Tag: Insurance Programs

Take a Picture: Documenting a Loss for Your Insurance Company

If asked to prepare a complete inventory of every item of personal property in their home, many people would probably struggle to identify even half of their belongings. Despite the difficulty of such a task, most are left with no choice but to depend on their unreliable memory when it comes time to itemize a loss for their insurance company. Consequently, many people frustrate or delay the settlement of their claim because they failed to inventory their property.

A current, accurate, and complete inventory of all property will be invaluable in the event of a covered loss. In addition to decreasing the likelihood that important or valuable items are forgotten or overlooked, such an inventory will simplify and expedite the claims process. An insured can simply refer to the inventory when preparing a claim or forward it to the insurance company.

Since the task of preparing an inventory can easily be placed in the “I’ll do it tomorrow” category, many people are left in the unenviable position of facing a claim without an inventory. Do not be one of those people. Since a loss from fire, tornado, theft, or some other covered event can happen without warning, an inventory should be completed as soon as possible. At the very least, if a specific threat to property can be anticipated, such as hurricanes or advancing fires, then an inventory should be prepared before evacuation.

A comprehensive inventory should include a description of the items, including the make, model, and serial number of the item. Any special or unique characteristics, such as customizations or alterations, should also be identified. Receipts, or other evidence of purchase, should also be included in the inventory. The receipt should indicate the date of purchase, the store or merchant selling the item, and the cost.

An inventory should also include a visual representation of all items, such as photographs or video recordings. Given the availability and relative simplicity of recording devices, this may be the easiest part of creating an inventory. Properly taken photographs and video recordings may also compensate for any shortcomings in descriptions or receipts. Thus, while it is recommended that an inventory contain all receipts and descriptions, photographs or video recordings may still prove helpful in the event of a claim.

When recording images of property, whether videos or photographs, be sure to cover all items, including collectibles, antiques, art, guns, paintings, furniture, rugs, clocks, jewelry, clothing, appliances, tools, vacuum cleaners, lawn mowers, electronics, computers, computer equipment, stereo equipment, cameras, TVs, CDs, DVDs, musical instruments, kitchen items, exercise equipment, and sports equipment. Do not overlook items in closets, drawers, the garage, the attic, or items outside the house, such as barbecue equipment and patio furniture.

If the inventory includes a video recording, be sure to record the entire home, working from one end of the house to the other. Recordings of the attic, garage, and the area outside of the home should also be made. Any video recording should be narrated with information about each item that is being recorded, such as purchase details, the history of any family heirlooms, and any details about customizations or unique characteristics. The date of the video should also be established.

If photographs are taken, individual circumstances must be considered to make sure all items are identified and properly recorded. Nevertheless, the following tips may be helpful in developing an acceptable approach:

  • Use a color camera with a flash;
  • Take wide-angle shots of the whole room, then take close-ups to capture detail;
  • View the images to confirm adequate quality;
  • A family member in the picture may assist in substantiating ownership;
  • Take pictures of the insides of drawers and closets;
  • Make sure brand, manufacturer, designer, painter, model number, etc. is clearly visible in the picture;
  • Fill the frame of any pictures;
  • Use the highest resolution available on a digital camera;
  • Get close to the item being photographed;
  • Use a simple background;
  • Provide scale where necessary; and
  • Label photos with the dates they were take and any other item-specific information that will be helpful.

While these tips may provide a foundation for creating an inventory of property, as long as there is sufficient information to identify each precise item, as well as its cost and condition, any chosen method should be adequate. The same tips may also be used to inventory property in the business or commercial insurance context.

Once completed, all photographs and video recordings, as well as any other items making up the inventory, should be saved in electronic format and stored on a disk or CD. Copies should be made and stored in a safe place, such as a safe deposit box or a relative’s house, so the inventory is not lost or destroyed by the same destructive event.

Finally, after making an initial inventory, it is important to keep it current by updating the inventory as needed. If new items are purchased or acquired, they should be added to the inventory. Updating can either be done on an as-needed basis, or at specific intervals, such quarterly. It is also important to note that while a comprehensive inventory is ideal, a less detailed version dealing only with expensive or important items can still be helpful in the event of a loss.

Although it takes time and effort to create a comprehensive inventory of property, the benefits outweigh the effort if an inventory ever becomes necessary. After a loss, being able to itemize the loss of property is necessary to quickly and adequately process your insurance claim. When the time comes, don’t be one of those people left guessing.

If you would like more information about protecting your property, please contact us

An Employer’s Liability under ERISA for 401(k) and Other Employee Benefit Plans

Employers offering 401(k) plans to their employees assume significant responsibilities under the Employee Retirement Income Security Act. As the federal law designed to protect employee retirement plans, ERISA imposes strict standards of care upon those who establish and administer such plans. Unfortunately, many employers fail to understand the true scope of their obligations, as well as the consequences for failing to live up to them. Since wrongful acts can result in significant liability, employers must understand precisely what the law requires and what the law prohibits.

Employers looking for additional motivation to take their obligations seriously need only consider that ERISA violations may result in personal liability. Specifically, ERISA provides that “any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties…shall be personally liable to make good to such plan, any losses to such plan resulting from each such breach.

In addition to covering 401(k) plans, ERISA’s broad definition of “employee benefit plan” means that many different types of employee plans may be covered by ERISA, including various health plans, short- and long-term disability plans, deferred contribution plans, SIMPLE plans, TOP HAT plans, pension and profit sharing plans, employee stock ownership plans, and flexible benefit plans. Given ERISA’s broad applicability, employers offering various employee benefit plans must confirm ERISA’s applicability to such plans.

It is important to establish ERISA’s applicability, whether to a 401(k) plan or some other covered employee benefit plan, because of the strict standards of care imposed upon those deemed “fiduciaries” of the plan. Although a plan must have at least one named fiduciary, if a person uses discretion in administering and managing the plan, or controlling the plan’s assets, then that person may be deemed a fiduciary of the plan by virtue of taking control of the plan. Indeed, fiduciary status is based on the functions performed for the plan, not just a person’s title with respect to the plan.

The significance of being a fiduciary comes from the responsibilities and standards of conduct associated with the designation. Fiduciaries are subject to standards of conduct because they act on behalf of participants in a retirement plan and their beneficiaries. Under ERISA, a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.

In the context of serving a plan, a fiduciary’s responsibilities include:

  • Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them;
  • Carrying out their duties prudently;
  • Following the plan documents (unless inconsistent with ERISA);
  • Diversifying plan investments; and
  • Paying only reasonable plan expenses.

Although all of a fiduciary’s responsibilities must be observed, the duty to act prudently is one of a fiduciary’s central responsibilities under ERISA. It requires expertise in a variety of areas, such as investments. Lacking that expertise, a fiduciary will want to hire someone with that professional knowledge to carry out investment and other functions. Prudence focuses on the process for making fiduciary decisions. Therefore, it is wise to document decisions and the basis for those decisions.

Diversification—another key fiduciary duty—helps to minimize the risk of large investment losses to the plan. Fiduciaries should consider each plan investment as part of the plan’s entire portfolio. Once again, a fiduciary will want to document their evaluation and investment decisions.

In addition to establishing minimum standards of behavior, fiduciary obligations also prohibit specific behavior. For example, fiduciaries are prohibited from engaging in self-dealing and must avoid conflicts of interest that could harm the plan. Moreover, ERISA prohibits specific parties (parties-in-interest) from doing business with the plan, such as employers, unions, plan fiduciaries, and service providers. Some prohibited transactions are:

  • A sale, exchange, or lease between the plan and a party-in-interest;
  • Lending money or other extension of credit between the plan and a party-in-interest; and
  • Furnishing goods, services, or facilities between the plan and a party-in-interest.

As previously mentioned, fiduciaries may face personal liability to restore any losses to the plan, or restore any profits made through improper use of the plan’s assets. So, fiduciaries should limit their liability exposure wherever possible. One way fiduciaries can control liability is by demonstrating that they have carried out their responsibilities properly by documenting the processes used to carry out their fiduciary obligations.

Another way to limit potential liability is by giving plan participants control over the investments in their accounts. Importantly, this option does not eliminate a fiduciary’s duties, it only limits the scope. For participants to have control, they must be given the opportunity to choose from a broad range of investment alternatives. Under the Department of Labor’s regulations, there must be at least three different investment options so that employees can diversify investments within an investment category, such as through a mutual fund, and diversify among the investment alternatives offered. Additionally, participants must be given sufficient information to make informed decisions about the options offered under the plan. Participants also must be allowed to give investment instructions at least once a quarter, and perhaps more often if the investment option is extremely volatile.

If an employer sets up their plan in this manner, a fiduciary’s liability is limited for the investment decisions made by participants. However, a fiduciary retains the responsibility for selecting the providers of the investment options, the options themselves, and monitoring their performance.

A fiduciary can also hire a third-party administrator, or service provider, to handle fiduciary functions, setting up the agreement so that the person or entity then assumes liability for those functions. If an employer appoints an investment manager that is a bank, insurance company, or registered investment advisor, the employer is responsible for the selection of the manager, but is not liable for the individual investment decisions of that manager. However, an employer is required to monitor the manger periodically to assure that it is handling the plan’s investments prudently.

It is important to specifically address an employer’s potential liability as a fiduciary when a third-party administrator is retained to handle an employer’s plan. Many employers believe that retaining a third-party administrator absolves the employer of any fiduciary obligations. This is wrong. Although retaining a third-party administrator may limit the scope of an employer’s fiduciary obligations, it does not eliminate them.

Hiring a third-party administrator is in and of itself a fiduciary function, so an employer must exercise appropriate care in its selection. A reasonable number of candidates must be interviewed and the entire process must be documented. At a minimum, the following information should be requested from each potential third-party plan administrator:

  • Information about the firm itself, including the financial condition and experience with retirement plans of similar size and complexity;
  • Information about the quality of the firm’s services, including the identity, experience, and qualifications of professionals who will be handling the plan’s account, any recent litigation or enforcement action that has been taken against the firm, and the firm’s experience and performance records;
  • Information about business practices, including how the plan’s assets will be invested and how participant investment directions will be handled, the proposed fee structure, and whether the firm has fiduciary liability insurance.

An employer’s fiduciary responsibilities extend beyond the selection of a third-party administrator, and include the duty to monitor the performance of a third-party administrator. This scenario provides yet another example in which an employer can face a breach of its fiduciary responsibilities even though a third-party administrator was retained.

Compliance with the duty to monitor a third-party administrator requires, at a minimum, formal reviews at reasonable intervals to decide whether to retain the third-party administrator or look for a replacement. Monitoring efforts should include:

  • Reviewing the third-party administrator’s performance;
  • Reading any reports they provide;
  • Checking actual fees charged;
  • Asking about policies and practices (such as trading, investment turnover, and proxy voting); and
  • Following up on participant complaints.

In addition to complying with all fiduciary obligations, a plan is required to obtain a fidelity bond to protect the plan’s assets. A fidelity bond is a type of insurance that protects the plan against loss resulting from fraudulent or dishonest acts of those covered by the bond. Such bonds do not typically protect the fiduciary from personal liability; rather, it only protects the assets of the plan.

Those seeking to protect against the personal liability of fiduciaries may obtain fiduciary liability insurance. Fiduciary liability insurance generally covers the discretionary decisions made by fiduciaries which may be the source of litigation. Since retirement plans are often targets for litigation, fidelity liability insurance is a necessity in today’s environment, especially considering that the frequency and costs of such claims are increasing at a staggering pace.

Given the importance of 401(k) and other employee benefit plans in today’s workplace, it is unlikely that employers will stop making such plans available to their workforce. As a result, employers will continue having to deal with ERISA’s obligations and liabilities. This means that the risks associated with being a fiduciary must be considered and controlled. Otherwise, significant personal liability could result.

Setnor Byer Insurance & Risk’s 401(k) Division is available for a complimentary ERISA compliance assessment. If you would like to take advantage of this benefit, please contact Katie Grimmer.

The average premium for a mid-sized fiduciary liability bond is $1,000. Download anERISA Fiduciary Bond application.

Would You Like to Stack That?

If you have ever elected to purchase uninsured (or underinsured) motorist (UM) coverage with your automobile insurance policy, you were likely asked if you would like to “stack” the coverage. In many instances, after hearing a brief explanation, many insureds answer the question even though they do not fully grasp the concept of stacking coverages. More importantly, many insureds respond without understanding the significance of their decision.

In an effort to eliminate instances of uninformed stacking decisions, Florida law requires that insureds make their election in writing on a form approved by the Office of Insurance Regulation. In addition to protecting an insured’s interests in this regard, the requirement that insurance companies obtain informed consent confirms the significance of the deciding whether or not to stack UM coverage.

The importance of this decision is further highlighted by its connection to UM coverage. UM coverage applies to bodily injuries to you and your passengers when the other person who caused the accident has no insurance or not enough insurance to cover the claim. While always valuable, the need for UM coverage is even more pronounced during difficult economic times since the number of uninsured and underinsured drivers is usually at its highest. Given the high cost of being involved in an accident with an uninsured or underinsured driver, UM coverage is often described as being one of the most important parts of a comprehensive auto insurance program.

Fortunately, the concept of stacking coverage is fairly straightforward. By taking a few moments to understand the difference between stacked and un-stacked (or non-stacked), an insured can evaluate the differences between the two, which will then allow them to determine which option best suits their particular needs.

Although amounts vary depending on an insured’s choice, insurance polices contain coverage limits which are typically expressed as 10/20 ($10,000 per person / $20,000 per accident), 50/100, 100/300, etc. These numbers represent the limit of what an insurance company will pay in the event of a claim.

Those who purchase UM coverage may be given the option to add, or stack, the limits of coverage, thereby increasing the amount that an insurance company will pay in the event of a claim. When an insured elects to stack the coverage, the limits will increase based on the number of cars that are insured.

Consider the example of an insured that has three vehicles insured under the same policy, and each has a UM limit of 50/100 ($50,000 per person/$100,000 per accident). If the insured elects not to stack the coverage, then these UM limits would not change. However, if the insured does elect to stack the coverage, then the insured will have UM coverage of up to $150,000 per person/$300,000 per accident, which is arrived at by multiplying the number of vehicles by the limits of insurance.

As this example illustrates, electing to stack UM coverage limits can make a big difference in the amount of insurance coverage that is available to an insured for a UM claim. Since choosing to stack coverage operates to increase the available limits, it necessarily follows that the choice will result in higher premiums. However, in many instances the increase is reasonable when compared to the additional coverage. Nevertheless, any increase in cost should be considered.

Additionally, in some cases, stacking coverage may increase the likelihood that the UM policy will respond to a claim whereas the un-stacked policy may not. For example, in some instances, an owner of a car and a motorcycle who elects to stack the auto policy may be covered in the event of a motorcycle accident caused by an uninsured motorist. The same may not be true if the auto policy is un-stacked. So, in addition to increased limits, there may also be an increased response by the stacked policy. Consequentially, since stacking may result in coverage that may not otherwise be available if the UM coverage was un-stacked, many people elect to stack their coverage even if they only have one car.

In many, if not most instances, the recommendation will be to stack the UM coverage regardless of any increase in premium. Nevertheless, it would be wise to make an independent evaluation when it comes to this decision. Understanding the difference between stacked and un-stacked, as well as the ramifications of choosing one over the other, gives an insured all that is needed to make a decision that is best for them.

Finally, when it comes to stacking coverage, state laws may vary significantly depending on the wording of any applicable statutes, judicial interpretations, and insurance policies. Therefore, it is wise to either become familiar with your state’s laws, or alternatively, do business with a reputable and experienced insurance agent.

If you would like more information about personal or commercial automobile insurance, including UM coverage, please contact us.

Improving Patient Safety and Combating Abuse in Long-Term Care Facilities

In a move aimed at combating abuse and neglect in the nation’s long-term care facilities, the Centers for Medicare & Medicaid Services (CMS) awarded more than $13 million on October 6, 2010, to six states to design comprehensive applicant criminal background check programs for jobs involving direct patient care.

“Elder abuse and neglect is tragic and intolerable,” said HHS Secretary Kathleen Sebelius. “Workers with a history of abuse or neglect should be identified and prevented from ever working with residents of these facilities.

“The new health care law will help states identify the best, most effective ways to determine which applicants can be trusted with the health and safety of residents and which cannot,” said Donald M. Berwick, M.D., CMS administrator.

Created by the Affordable Care Act, the new National Background Check Program will help identify “best practices” for long-term care providers to determine whether a job seeker has any kind of criminal history or other disqualifying information that could make him or her unsuitable to work directly with residents.  

The first round of states to participate in the program are: Alaska, Connecticut, Delaware, Florida, Missouri, and Rhode Island.  They each will share a portion of $13.7 million.

An additional 11 states applied and may be funded beginning in October or November. CMS will also issue a second solicitation in October for those states that did not apply but may still do so.

The new law set aside $160 million for the program, which is to run through September 2012, an amount sufficient to enable all states to participate.

The national background check for each prospective direct patient care employee must include a criminal history search of both state and federal abuse and neglect registries and databases, such as the Nurse Aide Registry or FBI files.

Long-term care facilities or providers covered under the new program include nursing facilities, home health agencies, hospice providers, long-term care hospitals, and intermediate care facilities for persons with mental retardation, and other entities that provide long-term care services.

Questions about the National Background Check Program may be sent via e-mail to the Center for Medicare & Medicaid Services.

To learn more about conducting background investigations, click here.

Source: Department of Health & Human Services

Personal Umbrella Insurance Policy: The “Business Pursuits” Exclusion

When it comes to personal insurance, some people are content with their standard automobile and homeowners’ (or renters’) insurance policies. Others, however, believe additional insurance is necessary to adequately protect their interests. Whether these people are naturally more risk averse, or they understand that an auto policy with $10,000/20,000 limits will likely fail to fully cover all but the slightest of occurrences, the solution they seek can be found in a personal umbrella liability insurance policy.

A personal umbrella insurance policy, or an excess liability insurance policy, provides coverage that goes beyond the limits of an insured’s primary home or automobile insurance policies. Such coverage is often described as second-tier or second-layer insurance because the coverage comes into play only after the primary or underlying coverage is exhausted. Depending on the precise policy form, an umbrella policy may simply operate to increase the limits of coverage beyond those of the primary policies, or it may provide broader coverage beyond those of the underlying policies. Either way, a personal umbrella insurance policy creates an additional layer of security against the loss of one’s personal assets and wealth.

To maximize the protection afforded by a personal umbrella policy, it is necessary to understand what the policy covers. Or, more importantly, what the policy excludes from coverage. While every insurance policy contains exclusions, some warrant additional discussion. In the context of personal umbrella insurance policies, one such exclusion is the “business pursuits” exclusion.

Although the precise language of the “business pursuits” exclusion varies among different policies, it typically provides that the personal umbrella policy will not cover bodily injury or property damage arising out of business pursuits of the insured. The underlying purpose of this exclusion is to deny coverage for losses arising out of a business endeavor. Since most of those who purchase personal umbrella insurance policies undertake some form of business endeavor throughout their day, it is important to understand the precise scope of the exclusion.

The first place to start is the policy itself. Unfortunately, the word business is not always defined in the policy. The policies that do provide a definition usually do so by providing a list of synonyms, such as trade, profession, or occupation. As a result, there is little guidance to be found in the policy.

Another way to understand the exclusion is to look at judicial opinions that have considered its meaning. However, working with little more than the sparse policy language, courts have struggled to provide a universal interpretation of the exclusion. Nevertheless, these opinions do provide some general guidance as to the scope of the “business pursuits” exclusion.

According to these judicial decisions, the exclusion applies to conduct that is primarily taken in furtherance of a business interest or that is inextricably entwined with employment. Although many courts refused to define the outer limits of the exclusion, one court rejected the notion that the exclusion automatically applies merely because the conduct occurred in the workplace. According to this court, the applicability of the exclusion must be assessed in light of the relationship of the alleged conduct to the business activity. And, while the applicability of the exclusion may depend on the existence of a profit motive, the alleged act must ordinarily be one that the insured would not normally perform but for the business and must be solely referable to the conduct of the business.

Despite this guidance, insureds are still left without a universal interpretation of the exclusion. And, while it may be easy to predict the applicability of the exclusion in some clear-cut cases, those instances falling somewhere in the middle may defy accurate prediction. Consequently, as is often the case, it is very difficult to state whether coverage will be excluded in a hypothetical situation. Actual facts are needed to make a determination.

However, any difficulty encountered in predicting the applicability of the exclusion before the happening of an occurrence does not diminish the importance of incorporating a personal umbrella policy into a comprehensive insurance portfolio. Knowing about, and understanding, the “business pursuits” exclusion allows insureds to identify potential gaps in their personal insurance coverage and adjust their behavior accordingly.

If you would like to learn more about obtaining a personal umbrella insurance policy, please contact us.

The Need for Directors & Officers Insurance for the Condominium Association Board

What is the difference between directors and officers of a small condominium association and those of a million dollar company? Oftentimes, the differences are found in levels of experience and expertise, and in the large salaries and stock options. In the eyes of the law, however, they are more alike than they are different. Yet, despite the fact that directors and officers of condominium associations often share the same legal duties and responsibilities as their highly paid and high profile counterparts, many do not realize the significance, or the ramifications, of their decision to volunteer for their condominium board.

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Those deciding to serve on their condominium association board typically do so with the best intentions. They make every effort to abide by the rules, act fairly, and above all, do that which is best for their community. However, since directors and officers are charged with protecting not only their own homes, but also those of their neighbors, the stakes can be very high, and the consequences of mistakes can be severe.

Given that directors and officers are required to comply with numerous different legal standards, it would be unrealistic to expect them to perform their responsibilities without ever making a mistake. Common law duties, fiduciary obligations, condominium bylaws and declarations, and numerous applicable statutory requirements, all govern the manner in which directors and officers undertake their obligations.

Consider the following situations which may ultimately result in liability for the condominium association, as well as its directors and officers: breach of the duty of care, libel and slander, loss resulting from improper management, ignorance or misunderstanding of condominium bylaws or declaration, failure to maintain proper books and records, conflicts of interest, negligence or recklessness in conducting the association’s business, violations of applicable statutory and common law duties, breach of fiduciary duty, employment-related misconduct, and improper or discriminatory application of condominium rules. Consequently, volunteers with little or no experience or knowledge about what it means to be a director or officer are likely to make a mistake during their efforts to navigate through all of the applicable legal requirements.

Since the combination of strict legal requirements and inexperience generally create a favorable environment for error, prudence dictates that condominium associations insure against the resulting risk. This can be accomplished with a Directors and Officers (D&O) insurance policy.

D&O policies generally protect directors and officers against monetary damages resulting from lawsuits or claims resulting from actions taken in their official capacity. These policies protect against claims that directors and officers have acted improperly, or otherwise failed to act, in their individual or group capacity on behalf of the association. They can offer protection against economic damages resulting from the negligence or wrongdoing of board members. And, depending on the policy form, D&O coverage may apply to the association, as well as its directors, officers, employees, committee members, and volunteers.

While D&O policies do not cover all potential liabilities, such as those resulting from fraudulent or intentional acts, they do provide a much needed security blanket for those directors and officers wanting to serve their community, but who may not possess all of the necessary experience or knowledge. Such policies also reduce the likelihood that assessments will be imposed to pay amounts that would have been covered by a D&O policy.

Another benefit of obtaining D&O insurance is that it removes a significant obstacle in getting the best and brightest individuals to serve their condominium association. Upon discovering that they will be on their own in the event something goes wrong, many individuals decide not to volunteer for service. Additionally, the existence of a D&O insurance policy gives directors and officers the freedom to make the right decisions, even if they are not popular, without fear of liability. The alternative may be a group of directors and officers so paralyzed by fear that little is accomplished.

While making the decision to obtain D&O insurance is easy, choosing the appropriate policy form for a particular situation is not. Since variations among D&O policies can be significant, it is important to select a policy form which addresses any particular risks with appropriate coverage terms. When shopping for a Directors and Officers insurance policy, it is important to use the services of an insurance agent with substantial expertise in this field.

If you would like more information about Directors and Officers Insurance for your condominium association, please contact us.

Professional Liability for Lawyers

Is lawyers’ professional liability insurance necessary for a small law firm?

Professional liability insurance is vital for all law firms, no matter the size or the nature of the law firm’s practice. Lawyers’ professional liability insurance covers direct loss and expense to a lawyer or law firm arising from claims for alleged neglect, error or omission in the performance of services in a professional legal capacity.

Law firms are increasingly the target of client claims and lawsuits.  Oftentimes this is the result of unreasonable client expectations. Sometimes this can be the result of real error on the part of a lawyer or firm.  Even if a claim or suit is frivolous, a law firm needs professional liability insurance in order to protect itself.

One product that is available for small law firms is Travelers 1st Choice for Small Law Firms.  This is an insurance product that offers protection for the professional liability exposures faced by law firms with 10 or fewer attorneys.  Covered professional legal services include services by lawyers, arbitrators, mediators, notary publics and real estate title insurance agents.  Key features include coverage for current and former partners and associates, personal injury coverage, deductibles as low as $1,000, loss only and aggregate deductibles available, duty to defend provision, expense reimbursement up to $10,000 and extended reporting provisions.

For more information regarding this or other lawyers’ professional liability programs or for general information regarding professional liability insurance for lawyers, please don’t hesitate to inquire.

Credit History and Auto Insurance Premiums: What’s the Connection?

Increasingly, consumers are asking why their credit rating affects the rates they pay for automobile insurance. Yet using an individual’s credit rating as a criterion for determining an auto insurance premium is a fairly common practice in the insurance industry. Why? Statistics compiled by the Insurance Information Institute indicate that drivers with low credit scores are more likely to file insurance claims. As a result, the lower a person’s credit score, the more likely it is that the individual will pay higher auto insurance premiums; conversely, the higher the credit score, the lower the insurance rates.

When using credit scores to set automobile insurance premiums, insurance companies consider a number of elements in an individual’s credit history. The two most important factors are an individual’s payment history and the amount of debt the individual owes. Insurers want to know whether an individual has made late payments or has missed payments, as well as whether he or she is paying down or accumulating debt. Other criteria are the length of an individual’s credit history, the number of accounts in an individual’s credit report, and the amount of new account activity in the report.

Many consumers feel that the practice of using credit history and not solely an individual’s driving record in determining auto insurance premiums is unfair. They argue that it’s wrong to charge higher rates to individuals who have not had any tickets or accidents for many years but who have lower credit scores. Yet drivers with multiple tickets or at-fault claims pay lower auto insurance premiums merely because they have excellent credit ratings. Insurance companies claim that using credit history is a proven tool that helps them measure their risk of loss and set their rates accordingly.

Given the current economic climate, with high unemployment and a record number of mortgage foreclosures, even individuals who once had good credit history may find themselves facing double trouble: mounting debt and higher auto insurance premiums. That’s why now more than ever, consumers need to work with insurance professionals committed to getting them the best automobile coverage at the best price.

For more information, contact us.

Insuring the Green Movement

Facing increasing and unpredictable energy costs, buildings capable of significantly reducing energy consumption have become increasingly attractive to those in the market for real estate. The increased public awareness and concern for the environment, coupled with an increasing consumer demand for the cost savings generated by energy efficient buildings, have operated to propel the green movement into the real estate industry in the form of green buildings.

There are many benefits associated with constructing, retro-fitting, and occupying green buildings, beyond those involving the environment. Studies show that buildings certified by Leadership in Energy and Environmental Design (LEED), an internationally recognized green building certification system, have an almost four percent higher occupancy rate, as well as increased retention rates. Such buildings may also experience an almost 10 percent decrease in operating expenses, and a similar increase in building value. Subsidies, incentives, and tax credits may also be counted as potential benefits associated with green buildings.

All of these benefits have operated to grow the green building industry despite the otherwise underperforming real estate market. According to one study, construction of green office space has increased by approximately 25 percent over the past decade, with significant continued growth predicted for the near future. Moreover, according to the U.S Green Building Council, green building construction is expected to reach $60 billion, with approximately 10 percent of new commercial construction starts expected to be green. These numbers confirm that building green has become, and is predicted to remain big business.

Given the increasing popularity and value of green construction, the insurance industry has entered the field by developing policy endorsements geared specifically toward green properties. These policies recognize that green buildings contain unique features, in the form of materials and designs, which are typically more expensive than those found in traditional buildings. Thus, in the event of a covered loss, a typical insurance policy may not cover the extra expense and procedures ordinarily associated with green buildings. That is why it is important to understand the manner in which insurance companies are catering to those property owners seeking to become, or remain, green.

Given the relative novelty of insuring green buildings, many companies are routinely adjusting their products to accommodate this developing industry. Nevertheless, there are a few commonalities among the varying products in terms of coverages, including:

  • Green Rebuilding: Green coverage will cover many of the costs related to rebuilding a covered property to its budgeted level of green certification. Some companies offer policies that cover the costs of replacing standard materials with a green equivalent in the event of a covered loss.
  • Business Income: In the event of a covered loss, an insured may suffer a loss as a result of a suspension of business operations. If business interruption insurance was purchased by the insured, a green policy may pay for the additional suspension of an insured’s operations for the extra time required to make the green qualifying repair.
  • Certification or Recertification Expenses: For insureds desiring a green certification post-loss or who desire the continuation of a pre-loss green certification, policies may cover the reasonable certification expenses for the repaired or replaced covered property.
  • Accredited Professional Expenses: Obtaining or maintaining a green certification may require the services of green-accredited professionals, such as architects and engineers. The cost of additional professional services used in planning and designing the applicable green qualifying repairs may be covered by insurance.
  • Debris Recycling: Although most policies cover debris removal, obtaining a green certification often requires that the debris be properly recycled, often at additional expense. The increased costs of such recycling efforts can be covered by insurance.

In addition to these somewhat typical green coverages, some companies offer more specialized insurance products relating to obtaining or maintaining a green certification. For example, one company provides for the payment of additional costs incurred to replace or repair a damaged roof with a vegetative roof, which is a roof that utilizes plants and vegetation as an alternative to a conventional flat roof. Another reimburses an insured’s actual loss sustained in the form of lost tax incentives, cost credits, reduced loan rates, or other financial incentives as a result of a loss of green certification.

In light of the variations in policy forms, maximizing the benefits afforded by green insurance is best accomplished by matching the appropriate form with a specific need. Thus, property owners must evaluate their risks and then purchase the green insurance protection from the insurer providing the best form.

For those in the business of leasing real estate, choosing the best policy form is just the first level of protection. Such property owners should clearly outline insurance requirements, specifically green insurance requirements, in the lease. If a particular company or policy form is the best fit for a specific location, then landlords should consider making the purchase of precisely that type of insurance an express requirement in the lease.

Alternatively, landlords can detail the precise minimum green insurance requirements in the lease. For example, if a particular building has obtained a specific green certification, such as a gold or platinum LEED rating, then the lease should expressly require each tenant to purchase a particular green insurance policy that would ensure the continuation of such rating in the event of a covered loss.

The effort and expense required to construct and operate a green building can be significant, and the numbers show that property owners are willing to invest the extra money to reap the many benefits associated with an environmentally sound structure. Given the unique risks involved in maintaining a green building, it is important for owners to properly insure their investment in order to enjoy the benefits of green ownership despite a covered loss.

For more information about obtaining green insurance, please contact us.

Did You Know About Leasehold Interest Coverage?

Did you know that in response to the high number of commercial property vacancies, landlords, in an effort to entice new tenants, are increasingly offering more favorable lease terms? But even sweetheart deals like these carry some risks that business owners need to protect themselves against with well-designed insurance policies.

Generally, a lease is considered favorable when the rate per square foot is somewhat or substantially less than the rate for comparable space currently available in the local commercial real estate market. Landlords are often willing to offer these extremely favorable lease rates in tough economic times to attract tenants, who can lock into these deals not only to save now but also to enjoy a better-than-market lease agreement when the real estate market recovers.

But favorable lease agreements are not without risk. These lease agreements generally allow a landlord the option of cancelling a lease should a specified event, such as major property damage, occur. If a tenant has a lease rate that cannot be replicated in the local real estate market, then losing that favorable lease can result in an unplanned increase in operational expenses for years to come.

Here is an example: ABC Advertising enters into a five-year agreement with its landlord, paying $15 per square foot for 20,000 square feet of space. When the building suffers major property damage during the first year of the agreement, ABC’s lease is cancelled, forcing ABC to either find a new operating location or accept a renegotiated lease at a higher cost. With the current area market price for equivalent space at about $20 per square foot, ABC, to lease 20,000 square feet of space, would see its monthly lease payments jump from $25,000 to $33,333, an increase of 33 percent. Such a spike in monthly lease payments translates into $100,000 of additional annual operating costs in rent alone, a potentially crushing increase.

Business owners can protect themselves against the risk of cancellation of a favorable lease by obtaining Leasehold Interest Protection insurance. This policy covers the losses suffered by an insured tenant when a premises lease with favorable terms is cancelled as a result of damage to the premises from a covered cause of loss, thereby forcing the insured to lease a replacement premises at a significantly greater expense. Like a Business Income policy, Leasehold Interest coverage protects against the harsh financial consequences of an indirect loss that arises from a direct loss.

There are four exposures that can be insured by Leasehold Interest Protection:

  • Tenants Lease Interest: the difference between the rent actually paid by the tenant and the market value of the premises.
  • Bonus payment: a non-refundable amount of money paid by the tenant to acquire the reduced lease (not equivalent to a security deposit). For example, a landlord, for an upfront payment of $100,000, agrees to lease space at $10 per square foot rather than at the market value of $15 per square foot. The landlord receives an immediate infusion of revenue, and the tenant gets a favorable lease, saving the insured hundreds of thousands of dollars over the term of the lease.
  • Improvements & Betterments: additions and upgrades the tenant has made to the property that cannot be removed, thus becoming the property of the building owner.
  • Prepaid Rent: rent the tenant has paid in advance that will not be returned.

Given the volatility of the current commercial real estate market, savvy business owners with favorable leases must protect themselves from the devastating financial losses that can result if their lease agreements are cancelled. Contact a Risk Management professional today to learn more about Leasehold Interest Protection and how it can help you dodge this speeding bullet.