Tag: Insurance Programs

Business Interrupted? Don’t Let a Property Loss Jeopardize Your Business

Did you know that nearly 40% of businesses do not reopen and another 25% fail within a year after a catastrophe or disaster? The actual loss or damage to buildings, facilities and property is often the reason for this frightening statistic, but it isn’t the only reason. Businesses are increasingly struggling to recover after a property loss because of the economic impact caused by the interruption of business operations during and after the event.

It’s common for business operations to be suspended temporarily after a property loss. Depending on the severity of the loss, a business may be forced to shut down for weeks, possibly months. Though revenue often stops, expenses continue. The inability to pay expenses (payroll, mortgage, suppliers, taxes, etc.) can turn a temporary suspension of business operations into a permanent shut down. Business interruption insurance can prevent this from happening.

Business Interruption, also known as Business Income, is a type of commercial insurance that protects against loss of income when a covered loss causes a business to reduce or suspend its operations. In the event of a covered loss, business interruption insurance will cover lost revenue and fixed expenses, like rent and utilities, during the suspension of operations. Extra expense coverage is also available to reimburse costs over and above normal operating expenses, like temporary relocation costs.

Business interruption coverage is triggered when there is direct physical damage to property that was caused by a covered peril. For example, if wind damage is covered under a commercial property insurance policy, there would be business interruption coverage if operations were suspended due to a windstorm. On the other hand, if wind damage is not covered, there would be no business interruption coverage.

To calculate a business interruption loss, insurance companies need to determine how much the business would have earned if the loss had not occurred. They may review and consider various financial documents, such as tax returns, bank statements, profit and loss statements and balance sheets, to establish the amount of a business interruption loss.

According to the Insurance Information Institute, a recent report found that the economic impact from business interruption is often much higher than the cost of physical damage. Business interruption losses now make up a much larger part of overall property losses than they did just ten years ago. The increasing interdependence among businesses locally and globally also means that business interruption losses are expected to increase in frequency and severity.

Businesses should consider adding business interruption coverage to their existing insurance program. Though many aspects of this coverage are relatively standard, there are some variations among insurers and policy forms. For example, some policies may provide Civil Authority coverage. Given the relative complexity of business interruption coverage, an experienced and reputable insurance agent should be consulted to help identify needs and evaluate options.

Please contact us to learn how business interruption insurance can protect your business.

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OSHA’s Revised Injury and Illness Record keeping and Reporting Requirements

Each year there are more than 3 million serious (requiring more than first aid) workplace injuries and illnesses. Given the Occupational Safety and Health Act’s requirement that employers provide safe and healthy workplaces, this number is unacceptably high. To address this problem, the Occupational Safety and Health Administration (OSHA) recently revised various workplace safety regulations.

The most notable revision adds an electronic submission requirement to OSHA’s current record keeping regulations, which require employers with more than ten employees to keep a record of serious work-related injuries and illnesses. Employers with ten or fewer employees and employers in certain lower-hazard industries are partially exempt from this requirement. This revision becomes effective January 1, 2017, and will be phased in over two years.

The revised regulations do not change an employer’s current obligation to complete and retain injury and illness records. Covered employers are (and have been) required to record information about recordable injuries and illnesses on three separate OSHA forms.

  • Form 300 (Log of Work-Related Injuries and Illnesses)
  • Form 300A (Summary of Work-Related Injuries and Illnesses)
  • Form 301 (Injury and Illness Incident Report)

Under the revised regulations, submission requirements depend on the number of employees working at a single physical location where business is conducted or where services and operations are performed (an Establishment).

Establishments with 250 or more employees must begin electronically submitting information from Form 300A to OSHA by July 1, 2017. Information from all three forms (300A, 300 and 301) must be submitted electronically by July 1, 2018. Beginning in 2019 and every year thereafter, the information must be submitted by March 2nd.

Establishments with 20 to 249 employees operating in certain high-risk industries must electronically submit information from Form 300A to OSHA by July 1st of 2017 and 2018. Beginning in 2019 and every year thereafter, the information must be submitted by March 2nd. Though some of the industries designated as high-risk are obvious (agriculture, utilities, construction, manufacturing), others are not (grocery and department stores, museums, boarding houses). If you’re not sure whether this new electronic submission requirement applies, contact OSHA.

Additional revisions were made to promote complete and accurate reporting of work-related injuries and illnesses. As of August 10, 2016, employers must establish a reasonable procedure for employees to promptly and accurately report work-related injuries and illnesses. A procedure is not reasonable if it would deter or discourage a reasonable employee from accurately reporting injuries or illnesses. Employees must be informed about the reporting procedure.

Employers must also inform each employee that:

  • they have the right to report work-related injuries and illnesses; and
  • employers are prohibited from discharging or in any manner discriminating against employees for reporting work-related injuries or illnesses.

OSHA will provide a secure website for electronic submissions, including web forms for direct data entry and instructions for other means of submission. OSHA also intends to provide an interface for entering data from mobile devices.

OSHA estimates that it will take a typical employer with less than 250 employees about 10 minutes to create an account and another 10 minutes to enter the required information from Form 300A. For larger employers, OSHA estimates an additional 12 minutes will be needed to enter the required information for each injury or illness recorded on their Forms 300 and 301.

The revised regulations should serve as a reminder for employers of their obligation to provide a safe and healthy workplace. In addition to protecting employees from work-related injuries, employers may benefit financially from lower workers’ compensation insurance premiums.

Please contact us if you would like more information about controlling workers’ compensation insurance costs .

Additional information is also available in our weekly Risk Management Newsletters.

 

Using the Benefits of Representations and Warranties Insurance When Buying or Selling a Business

Deals to buy or sell a business typically include statements of fact by the seller about the business. These representations and warranties are then combined with indemnification provisions to allocate risks and liabilities between the parties. Negotiating representations and warranties can be challenging, and deals often fall apart because the parties cannot reach an agreement. Representations and Warranties Insurance (RWI) can simplify negotiations and possibly save the deal.

RWI protects against unintentional and unknown breaches of a seller’s contractual representations and warranties. Though RWI is not a new insurance product, it’s increasingly being used by both buyers and sellers to shift liability to insurers for a fixed cost.

These policies cover many of a seller’s standard representations and warranties, such as statements about:

  • Capitalization and debt;
  • Accuracy of financial statements;
  • Title to real, personal and intellectual property;
  • Tax matters;
  • Accounts receivable/payable and inventory;
  • Employee benefits and compensation; and
  • Compliance with laws and regulations.

 

In the past, RWI was typically reserved for buyers, but today RWI is used by both buyers and sellers. A ‘buy-side’ policy covers a buyer’s losses, including defense costs, due to the seller’s breach of a representation or warranty. A ‘sell-side’ policy covers the seller for defense costs and losses resulting from claims made by the buyer that the seller breached a representation or warranty.

Sellers can use RWI to:

  • Reduce potential liability for future representation and warranty claims;
  • Lock in their return on investment;
  • Cleanly exit a business or industry;
  • Eliminate the need for purchase price escrows or holdbacks;
  • Retain, use or distribute all or most of the sale proceeds;
  • Protect passive sellers; or
  • Expedite a sale.

 

Buyers can use RWI to:

  • Ensure a source of recovery for the seller’s breach of representations and warranties;
  • Ease concerns created by a sellers’ poor financial condition or other practical considerations that can make it difficult to collect from the seller in the event of a breach, such as sellers that are numerous, geographically dispersed or difficult to locate;
  • Distinguish its bid and appear more attractive to a seller;
  • Provide additional time to detect and report problems by extending the duration of a seller’s representations and warranties; or
  • Protect relationships with sellers who may continue working with buyer after the sale as a key employee or business partner.

 

Unlike standard general liability and property insurance policies, RWI coverages and exclusions can be relatively complex and can also vary depending on the specific policy form and insurance company. You should consult a reputable insurance agent with experience handling RWI applications and policies.

Please contact us if you would like more information about obtaining Representations and Warranties Insurance coverage.

Additional information is also available in our weekly Risk Management Newsletters.

My Friend Crashed My Car

At one time or another, most of you have let a friend borrow your car. Unfortunately, many of you probably weren’t thinking about insurance coverage as you handed over the keys. So what do you think, if your friend gets into an accident while driving your car, would your automobile insurance cover it?

As always, the first place to look is the insurance policy. Standard auto insurance policies have permissive use clauses that extend insurance coverage to those who had the owner’s permission to use the car. These clauses are intended to benefit and protect the general public and innocent victims of automobile accidents.

Though policy forms vary, permissive use (a/k/a omnibus) clauses are often incorporated into that part of the policy that identifies who is insured under the policy. For example, a policy may state that any person using the automobile is considered an ‘Insured Person’ if they have the owner’s permission to do so.

Permission to use an automobile can generally be either express or implied. Express permission must be of an affirmative character that is directly and distinctly stated, and clear and outspoken. Express permission cannot be merely implied or left to inference.

Implied permission, on the other hand, involves an inference arising from a course of conduct or relationship between the parties in which there is a mutual acquiescence or lack of objection which signifies permission. Implied permission is typically determined from the facts and circumstances in a particular case.

After establishing that the driver had permission to use the car, the next step is determining whether the driver’s use of the car was consistent with the owner’s permission. For example, if a car owner gave permission to drive to the local store, but the friend takes off on a cross-country trip, is this friend really driving with the owner’s permission?

There are generally three rules used by various states to determine whether a driver has exceeded the owner’s permission to use the car.

Conversion (Strict Construction) Rule: This rule requires that the automobile be used for a purpose reasonably within the scope of the permission given, during the time limits expressed and within the geographical limits contemplated by the owner and the driver. Any deviation, no matter how slight, will negate a driver’s permissive user status under the owner’s policy and there will be no coverage in the event of an accident. The friend cruising across the country would not be considered a permissive user in states adopting this rule.

Initial Permission Rule: Some states adopted the more liberal initial permission rule. Under this rule, if permission to use the automobile is initially given, the driver is considered to have the owner’s permission regardless of the manner in which the automobile is used. Since only the first use must be with the owner’s permission, any later deviations made by the driver, such as driving cross-country, are immaterial. For this reason, the initial permission rule is sometimes referred to as the ‘hell-or-high water’ rule.

Minor Deviation Rule: Some states have taken an intermediate approach by adopting the minor deviation rule. Under this rule, a driver can deviate from the scope of permission given by the owner and still be considered a permissive user as long as any deviation is not gross, substantial or major. In other words, this rule permits a slight deviation but condemns a major one. A material deviation, such as going cross-country, voids the initial permission, so if the friend gets in an accident in another state, he or she will not be considered a permissive user entitled to coverage under the owner’s auto insurance policy.

The next time a friend asks to borrow your car, take a minute to consider what might happen if there is an accident. As the owner of the car you will most likely be held liable for damages, so it’s a good idea to know whether you or your insurance company will be paying the bill.

If you have any questions or would like to discuss your insurance options, please contact us.

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Understanding Business Insurance: What is BOP?

Many businesses take a piecemeal approach to buying insurance. One policy for property insurance, another for liability insurance, and so on. Unfortunately, this approach can be difficult and time consuming, particularly for small- and medium-sized businesses. For these businesses, a Business Owners Policy, a BOP, may be an attractive alternative.

A BOP is a pre-packaged bundle of coverages that insurance companies offer to eligible small- and medium-sized businesses. BOPs are designed to provide a number of essential insurance coverages in a convenient and cost effective manner. BOPs typically provide:

  • Property insurance to cover damage to buildings and contents;
  • Business income (business interruption) insurance to cover the loss of income resulting from a covered loss that Disrupts business operations; and
  • Liability insurance to protect against liability claims for bodily injury and property damage occurring on a business’s premises or arising out of its operations.

Depending on the insurance company, additional coverages may be included in a BOP, or added for an additional premium, such as:

  • Cyber Liability
  • Employment Practices Liability
  • Valuable Papers and Records
  • Personal and Advertising Liability
  • Liquor Liability
  • Equipment Breakdown
  • Sale and Disposal Liability coverage for self storage facilities

Though BOP eligibility requirements can vary significantly among insurance companies, BOPs are typically limited to small- and medium-sized businesses, which are generally those with fewer than 100 employees and annual revenues of less than $5 million. BOPs may also not be available to businesses operating in specific industries or those with highly specialized or high-risk operations.

Alternatively, BOPs may not be the solution for some businesses, even those that are eligible for them. For example, some businesses may require higher limits or broader coverage forms that are not available in a BOP. There are also a number of coverages that BOPs do not provide, such as workers compensation, commercial automobile and professional liability insurance. Even with a BOP, additional insurance policies may still be necessary.

Since BOPs are customized insurance products, it is important to note that coverage options and features (limits, exclusions, etc.) can vary significantly among insurers. Unfortunately, the lack of uniform eligibility requirements, coverage options and policy features makes it difficult to understand and compare the various BOP options that may be available. An experienced insurance agent should be consulted throughout the process.

If you would like to learn more about BOPs or the various options that may be available to insure your business, contact us.

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Is Your Self Storage Facility Prepared for the Next Disaster?

Preparation is the key to surviving a natural or human-caused disaster. Nevertheless, a survey by the Ad Council found that 62% of respondents did not have an emergency plan in place for their business. Since up to 40% of businesses affected by a natural or human-caused disaster never reopen, self storage facilities intent on surviving the next disaster must be prepared.

Natural or human-caused disasters can affect a self storage facility’s operations and finances by disrupting critical business functions and processes. During and after a disaster, a self storage facility may experience:

  • Lost or delayed sales and income
  • Increased expenses
  • Customer dissatisfaction
  • Repair and replacement costs

To prevent or limit the damage from a disaster, the Federal Emergency Management Agency (FEMA) recommends developing a preparedness program using these five steps.

Program Management. An effective preparedness program requires leadership, commitment and financial support. Beyond any applicable laws or regulations that may establish minimum standards, each self storage facility must determine how much risk it can tolerate and take steps to minimize the likelihood of exceeding that risk.

A preparedness policy should be developed by management and distributed to staff. The policy should define roles and responsibilities. Select employees should be given the authority to develop the program and keep it current. The policy should also define the general goals and objectives of the preparedness program, such as:

  • Protecting the life and safety of employees, tenants, visitors, etc.
  • Protecting facilities, physical assets and electronic information
  • Minimizing interruptions or disruptions of business operations
  • Protecting the facility’s brand, image and reputation

Planning. Preparing for a disaster requires planning. During the planning process, self-storage facilities should consider all threats, not just those that are most likely to occur. Special attention should be given to threats that are classified as probable and threats that could cause injury, property damage or business disruption.

Implementation. Implementation of a preparedness program includes identifying and assessing resources, writing plans and developing a system to manage incidents. An effective preparedness program should address:

  • Resource and incident management
  • Emergency response
  • Crisis communications
  • Business continuity
  • Information technology
  • Training

Testing and Exercises. An effective preparedness program requires testing and exercises to:

  • Train personnel
  • Reinforce knowledge of procedures, facilities, systems and equipment
  • Improve individual and organizational performance
  • Identify strengths
  • Reveal weaknesses and gaps

Program Improvement. Self storage facilities must take advantage of every opportunity to improve their preparedness program. After an actual incident, a critique should be conducted to assess effectiveness. Lessons should also be learned from incidents occurring elsewhere.

An effective preparedness program can control a number of risks associated with natural or human-caused disasters. An effective insurance program is needed to protect against those risks that cannot be controlled. Since self storage facilities face unique risks, it helps to have an insurance program that is specifically designed for the self storage industry.

If you would like more information about protecting your self storage facility, please contact.

A Narrow View of Cyber Risks Can Leave You Overexposed

Recent, high-profile incidents show that every business is at risk of suffering a data security breach, regardless of size, resources or sophistication. To combat the risk, many organizations are taking steps to identify and secure organizational vulnerabilities, such as wireless networks, laptop computers, and even the office copy machine. However, a report by Zurich Insurance and the Atlantic Council suggests organizations must look beyond their own operations to truly recognize their exposure to cyber risks.

Businesses are increasingly using the internet and information technology functions to expand their operations and create opportunities. They are also increasing their exposure to external cyber risks that are often beyond their control. This is why businesses need to expand their horizon when evaluating and managing cyber risks. According to the report, businesses must consider these seven aggregations of cyber risk to fully understand their exposure.

  • Internal IT Enterprise: Risks associated with an organization’s internal IT (hardware, software, servers, processes).
  • Counterparties and Partners: Risks from dependence on or interconnection with outside organizations.
  • Outsource and Contract: Risks from contractual relationships with third-parties (IT and cloud providers, legal, accounting).
  • Supply Chain: Risks to supply chains in the IT sector and cyber risks to traditional supply chains and logistics.
  • Disruptive Technologies: Risks caused by unseen effects from, or disruptions to new technologies (smart grids, embedded medical devices, driverless cars), or existing but poorly understood technologies (internet, networks).
  • Upstream Infrastructure: Risks from disruptions to infrastructure relied on by economies and societies (electricity, telecommunications, financial systems).
  • External Shocks: Risks from incidents outside the system (international conflicts, acts of terrorism, malware pandemic).

Despite the external risks resulting from increased outsourcing and interconnectivity, businesses are urged to continue taking steps to control their internal cyber risks. According to the report, there are a relatively small number of actions that every organization can take to protect against most cyber risks, such as:

  • Implementing applicationwhite-listing to prevent systems from running programs that have not been pre-approved, such as malicious software
  • Using standard secure system configurations to keep systems simple and easier to defend.
  • Installing patch software for systems and applications within 48 hours of being released by the software manufacturers
  • Controlling administrative privileges to only those who need it and can be trusted with it

The report also recommends that businesses:

  • Expand their risk horizon to consider the seven aggregations of risk
  • Have cyber insurance, particularly for third-party risks associated with data breaches or business interruption
  • Deal with cyber risks at the board-level

Finally, the report states that resiliency is the key in a world where the number of cyber risks is increasing and the ability to control them is decreasing. To survive cyber threats and limit their impact, the report recommends that every business:

  • Incorporate redundancies in critical systems
  • Implement incident response and business continuity plans
  • Utilize scenario planning and exercises to stay prepared

As we have seen, nothing is foolproof, so businesses should use insurance to protect against cyber risks. There are a number of cyber liability products that protect against privacy injuries, such as identity theft, and that cover the cost of complying with various data breach notice laws.

Given the complexity of the risk, an experienced insurance agent should be consulted to ensure that adequate coverage is obtained. If you would like to learn more about insuring against cyber risks, contact us.

If you would like to learn more about preventing data security breaches, take our online course Information Risk Management: Strategies for Preventing and Mitigating Information Security Breaches.

Shopping for Homeowners Insurance Video from Tower Hill® Insurance

For most people, their biggest purchase is their home. Following the four must-dos for shopping for homeowners insurance can help you find the best value and the best protection for your home:

  • Get advice from a professional agent who will take the time to guide you through the selection process
  • Shorten your list to the best companies, those with a great reputation for financial strength, claims handling, and customer service.
  • Compare multiple quotes for similar coverages, and ask your agent to explain any differences in coverages.
  • Tailor your policy to your wants and needs, as well as your tolerance for risk. Make sure price is not the primary factor.

The video below does a great job discussing these items in further detail.

https://youtu.be/us4P2QNnI70

If you would like to learn more about this coverage please contact us.

Loss of Business Income Caused by Civil Authority Action

Public safety concerns may prompt civil authorities to take action to protect people and property. For example, a governor can issue a mandatory hurricane evacuation, a mayor can close roads during inclement weather, the police can enforce curfews during riots, or a fire department can restrict access to a neighborhood during a gas leak. Though these actions may be good for public safety, they may be bad for business.

In some cases, a Business Interruption policy’s Civil Authority coverage may offset income losses suffered during a civil authority action. Business Interruption, also known as Business Income, is a type of commercial insurance that protects against loss of income when a covered loss causes a business to reduce or suspend its operations. Civil Authority coverage is an additional protection that may be included in a Business Interruption policy.

A typical Civil Authority clause states: We will pay for the actual loss of Business Income you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the described premises due to direct physical loss of or damage to property, other than at the described premises, caused by or resulting from any Covered Cause of Loss.

Under this framework, the Civil Authority provision will not provide coverage unless all four of the following conditions are met.

  • The loss of business income must be caused by the civil authority action. There must be a direct relation between a civil authority action and a loss of income.
  • The civil authority action must prohibit access to the insured business. Courts have held that access must be completely prohibited in order to satisfy this requirement. A civil authority action that makes travel to an insured’s business difficult or inconvenient is not enough to trigger Civil Authority coverage.
  • The civil authority action must be caused by direct physical loss of or damage to property away from the insured’s premises. Unlike Business Interruption coverage, which requires loss or damage to the insured’s property, Civil Authority coverage requires loss or damage to property somewhere else. For example, an explosion at a nearby warehouse causes the fire department to shut down the area surrounding an insured business for two weeks.
  • It’s worth noting that claims for Civil Authority coverage often fail to meet this requirement because the decision to take civil authority action is not caused by direct property damage, but by the desire to prevent it. Courts have denied coverage for losses caused by civil authority actions that were designed to prevent future damage rather than address existing property damage, such as pre-hurricane evacuation orders and curfews imposed to prevent looting and rioting. According to one court, Civil Authority coverage is designed to address situations involving civil authority action that is taken after damage occurs.
  • The loss or damage to property away from the insured’s premises must be caused by or result from a loss that is covered under the insured’s policy. A business without hurricane insurance, for example, would not be covered if a civil authority action was caused by hurricane wind damage.

Though many aspects of Civil Authority coverage are relatively standard, there are some variations among insurers and policy forms. For example, some policies provide that coverage will not begin until 24 hours after the civil authority action was taken, and others require 72 hours. The duration of Civil Authority coverage may also be different.

Given the complexity of Civil Authority coverage under a Business Interruption policy, an experienced and reputable insurance agent should be consulted to help identify needs and evaluate options.

If you have any questions or would like to speak with one of our Risk Management Professionals, please contact us.

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Is a Resident Manager Ideal for Your Self Storage Facility?

Resident managers are not as common as they used to be in the self storage industry. For some self storage facilities, however, a manager living on the premises may be the key to running a successful operation. Though cost is an important factor when deciding whether a self storage facility could benefit from a resident manager, other factors should be considered as well, such as:

Service: Automated facilities may not be enough to create an advantage over the competition. Depending on a self storage facility’s location or specialty, clients may want more than just an access code after signing a contract. Facilities with a resident manager can service clients in ways that others cannot. This is why the existence of a resident manager is often mentioned in promotional and marketing materials.

Security: Even with surveillance cameras and 24-hour monitoring services, it is difficult to deny that resident managers can make a self storage facility even more secure. Their presence alone will likely deter most criminals, and their response time will be quicker than even the fastest police departments.

Operations: Things can and often do go wrong after business hours. Leaking pipes and short-circuits are just two things that can cause significant damage if they are not discovered and fixed quickly. A resident manager can find and fix those problems that cannot wait.

Qualified Candidates: It’s not always easy to find and retain the right people. Providing prospective managers with a place to live may be just the perk required to hire and keep quality talent.

After evaluating all the pros and cons in the context of each facility’s own particular situation, an informed decision can be made about whether a resident manager could improve operations. However, before making a final decision, it is important to understand the ramifications of hiring a resident manager, particularly how doing so may create an unexpected relationship.

In addition to creating an employer-employee relationship, hiring a resident manager can also create a landlord-tenant relationship. While employers can often terminate employees at-will and without advance notice, the same cannot usually be done with tenants. Depending on applicable law, a self storage facility will generally be required to provide advance written notice to terminate the landlord-tenant relationship. As a result, a resident manager may be legally entitled to continue renting the property for a period of time after his or her employment has been terminated.

There are steps that can be taken to minimize the scope and impact of the landlord-tenant aspects of a resident manager’s employment relationship. For example, a self storage facility can address landlord-tenant issues in a written employment agreement or in a separate lease agreement. However, since specific legal requirements must be met, it is advisable to seek the advice of a locally licensed attorney.

As is often the case, it is necessary to understand the risks in order to control them. Since self storage facilities face unique risks, it helps to have an insurance program that is specifically designed for the self storage industry. If you would like more information about Setnor Byer Insurance & Risk’s Self Storage Insurance Program, please contact us.

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