Commercial Insurance – Setnor Byer Insurance & Risk

Using indemnification agreements to allocate risk

By Anita Byer

Indemnification agreements are commonly used in business transactions to allocate risk. Risk allocation involves identifying who is responsible for what and for how much. In some cases, a contract requires one party to assume the liability of another party. These risk transfers are commonly found in construction and landlord/tenant agreements, and are becoming common practice in other industries as well.

Assuming responsibility for the acts of another is obviously a big deal. So, it’s important to know the nature and extent of the risk being assumed, and to have a plan to pay in the event of a loss. At a minimum, this requires an understanding of indemnification and Additional Insured status.

Indemnification

An indemnification agreement generally requires one party (the indemnitor) to assume the liability of another party (the indemnitee). In the event of a loss that is specified in the contract, the indemnitor agrees to compensate the indemnitee for their loss. It is important to understand that these provisions commonly require the indemnitor to assume liability that would not otherwise exist.

For example, construction contracts routinely include broad indemnification provisions that transfer liability for not only bodily injury or property damage, but also for pollution, design flaws, delays and other perils not typically understood or contemplated by the indemnitor. Therefore, the indemnitor must understand all the risks being assumed.

Additional Insured Status

Fortunately, insurance coverage is available to cover assumed (or transferred) risks, so indemnitors can use insurance to finance some of their assumed risks. But indemnitees often request or require their indemnitors to not only purchase insurance, but to also name them as an Additional Insured so they can directly access benefits under the indemnitor’s policy.

Though Additional Insured status can be used to finance indemnification obligations, it is important to know that there are limitations. For example,

Additional Insured status only protects against losses covered by the insurance policy, regardless of what the indemnification agreement requires.
Indemnitees must satisfy the policy’s conditions, such as meeting the definition of an Additional Insured or having a written contract, if required.
An indemnitee’s protection may be compromised by shared coverage limits and a lack of control over the terms and conditions of an indemnitor’s policy.
Certificates of Insurance cannot be used to create or modify coverage under an insurance policy, regardless of what they say.

Perhaps the most common and potentially costly problem occurs when an indemnitor assumes a risk that is not covered by their insurance. For example, a plumber agrees to indemnify a general contractor for economic damages caused by the plumber’s delay in completing the work. The plumber takes a week longer than expected to finish the job. The general contractor hires additional workers to make up for the lost week and sends the bill for the extra labor to the plumber. Under the indemnification agreement, the plumber must pay for the extra workers. Unfortunately, since there was no bodily injury or property damage to trigger coverage under the plumber’s general liability insurance policy, the plumber must pay the cost himself. Remember that Additional Insured status cannot be used to cover indemnification obligations that are broader than the insurance coverage.

Before signing on the dotted line, ask the following questions:

What are the terms and implications of the indemnification provision?
Is the indemnitor required to obtain additional insured status for another?
Is the language of the additional insured endorsement adequate, covering the indemnitor’s responsibilities or must additional measures be taken to ensure that contractual obligations are properly financed?

When used properly, indemnification agreements and various insurance coverages can be combined to effectively allocate and finance assumed risks. Since the process of allocating and transferring risk in any business transaction is always significant and often complex, businesses should consult an experienced and licensed professional before signing on the dotted line. Please contact us to learn more about allocating and transferring risk effectively and affordably.

Using indemnification agreements and additional insured status to allocate risk

By Anita Byer, Setnor Byer Insurance & Risk

Risk allocation involves identifying who is responsible for what and for how much. Business and commercial contracts, for example, typically require one party to assume the liability of another party. These risk transfers are increasingly being used in all kinds of agreements, including those with clients, landlords, sub-contractors, suppliers and vendors.

Since assuming responsibility for the acts of another is a significant undertaking, it is important to understand the nature and extent of the risk being assumed, and the consequences to your business in the event of a loss. This requires a basic understanding of indemnification agreements and Additional Insured status.

Indemnification

Additional Insured Status

Though Additional Insured status can be used to finance indemnification obligations, it is important to know that there are limitations. For example,

Additional Insured status only protects against losses covered by the insurance policy, regardless of what the indemnification agreement requires.
Indemnitees must satisfy the policy’s requirements, such as meeting the definition of an Additional Insured and having a written contract.
An indemnitee’s protection may be compromised by shared coverage limits and a lack of control over the terms and conditions of an indemnitor’s policy.
Certificates of Insurance cannot be used to create or modify coverage under an insurance policy, regardless of what they say.

Before entering any contract that includes indemnification obligations and requires additional insured status, ask yourself the following questions.

What are the terms and implications of the indemnification provision?
Is the indemnitor required to obtain additional insured status for another?
Is the language of the additional insured endorsement adequate, covering the indemnitor’s responsibilities or must additional measures be taken to ensure that contractual obligations are properly financed?

Avoiding the office holiday party hangover

By Anita Byer, Setnor Byer Insurance & Risk

Are you planning an office holiday party this year? If so, you are not alone. Employers nationwide are hosting workplace holiday celebrations for their employees. They can be a great way to show appreciation, increase employee morale and promote teamwork. They can also create risks that leave employers exposed to potentially significant liabilities.

Perhaps the most significant risks involve alcohol. What happens if an intoxicated employee breaks something or hurts someone? Though liability is determined on a case-by-case basis, employers may face a greater chance of being held responsible if attendance is, or is perceived to be, mandatory. The likelihood of liability may also increase if the employer pays for or provides the alcohol. The good news is that employers can take various steps to reduce their potential liability, including:

Collecting car keys from all who drink. Assign designated drivers or arrange transportation for anyone who is too impaired to drive. If the party is in a hotel, reserve a block of rooms for the inebriated to spend the night.
Appointing someone in a position of authority to monitor alcohol consumption; including making certain that no alcohol is served to minors.
Limiting alcohol consumption with “drink coupons.” (i.e., two drinks per person) and closing the bar once dinner begins.
Notifying everyone before the party that a) anyone who arrives intoxicated will not be allowed in; b) BYOB is not permitted; c) excessive drinking will not be tolerated; and d) inappropriate behavior at the party may be grounds for discipline.
Holding the party at an off-site location with professional bartenders to serve and monitor alcohol consumption.

Here are some other holiday party-related risks that employers need to monitor during their event.

Discrimination and Harassment: Lines are often blurred and easily crossed during an office party. Employers may be held liable for unlawful harassment and discrimination that takes place during the event, even if it’s off-premises and off-the-clock. Remind employees that inappropriate behavior will not be tolerated. Redistribute the company’s sexual harassment policy before the event.

Premises Liability. Employees are often allowed to bring spouses and significant others to the office holiday party. Every ‘plus one’ is a potential slip-and-fall victim. If the event is being held onsite, employers must make sure the workplace is safe throughout the entire event.

Workers’ Compensation. Employees injured in the course and scope of their employment are typically covered by workers’ compensation. Although getting hurt at a holiday party wouldn’t seem to be work-related, an employee may be covered by workers’ compensation if attendance at the party is explicitly or implicitly required (or ‘encouraged’). Tell employees the holiday party is a voluntary social event, and mean it.

Employers should review their insurance policies prior to the party to make sure they are covered in the event something happens during the holiday party. General liability, employment practices liability and workers’ compensation insurance may cover some of the risks created by the office holiday party. However, other risks may require additional insurance coverage, such as a policy that covers one-time events, including alcohol-related liability, which may be available for a small additional premium.

Please contact us to learn more about protecting your business during the holiday season.

NCCI proposes 15% rate decrease for Florida workers’ compensation insurance in 2024

By Anita Byer, Setnor Byer Insurance & Risk

Florida employers may be paying less for workers’ compensation insurance next year. The National Council on Compensation Insurance (NCCI) is recommending an average 15.1 percent rate level decrease in Florida’s voluntary workers’ compensation market for 2024. NCCI, a rating organization authorized to make rate filings on behalf of workers’ compensation insurance companies in Florida, submitted its proposed rate decrease to the Florida Office of Insurance Regulation for review and approval. If approved, the rate decrease would become effective January 1, 2024.

NCCI’s proposed rate reduction is based on claims experience data for policy years 2020 and 2021, as of year-end 2022. According to NCCI’s rate filing summary, a favorable loss experience has been observed in each of these time periods. This was a primary driver of the proposed 15.1 percent decrease. NCCI also notes that the proposed rate reduction includes additional changes due to recent medical fee schedule updates and higher investment returns expected in today’s interest rate environment.

The favorable conditions prompting the proposed rate decrease in Florida seem to extend nationwide. According to NCCI, the workers compensation system remains healthy.

Lost-time claims relative to premium have returned to their 20-year trend trajectory, declining 4% in the past year.
Employment and wage growth marked a return to pre-pandemic levels.
Recent wage increases are outpacing average claim costs along with continued countrywide declines in total claims.
Payroll, as the exposure base, is inflation-sensitive, so as wages rise, premiums automatically increase along with the cost of associated workers compensation benefits. Consequently, wages, premiums, and indemnity benefits typically stay in balance.

There are, however, some areas of concern. According to NCCI, there was a notable rise in claim costs for 2022. Year over year, medical claim costs increased approximately 5 percent and indemnity claim costs increased approximately 6 percent. Although medical inflation is predicted to increase at a rate of about 3% per year, it remains below the inflation rate of the Consumer Price Index.

Remember, the 15.1 percent rate decrease has only been proposed by NCCI. Florida’s Office of Insurance Regulation must still analyze NCCI’s data and may request an adjustment to the current recommendation before holding a public hearing. Although optimism surrounds NCCI’s recommendation, next year’s workers’ compensation premium rates will not be known until Florida’s Office of Insurance Regulation issues a final order.

Please contact us about paying less for workers’ compensation insurance in 2024.

NOAA predicts near-normal 2023 hurricane season

By Anita Byer, Setnor Byer Insurance & Risk

The National Oceanic and Atmospheric Administration is predicting near-normal hurricane activity for the 2023 Atlantic hurricane season. NOAA forecasters predict a 40% chance of a near-normal season, a 30% chance of an above-normal season and a 30% chance of a below-normal season. Unlike the last three hurricane seasons with La Niña present, NOAA scientists predict a high potential for El Niño to develop this summer, which can suppress hurricane activity. The Atlantic hurricane season runs from June 1 to November 30.

This year, NOAA is forecasting (with 70 percent confidence):

12 – 17 total named storms (winds of 39 mph or higher)
5 – 9 hurricanes (winds of 74 mph or higher)
1 – 4 major hurricanes (winds of 111 mph or higher)

Forecasters at Colorado State University’s Tropical Meteorology Project currently expect the 2023 Atlantic hurricane season to have slightly below-average storm activity. Their latest forecast is for 13 named storms, including 6 hurricanes and 2 major hurricanes. The probability of a major hurricane (Category 3-4-5) making landfall somewhere along the east coast of the United States (including Florida) is 22 percent. The probability of a Gulf Coast landfall (from the Florida Panhandle westward to Brownsville, Texas) is 28 percent.

Although El Niño is expected to suppress hurricane activity this year, NOAA notes that its potential influence on storm development could be offset by favorable conditions throughout the tropical Atlantic Basin. According to NOAA, favorable conditions include the potential for an above-normal west African monsoon, which produces easterly waves and seeds some of the stronger and longer-lived Atlantic storms. NOAA also identified warmer-than-normal sea surface temperatures in the tropical Atlantic Ocean and Caribbean Sea, which creates more energy to fuel storm development.

A lot is made of these annual predictions, but it only takes one storm to make it an active hurricane season for you. “As we saw with Hurricane Ian, it only takes one hurricane to cause widespread devastation and upend lives. So regardless of the number of storms predicted this season, it is critical that everyone understand their risk and heed the warnings of state and local officials. Whether you live on the coast or further inland, hurricanes can cause serious impacts to everybody in their path,” said FEMA Administrator Deanne Criswell.

Now is the time to start preparing for the upcoming hurricane season. Contact our team of experienced and responsive insurance and risk management professionals to find affordable options to protect your home and your business in the event of a hurricane.

New Florida law offers multi-family residential properties strong premises liability defense

By Anita Byer, Setnor Byer Insurance & Risk

Florida’s recently enacted tort reform bill includes a new law to help multi-family residential properties defend against negligent security premises liability claims. It applies to residential properties with five or more dwelling units on a particular parcel, including condominiums, apartments and townhouses. In exchange for implementing various security measures, property owners or principal operators can enjoy a presumption against premises liability for criminal acts committed on the property by third parties who are not employees or agents of the owner or operator. This new law does not require property owners and operators to implement security measures, but it rewards those who do.

To take advantage of the statute’s presumption against liability for criminal acts committed by third parties on the premises, the property’s owner or principal operator must substantially implement the following security measures on the property.

A security camera system at points of entry and exit that records (and maintains for at least 30 days) video footage to assist in offender identification and apprehension.
A lighted parking lot illuminated at an intensity of at least an average of 1.8 foot-candles per square foot at 18 inches above the surface from dusk to dawn or controlled by photocell or similar device that provides light from dusk to dawn.
Lighting in walkways, laundry rooms, common areas and porches, illuminated from dusk to dawn or controlled by photocell or similar device that provides light from dusk to dawn.
At least a 1-inch deadbolt in each dwelling unit door.
A locking device on each window, each exterior sliding door, and any other doors not used for community purposes.
Locked gates with key or fob access along pool fence areas.
A peephole or door viewer on each dwelling unit door that does not include a window or that does not have a window next to the door.

There are two more things that owners or principal operators must do by January 1, 2025 to enjoy the presumption against liability.

Have a “crime prevention through environmental design” assessment performed by a law enforcement agency or qualified practitioner. “Crime prevention through environmental design” involves the use of environmental design concepts (natural access control, natural surveillance, territorial reinforcement) to reduce criminal opportunity and foster positive social interaction among the legitimate users of that setting. The assessment cannot be more than three years old.
Provide proper crime deterrence and safety training to current employees. Employees hired after January 1, 2025 must be trained within 60 days of being hired. Employees must be trained and familiar with the required security principles, devices, measures and standards. The Florida Crime Prevention Training Institute is required to develop a proposed curriculum or best practices for owners and principal operators to implement such training.

Every owner and principal operator of qualifying multi-family residential property should seriously consider taking advantage of this new law. The presumption against negligent security premises liability afforded by the law can prove invaluable, particularly to those with a history of crime on the property. Implementing the required security measures will be much cheaper than being named a defendant in premises liability lawsuit.

Please contact our team to discuss the various insurance and risk management services we provide our commercial and multi-family residential property owners and operators.

Florida’s sweeping tort reform bill becomes law

By Anita Byer, Setnor Byer Insurance & Risk

Tort reform is underway in the Sunshine State. On March 24, 2023, House Bill 837, an historic reform bill containing monumental changes to Florida’s civil tort system, was signed into law. According to its proponents, HB 837 will fix the state’s broken civil justice system by reducing frivolous lawsuits without restricting access to the courts. Its significance can be gleaned from reports of attorneys rushing to file thousands of new lawsuits before the bill became law. Though the efficacy of these reforms will not be known for some time, their impact will be immediate.

HB 837 makes numerous changes to Florida’s civil justice system, including:

Reducing the statute of limitations for general negligence cases from four years to two years.

Changing Florida’s comparative negligence system from a “pure” comparative negligence system to a “modified” system, except for medical negligence cases. This means that a plaintiff who is more at fault for his or her own injuries than the defendant may not generally recover damages from the defendant.

Providing uniform standards to assist juries in calculating the accurate value of medical damages in personal injury or wrongful death actions.

Modifying Florida’s “bad faith” framework to:

Allow an insurer to avoid third-party bad faith liability by tendering the policy limits or the amount demanded by the claimant within 120 days after receiving actual notice of the claim.
Clarify that negligence alone is not enough to demonstrate bad faith.
Require a claimant to act in good faith with respect to furnishing information, making demands, setting deadlines, and attempting to settle the insurance claim.
Allow an insurer, when there are multiple claimants in a single action, to limit the insurer’s bad faith liability by paying the total amount of the policy limits at the outset.

Providing that Florida’s one-way attorney fee provisions for insurance cases only apply in limited situations.

Requiring triers of fact in certain negligent security actions to consider the fault of all persons who contributed to the injury, establishing a presumption against negligent security liability in specified situations and expanding immunity for a property owner defending a lawsuit against a criminal actor who is injured on the property.

Finally, it is important to understand that despite being presented as necessary to stop unscrupulous claimants and lawyers from manipulating the legal system, HB 837 applies to all lawsuits, not just the frivolous ones. Will its reforms produce the desired results? Time will tell. In the meantime, our team is available to discuss how these reforms may affect your personal and commercial property insurance coverages.

2022 nearly broke record for most data breaches in single year

By Anita Byer, Setnor Byer Insurance & Risk

A survey of publicly reported data breaches revealed that 2022 nearly broke the record for most data compromise events in a single year. According to the Identity Theft Resource Center’s 2022 Data Breach Report, there were 1,802 publicly reported data compromise events, affecting more than 422 million individuals, in 2022. This is just 60 events short of the current single-year record, which was set in 2021. “While we did not set a record for the number of data compromises in the U.S. during 2022,” said the CEO of Identity Theft Resource Center (ITRC), “we came close.”

ITRC’s analysis of data compromise events, which are events where personal information is accessible by unauthorized individuals or for unintended purposes, revealed the emergence of three major trends in 2022.

1. Data compromises overall were flat compared to 2021; the estimated victim count exceeded 2021 due to two breaches at one organization.

According to ITRC, there were fewer data compromises reported, and generally fewer victims, during the first half of 2022, but things changed during the second half. The number of data compromise events steadily increased, prompting concerns of another record-breaking year. The estimated number of data compromise victims was also trending downward for most of the year, until late December, when news broke that the personal information of 221 million Twitter users was available for sale in illicit identity marketplaces. ITRC notes that but for Twitter’s data compromise event, the estimated number of victims in 2022 would have decreased by 33 percent year-over-year.

2. Data breach notices suddenly lacked detail, resulting in increased risk for individuals and businesses as well as uncertainty about the true number of data breaches and victims.

In 2022, 747 data compromises were announced in notices that did not specify a root cause of the event. According to ITRC, this trend of including less and less information in required data breach notices began in late 2021, and accelerated throughout most of last year. As a result, the information individuals and businesses need to determine the risk to their identity after a compromise was not included in approximately two-thirds of all public breach notices in 2022.

3. The number of data breaches resulting from supply chain attacks now exceeds compromises linked to malware.

ITRC reports that in 2022, supply chain attacks surpassed the number of malware-based attacks by approximately 40 percent. A supply chain attack is a cyberattack against a single entity in hopes of gaining access to information maintained by the organization on behalf of other businesses or institutions. In 2022, more than 10 million people were impacted by supply chain attacks. The report notes that phishing and related exploits remain the number one cyberattack vectors, followed by ransomware.

Awareness of these emerging trends can help businesses protect their sensitive data and maintain cybersecurity. Developing and strengthening a culture of cyber readiness with appropriate security protocols is just the first step. Businesses should also have Cyber Perils Insurance Coverage to protect against various cyber threats and liability exposures, including the cost of complying with data breach notice laws.

Please contact us if you would like more information about insurance specifically designed to protect against cyber threats and data security breaches.

Fraudulent funds transfer quietly becoming leading driver of cyber loss

By Anita Byer, Setnor Byer Insurance & Risk

Did you know that fraudulent funds transfer (FFTs) is quietly becoming a leading driver of cyber loss? A recent survey of cyber insurance claims by Corvus Insurance revealed that the frequency of FFT claims has surpassed all others, making it the largest category of cyber incident. According to Corvus’ Risk Insights Index (Q4 2022), FFT claims represent 28 percent of all Corvus cyber claims and have become a leading driver of cyber loss. This is incredibly valuable information for businesses trying to keep cyber criminals at bay, particularly small- and medium-sized enterprises with limited resources because it’s usually easier (and cheaper) to defend against a known threat.

So, how does the FFT scam work? Though methods are constantly evolving, cybercriminals typically use business email compromise (BEC) attacks to initiate FFTs. BEC attacks are sophisticated scams that rely on deception and social engineering to convince victims to transfer money to an account controlled by criminal actors. Schemes often involve the spoofing of legitimate, known email addresses or the use of a nearly identical address to appear as someone known to or trusted by the victim. The FBI describes BEC attacks as one of the fastest growing, most financially damaging internet-enabled crimes.

This means that criminals are constantly refining their tactics to maximize their FFT payout. Over the last few years, scams have progressed from spoofed emails purportedly from chief executive officers to criminals impersonating legitimate vendors to redirect invoice payments to the criminal’s account. These scams can be very sophisticated and difficult to spot, so the FBI offers the following suggestions to help protect against FFTs.

Use secondary channels or multi-factor authentication (MFA) to verify requests for changes in account information.
Ensure the URL in emails is actually associated with the business, department or individual it claims to be from.
Be alert to hyperlinks that may contain misspellings of the actual domain name.
Refrain from supplying login credentials or PII of any sort via email. Be aware that many emails requesting your personal information may appear to be legitimate.
Verify the email address used to send emails, especially when using a mobile or handheld device, by ensuring the sender’s address appears to match who it is coming from.
Ensure the settings in employees’ computers are enabled to allow full email extensions to be viewed.
Monitor financial accounts on a regular basis for irregularities, such as missing deposits.

Businesses must implement and maintain appropriate security protocols to avoid not just FFT scams, but other forms of cybercrime as well. Ransomware, for example, did not go away. Despite declining frequency, ransomware remains a top driver of cyber loss.

While preventative measures can effectively reduce the risk of FFTs and other cyber threats, they are not foolproof. Every business should have Cyber Perils Insurance Coverage to protect against various cyber threats and liability exposures, including coverage for losses caused by FFT and other BEC attacks. Please contact us if you would like more information about insurance specifically designed to protect against cyber threats and data security breaches.

Florida approves 8.4% workers’ compensation rate reduction for 2023

By Anita Byer, Setnor Byer Insurance & Risk

Florida employers will be paying less for workers’ compensation insurance in 2023. The Florida Office of Insurance Regulation approved an overall average statewide decrease of 8.4 percent in workers’ compensation insurance premiums. The rate decrease will apply to new and renewal policies beginning January 1, 2023. This is the seventh consecutive year workers’ compensation rates have gone down in Florida.

The 8.4 percent rate reduction was initially proposed by the National Council on Compensation Insurance (NCCI), a rating organization authorized to make rate filings on behalf of workers’ compensation insurance companies in Florida. The reduction was based on NCCI’s analysis of claims experience data for the 2019 and 2020 policy years as of year-end 2021. According to NCCI:

favorable claims experience has been observed during these time periods;
Florida’s frequency of lost-time claims (injured employee receives wage replacement benefits) has generally declined over the most recent eight years; and
Florida’s average indemnity cost per case have been relatively consistent over time, while those for medical have been slightly more volatile from year-to-year.

NCCI notes that the rate reduction not influenced by the pandemic as its analysis did not include COVID-19 claims data. Nevertheless, NCCI’s assessment of possible pandemic-related impacts revealed that:

most COVID-19 claims are medical-only or indemnity-only and continue to be small (less than $1,500);
large claims (over $100,000) account for fewer than 2% of all COVID-19 claims, but more than 60% of total COVID-19 losses;
most claimants were employed in the healthcare industry;
the average age of workers with large claims is 55, which is 8-10 years older than that those with non-COVID claims; and
COVID-19 claims decreased significantly in 2021.

Although rates are going down next year, NCCI cautions that inflation has the potential to negatively influence the workers’ compensation system nationwide. Wage inflation is a concern as many workers, particularly those in leisure and hospitality, have seen significant pay increases recently. This directly impacts the cost of workers’ compensation insurance because payroll is used as the base to calculate premium. Rising medical claim costs (medical inflation) can also lead to higher premiums.