Tag: Risk Assessment and Control

Health Care Reform by the Numbers

As Health Care Reform makes its way through the health insurance landscape, many employers are finding it difficult to keep up. Unfortunately, the size and complexity of the Affordable Care Act (Act) doesn’t help. Nevertheless, a general understanding of the Act’s more significant provisions can help employers adjust to past changes and prepare for future ones.

Since numbers play a big part in determining how the Act will impact a particular employer, here are some figures that employers can use to see where they fit in the big picture.

0 Number of employers explicitly required by the Act to offer employee health care coverage

50 Number of full-time equivalent employees required to trigger the Act’s tax on employers

$2,000 Annual tax large employers must pay for each full-time employee (in excess of 30) if the employer does not offer health benefits to its employees

$3,000 Annual tax that large employers must pay for each full-time employee receiving a credit for purchasing health insurance from an Exchange if the employer offers health benefits to its employees

30 Average number of hours an employee must work to be considered a full time employee for purposes of determining large employer status

$0 Annual tax that large employers must pay for each part-time employee, regardless of whether the employer offers health coverage to employees

85% Minimum percentage of premium revenue that a large group health insurance issuer must spend on health care claims and quality improvement to avoid issuing a rebate to enrollees

80% Minimum percentage of premium revenue that a small group or individual market health insurance issuer must spend on health care claims and quality improvement to avoid issuing a rebate to enrollees

200 Maximum number of full-time employees that an employer may have before the Act’s automatic enrollment requirement is triggered

9.5% Maximum percentage of employee’s household income that the employee’s self-only health plan contribution may be to qualify as affordable under the Act

60% Minimum percentage of costs that must be covered by an employer’s health plan to be considered adequate under the Act

249 Maximum number of W-2 Forms an employer may file during the previous calendar year to avoid reporting the cost of coverage under an employer-sponsored group health plan on Form W-2

35% Maximum tax credit available to eligible small employers through 2013

24 Maximum number of full-time equivalent employees an employer may have to be eligible for the Act’s small employer tax credits

$49,999 Maximum average annual wages an employer may pay to be eligible for the Act’s small employer tax credits

50% Minimum percentage of employees’ premium cost for single (not family) health care coverage an employer must pay to be eligible for the Act’s small employer tax credits

100 Maximum number of employees an employer may have to be eligible to purchase insurance through Small Business Health Options Program (SHOP) Exchanges

TBD Number of newly insured Americans

TBD Affordability of health insurance under the Act

TBD Effect of Act’s provisions on employers and employees

At Setnor Byer Insurance & Risk, we are committed to guiding you through what is sure to be a bumpy ride. Check back with us periodically for future informational updates. If you have specific questions about the Act or if you are ready to take action and would like to see how Setnor Byer Insurance & Risk can help, contact us.

Protecting Your Business from Cyber Liability Risks

Almost every business relies on computers, networks and electronic data to support their business operations and serve their customers. What most business owners don’t realize is the substantial exposure associated with their use of electronic platforms and the data those platforms host. Today, Cyber Liability insurance is available to business owners for the exposures associated with their use of electronic platforms.

Most businesses are not aware that standard Commercial General Liability policies do not contemplate these types of claims, leaving companies with significant gaps in coverage for cyber-related perils. Any business that collects or handles confidential information, stores client data, uses email, generates revenue online, relies on the internet for transactions or uses a network to conduct its business is in need of this important coverage.

Cyber Liability insurance is designed to protect the insured against direct and indirect loss to the Company’s assets as well as third party claims of negligence. Losses can be caused by hazards such as the transmission of virus/malicious code, denial of service attacks, physical theft of a computer/device, accidental release of an insured’s confidential data and attacks by hackers. First party coverage under the Cyber Perils policy includes:

  • Loss of data
  • Loss of business income
  • Electronic theft
  • Cyber extortion
  • Security event costs

Third party claims of negligence can include allegations that an insured:

  • Permitted the unauthorized disclosure of confidential information
  • Failed to secure a Network against attack
  • Committed an act of defamation

Of particular interest to many businesses are data breach security concerns. Recent studies have shown that over 70 percent of all data security breaches are experienced by small to medium sized businesses and the cost of a breach can be staggering. The average cost for a data breach claim is over two million dollars. These damages include the cost of data reconstruction, customer/client notification and credit monitoring. This leaves small businesses most at risk because they are unlikely to have the time and resources necessary to handle a data breach security event.

Given the variety and complexity of these occurrences, an experienced insurance agent should be consulted to ensure that proper coverage is obtained and that no gaps remain. If you would like to learn more about insuring against data security breaches, contact us.

The Aftermath of a Data Security Breach

Data security breaches clearly pose a significant risk to organizations that collect or maintain customers’ personally identifying information in electronic format. Unfortunately, too many organizations do not fully understand the risk.

Here is confirmation that a data security breach can be a huge problem.

700      Approximate number of Barnes & Noble locations nationwide

63        Number of locations with tampered credit and debit card PIN pad devices

3          Number of days before a federal class-action lawsuit was filed

THREE whole days before any action was taken!!!

Although federal or state law may require a business to notify those affected by a data security breach, can that business also be held liable to individuals who had their identities stolen because of the breach? The Eleventh Circuit Court recently joined other courts in holding that a business may be liable to an individual if there is a sufficient link between the data security breach and the identity theft.

Though bare allegations of time and sequence are usually insufficient, the Court held that a link between a breach and identity theft can be established by showing that:

  • The individual gave the business his personal information.
  • The personal information used to steal the individual’s identity was the same information lost in the breach.
  • The identity fraud incidents began within a reasonable period of time after the breach.
  • The individual had not previously suffered any such incidents of identity theft.

Under these facts, the Court held that the individuals have sufficiently stated a claim for damages and that their lawsuit could proceed. This means that the business is likely in for a long and expensive legal battle.

Since it is impossible to eliminate the risk of a data security breach, insurance should be used to limit it.

Various insurance products protect against privacy injuries resulting from security breaches, such as identity theft. Insurance may also help cover the often substantial cost of complying with security breach notice laws. Given the variety and complexity of these products, an experienced insurance agent should be consulted to ensure that proper coverage is obtained and that no gaps remain.

If you would like to learn more about insuring against data security breaches, contact us .

Florida’s New-Look Self-Storage Facility Act: Are You Ready?

In April 27, 2012, a bill amending Florida’s Self-Storage Facility Act (Act) was signed into law by Governor Rick Scott. The bill primarily implements changes to the notice requirements related to enforcing an owner’s lien against items stored in a self storage facility. According to the Self Storage Association, these changes could save Florida’s self storage industry more than $4 million annually.

Additionally, the bill provides that applications and rental agreements must include a provision disclosing whether an applicant is a member of the uniformed services. Consistent with the protection afforded some military personnel by the Servicemembers Civil Relief Act (SCRA), this new requirement is intended to help servicemembers avoid foreclosure of their stored property during a period of military service.

The bill, which becomes effective July 1, 2012:

  • Expands the definition of last known address to include the street address, post office box, or e-mail address provided by the tenant in a rental agreement or in a subsequent written change of address notice;
  • Deletes a provision which may have required a tenant to provide a new address to an owner by certified mail;
  • Removes the requirement that a tenant be notified of the owner’s claim by certified mail, and allows written notice of a pending sale of property to be delivered in person, by e-mail, or by first-class mail along with a certificate of mailing;
  • Provides that if the owner notifies the tenant by e-mail, a response, return receipt, or delivery confirmation from the tenant’s last known e-mail address is required for the notice to be effective; otherwise, the owner must send notice of the sale to the tenant’s last known address by first-class mail along with a certificate of mailing, before proceeding with the sale;
  • Deletes a requirement that a notice sent by mail must be “registered” in order for the notice to be presumed delivered when deposited with the U.S. Postal Service, thereby making any notice sent by mail, registered or not, is presumed delivered when deposited with the U.S. Postal Service;
  • Removes a reference to certified mail, thereby permitting an owner to notify the tenant or secured lienholders of any balance remaining from the proceeds of a sale of property by first-class mail along with a certificate of mailing; and
  • Requires contract rental agreements or applications for a rental agreement to contain a provision disclosing whether the applicant is a member of the uniformed services.

To take advantage of these revisions, owners and operators of self storage facilities should make every effort to obtain each tenant’s email address. Importantly, procedures should be implemented to ensure tenants’ email addresses are kept current. Those failing to do so will be unable to enjoy the benefits provided under the amended law.

Regardless of whether a self storage facility takes advantage of the new notice procedures, the new requirement for determining a tenant’s military status cannot be ignored. Far too many self storage facilities fail to determine whether a tenant is in the military service, and, consequently, they do not know whether the SCRA applies to any particular tenants.

Ignorance in this respect will inevitably result in violations of the SCRA, which can prove costly and embarrassing. Though some may find determining military status burdensome, in reality, this new requirement will benefit self storage facilities as much as their military tenants.

Oftentimes, there is a period of uncertainty following the enactment of a new law because many are unsure of precisely what is now required or permitted. Fortunately, the changes to the Act are fairly straightforward, so extensive confusion is not anticipated. Nevertheless, those who own or operate a self storage facility in Florida would be wise to seek advice if there are any doubts as to how the new law will affect their operation.

Setnor Byer Insurance & Risk’s Self-Storage Insurance Program and Risk Management Group work closely with self-storage facilities throughout Florida and nationwide to profile risks, compare coverage options, and match our clients with an insurance program that meets their needs.

If you have any questions about the amendments to Florida’s Self-Storage Facility Act, or if you would like discuss how our programs can help you, please contact us.

Changes to Florida’s Personal Injury Protection (PIP) Coverage Requirements Become Effective on July 1, 2012

Florida’s Motor Vehicle No-Fault Law requires motorists to carry at least $10,000 of no-fault insurance. This insurance requirement, known as personal injury protection (PIP) coverage, has existed in Florida since 1972. To make sure that those injured in an auto accident quickly get money to treat their injuries, the law requires a driver’s insurance company pay up to $10,000 for medical bills and lost wages, no matter who is at fault.

Despite its intent, many believe the PIP law was doing more harm than good. A 2011 report prepared by Florida’s Office of Insurance Regulation noted that over the past several years the frequency and severity of PIP claims has increased significantly, even though the number of Florida drivers has remained stable and the number of accidents has decreased.

According to the report:

  • The number of PIP claims opened or recorded in 2010 increased by 28 percent since 2006.
  • From 2006-2010, the number of PIP lawsuits against insurers pending at year end increased by 387 percent.
  • From 2008 to 2010, PIP benefits paid by insurers increased by 70 percent ($1.43 billion to $2.37 billion).
  • Based on current trends, a 19 percent increase in PIP claims paid, a nine percent increase in claim severity, and a 29 percent increase in pure premium can be expected this year.

Touted as a measure to reduce insurance premiums and combat fraud (Florida ranks first nationally in staged accidents), House Bill 119 was passed by the Florida legislature on March 9, 2012. The bill’s new measures take effect on July 1, 2012.

House Bill 119 includes many significant changes to the current law, including:

  • Requiring those injured in motor vehicle accidents who are seeking no-fault medical benefits to receive initial treatment and care within 14 days from specified providers;
  • Making up to $10,000 in medical benefits available for emergency medical conditions and up to $2,500 for non-emergency medical conditions;
  • Requiring insurers to make rate filings by October 1, 2012, and January 1, 2014, decreasing premium rates by at least 10 percent and 25 percent, respectively;
  • Providing that the PIP funeral benefit of $5,000 is in addition to medical and disability benefits;
  • Excluding massage and acupuncture from covered medical benefits;
  • Requiring health care clinics that seek PIP reimbursement to be licensed, with specified exceptions;
  • Authorizing a direct-support organization to combat motor vehicle insurance fraud;
  • Amending the PIP schedule of maximum charges, requiring insurers to include the schedule in their forms, and permitting the use of Medicare coding policies;
  • Providing that an insurer’s failure to timely pay PIP claims as a general business practice is an unfair and deceptive trade practice;
  • Tolling the PIP payment period when fraud is reasonably suspected;
  • Requiring insureds to comply with all policy terms, including requests for examination under oath;
  • Creating a rebuttable presumption that the failure to appear for two mental or physical examinations constitutes an “unreasonable refusal” to submit to examination;
  • Prohibiting the use of contingency risk multipliers; providing guidelines for judges to consider in determining whether the amount of an attorney fee award is appropriate;
  • Revoking the license of health care practitioners found guilty of insurance fraud for five years;
  • Amending crash report forms;
  • Specifying certain actions that constitute fraud; and
  • Appropriating $200,000 from the Insurance Regulatory Trust Fund to retain an independent consultant to determine the expected savings from this legislation.

Proponents of the bill state that it adequately targets those items driving PIP costs, and, consequently, that consumers should realize savings on their no-fault premiums. However, it is uncertain whether House Bill 119 will achieve such a result.

Though insurers are required to submit rate filings reflecting decreased premiums over the next few years, the bill requires those failing to sufficiently reduce their premiums to submit a detailed explanation of the insurer’s failure to achieve the required rate reduction. The extent to which these explanations will be scrutinized by regulators remains to be seen.

As is often the case with new laws, time is needed to determine whether actual reform will follow the legal reform.

If you would like more information about PIP reform, or if you would like to discuss any other insurance or risk management matters, please contact us.

Is Fear of Liability Why Your Condominium Community Does Not Have an Automated External Defibrillator (AED)?

According to the Centers for Disease Control and Prevention, approximately 785,000 Americans suffer their first heart attack every year, while another 470,000 experience their second. Unfortunately, the number of those who die from sudden cardiac arrest is equally disturbing.

Medical experts generally agree that the key to surviving a heart attack is timely implementation of the Chain of Survival, which is a metaphor often used to describe the elements of appropriate treatment in the case of a heart attack. An important link in this chain is defibrillation, which involves providing an electric shock to the victim’s heart.

Thousands of deaths could be prevented each year if heart attack victims receive prompt defibrillation. Automated external defibrillators, or AEDs, are designed to provide instant defibrillation to those in need. AEDs are portable devices that guide users through the process by audible or visual prompts without requiring any discretion or judgment.

Technological advances have increased access to AEDs, which are now found anywhere from the local gym to the neighborhood supermarket. Despite their benefit and increasing affordability, many condominiums do not purchase AEDs for fear of exposing their association to liability if something goes wrong. Though potential liability is always a legitimate concern, in the context of providing AEDs to condominium residents, various laws are in place to protect the condominium association.

In the Cardiac Arrest Survival Act of 2000, Congress found that limiting the liability of Good Samaritans and acquirers of AEDs in emergency situations may encourage their use and save lives. Since then, many states have enacted their own laws to protect those who use AEDs or otherwise make them available.

In Florida, civil immunity is available to those who cause harm when using or attempting to use an AED in a perceived medical emergency. Under certain circumstances, any person who acquired the device and makes it available for use, including condominium associations, may also be entitled to immunity. Additionally, Florida law provides that an association’s general liability insurance policy may not exclude damages resulting from the use of an AED.

Like Florida, Georgia provides civil immunity to those making AEDs available, and to those who provide emergency care or treatment with an AED. In North Carolina, a person providing care with an AED and the person responsible for the site where the AED is located are similarly immune from civil liability arising from the use of the AED.

Relying on these laws, condominium associations can provide the life-saving benefits afforded by AEDs without necessarily creating additional liability. However, the immunity afforded by these laws is not automatic or absolute. Rather, each state’s laws generally contain various, often unique requirements which must be met to enjoy the immunity.

For example, in Florida, immunity is only available if a qualifying AED is involved. To qualify for immunity in Florida, the AED must be a lifesaving defibrillator device that:

  • Is commercially distributed in accordance with the Federal Food, Drug, and Cosmetic Act;
  • Is capable of recognizing the presence or absence of ventricular fibrillation, and is capable of determining without intervention by the user of the device whether defibrillation should be performed; and
  • Upon determining that defibrillation should be performed, is able to deliver an electrical shock to an individual.

In North Carolina, immunity is lost if the injury or death resulting from the use of an AED was caused by gross negligence, wanton conduct or intentional wrongdoing on the part of the person rendering the treatment. In Georgia, the emergency care must be rendered gratuitously, in good faith, and without objection of the person to whom care or treatment is rendered.

Despite similarities among many states’ statutes, there may be some very significant differences. Consequently, before electing to purchase an AED for their community, condominium associations must understand and ensure compliance with each and every applicable statutory requirement. Given the consequences of failure, condominium associations should consider seeking legal advice during the decision-making and implementation process.

Access to an AED may save a life. If a condominium association does not have an AED for fear of increased liability exposure, then a closer look at any applicable immunity laws should be considered. Despite these laws, however, condominium associations must maintain a healthy fear of liability to ensure compliance with any statutory requirements. Otherwise, the very immunity that initially compelled the purchase of an AED will be replaced with the liability exposure the condominium association always sought to avoid.

Clients of Setnor Byer’s Condominium Program enjoy access to various risk management services, such as Setnor Byer’s Risk Management Group and Unit Owners’ Report Line, as well as our affiliate’s Board Member Education Certification, which has been approved by the Division of Florida Condominiums, Timeshares, and Mobile Homes.

If you would like to learn more about controlling condominium association risks, or if you would like to discuss how we can serve you and your association, please contact us.

The Danger Within: Domestic Liability Exposure

Many homeowners employ an employee, whose duties are related to the maintenance or use of the owner’s home, including household or domestic services. Unfortunately, many of these same homeowners do not fully understand the risks associated with employing a domestic employee, or whether such risks are covered under their homeowners’ insurance policy.

What happens if a domestic employee suffers a serious injury while working? Will the homeowners’ insurance policy cover the claim? Will the homeowners be covered if the domestic employee sues for damages? Since the cost of a severe injury could be significant, it is better to know the answers to these questions sooner rather than later. This is done by reviewing the homeowners’ policy to determine whether domestic employees are covered, and, if so, to what extent.

While a particular policy may exclude coverage for domestic employees, there are standard form insurance policies that do provide coverage, though it may be limited by various qualifications and conditions found throughout the policy. Accordingly, when determining the scope of coverage for domestic employees, who are also known as residence employees, it is necessary to read the policy’s “fine print.”

A standard form homeowners’ insurance policy may provide coverage for personal property owned by a domestic employee, provided such property is located in the residence of the insured. If a domestic employee suffers bodily injury in an accident, a policy may cover the domestic employee’s medical expenses in specific instances, provided the bodily injury did not occur away from the residence while the employee was not working. However, since this coverage often comes with relatively low limits, it will only protect a homeowner in instances involving very minor injuries.

A standard homeowners’ policy may also cover a third-party’s medical expenses if the person is injured away from the insured’s home, and the injury is caused by a domestic employee in the course of his or her employment with the homeowner, though the extent to which any injured person is covered may depend on the availability of other insurance. Additionally, various exclusions, such as the motor vehicle liability, watercraft liability, and aircraft liability exclusions, may not apply in some cases involving a domestic employee.

Although the foregoing coverages may prove valuable, the biggest concern is whether a policy would protect a homeowner from personal liability in the event a domestic employee is injured while working. In these instances, the homeowner’s potential liability could be financially devastating.

An insurance company will defend a lawsuit and pay damages up to the coverage limit for which the homeowner is legally liable, unless the claim is excluded under the policy. Thus, the relevant question is whether a claim made by an injured domestic employee is excluded from coverage. The answer typically turns on whether the domestic employee is eligible to receive workers’ compensation benefits.

A standard form homeowners’ insurance policy typically excludes coverage for bodily injury to any person who is eligible to receive any benefits voluntarily provided or required to be provided by the homeowner under any workers’ compensation law. To determine whether a claim filed by an injured domestic employee would be covered by the policy, one or two questions must be answered.

The first question is whether the homeowner is required by law to provide workers’ compensation benefits to the domestic employee. Since workers’ compensation is largely a matter of state law, the answer depends on location.

In New York, a domestic employee working 40 or more hours per week for an employer must be covered by workers’ compensation insurance, as do “live-in” domestic employees regardless of any set hours. Accordingly, any claim brought by an injured domestic employee who is eligible for workers’ compensation insurance under New York law will be excluded under the standard homeowners’ policy, even if the homeowner failed to obtain the requisite workers’ compensation insurance.

In Florida, domestic employees in private homes are generally not entitled to workers’ compensation benefits. Since a Florida homeowner is not typically required to provider workers’ compensation benefits, determining whether a domestic employee’s claim will be excluded leads to a second question: Does the homeowner provide workers’ compensation benefits voluntarily?

Under Florida law, an employer may voluntarily accept to be bound by the provisions of the workers’ compensation laws even though an employee, such as a domestic employee, is exempt from such laws. Why? To invoke workers’ compensation immunity as a defense to being sued by an employee who was injured while working.

Because the security of immunity may outweigh the cost of providing benefits, an employer may provide workers’ compensation benefits despite no legal obligation to do so. If this is the case, a claim brought by a domestic employee will not be covered by the standard homeowners’ policy because the employee is eligible to receive workers’ compensation benefits, albeit voluntarily.

So, a claim will not be covered under a standard homeowners’ policy if the domestic employee is eligible to receive workers’ compensation benefits, regardless of whether such eligibility is required by law or provided voluntarily. As written, the standard exclusion would likely apply even if the employee does not receive any workers’ compensation benefits because eligibility, rather than receipt, is the key.

Before a risk can be managed, it must be understood. Without knowing the probability and degree of potential liability exposures, as well as options for controlling the frequency and severity of such exposures, it is impossible to make an informed decision. For those with domestic employees, the first step is to review their homeowners’ insurance policy to find any gaps in coverage. The next step will depend on the extent to which the homeowner is comfortable assuming the financial risk of any such gaps.

Since reviewing a policy and determining the applicability of various laws can be complicated, it is helpful to consult an experienced and reputable insurance agent. If you would like to learn more about protecting against the risks created by domestic employees, or if you would like to discuss your insurance options, please contact us.

Using Rental Agreements to Limit Liability Exposures Facing Self-Storage Facilities

As with any business, self-storage facilities must take affirmative steps to protect the bottom line. Unfortunately, too many self-storage facilities overlook perhaps the most important and effective step of all–using the rental agreement to limit their liability exposure.

Though it is virtually impossible to completely insulate a business from liability, there are various contractual provisions that are designed to eliminate, or at least limit, the exposures faced by self storage facilities. The challenge is to ensure contractual provisions are drafted in a manner that comports with a facility’s particular situation and business practices, as well as any applicable laws.

Though situational and jurisdictional variations typically undermine the effectiveness of boilerplate or one-size-fits-all templates, self-storage facilities should consider incorporating some or all of the following protections in their rental agreements.

Limitation and Release of Liability

A limitation of liability clause is designed to contractually allocate each party’s risk in reasonable proportion to the benefits derived from the contractual relationship. Without such a clause, a self-storage facility may suffer liabilities that far exceed revenue. The overall purpose of the clause is to clarify and establish that the property is being stored at the sole risk of the tenant.

Depending on the circumstances, different approaches can be taken when drafting a limitation of liability clause. For example, a clause may place a maximum limit on the value of property that a tenant may store in a unit, or it may provide that the parties agree to a fixed value for the property, which can be based on weight, size, or some other factor. Another option is to limit the liability of a self-storage facility to the amount of rent paid by the tenant.

In addition to limiting liability, a rental agreement should stipulate that the tenant has agreed to release the facility from liability in the event of loss or injury. A release provision must be drafted clearly and must state that the release of liability applies to the tenant and to any person authorized to enter the premises by the tenant. To provide the broadest applicability, the release of liability should cover injuries or losses regardless of whom or what is involved.

It is important to understand that the extent to which a party may contractually limit or be released from its liability may be restricted, or otherwise governed, by various state laws. Contractual provisions designed to release a party from the damages caused by its own negligence, or exculpatory clauses, illustrate this point.

Florida and Connecticut courts have held that although exculpatory clauses are disfavored, they will be enforced if properly drafted. An exculpatory clause must clearly and unequivocally state that it releases a party from liability for its own negligence so that an ordinary and knowledgeable party will know what he or she is contracting away. Though some courts state that using the word “negligence” is not necessarily required, it is advisable to do so.

For example, in enforcing an exculpatory clause in a personal injury case, the Supreme Court of Connecticut relied on the fact that the agreement “refers to the negligence of the defendants three times and uses capital letters to emphasize the term “negligence.”

In New York, however, a state statute requires that such a provision be treated differently by the courts when a contract involves real property. Pursuant to this statute, a contractual provision exempting a landlord from liability for the landlord’s negligence is deemed to be void as against public policy. So, even if the lease contained an exculpatory clause addressing the facility’s negligence, it would likely be deemed unenforceable in New York.

The lesson here is that since exculpatory clauses are disfavored, they must be tailored to apply to each specific situation and to comply with any applicable laws. Thus, the use of templates or boilerplate language increases the likelihood that such a clause will be unenforceable.

Indemnification and Hold Harmless

An indemnification provision requires a tenant to compensate the self-storage facility for any damages or losses caused by the tenant which the facility may be required to pay. For example, if a third-party is injured by a hazardous condition created by a tenant, or anyone authorized by the tenant to be on the premises, then the self-storage facility may be liable to that injured party. An indemnification provision would typically require a tenant to compensate the self-storage facility for whatever amount the self-storage facility is liable to the injured party.

A hold harmless provision stipulates that a tenant agrees not to hold the self-storage facility responsible for any loss, injury, or legal liability which is caused by the tenant, or anyone invited on the premises by the tenant, or which is otherwise related to the tenant’s occupancy. If, for example, a tenant is injured while using a dolly that is made available by the self-storage facility, then the hold harmless provision would prevent the tenant from recovering against the facility.

Since indemnification and hold harmless provisions have been described as different sides of the same coin, it is not uncommon for them to be combined into a single contractual provision. Accordingly, they should be drafted with care and in a manner that is consistent with applicable laws.

Insurance

Including a requirement that tenants insure their property accomplishes two goals. First, it provides a tenant with a primary source of compensation in the event of a loss. Second, it places the burden on the tenant to see that he or she is adequately protected in the event of a loss.

An insurance clause within a rental agreement may stipulate that tenants are required to obtain sufficient insurance to cover the value of all the property stored at the self-storage facility. To the extent a tenant fails or is unable to insure his or her property, the tenant would be deemed to have self insured, thereby making the tenant solely responsible for the loss. To increase the likelihood of protection in cases involving high-value property, a rental agreement may require a tenant to show proof of insurance if the value of the tenant’s stored property exceeds a specific amount.

To maximize the protection afforded by an insurance clause, the tenant must agree to waive any subrogation rights, thereby preventing the tenant’s insurance company from coming after the self-storage facility to recover amounts paid out for the tenant’s loss. Whenever a tenant obtains insurance, self-storage facilities should require and confirm that the tenant obtained a waiver of subrogation agreement from its insurance company.

Disclaim Existence of Bailment

Bailment is the temporary placement of control over, or possession of, personal property by one person (the bailor) into the hands of another (the bailee) for a designated purpose upon which the parties have agreed. Under the law of bailment, the bailee owes a duty of care to the bailor with regards to the property, and depending on the type of bailment, the duty of care owed to the bailee can be quite strict.

To avoid being held to a potentially strict standard of care, self-storage facilities should disclaim the existence of a bailment in their rental agreement. Since a bailment is a consensual transaction requiring mutual agreement by the parties, which can be created either expressly or impliedly, a rental agreement should expressly stated that no bailment is created under the agreement.

Additionally, since a general requirement of bailment is that the bailee obtains the right to exclusive use and possession of the property, a rental agreement should state that the self-storage facility does not take care, custody, or control of the tenant’s property. In a typical situation, a tenant should have exclusive control over his or her property, and provided the tenant is not in breach of the agreement, laws, or rules, the facility is not concerned with the kind of property stored by the tenant.

Disclaim Warehouseman Status

A warehouseman, or warehouse, is an individual who is regularly engaged in the business of receiving and storing goods of others in exchange for compensation. As with bailment, carrying the distinction of warehouseman establishes a standard of care that is owed to the owner of the property.

To avoid being held to such a standard of care, a rental agreement should expressly state that the self-storage facility is not a warehouse or a warehouseman engaged in the business of storing goods for hire. A self-storage facility should also refrain from acting in a manner that would be consistent with that of a warehouseman, such as issuing documents of title for the personal property.

In addition to the foregoing clauses, there are various other contractual provisions which are designed to limit the liability exposure faced by a self-storage facility, including clauses which:

  • prohibit the storage of heirlooms or other property with sentimental value;
  • restrict the types of property or uses of storage space to exclude inherently dangerous items or activities;
  • disclaim warranties;
  • clearly establish a facility’s rights in the event of a default;
  • incorporate a facility’s rules and regulations into the rental agreement, including any modifications thereto; and
  • waive the right to a jury trial in the event of a lawsuit.

When a lawsuit results from a tenant’s loss of property or bodily injury, a court will typically start with the rental agreement when determining each party’s respective rights and obligations. Thus, it is important to draft the rental agreement so that it provides the maximum protections allowable under applicable law.

However, since contractual provisions which limit a party’s liability are often the primary focus of litigation, courts will examine them closely before enforcing them against a tenant. Accordingly, it is best for a self-storage facility to retain an experienced attorney who is licensed in a particular jurisdiction to draft or review its rental agreement.

Setnor Byer’s Self-Storage Insurance Program and Risk Management Group work closely with self-storage facilities nationwide to profile risks, compare coverage options, and match our clients with an insurance program that meets their needs. If you would like more information, please contact us.

The Continued Importance of an Insurer’s Financial Strength

If a coin comes up tails 100 times in a row, is it more likely that the next toss of that same coin will be heads? The answer is no. Since, as they say, “a coin has no memory,” the first 100 tosses do not change the fact that the probability on the 101st toss remains at fifty percent. Though significantly more complex, the insignificance of past events when calculating the probabilities of future events also applies to hurricanes.

In a previous article, we discussed the importance of purchasing insurance from a financially secure insurance company. At that time, the devastating hurricane seasons of the mid-2000’s were fresh in our collective memory, and many homeowners were in a rush to get “their house in order.”

Unfortunately, some homeowners did not properly value the financial strength of their insurance company before purchasing their policy. Rather than consider the financial strength of a prospective insurance company, many homeowners focused on the premium. As a result, many of those who suffered hurricane damage were unable to collect on their insurance policies because their insurance company became insolvent.

Unfortunately, the relative tranquility of the past few hurricane seasons has caused many to drop their guard, particularly in the context of purchasing homeowners’ insurance from financially strong companies. However, as mentioned above, the relative calm of the recent past does not guarantee the absence of hurricane risks in the future. Consequently, as with periods of heightened hurricane activity, insuring with financially strong insurance companies remains critically important.

Although there are no guarantees that a particular insurance company will remain solvent, it is commonly understood that financially strong insurance companies are more likely to meet their ongoing obligations to policyholders than financially weak ones. Unfortunately, for the average consumer, determining financial strength may be difficult. However, there are resources available to assist consumers with this task.

A.M. Best*reg;, a company that evaluates and rates the financial health of insurance companies, conducts independent evaluations to form an opinion regarding an insurance company’s financial strength. Based on an evaluation of an insurance company’s balance sheet, operating performance, and business profile, A.M. Best issues its “Financial Strength Ratings,” which have been recognized as a benchmark for assessing an insurance company’s financial strength. The Financial Strength Ratings assign letters to convey A.M. Best’s opinion for a particular insurance company—from Superior (A++) to In Liquidation (F).

While there are other rating agencies, consumers should understand that each agency may use their own standards, processes, and methods to rate insurance companies. So, it is important to understand that not all “A” ratings are necessarily equal. Consumers should investigate not only the methodology used by their rating agency of choice but also its reputation in the insurance and financial industries. As usual, the more information insurance consumers obtain at this stage of the purchasing process, the better off they will likely be.

Regardless of which system is used, it is important to note that a rating is not intended to be a guarantee of an insurance company’s financial strength. Nevertheless, the wisdom of considering a prospective insurance company’s financial strength should never be dismissed, and at least a cursory review of the insurer’s financial rating should be undertaken.

To understand the significance of an insurance company’s financial strength, one need only note the number of insurer insolvencies over the past few years despite the relative lack of hurricane claims. How would a homeowner have fared with such financially weak insurance companies if there had been a hurricane?

Conceptually, an insurance company’s ability to pay the claims of its policyholders is fundamental to the underlying purpose of insurance. The significance of premiums, deductibles, coverage limits, policy terms, and exclusions virtually vanish when the prospect of insurer insolvency surfaces. After all, what difference does the amount of the deductible make if there is no money to pay a claim?

If you would like more information about the opportunity to insure your home and other property with a financially secure insurance company, please contact us.

Do I Need Rental Car Insurance?

Even after learning that the mid-sized car he reserved was unavailable, Jerry Seinfeld did not hesitate when asked whether he would like to purchase insurance for the remaining rental car. “Yeah, you better give me the insurance because I’m gonna beat the hell out of this car.”

Though this dialogue is fictional, the situation is not. Unfortunately, many of those asked about rental car insurance simply do not know how to respond.

According to the National Association of Insurance Commissioners, 42% of those surveyed were either thoroughly confused or had only a rough idea about rental insurance. Thirty-four percent of those surveyed bought a rental car company’s insurance just to make sure they were covered. Thus, a significant number of people are making important decisions without knowing precisely what they are buying or what they are refusing. Needless to say, uninformed decisions involving insurance should be avoided.

Rental car companies typically present their customers with multiple options of additional coverage, including liability insurance, accident insurance, personal effects coverage, and collision damage waiver (CDW). The most common option is the CDW, which is also known as loss damage waiver. While not technically insurance at all, the CDW allows car renters to avoid any financial responsibility if a rental car is stolen or damaged. The CDW may also cover any loss of use fees, which are designed to cover the amount that rental car companies charge customers for every day a damaged or stolen rental car is out of service.

Determining whether any of these options should be purchased from the rental car company depends on each driver’s particular situation. If the correct decision is made, two things will happen: 1) the driver will not have any gaps in coverage, and 2) the driver will not have duplicate coverage. This is accomplished by determining whether any of the benefits offered by a rental car company’s products can be found elsewhere.

  • The most common sources of concurrent coverage for liabilities associated with a rental car are:Personal Automobile Insurance Policy. If a driver is already covered under a comprehensive and collision auto insurance policy, damage to the rental car may very well be covered. Any coverage would be subject to applicable limits, deductibles, and exclusions under the policy. The scope of coverage and any limitations should be confirmed with an insurance agent.
  • Personal Umbrella Liability Policy. A personal umbrella may provide coverage in the event of a loss involving a rental car. Any coverage would be subject to applicable limits, deductibles, and exclusions under the policy. For example, the care, custody, and control exclusion must have an exception for damages to non-owned vehicles that were not required by contract to be covered by insurance. The scope of coverage and any limitations should be confirmed with an insurance agent.
  • Credit Card. If used to pay for the rental car, a driver’s credit card may provide free rental coverage and other associated benefits. The credit card agreement should be reviewed carefully to clarify exactly what may or may not be covered, as well as any conditions to coverage.

In many instances, one or more of these resources may cover most or all of the obligations a driver assumes when he or she signs a rental car agreement. In such cases, rental car insurance, at least in part, would be redundant. Since rental car insurance is rarely free, and is often expensive, there is a strong financial incentive to avoid redundant insurance coverage.

The most important part of this process is confirming the absence of any gaps in coverage. For example, if a personal automobile insurance policy does not provide international coverage, then that policy cannot be relied on for international travel. Also, if a car is being rented for business use, then a personal umbrella may not provide coverage for an occurrence involving the rental car. Identifying coverage gaps requires a good understanding of the insurance policy or credit card agreement relied upon to provide coverage, and the scope of use of the rental vehicle.

Given the consequences of incorrectly expecting coverage under an existing insurance policy, it may be helpful to consult with an insurance professional before deciding whether to purchase or forego rental car insurance. The same recommendation also applies to credit card agreements and the protections afforded to those using the credit card to rent a car. Since rental car insurance products generate revenue for rental car companies, the rental counter may not be the best source of information or guidance.

Avoiding both gaps in coverage and duplicate coverage for potential rental car liability requires effort and inquiry on the part of a driver. However, since the cost of failing to prevent either or both of these situations could be significant, the effort is often justified.

If you have any questions, or if you would like an insurance quote, please contact us.