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Type of Construction & How It Affects Your Premium

Calculating premium for Real Property has many different factors. One of the largest factors involved is the type of construction of the building. Use this article to find out how to determine what type of construction your building is, and what the construction type might mean for your rates.

While there are various styles of buildings and many different building materials available, each structure can be categorized into a certain class, based on the construction of its outer walls and what the floors consist of. Below you will find the different classes used, and how they compare to one another. The list is organized from Most Susceptible to Fire, to Least Susceptible to Fire:

Frame/Brick Veneer:

This type of construction is the most common for homes and small commercial buildings. This class gets its name from having the structure framed and supported by wood or light steel frame. Brick Veneer is part of this category because the brick on these buildings does not actually support the structure. Frame construction is the easiest class to burn down or blow over, but it is also one of the cheapest and most versatile buildings to construct.

Joisted Masonry:

In this class, the building is supported by cinder blocks, precast cement walls, or layered, load-bearing bricks. When cinderblocks are used, a brick veneer façade is often added for visual appeal, but, again, the bricks add no structural support. While the outer walls are masonry, the floors will be wood or light steel joists. Being so, this class is more expensive to build, but is less likely to be burned down or blown over than Frame.

Non-Combustible:

As the name implies, these structures are made of non-combustible materials. This type of construction is typical used for utility buildings and garages, as the structure is entirely made of light steel or similar light, non-combustible materials. These types of structures are harder to burn down than both Joisted Masonry and Frame, but wind resistance varies. These buildings are also less furnished than other structures (no drywall, no insulation, exposed wiring, etc.), making them cheaper to build than the other construction types.

Masonry Non-Combustible:

In Masonry Non-Combustible, the outer walls are made of cinder block, load-bearing brick, or poured cement, while the floors are either heavy steel, poured concrete, or both. This is typically the type of construction used for small to medium sized commercial/industrial buildings. This construction type makes the building harder to catch on fire and sturdier than the Joisted Masonry construction, making it safer.

Modified Fire Resistive/Fire Resistive:

These types of constructions are used for mid-sized to large buildings (E.g. Skyscrapers, multi-floor shopping complexes, etc.) as these buildings typically hold a lot of people and a lot of property. The construction can vary slightly, but these buildings are a step above Masonry non-combustible as fire-proofing techniques have been used on the structure. The jump from Modified to full Fire Resistive depends on the degree of the fire-proofing done. The common fire-proofing test is a multi-factor test. (The class rating is determined by the inside temperature staying below ‘X’ degrees for ‘Y’ or more hours with a fire burning at ‘Z’ degrees. Different variants of ‘X’, ‘Y’, and ‘Z’ create different fire-proofing classes of fire-proofing. )

Why Do These Classes Matter?

Determining the construction of the building is an essential part to receiving a quote. All property-insurers will need to know the construction type before they can provide a quote. This is because each construction type carries a different rate, depending on its susceptibility to certain perils (E.g. Fire). For example, let’s say you have an apartment building you wanted to insure. You think it is Frame construction when it’s actually Joisted Masonry. The premium you’ll pay is going to be higher than if it was properly rated as a Joisted Masonry building. Furthermore, some buildings are too risky to insure if they weren’t constructed with appropriate materials. As an example, some companies will refuse to quote buildings over two stories if they are Frame construction.

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.

Preparing for Winter: A Homeowner's Guide

The leaves are starting to fall, the days are getting shorter, and Husker Football is in full swing. Just around the corner is winter, and with it brings many possible headaches for homeowners. This article will give a list of items to do to prepare the exterior of your home for the winter.

The autumn chill has set upon Nebraska, whether we like it or not. The months ahead will only get colder, and with Nebraska weather you never quite know what to expect. Though there are some things you just can’t avoid (thus your Homeowner’s policy), there are a few maintenance items that you can do to help keep your home claim-free this winter:

• Start out with a visual inspection of your roof. If it’s a pitched roof, make sure there aren't any missing shingles or tiles. Also make sure to check for warping and worn-out shingles. For those with flat roofs, make sure bubbles haven't formed, and make sure that the gravel is thoroughly covering the membrane. Have any problems fixed.

• Next, inspect the flashing. The flashing is the covering where your roof changes from sloped to vertical (or horizontal to vertical).  It can also be found around skylights, vents, and chimneys. Worn out flashing is a great place for water to slip underneath, causing big headaches later on. Make sure to have any damaged or worn out flashing replaced.

• While still on the roof, make sure all of the gutters and downspouts are clean. Leaves, dirt, and shingle bits can clog them (parents, you might find some missing toys while you're at it!). Clogged gutters will trap water, and when it freezes, all sorts of problems can happen.

• Now make your way off the roof to inspect the premise. Make note of any trees with dead branches or branches that hang over your home. Make sure to have these types of branches trimmed, as the weight of snow and ice along with high winds could make them fall, damaging your roof or hurting someone walking underneath them.

• If you found large problems with your roof and it needs to be replaced, now is the time to consider upgraded hail-proof roofing products. Many insurers will provide a discount for new roofs, and most offer an additional discount for hail-proofing.

Nobody likes claims, so take an afternoon to check over the exterior of your home. Catching a small problem before it turns into a big one could save you a lot of time and money! 

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.

Agreed Value: Combating Coinsurance

In this article, we will be discussing how Agreed Value affects the Coinsurance Clause on property insuring policies, and how Stated Value works on your auto policy. Please be familiar with Coinsurance, Replacement Cost, and Actual Cash Value before reading this article.

The Coinsurance Clause is a safeguard that keeps property properly valued. You can insure your home for its full worth with Replacement Cost (RC) valuation, or you can insure it for its depreciated worth with Actual Cash Value (ACV). However, sometimes you want to insure something for an amount that isn't either of those values—this is where Agreed Value comes in.

Let’s use an older home for an example. Its Replacement Cost is $350K, and after depreciation, it’s only technically worth $200K, which is the Actual Cash Value amount. However, its market price is $150K. Wanting to insure it for what it is worth on the market would end up in a coinsurance penalty at claim time, so you changed the valuation to Agreed Value. With Agreed Value, the Coinsurance Clause is suspended, so no penalty would apply if a loss were to occur. Using Agreed Value usually results in a premium charge, but would most likely cost less than insuring the home for the full $200K.

Another use for Agreed Value is going beyond ACV. Using the same values as the first example, let’s say the homeowner has put a lot of time and money into the house. The homeowner believes the home is actually worth $250K. Using ACV, the most that the homeowner would receive after a total loss is $200K. However, using Agreed Value, the homeowner can insure the home for any amount he or she wants that is in between the ACV and RC amounts—as long as the insurer will agree to it.

When insuring vehicles, insurance companies automatically insure them for ACV. The Stated Value of the car is the current value, which accounts for depreciation. However, if the car is damaged mid-term, the Stated Amount given at the policy inception may be outdated, and the amount paid out may be less than the Stated Amount. To bypass the Stated Amount uncertainty, vehicles can be insured at an Agreed Value. If the carrier allows for Agreed Value, the value shown for the car is the exact amount paid out after a total loss.

Agreed Value allows for policy flexibility that would otherwise be impossible with the Coinsurance Clause and Stated Value. There's a lot of options at your disposal to create the perfect insurance program for your situation, so make sure to discuss it with your agent!

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.

Introduction to the Directors & Officers Policy

The Directors & Officers (D&O) policy has many similarities with other forms of liability insurance. However, the D&O policy is specifically used to protect the upper management (CEOs, CFOs, etc.) from lawsuits claiming that they've made poor decisions that have negatively affected the company/organization.

The Directors and Officers (D&O) policy is another straight-forwardly named insurance policy. It insures Directors and Officers of both for-profit and not-for-profit organizations, including educational institutions and privately held firms. It was created for CEOs, CFOs, and other directors, officers, and board members as they can be sued for their company's/organization's poor financial performance, and/or mismanagement of funds. Directors and officers have high levels of liability since they are such key players in their firms. Since they are often sued for being the cause of adverse financial situations, whether or not it was a foreseeable/preventable event, the D&O policy is often looked at as an extension of an Errors & Omissions/Professional Liability policy.

Triggering coverage of the D&O policy would happen when one or all of the directors and officers are brought into a suit that demands financial compensation for decreased value, mismanaged funds, and/or poor performance of the organization (supposedly) caused by their managerial decisions. (Note: the D&O policy will not cover claims of bodily injury or property damage, because those should be covered by other types of insurance) ‘Supposedly’ is in parenthesis because all accusations against the directors and officers, even if they are completely unfounded, will trigger coverage from the D&O policy. Once the policy has been triggered, it would then pay for their legal defense costs, and would cover any settlements or judgments made.

Noteworthy Elements of the D&O Policy:

Typically, the D&O policy acts as a reimbursement for the expenses incurred by the company/organization in defending themselves, as opposed to other policies that have a Duty to Defend. In a Duty to Defend policy, the insurance company pays for the legal representation/defense costs, but also provides the lawyer(s) as well. However, most D&O policies require the company/organization to find their own legal representative(s).

Most D&O policies are written on a ’Shrinking Limits’ basis, meaning that the defense costs reduce the D&O policy limit. This is different from other liability policies, such as the standard Commercial General Liability (CGL) policy. With the CGL policy, its policy limit is not reduced by defense costs. To say this in another way, the CGL’s defense costs are paid outside or on top of the policy limit. Conversely, in the D&O policy, defense costs reduce the policy limit. 

Shrinking Limits Example: Your firm’s officers get sued after stock prices drop, so your $1mil limit D&O policy with Shrinking Limits responds. It costs $250K to defend the officers in court, and then the suit is settled for $1mil. Your D&O policy would only cover $1mil of the claim, leaving $250K to be paid out-of-pocket.

Another Element of almost all D&O policies is that they are written on a 'Claims Made' basis instead of an 'Occurrence' basis. This may require the insured to purchase 'Tail Coverage' when switching carriers. If this is the case, make sure to discuss Claims Made and Tail Coverage with your agent.

Policy language varies greatly in D&O policies, and one policy provision you need to watch out for is the Hammer Clause. The Hammer Clause refers to the policy language that states that if the insurance carrier suggests that the insured(s) offer a settlement but the Insured(s) refuse it, the insurance carrier will not pay for anything that happens afterwards. So any defense costs, new settlements or a final judgment against the insured(s) will be paid out-of-pocket. The Hammer Clause effectively forces the insured(s) to agree to the settlement, even if they believe they didn't make any mistakes. The basis for the Hammer Clause is that it is often far less expensive to make an initial settlement out of court than to battle out the suit in court. However, agreeing to pay the settlement is effectively accepting responsibility, and can be personally damaging to the insured(s) career(s) and/or can be detrimental to the firm's image when the insured(s) didn't actually make a mistake.

A Soft Hammer Clause is the policy language that allows the insured business to retain coverage after rejecting a proposed settlement from the insurance carrier. However, all expenses incurred after the rejection will be subject to a coinsurance penalty (typically 50%), requiring the insured to pay their part of the coinsurance percentage.

Stop, Hammer Time: Your $1mil D&O policy is triggered when stockholders sue for poor managerial decisions that lead to reduced stock prices. Before the court date, the insurance company offers a settlement of $300K. Since you don’t believe you made any wrong decisions, and you don’t want your public impression to take a hit, you reject the settlement and continue to the hearing. However, the final judgment ends up in favor of the stockholders and they are awarded $400K, and an additional $200K in defense costs was incurred after the settlement rejection.

With the strict Hammer Clause, you would have to pay the excess $600K out of pocket.

(400 + 200 = 600)

With a Soft Hammer Clause of 50%, you would have to pay $300K of the excess out of pocket.

( [400 + 200] x .50 = 300 )

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.

Causes of Loss—Modifying Your Protection

Every insurance policy has perils that are covered and excluded. In Property insurance policies (E.g. your home, commercial building, etc.), the policy follows the ‘Cause of Loss Forms’. The Forms are Basic, Broad, and Special. Each Form insures your property against different perils, with Special being the most thorough coverage.

Note: Before the three Forms can be properly discussed, you’ll need to know what a Named Peril policy and an Open Peril policy mean. In a Named Peril policy, the coverage provided is limited to the perils that are specifically named. If something happens that isn’t specifically named, the claim will be denied. Conversely, in an Open Peril policy, every claim scenario is covered except for named exclusions. So if a claim was caused by literally anything other than the named exclusions, it is covered.  

Basic:

As you’d expect from its title, the perils covered by Basic Causes of Loss are very limited. This Form is a  Named Peril coverage, covering your property for only the most basic perils. Typically, your Basic form will cover the following:

• Fire
• Lightning
• Windstorm/Hail
• Explosion
• Smoke
• Vandalism
• Aircraft or Vehicle Collision
• Riot or Civil Commotion
• Sinkhole Collapse
• Volcanic Activity

Broad:

Broad Form is another Named Peril coverage, expanding on the perils found in the Basic form. The Broad Form includes all of the Basic Form’s perils, and expands the coverage to include the following:

• Burglary & Damage Caused by a Burglary
• Falling Objects
• Weight of Snow and Ice
• Freezing of Plumbing
• Accidental Water Damage
• Artificially Generated Electricity

Special:

As you might have guessed, Special Form is written on an Open Peril basis, making it the most comprehensive coverage form. The biggest benefit to the Special Form is that it would cover odd, completely unforeseeable accidents that would otherwise be excluded in the other policy Forms. Being an Open Peril policy, the Special Form typically has the following exclusions:

• Ordinance or Law* 
• Power Failure*
• Earthquake**
• Flood** 
• Neglect
• War
• Nuclear Hazard
• Intentional Acts

*These exclusions could be covered by adding an endorsement to the policy and paying additional premium.

**These exclusions can sometimes be added by endorsement or by purchasing a separate policy.

The bottom line:

Not all policies are made equally. Don't leave things up to chance—always make sure to check what coverage Form your property insurance is written on. When you compare insurance quotes, always make sure to take a look at the policy language—even two ‘Special Form’ policies could have different exclusions! 

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.

Understanding Your Homeowner's & Renter's Policy

Many people don’t fully understand how their Homeowner’s or Renter’s policy works. This article will give a brief overview of the coverage included in both policies, and will provide links to articles that further explain the coverages and terms.

Homeowner’s and Renter’s insurance policies are package policies designed to cover the insurance needs of the average renter or homeowner. There is a lot of overlap with these policies, but the Homeowner’s policy covers the extra property exposures that they face. Each of the policies have coverage parts, designated by different letters. Below is each coverage part, with a description of what it does:

Coverage A, Damage to the Home:

Coverage A is exclusive to the Homeowner’s policy, as a renter (obviously) doesn't own their residence. The coverage provided can be widened or narrowed, depending on the provisions inside the policy. The first provision that modifies coverage is what valuation the home is written as—either Replacement Cost or Actual Cash Value. The abridged explanation is that Replacement Cost valuation would provide you with a brand new home after total loss, where Actual Cash Value would reimburse you with the market value of the home, allowing you to go find another home of similar price to purchase.

Another provision that modifies Coverage A is what Cause of Loss Form it is written on. These Forms define which Perils your home is insured against. The Forms are Basic, Broad, and Special, with Basic providing the narrowest of coverage and Special being the widest. Lastly, you are required to insure your home for approximately its exact worth due to the Coinsurance Clause.

Coverage B: Other Structures:

The Other Structure coverage is another Homeowner’s policy exclusive, as it covers any unattached buildings or structures on your property (such as a shed or gazebo). The amount given by the coverage is usually 15% of the Coverage A amount, and can be adjusted to accommodate your specific needs.

Coverage C, Personal Property:

Both the Renter’s and Homeowner’s policies have Coverage C. This section provides coverage for all of your personal items, such as your TV, furniture, clothing, etc. Like Coverage A, it is subject to Replacement Cost or Actual Cash Value valuation and the Causes of Loss Forms. However, Coverage C is also subject to Sublimits. Sublimits typically apply to collection items, such as furs, guns, precious metals, etc. To properly cover all of your personal property, you may need to increase the Sublimits, or alternatively, you can Schedule each individual item.

Coverage D, Additional Living Expense:

Also known as Loss of Use coverage, Coverage D can be found on both the Renter’s and Homeowner’s policies. Coverage D would reimburse the policyholder’s expenses after a covered Peril makes their home uninhabitable. So if a fire destroys your home, Coverage D will pay to put you in hotel while your home/apartment is being rebuilt. It will also pay any additional expenses you have to pay, such as increased cost for food. The amount provided for Coverage D varies, but can usually be increased. Note that this coverage typically is only available for a stated amount of time, such as coverage for up to six months after a covered loss.

Coverage E, Personal Liability: 

This section covers the renter or homeowner and their family against lawsuits (legal liability). Situations that would be covered by your Personal Liability coverage would be if your dog bites someone, if a guest trips and injures themselves on your property, if you damage someone else’s property, Personal Injury, etc. The limits can typically be set as low as $50,000 up to $500,000. (the Personal Umbrella policy provides additional liability coverage on top of the Personal Liability coverage)

Coverage F, Medical Expense: 

Also known as Medical Payments coverage, this coverage is available for both Renter’s and Homeowner’s policies, and it is a supplementary coverage to your personal liability. Though your Personal Liability coverage will cover any medical expenses that you’re held liable for, the Medical Expense coverage will pay the medical expenses of people who harm themselves on your property even though you didn't negligently cause it. Essentially, this coverage was designed to pay their medical bills to keep you out of court.

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.

Property & Casualty Insurance Lingo

The Property and Casualty (P&C) insurance industry is a vast segment of the insurance industry, and there are numerous terms used in it. The following list was made to explain common terminology used in Personal and Commercial Property and Casualty insurance:

Property Insurance: It covers any physical item that could suffer a loss. Examples: your home, your car, your office building, your jewelry, your copier/printer, etc. 

Casualty Insurance: Any situation where you might be liable for harming someone or someone's property. It is a cover-all term for liability insurance coverages. 

Deductible: Also known as a Retention. The Deductible is the amount the insured must pay in order to have the rest of the claim covered. 

Exposure: As in, exposure to loss. Some businesses have exposures that require specialty insurance. Example: The Exposures of an amusement park are harder to cover than a bakery’s.

Peril: A cause of loss. Examples of Perils: Fire, Wind, Hail.

Risk: The possibility of a loss. Example: Contractors have more risk than an ice cream parlor.

Hazard: Something that increases risk; something that increases the chances of a loss. Example: Wet floors in a grocery store, cracked pavement in a parking lot.

Inception Date: Also known as the Effective Date. The day and time when your policy starts to cover you.

Expiration Date: Also known as Ex-Date. The day and time when your policy stops covering you.

Coverage: A single line of insurance. Property coverage is a single line of insurance. A Homeowner’s policy has multiple coverages.

Package policy: A Package policy combines two or more coverages into a single policy, where you pay one premium and the coverage all have the same Inception. A Homeowner’s policy is a package policy, as it has property and personal liability coverages.

Personal Lines: These are the coverages that deal with the risk of the average consumer. These products are far simpler than Commercial Lines, and the products are fairly consistent between insurance companies.

Commercial Lines: These are the coverages that deal with the risk of businesses and organizations. The products in Commercial Lines vary greatly between insurance companies, and the total number of products available is vast.

Standard Insurer: An insurance company that has products for the general public. The products are broad with competitive prices, with the goal of gaining market share.

Surplus Lines: An insurance company that has products for special exposures (such as a bad claim history). These companies specialize in writing high-risk exposures. The products are non-standard, meaning that the policy wording will be less broad, and the premium will be higher.

Assigned Risk Worker’s Compensation: Also known as ‘the pool’. Assigned Risk is for companies that have a bad Workers’ Comp claim history and/or companies that are in a high-loss industry. Being similar to Surplus Lines, the premium you pay with Assigned Risk will be far greater than a Standard Insurer.

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.

What to Do if Your Engine Overheats

With the dog days of summer upon us, you can bet that the number of cars parked along the side of the road with their hoods up will increase. It’s Murphy’s law that on the hottest day of the year, your engine's temp will start creeping up into the red. So after you grumble a bit and let out a sigh, do you know what to do? Let's start with ways to keep an overheating engine at bay.

Steps to Prevent Engine Overheating:

Determining the Normal Operating Temperature: Keeping your car from dangerously overheating is done best when you know how warm your engine should be. A properly working car will take 5-10 minutes to fully warm up in hot weather, and you’ll know it’s fully warmed up when the temperature gauge’s needle stops moving. Note: Even in sub-zero temps, a properly working car will run as warm as it does on a hundred degree day. So once the needle stops moving, make a mental note of where it is—this is your normal operating temperature.

Be Proactive: Now that you know where your engine should be running, make sure to keep an eye on the engine temperature. You don’t have to constantly hover over it, but checking on it occasionally is a good habit to have—this is especially so on extra hot days.

Note: Running your car’s A/C puts a lot of extra load on your engine. So on very hot days, don’t be surprised if your engine runs a little hotter than usual if your A/C is on—just be extra attentive to the heat gauge if your A/C is on!

Maintain: The easiest way to prevent you engine from overheating is to keep the coolant level at 'Full'. To keep your coolant properly filled, you'll first need to know what to look for: the coolant tank is usually a translucent plastic container that can be found under the hood. It will have markings on the side indicating the proper coolant level. If it's below full, add a 50/50 mixture of water to coolant fluid to get it back to full. Note: The fluid in your coolant reservoir is usually a 50/50 mix of water to coolant fluid, but make sure to read your owner's manual to make sure! The cooling system is a closed system, so theoretically, your coolant level should never drop. However, leaks happen, and low-quality coolant evaporates, so make sure to keep an eye on the coolant level. 

How to Handle an Overheating Engine:

When the Needle Starts to Rise: If you notice the engine’s temperature rising past normal, you have a few options before you have to pull over. First, turn off your A/C immediately. It won’t be as nice as air conditioning, but rolling down your windows should still keep you cool. If that doesn't fix it, turn your heater on as high as possible. This will redirect some of the hot air in the engine and hopefully keep it cool (you’ll have to sweat it out, though).

Pulling Over: If those two options still haven't changed anything, pull over as soon as you safely can. Find a good shoulder on the highway or interstate, or find a side street or parking lot if you're in town. Get as far away from traffic as (safely) possible. Also, wait for an overpass to park underneath or a shady tree if you can. Note: It’s recommended to never go more than a quarter mile while your engine's temperature is in the red!

Opening the Hood: Once you’re safely pulled over, turn off the vehicle and open the hood, but don’t touch it with your bare skin! If you have gloves, wear them while raising the hood. A towel or shirt might work as well. Also, there might be steam or smoke trapped under the hood, so be careful as you’re opening it! With the hood up, it may take over thirty minutes to cool your engine down to a safe temperature. Note: DO NOT pour water directly onto the engine/into the radiator! 

Playing Mechanic: When the temperature has gone down, it’s time to start troubleshooting.The best place to start is checking the coolant level. The coolant tank is usually made out of translucent plastic, and the proper coolant level will be marked, often with a line with “Full” by it. If the level is below full, you can add water to get you where you need to go. Note: again, a 50/50 mixture of water to coolant is typically recommended, so put in some coolant as soon as you can. 

However, if the tank is almost or entirely empty, you've probably sprung a leak. Check for cracks in the coolant tank, or cracks in the radiator (the radiator is at the very front of your engine. You'll know it's the radiator because there will be a metal cap on it that has an orange sticker on top of it, and the sticker will say something like: “Warning: Never open when hot"). If you can't find any cracks, look for hoses that are worn out or disconnected. If you've found the broken/worn-out part, it's probably not going to be an easy fix—it's time to call a tow truck.

If your engine has overheated but the coolant level is where it should be, the problem could be a clog in your cooling system, or it could be a mechanical/electrical issue. Again, it's time to throw-in the towel and call a tow truck. 

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.

IRMI Tip of the Month: Maintain Your Clothes Dryer

According to the U.S. Consumer Product Safety Commission report, there are approximately 10,000 annual residential fire losses in which the source of the fire is in the clothes dryer or vent. Dryers are the third most common type of equipment involved in fires, ranking behind stoves and fixed area heaters. Clothes dryers can catch fire due to excessive lint build-up in the exhaust pipe or inside the dryer; this lint build-up is often out-of-sight. As a result, you should take the following steps to reduce the chance of your dryer starting a fire.

• Follow the manufacturer’s instructions when installing the vent pipe.
• Keep the dryer vent clean and unplugged. Check for a plugged vent if the dryer does not dry clothes efficiently.
• Remove and clean the lint screen before each use.
• Keep all combustibles away from the clothes dryer.
• Hire a qualified technician to periodically inspect gas clothes dryers.

Get more personal lines insurance and risk management tips and ideas from IRMI.

Copyright 2008, International Risk Management Institute, Inc.

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.

Excess Liability Policies

The Excess Liability policy has many similarities to the Umbrella policy. However, the differences are in breadth of coverage, pricing, and policy provisions. Excess Liability policies can be written for both personal and commercial risks, but this article focuses more on the commercial application.

An Excess Liability (EL) policy works in a similar fashion as an Umbrella policy; it provides an extra tier of liability coverage for large losses. The EL policy is typically written for a combined occurrence/aggregate limit of $1,000,000, and it would step in after an underlying liability policy limit is maxed out.

Example:

Let's imagine your business has a General Liability limit of $1mil occurrence, $2mil aggregate. Your Excess Liability policy has a combined occurrence/aggregate limit of $1mil. If your company sustained a $1.5mil General Liability loss, your General Liability policy would cover the first $1mil of the loss, and then your Excess Liability would cover the $.5mil left over. If any other losses happened during the policy term, the General Liability policy would have up to $1mil of coverage left, and the Excess Liability would have $.5mil left to go over the General Liability policy, or any other liability policy. (A similar situation could be played out with automobile liability coverage.)

What makes the Excess Liability policy different from the Umbrella policy?

The main difference between an Umbrella policy and an Excess Liability policy is in the breadth of coverage of each. The Excess Liability policy typically follows the wording of the underlying liability policy exactly, while the Umbrella policy has its own coverages and exclusions. So for an Excess Liability policy, if the General Liability policy excludes claims of mental anguish, so does the EL policy (this is called a 'follow-form' Excess Liability policy). Typically, an Umbrella policy would cover claims involving mental trauma on a first-dollar basis (as a standard General Liability policy typically only covers direct bodily injury and damage to property of others). 

To summarize, the Excess Liability policy literally just adds X amount of liability dollars above your underlying liability policies, while the Umbrella policy both adds a layer of liability protection and broadens coverage. Because of this, underwriting standards will be higher for Umbrella policies than Excess Liability policies, and an Excess Liability policy will be cheaper than an Umbrella policy. 

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Introduction to Employment Practices Liability Insurance (EPLI)

Employment Practices Liability Insurance, often shortened to EPLI ("ep-lee"), covers lawsuits made against a business for employment-related wrongful acts. EPLI policy language is highly variable, but all function in the same manner. EPLI policies can be written for almost any business, as long as it has at least one employee.

Employment Practices Liability Insurance covers businesses for allegations of wrongful acts arising from any part of the employment process—from interviewing to post-firing. The term ‘wrongful acts’ is a catch-all for actions that have been made illegal by various employment laws, such as the Federal Whistleblower Protection Act, the Family and Medical Leave Act, the Civil Rights Act of 1991, and the Americans with Disabilities Act. There are seemingly endless possibilities for an employment-related lawsuit, but the following list outlines a few basic examples:

• During the application process, a prospective employee may sue if they don’t get the job, claiming discrimination due to their physical handicaps, race, religion, gender, or sexual identity.
• During their employment, an employee might file suit claiming that they were sexually harassed.
• An employee may sue for invasion of privacy by their employer.
• An employee could claim that they were discriminated against because they weren’t selected for a career-advancing assignment or opportunity.
• An employee can sue if they feel like they aren’t being paid a fair wage, or if they haven’t been promoted.
• After the firing of an employee, the business could be sued for wrongful termination.
• A former employee could sue if they believe they were fired because they were a ‘whistle blower’, claiming that they were fired in retaliation.
• A former employee could sue for slander or defamation if they believe their former employer is giving an unjust review of them to other employers.

 How does the EPLI policy work?

The EPLI policy was designed to defend businesses that make employment-related mistakes. So when an employment-related suit is brought against a business, the EPLI steps in and covers the defense costs. It will also pay the settlement if the business is deemed guilty. Note that some carriers’ policies will provide the legal defense themselves, and other carriers’ policies will only reimburse the insured for the defense and settlement costs. Also, many policies exclude certain scenarios and specific claims. Careful policy selection is critical, and consulting your agent is highly recommended.

Who needs an EPLI policy?

Potentially any employer could be sued for an employment related offense, even if they only have a single employee. However, the larger and more diverse the employee base is, the more likely an employment practices claim will arise. Also, publicly traded companies will pay more than private companies. 

The premium for an EPLI policy is determined by the number of employees, the HR practices and precautions taken by the business, and the industry the business is in. Businesses can control their premium by managing their employee turnover rate and effectively handling complaints and accommodation requests.

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.

How to Find Insurance for Your New Business

Entrepreneurship is at the heart of the American Dream, and has led to many worldwide companies—McDonald’s, Coca-Cola, and Apple, just to name a few! The freedom and empowerment of owning your own business can be very fulfilling, but it takes a lot of work to get your new venture up and running. You’ll be facing plenty of ‘red tape’, along with making a business plan, finding a location, finding funding, and much more. Once you get most of that figured out, you’ll need to line up your insurance before you can open your doors for business.

Most first-time entrepreneurs have never dealt with anything more than Homeowner’s and Automobile insurance before. The transition from personal lines to commercial lines can be a bit rough—commercial insurance is a huge sector with varying policy language, scores of different coverages, and new exceptions and exclusions that you’ll never see on a personal lines policy. These differences make sense since businesses inherently deal with more risk and operate in a very different manner than your average homeowner. Even though it’s different than what you’re used to, commercial insurance still serves the same basic function—keeping you safe. Commercial insurance just expands the coverage you’ll be receiving, so both you and your business are safe!

Once you have figured out where your business is going to be located, whether or not you’ll have employees, and how you’re going to deliver your product/provide your service, you should contact an independent agent to see what your new business’s insurance options are. Contacting an independent agent will allow for multiple quotes from a single agent, saving you valuable time. When you meet with the agent, bring along the following information to increase the quote’s accuracy: square footage of your rented/purchased business space, estimated gross revenue for the first year, your resume showing pertinent experience, and your business plan (also, if you’re going to have employees, bring along the number of part time and full time employees you’ll have, and an estimated gross payroll for each). Also make sure to discuss exactly what your new business will be doing, where you will be doing it, and how you’ll be doing it. Underwriters love information, so the more details you can share about yourself and the processes your business will go through to perform your service/deliver your product, the better your premium will be!  

With that information, the agent should be able to get you an estimated premium for one year’s worth of coverage. This premium will most likely be higher than the average premium for other businesses in the industry, as you do not have any claim history yet. The agent should also discuss with you any additional coverages you’ll need that you might not have thought of or even known that you would need.

Here’s a brief list of coverages you will likely see:

General Liability: To cover slips, trips, falls, personal liability, and property damage caused by you, your business, your employees, and your premises. For contractors, it also covers any damage done by your completed work. All businesses need this coverage.

Professional Liability: For any job that requires a license, you’ll typically need to have Professional Liability (also known as Errors & Omissions insurance). Other occupations with high levels of risk may need Professional Liability as well.

Property: Commercial property forms will cover your building and your business personal property. It will also cover your business’s detached signs and will have options and policy language exclusive to commercial lines.

Business Income: After a covered loss, your business may not be able to function, but bills will still need to be paid. Business Income will pay you your expected net income while your business is out of operation.

Workers’Compensation: Any business with at least one employee is legally required to have Workers’ Compensation, even if your only employee is a family member and/or the employee works part-time.

Once you receive your quote(s), you may want to adjust your business plan to reflect the exact insurance expense you’ll be incurring, and adjust the rest of your plan accordingly. You may also want to look into limiting or adjusting some of your business’s products or services to reduce your risk, and thus reducing your premium. Discussing premium-saving options with the insurance agent is highly recommended. Risk reduction is very easy to implement before your business starts, but can be nearly impossible to do once it is in operation!

Entrepreneurship can be very challenging, but it can also be very rewarding. If you’ve decided to follow the entrepreneurial path, make sure you partner with an agent that has experience with start-ups. Also make sure that the agent is willing to work with you on developing best practices to reduce risk and keep your business claim-free and generating revenue!

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.

Business Income & Extra Expense

A comprehensive insurance program should cover your various property and liability exposures, but should also keep your business afloat while you rebuild after a loss. Business Income and Extra Expense are coverages used to pay the insured after a loss, keeping the money-flow moving as if the claim never happened.

Business Income is a coverage that reimburses a business for reduced or completely lost income due to a physical loss to their building/premises due to a covered peril. An easy example is a bakery burning down. While the building is being rebuilt, the bakery cannot operate. The loss of income is substantial, as it may take up to a year to finish the new building. During that time, the bakery would need to have Business Income coverage to receive any sort of income while the bakery is waiting on the new building. This coverage is particularly useful for businesses that still have loans and liens on their property that they would still be required to pay or other contractual expenses that they must pay. The Business Income coverage amount that a business would receive is a ‘net income’, however. If you are receiving payments through Business Income, you won’t receive any reimbursement for fees and expenses that you won’t be incurring while the business is down (such as the cost of the dough, in the bakery example). Business Income coverage is usually subject to a total limit of payments, a time limit, or both. Also, Business Income coverage alone would not cover additional expenses of renting a temporary location or expediting the rebuilding process, etc.

Extra Expense coverage is an optional coverage that can be added to Business Income. In the previous example, if the bakery had Extra Expense coverage along with their Business Income coverage, the Extra Expense coverage would cover the additional costs that were incurred due to renting a temporary location, overnight delivery of new supplies and equipment, expedited rebuilding of the original location, etc. This coverage often positively impacts the business’ ability to return to the same capacity it was at before a loss, as being out-of-operation for too long may result in your customers looking for a different provider of your product/service.

Calculating a proper level of Business Income coverage can be very complicated, especially for new businesses or businesses with seasonal/variable products. Keeping excellent accounting records, and backing up those accounting records outside of the business may be essential to getting properly reimbursed by Business Income. Also, initially establishing the correct amount of Business Income coverage should be reserved for a trained insurance professional, as insurance underwriters calculate Business Income differently than a CPA would. 

Note: With Business Income and Extra Expense coverages, the verbiage used is that these coverages will only be triggered after a Covered Loss. Determining the covered losses depends on the policy form you're using. Each policy has a Cause of Loss designation. The more perils covered, the more likely you'll be able to receive the benefit of Business Income and Extra Expense.

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.

The Secret of Cut-Rate Auto Insurers

“The bitterness of no coverage is remembered long after the sweetness of low price has been forgotten.” These wise words from insurance educator Jon Eubank , CPCU, ARM, perfectly exemplifies the problem with cut-rate insurers. Saving 15% in 15 minutes could cost you thousands (or more) from denied claims!

Bill Wilson, Big “I” associate vice president of education and research and director of the Big “I” Virtual University has made a 12-point list of common cut-rate auto insurance exclusions and coverage limitations that would otherwise be covered by a standard insurer:

1. Undisclosed Household Residents Are Excluded. How many of you have ‘boomerang’ kids who came back to live at home?
2. Business Use of Non-Owned Auto Is Excluded. Have you ever borrowed a neighbor’s car or made a business stop in a dealer loaner auto?
3. Business Use of Any Auto Is Excluded. Do any of you ever run to Staples or the post office on company business?
4. Use of Any Non-Owned Auto Is Excluded. Better not drive anyone’s car but your own.
5. Vehicles Over 10,000 Pounds In Gross Value Weight Are Excluded. Have you ever rented a U-Haul truck or an RV thinking your liability coverage extended to the rental?
6. Any Type of Delivery Is Excluded. Denied claims include pizza, newspapers, Mary Kay cosmetics, etc. are not covered
7. Permissive Users Only Get Minimum Limits. This can apply to people who borrow your car or even unlisted household drivers.
8. “Street Racing” Is Excluded. Google “street racing” and see how often people are killed or critically injured in the process.
9. Criminal Acts Are Excluded Or Limits Are Reduced. DUIs or even speeding tickets may preclude coverage!
10. Medical Payments Only Include Licensed Physician Fees. One insured incurred a $25,000 “life flight” helicopter fee that would not be covered, even in part, by a cut-rate policy with this exclusion.
11. Theft Without Evidence of Forced Entry Is Excluded. One insured had a four-figure vehicle-theft loss denied because he left his keys in the car.
12. Sales Tax Is Not Covered Under Loss Settlement. This cost one “same coverage” insured more than $2,000 out of pocket for sales tax on a replacement auto.

Most people never read through their insurance policies. For those with standard insurers (though it is inadvisable), it often turns out alright. However, for those buying insurance through a cut-rate insurer, do you really know what you’re paying for? Odds are that your cheaper price comes with a lot more exclusions and limitations. Think through it logically—you just can’t sell the exact same thing for a lesser price.

The 12-point list was adapted from Bill Wilson’s article ‘Price Check’ that was featured in ‘ia: Insight + Analysis For The Independent Agent’ magazine’s July 2014 issue. To find out more about how insurance isn't a commodity, you can visit IndependentAgent.com.

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.

Cyber Liability: Not Just For the 'Big Boys'

Cyber Liability coverage goes by many different names in the marketplace, and each carrier does things a little bit differently. However, the realm of cyber liability is very broad, and your business may have more exposure than you think!

Cyber liability coverage is no longer only a necessity for multi-million dollar operations and tech companies. Even little ‘mom and pop shops’ have significant exposure to a Cyber Liability claim.

So what all is included in the scope of Cyber Liability? The following is a list of possible scenarios that would be covered by a typical Cyber Liability (CL) policy:

• If a hacker was able to steal the social security numbers or other personal information about your employees or customers, the CL policy would cover the expenses for notifying the government and victims of the breach, credit monitoring for the victims, costs to recover stolen identities, costs of any fines or penalties, and the extra costs for public relations.
• If a hacker was able to destroy company information/trade secrets/digital assets/etc., the CL policy would pay to recreate those items.
• The CL policy would pay any damages to third parties caused by a breach of security
• If a hacker was able to deny your online service to customers/vendors, the CL policy would pay the loss of business income, and the damages to your vendors if they weren’t able to fulfill orders.
• If a hacker was threatening to destroy/deny service if a ransom isn’t paid, the CL policy would pay the ransom.
• If a fraudulent funds transfer was made, the CL policy would cover the money lost.
• The CL policy would cover any suits brought against you for online infringement of domain name, copyrights, trade names, slogans, service marks, etc.
• The CL policy would cover any business interruption losses due to any of these situations, and it would also cover the costs to re-secure your website/server/etc. after a breach.

Simply having private information stored on your computer creates a Cyber Liability exposure. When you have a website, social media site, or online commerce abilities, your risk increases even more! Remember, it's always better to have too much coverage than not enough, when it comes to insurance.

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.