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 )

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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.

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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.

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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.

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.

In-Home Business Exposures

Aided by technology, many people have started working from home. However, the Homeowner’s policy doesn’t cover business activities, so where can you get coverage? When can an endorsement be made to your Homeowner’s coverage to add the coverage? When can’t coverage be endorsed to your Homeowner’s policy?

In-home businesses are becoming a common occurrence, thanks to technology. With the ability to videoconference with anyone at anytime over the internet, the business world has become a smaller place—and is allowing more people to work from home. Some people can connect to their company's servers and work from home. Others use the new technology to sell their wares online, using their home as there head office and/or warehouse. And still others run non-internet based operations, such as daycares and pet grooming. So when does a home business require an endorsement to the Homeowner's policy, and when does it require a separate commercial policy?

Most Homeowner’s policies do not automatically cover any business property or liability at all. However, most Homeowner’s policies give you the option to endorse your policy to cover an in-home business exposure. Typically, that endorsement will extend coverage from your Homeowner’s policy to cover incidental business liability and cover your business personal property as well. However, this endorsement is typically reserved for in-home offices only. An example would be if you had a company computer at home that could connect to your company’s server and allow you to work from home—making calls, fill out reports, etc. 

Typically, things get more complicated if the entire business is ran in-home. Businesses such as the aforementioned daycare and pet grooming probably wouldn’t be able to be covered by your Homeowner’s policy. This is because the entire operation is based from the home, instead of being an incidental exposure. Also, there are extra coverages that those types of businesses would need (E.g. business income, animal bailee coverage, molestation and misconduct coverage) that are not even offered for homeowners.

In-home businesses are becoming more common, and the risks are becoming more complicated. If you think you may have any in-home business exposure, make sure to contact your insurance agent and have a discussion about the specific risks of your situation and your insurance options!    

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.

Keeping an Inventory

When insuring property, commercial or personal, it can be highly beneficial to create an inventory of all your items. There are many advantages to keeping a schedule of your items, and taking inventory can be aided by technology.

Homeowners, Condo-owners, Renters, and businesses all have something in common—they have a lot of stuff! Now, the items may be a bit different for each, but the need to schedule these items is vital for all of them.

Why should I make a list of my possessions?

• Making a list of your items will help determine the amount of personal property coverage to initially obtain
• In a claim, an inventory can speed up the claims process, getting you paid sooner
• In a claim, an inventory will ensure you get completely and accurately reimbursed for your loss
• After a catastrophe, you will need to quantify your losses to qualify for tax breaks or disaster assistance.

So how do I do it?

Though it may seem overwhelming to keep track of all the items you have, know that even a partial list is better than no list as all, and the list can be organized however you see fit. You could organize it by highest cost item to lowest, by room, by most recent purchase, by item type, or any way you find intuitive.

Taking inventory can also be aided by technology. Apps such as the Insurance Information Institute’s ‘Know Your Stuff’ app allows you to write down the item location, category of item, item name, item’s make, and the item’s model. It also allows you to take a picture of each item. The information is then synced to their website where you can easily access it from anywhere with an internet connection, keeping it safely stored online.

If you decide to make a list by hand or in a spreadsheet, make sure to save a copy of it outside of the home, perhaps at work, a family member’s house, or a copy saved to a Cloud database. Also, you may find it beneficial to store other important information with your inventory list. Some useful information to save would be a copy of you and your family’s legal documents, financial records, passwords, and PINs for bank accounts.

Creating a list of your items can seem to be a very daunting task. Maintaining it will be an ongoing process as well, but remember that a partial list is better than no list at all, and that keeping a list will make sure you get the full use out of the insurance coverage you bought!

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.

Underwriters--Gatekeepers of Insurance

Why do insurance agents ask so many questions? What is an underwriter? Who do they work for? What is their function? How do I convince them to give me the best coverage for a good price?

Underwriters are the men and women that check over your agent’s quote submissions. Each Underwriter only work for one insurance carrier/company (E.g. Progressive), and they ultimately receive the information that your insurance agent asked you for. With that information, they have to determine if you are eligible for insurance, and if you are, what types of coverage you qualify for, how much coverage can be provided, what exclusions should be applied, and what the premium should be. 

So the first step is to determine if you fit into the company’s desired risk appetite. To do this, they have to follow the carrier’s rules and guidelines in accepting prospects. A few examples of ‘risk appetite’ and ‘rules and guidelines’ are the following:

• Some carriers will only accept clients who place both their home and auto insurance with them.
• Some carriers won’t accept buildings that still use fuse boxes instead of breaker boxes.
• Some carriers won’t insure people/entities with certain types of claims
• Some carriers won’t insure people/entities who have a predetermined amount of claims or total amount of claim dollars
• And many more, all unique to each insurance company 

If the prospect meets all of the criteria, the Underwriter will then determine what kind of quote they will give. They will determine if there are any special conditions, if they need to add any exclusions, and will ultimately decide what the overall price will be. And until the underwriter gives their approval of a quote, the agent cannot bind coverage.

So How Can I Convince the Underwriter to Give Me Discounts?

One of the main functions of an underwriter is to create a risk profile for each person/entity. The more complete the profile is, the more the underwriter will know about the client. And the more the underwriter knows about the client, the more comfortable they will be with giving discounts and credits to them. The types of things that give a good description of a client, personal lines or commercial lines, includes, but is not limited to, the following:

• Update information
• Credit reports
• Bio/resume of the client/entity
• Claims history with detailed claim descriptions
• Risk management procedures
• Experience information

The more information an agent can give the underwriter, the better the quote they will give. Maybe that means fewer exclusions, lower deductibles, a better price, or a combination of some or all of those! Note that all information given to an agent is confidential, and will only be used to provide the Underwriter with necessary information for quotation.

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.

Nebraska Workers' Compensation

What is Workers’ Compensation? Is everyone in a business supposed to be covered by it? What happens if I don’t have Workers’ Compensation for my employees? What’s the difference between an independent contractor and an employee? Why was Workers’ Compensation implemented?

Workers’ Compensation (WC) is also referred to as Workers’ Comp, Workman's Comp or just Work Comp. It is an insurance policy bought by an employer to cover the injuries of their employees while at work. In Nebraska, employers are legally responsible to cover every employee with Workers’ Compensation insurance. However, the business owners/employers themselves are not required to be covered, and independent contractors are not required to be covered either (however, business owners/employers can elect to be covered).

The basis for creating a WC program is because it is mutually beneficial for both the employer and the employee. The employer benefits because the employee cannot sue the employer for injuries sustained if there is a WC policy. The employee benefits because they know that any injury that occurs while they are working will be fully paid, whereas suing the employer could be a long process and the employer may not even have the funds to fully compensate them. 

Workers' Compensation can get complicated when dealing with independent contractors because the line separating employees from independent contractors is blurry. Though there is no set rule to differentiate between the two, in Nebraska, determining independent contractor from employee status consists of ten factors related to the work performed. Things such as the amount of control the person has, the amount of skill required, who provides the tools, if the person can work without supervision, and a few more factors go into determining the person’s status. Each of the ten factors carries a different weight, depending on the situation. So if there is any question on whether someone is an employee or an independent contractor, it’s always better to just cover them in the WC policy.

Failing to cover an employee with WC is taken very seriously in Nebraska. The following is an excerpt from the Nebraska Department of Insurance’s Workers’ Compensation website:

“What are the penalties for an employer's failure to provide workers' compensation insurance coverage?

Any one or more of the following penalties may be applied:

1. a civil fine not to exceed $1,000.00 for each violation. Each day of continued failure to secure coverage constitutes a separate violation.

2. imprisonment for not more than one year, a $1,000.00 fine, or both.

3. enjoinder from doing business in Nebraska until compliance is secured.

Also, an injured employee may sue the employer for damages in district court, and the employer will lose its common law defenses."

As you can see, the penalties for not covering an employee, or an employee you thought was an independent contractor, could be substantial. Even only having a single, part-time employee requires Workers' Compensation insurance. Also, determining the true status of your independent contractor(s) is vital. 

Note: This article is an introduction to Workers' Compensation for Nebraska only. Each state's WC program varies, and one cannot rely on this information for any other state's WC program. Any WC question should be discussed with your agent or the department of insurance. Copple Insurance Agency is here to answer you questions as well.

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.

Umbrella Policies: Safety for a Rainy Day

What is an Umbrella? Can both a business and an individual have an umbrella? What all does it do? Why should I consider getting one? How expensive is it?

What is an Umbrella Policy?

The Umbrella Policy is very straight-forwardly named, as it covers the underlying policies. Most Umbrella policies can go over all of your underlying lines of liability coverages. By purchasing an Umbrella policy, you are giving yourself an extra layer of liability coverage in the event of a large loss. It is a very important risk management tool for both businesses and individuals, as the extra coverage picks up where the General Liability, Auto policy, etc. stops, often for no additional deductible/retention. For businesses, they would purchase a Commercial Umbrella policy, and for an individual/household, they would purchase a Personal Umbrella policy. Let’s look at an example with ABC Company’s insurance to illustrate my point:

Let’s say ABC Company has a General Liability policy of $1 million per occurrence, $2 million aggregate, and they also have a Commercial Umbrella policy on top with $1 million coverage. Next, imagine they have a General Liability loss of $1.5 million. Their General Liability will only pay $1 million of that (because of the $1 million per occurrence) but their umbrella steps in and covers the excess $.5 million. In the end, every penny of the loss was paid by ABC Company’s insurance. However, in the absence of that Umbrella policy, they would have had to cover the $.5 million out of pocket.

A liability loss in the millions is not something that only happens to big businesses though. Losses of this magnitude happen to businesses of all sizes, and even happens to households. Also, the biggest risk you take all day will most likely be getting in a car. Huge liability claims come out of auto accidents, and both the Commercial and Personal Umbrella policies can go over your Auto policy as well. A Commercial Umbrella policy can keep you and your employees safe while driving too. Back to the example with ABC Company, most people/businesses could not easily cover that $.5 million on their own. In these situations, it’s always better to have too much insurance, instead of not enough!

Do the Commercial and Personal Umbrellas cover all underlying policies?

No, there are certain situations that the Personal and Commercial Umbrellas won’t cover everything. Sometimes a separate, special Umbrella will need to be purchased to go over certain liabilities, such as a Professional Umbrella policy to cover a business’s Professional Liability. This Umbrella policy was designed to cover the added perils that professionals face, providing extended coverage for their endeavors. Also, Workers' Compensation cannot be covered by an Umbrella policy. Your agent should know when an Umbrella policy is necessary.

Do the Umbrella policies cover anything extra?

Yes, both the Commercial and Personal Umbrella policies broaden coverage. The broadened coverage usually has to do with policy definitions. For example, the Cincinnati Insurance Companies' Commercial Umbrella policy extends the term 'bodily injury' to include "disability, humiliation, shock, fright, mental anguish or mental injury, whether or not they're a result of physical injury." The General Liability policy only covers direct physical injuries. Umbrella policies can also fully reimburse your lost income from appearing in court or gathering information after a claim, where your underlying policies might only provide a fixed amount of coverage. It may also cover supplementary payments (pre-judgement interest, post-judgement interest, bail bonds, etc.) entirely or at higher amounts than underlying policies. Ask your agent for full details.

So What Does an Umbrella Policy Cost?

While each situation is different, a general figure to go by is approximately $250 a year for a Personal Umbrella policy, and $500 a year for a Commercial Umbrella Policy for one million dollars of coverage. Although that might seem like a lot, if the situation arises where you need it, you'll definitely think of it as money well spent!

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.

An Introduction to General Liability

Every establishment, large or small, retail or service, has a liability exposure. Naturally, some businesses have a higher claim potential than others. For example, an amusement park has far more exposure than a bakery, but how would each business ensure that all of their exposure is covered?

The General Liability policy (GL) covers the liability exposures found in all businesses and organizaitons, such as someone slipping and falling on their property, or the damage to someone else’s property caused by them or an employee. The General Liability policy also covers the defense costs of any lawsuits arising from these types of events. Essentially, it is a business’s primary defense against many unforeseen, often unpreventable, accidents.

What Determines the Proper Limit for the General Liability?

Setting a proper General Liability limit for a business highly varies. The best way to 'ballpark' the limit is to look at what the business is doing. Does this industry typically have a lot of claims? What is the claim severity for this type of business? Does the business have any special circumstances that increase or decrease its risk? It is imperative that you think of all the potential causes of a General Liability loss. The limit should then be set to adequately cover the total costs to defend and settle any suits that could come up or any damages that could be done.

Most any insurance agent will tell you that you can never have enough liability coverage. However, since most people can’t afford infinite coverage, you must carefully work with your agent to determine the proper GL level. Come claim time, it's always better to have too much coverage!

How Do the General Liability Limits Work?

Most General Liability limits are split, meaning that there is a limit per occurrence, and a separate aggregate limit. For example, let’s assume your General Liability has a $1 million occurrence limit and $2 million aggregate limit. You then have a loss of $1.5 million under your General Liability. The General Liability policy will cover $1 million of that loss, and you will also have another $1 million dollars left for any other claims that may occur that year. The $.5 million would not be covered and would require you to pay out of pocket—unless you had an Umbrella policy. 

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.

A Debate: Replacement Cost vs Actual Cash Value

These two loss settlement options are given on almost every property-covering policy you’ll see. What’s the difference between Actual Cash Value and Replacement Cost though? How does it apply to your home or commercial building? How does it apply to your personal property? 

What are Actual Cash Value (ACV) and Replacement Cost (RC)?

There is a huge difference between ACV and RC. Starting with Actual Cash Value, it is commonly defined as the ‘fair market value’ of your property. With ACV, a rough estimate of what you will receive after a claim will be what the property could be sold for at auction/online. However,the actual insurance definition for ACV is: "Replacement Cost minus depreciation of the property." To work with the exact definition, we need to know what Replacement Cost is, and how it works.

Replacement Cost is the full cost to replace your property with like-kind and quality, without any deduction for depreciation. Here’s an example. You have a flat screen TV that you bought for $3,000 in 2010 and a fire completely destroys it. If you had it insured for RC, you would receive a brand new model of the exact same flat screen (if one could be found), or the modern equivalent of it, even if it costs more. If it were ACV insured, you would only get the current market value of the TV, which might be less than $1,000 now.

How Does Replacement Cost & Actual Cash Value Apply to My Home/Buildings?

An example of RC would be if your home was insured for replacement cost and suffered a total loss. For this example, (and for simplicity’s sake), let’s assume your house is worth $100K on the market. However, the cost of rebuilding a home, or any structure, is typically more expensive than the market value of the home (after a building is originally built, its market value and the value of the inputs have all changed. These changes in value are caused by inflation, increased costs of labor, increased costs of materials, different types of materials needed, new technology, shifts in housing market, different laws and ordinances governed on the erection of a building, etc.). So if you had a total loss, replacing the $100K home to its former condition might cost $200K. That’s $200K to rebuild your home in the exact same fashion it was before the loss. In this scenario, you would receive a completely new house, built for $200K, even though it was only worth $100K on the market.

Conversely, let’s say we had the same loss on the same house, but this time, it was insured for ACV. In the ACV example, you would only receive $100K (or $200K minus the depreciation). If you wanted your house repaired to what it formerly was, you would have to come up with $100K on your own, or you could have a smaller/less luxurious house built. 

The difference between ACV and RC is substantial come claim time, but is often overlooked because RC costs more. Make sure to discuss the true value of your home with your agent, and have them help you decide what the best option is for your situation.

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.