent from 2004 levels to less than 24,000 in 2005.

This downward spiral broke the previous upward trend that had begun in 2001 when just over 5,000 filings were made. That number increased to over 13,000 cases filed in 2002, and continued upward in 2003 when 17,000 filings were made.  The number of filings peaked in 2004 with nearly 28,000 lawsuits.

In spite of this good news, companies aren’t completely out of the woods yet. Product liability lawsuits are still at very high levels from a historical standpoint. Many legal experts are trying to determine if this recent decline is just a temporary aberration or the beginning of a real downturn in the number of new suits.

Whether a temporary stay of execution or a lasting change, your company can still be vulnerable. That’s why every company should have a products liability risk management plan. Use the following questions as a guideline for determining if your company has an effective product liability risk management program:

–    Do we have a product liability plan that is routinely reviewed and updated as necessary?

–    Have we integrated our product liability plan into our corporate strategy?

–    Is our product liability program fully supported by our senior management team?

–    Do we have the policies, procedures, and tools in place to maintain proper documentation throughout the life of the product?

–    Have our business units been tagged with the responsibility to reduce overall product liability costs?

–    Is our product liability plan based on best practices?

–    Is planning for product liability issues part of our product design team and/or product development team?

–    Are we factoring in the potential product liability risk when pricing our products?

–    Have we integrated our product liability plan with our business continuity plan and/or our emergency response plan?

–    Have we incorporated external and internal communication activities within our product liability plan?

–    Do our product liability plans ensure compliance with all applicable regulatory requirements?

–    Do we have the necessary resources to deal with a product liability event?

–    Do we have the applicable tools in place to aid in mitigating any financial impact due to product liability?

–    Do we understand how our vendors/suppliers deal with product liability on those supplies they provide to our manufacturing facility?

Above all, always keep an eye on the marketplace and on your competitors. Knowing what is happening to other members of the industry can help you avoid product liability lawsuits rather than find your company as the defendant.