Why Your Business Needs an Umbrella Liability Policy

Undoubtedly, you have worked extremely hard to build your business, and it represents your livelihood. Unfortunately, all it takes is one liability claim to put you out of business. You have surely heard the stories on a regular basis, and while the odds may be against such a thing happening in your business, not everyone is fortunate enough to play the odds and win.  Most small businesses need
at least a $5 million umbrella policy,
while medium-size, large, and high-risk businesses
need significantly more. Here are examples of real-life cases that cost millions to settle:

  • $1,750,000 Premises Liability – Fall Down – Plaintiff falls on icy patch in parking garage – Traumatic Brain Injury – Latent Post Traumatic Stress Disorder from military service is triggered – Loss of consciousness.
  • $3,626,400 Gross Verdict  Reduced By 25% Comparative Negligence – Landlord’s Negligence – Sawdust  and wood shavings left throughout  apartment. Landlord removed  built-ins – Plaintiff slips and falls – initial lumbar bulge progresses  o herniation, then extrusion – Surgery seven years later – Resolving cervical herniation.
  • $4,842,000 Verdict – Failure of housing authority to repair clogged drain in dark boiler room. Fall – aggravation of  prior soft tissue injuries which were superimposed on spondylosisthesis- cervical herniation – inability to work- Plaintiff’s family allegedly required to relocate to native Greece because of inability of plaintiff to provide for family.
  • $4,000,000 Confidential Recovery – Motor Vehicle Negligence – Intersection Collision – Plaintiff’s vehicle is struck by the defendant’s truck when it rides through stop sign at intersection – Brain injury alleged – Post Concussive Syndrome – Concussion – Herniated discs.

Successful business owners practice risk management because they know things like this can happen. By having adequate insurance, including an umbrella liability policy, business owners can run their businesses with minimal disruption. If, on the other hand, a business has insufficient insurance – such as a $1 million per occurrence liability policy when faced with a $4 million claim – this will result in serious financial and possibly reputation-related issues that need to be resolved. Most small businesses need at least a $5 million umbrella policy, while medium-size, large, and high-risk businesses need significantly more. As illustrated in the cases listed above, it is not uncommon for incidents to run into the millions. For many business types, having a multi-million-dollar umbrella policy is not expensive and is well worth the protection it provides. In addition, most policies come with unlimited defense, which provides legal defense with attorneys who are experienced in settling similar cases. The cost of not having sufficient coverage for a given claim is huge, and it has the potential to put you out of business. In addition, it can be next to impossible to sell a business with a pending legal incident. Bankruptcy due to a lawsuit can also ultimately put you out of business as well as deplete your net worth and ability to sell the business. For these reasons, an umbrella should always be discussed when putting together your business insurance program. Simply having a policy is not enough; it is vitally important to ensure that you get the right coverage.

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No, You Are Not Covered: Some Gaps That a Business Owner Policy Does Not Cover

The last thing a business owner wants in the event of an incident is for the claim not to be covered. In most cases, successful business owners need to have more than one policy type to properly protect themselves; however, this depends on the type of business and exposures that you have.

Your business is your career; properly protecting it means the continuation of your livelihood, while not having the certain policies in place may result in bankruptcy and closure of the business. For this reason, it is vital to understand what liability coverages and policies are available so as to protect your business from costly lawsuits.

Most business owners are required to have General Liability (GL) coverage to satisfy their lease requirement. GL coverage, which is typically the first policy that a business purchases, is often purchased in a package, sometimes referred to as a Business Owner’s Policy (BOP). A GL policy covers injuries caused to others and damage to the property of others; it may also cover personal and advertising injury coverage, such as incidents caused by libel or slander. Many (but not all) of these policies include products liability, which covers defective products that may cause injury or property damage. The following paragraphs discuss some types of exposure that are not covered by a BOP or a General Liability (GL) policy, as well as possible solutions to get coverage: Employment Practices Liability (EPLI)
EPLI insurance is becoming more and more necessary for both large and small employers. EPLI provides protection against employee lawsuits regarding issues such as discrimination, sexual harassment, failure to employ, and many others. This coverage generally does not pay for punitive damages, but it will pay for the company’s legal costs associated with a covered lawsuit. Errors & Omissions (E&O) Coverage Also known as malpractice insurance, E&O provides coverage to individuals and firms who provide some form of expertise and/or counseling to their clients. When a professional receives payment in exchange for services, they are held to a high standard by both the client and the legal system. While incidents are not common, those that do occur are very costly. Having the right insurance coverage in place helps to allow the continuity of a practice by transferring potentially huge financial burdens to the insurance company. Directors & Officers (D&O) Liability This type of insurance is used to protect a company’s directors and officers from legal action, which can come from competitors, government agencies, creditors, employees, stockholders, or other third parties. Any firm with a board of directors (e.g., privately held companies, non-profit organizations, and homeowners’ associations) needs this coverage. Anyone serving on a board without this coverage is putting their personal assets at risk.
Pollution Liability
This type of insurance policy covers environmental liabilities excluded by standard General Liability insurance. Specifically, this coverage helps to protect contractors in the event of pollution incidents, such as contaminated soil disposal or the accidental release of fuel oil, chemicals, or toxic gases from broken pipelines, utilities, or stationary or mobile fuel tanks. Auto Liability
Even a business that does not own any vehicles should not neglect getting Auto Liability. If an incident occurs during working hours and the injured employee was using his or her personal vehicle for business use, the business may be named as a party to legal action on any injury or property damage that may result. If the business uses personal vehicles on the job full time, it is probably best to have those vehicles insured through the company to make sure the company has coverage against legal action due to an automobile incident. Workers Compensation
This type of coverage, which covers injuries on the job, is required by state law for businesses with employees, and employers can be fined for not carrying it. It also protects you from being legally liable should an injury occur.
Products Liability
This type of coverage is often, but not always, included under a General Liability policy. If it is excluded and you manufacture or sell products, you will not be covered unless you have a separate Products Liability policy. The significance of this coverage is that if a product originates from your business – regardless of whether you are the manufacturer, retailer or anyone in between – you will probably be named in the event of a lawsuit regarding that product. Products Liability does not cover recalls, but it does cover property damage or injuries caused by a product. Because each business is different, it is important to review all potential exposures with your agent as well as legal counsel to determine the best way to address each potential liability exposure. Having insurance in place helps to bring more certainty to your business. Since all you pay is the premium, you do not need to worry about losing your business as a result of spending huge amounts of money on claims that most people have no idea how to handle. Although insurance does not cover every possible exposure, the more coverage you get that applies to your business, the more you will be helping to avoid the possibility of future

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What Is a Workers Compensation Rating and Why Does It Matter?

Most business owners and executives understand the value of workers compensation insurance not just to protect the worker, but to protect the company as well. Fewer, however, are aware of the mechanics of how premiums are arrived at, and how their own company’s safety track record figures into their rating. Understanding the process, however, may well enable you to qualify for lower premiums down the road, saving your business money and making you more competitive.  

“…to save money on workers compensation premiums, it behooves the company to invest aggressively in preserving the safety of the work environment, both in terms of resources and management focus.”

  Industry underwriters set workers compensation premiums using a process similar to how most companies price group health insurance: They look at the actual claims experience for similar workers in your area, and if there is a history of claims, at your company specifically. Where there is insufficient local claims experience to look at, underwriters turn to the National Council on Compensation Insurance, a clearing house of workers injury and compensation data. Generally, underwriters will take your payroll and multiply it by an average claim factor for that type of worker. This produces a baseline average of the total number of expected claims, which they subdivide as claims per $100,000 of payroll, claims per year, or claims per time unit. The frequency of claims is considered to be a close proxy for the safety culture of the individual business. They then account for the average severity of claims for that type of worker in your industry and combine the two to arrive at a baseline prediction for expected losses. Underwriters must then try to assess your business and answer the following question: Given the policies and procedures in place at your business and your claims history, is your company likely to produce losses that are higher than the industry baseline or lower? Over time, underwriters have discovered that the most likely future claims predictor is a past history of claims at your company. Therefore, to save money on workers compensation premiums, it behooves the company to invest aggressively in preserving the safety of the work environment, both in terms of resources and management focus. Your workers compensation agent and underwriting team will assign your company an insurance rating, with 1 deemed equal to the average claims experience in your industry for the area. Any rating higher than 1 indicates a worse-than-average risk for workers compensation claims. If your rating comes out higher than 1, you may be able to qualify for lower rates in future years by reviewing your safety program and the types of losses your company has incurred. Identify any patterns and recurring themes. You may benefit from bringing in a risk management consultant for an outside set of eyeballs. Some investment in equipment or improved training may be needed, or you may need to be more vigilant for workers compensation fraud in a few cases. Best Practices In the long run, your safety record is a reflection of your overall safety culture. That’s not something limited to the rank and file worker and shop foremen, though. The most important link in the safety culture chain is at the top. • Invest in training your workers in all aspects of safety relevant for their jobs. • Appoint a senior manager with clout to monitor your safety and OSHA compliance, and empower him or her to enforce it throughout the company. • Empower any worker to halt work activities if he or she becomes aware of an unsafe work condition, until that condition can be corrected. Everyone is part of your workplace safety culture – but senior management is the most important link in the chain, because management sets the tone throughout the

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Is Your Company Prepared for a Wrongful Termination Lawsuit?

When employees must be fired or laid off, there is always a chance they will try to file a lawsuit. For employers, the problem is that they are always the responsible parties for dealing with any allegations.

“…employment practices liability insurance is not something all businesses have enough of. This coverage keeps employers from having to pay out of pocket for expensive legal fees and substantial judgments. Having insufficient coverage could result in the need to come up with millions of dollars or close the business. EMPLI covers judgments, court costs and legal representation.”

In the following case, employers thought they were terminating a worker for not appearing on the job, but the jury decided otherwise.

A truck driver filed a lawsuit against his employer after refusing to return to work while a severe thunderstorm was in effect. The employer did not acknowledge any wrongdoing in firing the truck driver for his refusal and claimed the employee was only embellishing details to avoid work. The plaintiff worked as a hazardous materials tanker truck driver, delivering gasoline and diesel to many commercial businesses in California and Nevada. His duties included filling generators and vehicles from the tanker. On the day the incident happened, there was a severe thunderstorm in the area where the truck driver was working. During the storm, the driver made several deliveries. However, he also contacted dispatch multiple times to complain about the hazardous weather. He requested to return back to base, and he had to work for eight hours before being allowed to clock out and leave. Three hours after leaving, he was contacted by representatives from his workplace who said he had to return to work.

Reiterating the threat of inclement weather, the driver refused. He also said that he had been drinking after work, so returning to the job to drive was dangerous. On the following morning, the driver was fired after 13 years of employment. He filed a lawsuit citing violations of his rights and asking for damages. Before the trial, an offer of $100,000 was made. During the trial, there were several witnesses and experts called in to analyze the severe weather conditions described by the truck driver.

The company that fired the driver argued that it was right to dismiss him, and representatives claimed that he fabricated events to prevent himself from returning to work to do his job during the storm. They also claimed that he made unreasonable complaints about his driving route and did not believe he had really been drinking after work. Although the company claimed the driver did not complete his deliveries, they failed to show documentation to back their claim. Within one month of the worker’s termination, personnel had destroyed a considerable portion of his records. One record did show that the plaintiff called and stated he had been drinking.

In the end, the jury decided unanimously that the company was at fault for wrongful termination. The plaintiff was awarded over $160,000 for past damages and $2.5 million for mental suffering and non-economic damages. On the following day, the jury returned and awarded the driver well over $3.5 million in punitive damages. The total verdict was more than $6.2 million and included all fees and awards. These types of cases are certainly not something any employer wants to deal with, but they are a very real possibility. In addition to this, many employers do not know which attorneys are best to hire, and employment practices liability insurance is not something all businesses have enough of. This coverage keeps employers from having to pay out of pocket for expensive legal fees and substantial judgments. Having insufficient coverage could result in the need to come up with millions of dollars or close the business. EMPLI covers judgments, court costs and legal representation.

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Understanding How Experience Rating Works

Many people wonder why it is necessary to use experience rating to predict future losses if workers’ compensation rates are designed for this purpose. Experience rating can benefit employers.

The prospects of both bad credits and debits are implicit in the majority of risk-specific programs dealing with experience rating. Since it gives an employer some influence in how much the final premium will be, this gives an incentive for them to develop their loss prevention strategies. It is also good for them to form incentives that encourage injured employees to return to work as soon as they are able. When this happens, experience rating can be beneficial to employers by increasing occupational safety and health.

Experience rating shows a refinement in processes of premium determination. It creates a net premium cost for employers, which means their costs will be appropriate for the provided coverage. Experience rating shares or spreads the cost of a loss with all group members who are likely to go through similar losses. Although the probability and cost of injuries for an entire group as a whole may not be accurately predictable, it is not possible to decide which member of the group will ultimately be responsible for costs.

This is why there is insurance. If it were possible or easy to predict, group members who do not experience loss would not have any incentive to purchase coverage. Meanwhile, the premium charge for members experiencing losses would need to include the loss costs.

Serious injuries to individuals are usually rare, but the totals can be minor amounts or reach well into the millions. For workers’ compensation, the easiest rating method is manual rating. With this system, employers are categorized according to business classifications or operations. Group losses are estimated and then added as an average.

 Employers are assigned to specific classifications to make sure the rates they receive are reflective of the costs all similar employers have. While each classification comes with similar risks, individual ones are different in some ways. However, experience rating is designed to reflect individual differences. Insurance providers would be able to look for employers with lower costs and avoid ones with higher costs if the rating system were only manual.

The system needs to be refined to avoid such a scenario, and experience rating falls under that category.

With workers’ compensation experience rating, individual employers’ loss and payroll data are analyzed over time. The most recent three years of data is reviewed against similar groups’ risks to determine the experience modification. An employer that has better experience ratings will be given credits, but those with less will be given debit ratings.

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