Category: Liability

Self-Insuring Workers’ Compensation Plans May Produce Premium Savings

Joining a workers’ compensation group self-insurance program may be a significant means for small and mid-sized employers to reduce operating costs. Such plans deliver savings by providing employers with considerable control over losses, medical care and rehabilitation, plus improving cash flow.

While some companies self-insure workers’ compensation programs individually, these are usually best suited for larger corporations with immense assets. For smaller and medium-sized businesses, a Group Self-Insurance (GSI) workers’ compensation plan is more suitable. A GSI is a non-profit association of employers formed for the specific purpose of providing workers’ compensation coverage. A GSI enables employers to assume a major portion of their risk and provides group purchasing power for excess insurance to cover individual losses or in the aggregate in excess of a specified amount.

Workers’ compensation is well suited for self-insurance plans because claims are typically of low severity but high frequency, which allows losses to be predicted with some accuracy. Further, payment for large claims can be spread over several years, which benefits a company’s cash flow. GSI programs enable companies to better manage safety programs and have more direct involvement in seeing that employees receive prompt medical care when injured, and employers are able to exercise closer monitoring of the return of the employee to work.

Requirements for joining or forming a GSI vary considerably from state to state. Some states do not allow GSIs and in other states, companies must meet certain solvency standards and provide financial and loss data to be considered. Also, if a company has operations in more than one state, GSIs must be setup in each state. A GSI in one state will not cover losses in another state.

Besides improved cash flow, the major benefits that come from joining or creating a GSI are enhanced loss experience through more effective loss prevention, loss control and managed care programs; reduced administrative costs, and interest income earned on premiums. GSIs in most states do not have to pay premium taxes and or be assessed for residual workers’ compensation market losses.

Members of a GSI pay a premium to the group based on their exposures, classification codes, payroll, experience modifications, and rates developed by a state’s workers’ compensation rate making bureau. At the end of the contract year, any surpluses from both the claims fund and the administrative expense fund can be returned as dividends to group members.

GSIs handle claims following guidelines of the state workers’ compensation laws. Often, third-party administrators handle loss prevention and control, case management, accounting, investment and actuarial services.

An agent can provide guidance to employers wanting to explore joining a GSI. An interested company should first seek management commitment as joining a GSI requires careful attention to the entire workers’ compensation program rather than shifting these responsibilities and duties to a private insurer. Also, an employer has to be willing to disclose detailed information regarding its finances, support systems and ongoing risks.

While GSIs offer important advantages, there are some disadvantages. Members of the group are usually jointly and severally liable for losses incurred by the entire membership. A bankruptcy or dissolution of a member does not release the remaining members from liability. If the GSI’s retention and excess insurance are exhausted by a catastrophic event, the group members must contribute their pro rata share of the total loss. And, if a GSI has a pattern of liberal underwriting for new members, it’s possible it will have financial deficiencies in the future.

If an employer understands the additional risks it assumes as well as the added reporting and administrative duties when it joins a GSI program, the end result could be a significant reduction in overall costs for workers’ compensation.

Workers’ Comp Claims for Mental Illness May Be Difficult to Diagnose, But Are Real in Today’s Workplace

When one thinks of workers’ compensation, images of workplace accidents and occupational diseases come to mind. Though the vast majority of workers’ compensation cases do involve claims for physical injuries and conditions, a small-but potentially growing-portion of workers’ compensation cases are based on mental or psychological claims, particularly related to stress experienced on the job.

Mental workers’ compensation cases fall into one of three categories: physical/mental, mental/physical, or mental/mental. A physical/mental claim involves a workplace physical injury that has progressed to a mental condition or disability; an example would be a back injury that lingers, and that results in the worker lapsing into clinical depression. A mental/physical claim involves a psychological condition arising out of the worker’s employment that has caused a physical illness; an example would be workplace-induced stress that causes ulcers. A mental/mental claim involves a psychological occurrence in the course of employment, which leads to a psychological injury or condition; an example would be an employee who witnesses a horrific workplace accident involving a co-worker, and who later develops a fear of operating the same equipment on which the co-worker was injured.

As with workers’ compensation claims that have only physical components, in order to be compensable, the claimed injury or condition must arise out of or occur during the course of employment. Some types of mental injuries are difficult to prove under this standard. For example, symptoms of physical ailments caused by stress (e.g., ulcers, heart attacks) may appear only after working in a stressful workplace for a long period of time. Furthermore, unlike claims based on a workplace accident, mental claims may not be linked to one particular incident, but rather to months or years of stressful working conditions.

Another example of the complexity of the cause-effect link in mental workers’ compensation claims is seen in claims based on post-traumatic stress disorder (PTSD). PTSD is a delayed psychological response to experiencing an extreme situation that overwhelms one’s usual ability to cope. Most commonly thought of in connection with soldiers and wartime, discussions of PTSD arose after the September 11 terrorist attacks. Though few would doubt the psychological impact of witnessing the devastation in New York or Washington first-hand, by definition, symptoms of PTSD do not appear for months or years after the event, making their connection to the workplace event difficult to assess.

Mental workers’ compensation claims represent a tiny percentage of all claims; estimates put claims with a mental component at about 1% of claims overall, although this figure varies by state. For a period of time in the 1980s and early 1990s, the incidence of claims with a mental component rose in some states, but stricter requirements imposed by state lawmakers, workers’ compensation boards, and courts stemmed this trend. In particular, mental/mental claims are least recognized.

Though workers’ compensation claims with a mental component represent only a small minority of claims today, the reality of the modern workplace should motivate all employers to be alert to their existence. White collar workers-who are most likely to claim an injury with a mental component-make up an ever-growing portion of the U.S. work force. Furthermore, today’s workplace puts great pressure on employees to be productive and cost-efficient. Many workers live with fear of job loss, as businesses continue to seek optimum competitiveness through “right-sizing.” All of these factors can breed stress.

All employers can take some basic steps to deal with increased stress levels in the workplace-

  • Be alert to signs of stress among employees, and solicit input from employees and managers on this issue. Be aware that certain events, such as layoffs, may trigger stress levels in employees beyond what is to be expected on a day-to-day basis.
  • Make employee assistance program (EAP) services available so that workers have ready access to help with dealing with stress.
  • In the event of a severe workplace trauma, arrange for on-site intervention and counseling services.

Though these steps will not make a business immune from the possibility of a workers’ compensation claim with a mental component, they will, at the least, help make stress recognition and prevention part of the workplace ethic.

Coping with Dog Bite Liability

You would have had to live underground with no radio, no TV, no phone, no Internet and no visitors for a couple of years not to know about the high-profile dog-bite trial in California.  A young woman was mauled and bitten to death by a dog bred for fighting.  That owner’s dogs had already exceeded the old every dog gets one bite standard.

In any case, even the one bite standard has disappeared along with the church social.  If your dog bites someone, even if you had no reason to expect it would, you can also expect to be sued.

Worse yet, it isn’t even all that unlikely your dog will bite someone.  According to the Centers for Disease Control, there are 4.7 million U.S. dog bites each year, resulting in costs equaling almost $1 billion.  The property/casualty industry paid out $310 million of that in 2001, up from $250 million five years earlier.

Insurance companies are not only wise to those figures; they are smarting from claims against homeowner’s and renter’s policies brought by the ranks of the dog-bitten.  As a result, some companies have eliminated coverage for dog bites; others demand proof that your dog is not a member of a particularly bite-prone breed.

Insurers sometimes institute these changes to a policy already in force, but they do communicate this to the policyholder.  Problem?  Most of us don’t bother to carefully read any communication after the initial policy, except bills.

So, if you own a dog, read your policy.  Even if it covers domestic pets and their damage, check with your agent to see if there have been changes since your policy went into effect.  And if so, make sure you’re still covered under that policy, or take additional action.

If your policy does cover actions by your dog, typically, it will provide between $100,000 and $300,000 in liability coverage.  If a claim exceeds your policy’s limits, you will be responsible for everything above that amount.

Once your dog has bitten someone, however, and a claim has been made, the dog poses an increased risk and your insurer may suggest finding the dog a new home.  Or, the insurer may charge a higher premium (which would be acceptable to most dog lovers, preferable, in fact, to losing the dog), or not renew the policy, or exclude the dog from coverage.  For the latter possibility, a dog owner may be able to add a separate policy specifically to cover the dog’s potential liability, although the cost, if you could find such a policy, might be prohibitive.  Many companies already ask policyholders to certify that they do not harbor a vicious animal.  Others won’t accept new business from any policyholder who has had a dog bite claim in the past three years, even if that pet is no longer in the home.

The twin issues of dog bites and liability/insurance have become so important there is a Web site devoted to helping consumers with their dog-bite issues;

Here, in brief, are some suggestions to be sure that your dog’s actions regarding humans are covered by insurance, and how to make the likelihood that your dog will bring liability problems upon you are minimized:

  • Have your dog spayed or neutered.  Studies show dogs are three times more likely to         bite if they are not neutered.
  • Socialize your dog to behave well around other people and animals.
  • Discourage children from bothering a dog that is eating or sleeping.
  • When you play with your dog, make it fun games such as fetch, not aggressive ones such as tug-of-war.
  • Avoid exposing your dog to situations that might cause it to be afraid or protective.
  • Have your dog obedience-not attack-trained.

If you don’t own a dog, you’ve probably stopped reading by now.  That would be a shame, because the statistics are on your side.

Umbrella Liability Coverage: What Limit Saves my Assets?

Insurance funds losses; it transfers risk from your company to the insurance company for a fee – premium. Deductibles are used to reduce the number of claims by having the business pay small amounts and only reporting larger issues.

The order in which claims are funded is: deductible, liability limits, and then company assets…and sometimes personal assets. Your company needs high liability limits to protect company assets.

Claims exceeding $1,000,000 in liability are infrequent, but not rare. Umbrella insurance covers above all other liability insurance in one million dollar layers. High liability limits become affordable this way.

Business nightmares like the $3,000,000 cup of coffee, the truck catching fire under a railroad bridge, or your vehicle colliding with a school bus unfortunately do occur. A million or two is just not sufficient coverage for most operations.

Asbestos and tobacco companies produced legal products for years before lawsuits started as the result of long-term exposure, and these very successful companies were brought to the brink of extinction. These companies kept tens of millions in umbrella layers. How much is enough?

Commercial liability insurance covers injuries to other people and damage to their property caused by your company, your employees, or you. The cause of loss may be vehicle, products, premises, operations, liable, slander, poor advice, or even aviation related.

The amount of liability and types of insurance depends upon your company’s exposure to risks.

Most companies face fleet risks, premises-operations risks, and employee injury risks; some add professional liability risks, aviation risks, common carrier and garage liability risks.

Insurance companies recognize these typical risk scenarios and respond by offering business automobile, truckers, garage, general, aviation and professional liability policies.

Purchasing sufficient liability limits for disastrous claims is costly when purchased one liability risk at a time. In fact, most companies simply could not afford purchasing insurance this way.

Insurance companies offer umbrella coverage to serve this need.

The company proscribes underlying, or first dollar coverage limits, over which umbrellas pay claims settling for more, or in excess, of these policies.

Since these claims are infrequent, premiums are affordable; and each added million dollar layer decreases in cost.

In addition, most umbrella forms add liability coverage by insuring more risks than the underlying policies. A relatively modest – $1000 to $10,000 – deductible is required, but then the umbrella limits cover unscheduled liabilities.

So, with an umbrella policy, the order in which claims are paid is: deductible or underlying liability limits, umbrella limits, and then company assets.

How much is enough combined liability limit? How well can you predict the future of litigation? Products, operations, and vehicle claims in excess of $3,000,000 are not rare.

The cost effective answer depends on the amount of assets you’re protecting, the cost of the coverage, company profit from which to expense the premium, your risk tolerance, and the availability of umbrella coverage.

Three more factors are worth considering:

Products claims may take years to discover. Claim inflation requires high limits at the time the claim is paid.Large liability claims take time to settle. Claim inflation is rampant. Even though an event occurs today, you may be settling at the going rate three years from now. Million dollar claims were rare twenty years ago; not so much now.Courts have been chipping away at the corporate liability shield for smaller businesses. Personal assets may be at risk. Now consider how far that erosion of corporate protection might progress by the time you get your day in court.

Umbrella liability limits should be high enough that business assets are not at risk. Business survivability is at risk with a too low limit. Your current limits can be assessed and reviewed by your broker and/or attorney for adequacy.

Ensure Your Next Party Doesn’t Turn into a Liability

There’s nothing like the combination of good food and good friends. Whether it’s a potluck dinner for a few of the neighbors, or a wedding for 500 guests, these are events that make memories. However, those memories could easily turn into bad ones if one of your guests leaves your home intoxicated and gets behind the wheel.

Most people are aware that businesses like restaurants and bars have legal obligations to stop serving alcohol to visibly intoxicated patrons. But you may not be aware that in some states, individual hosts also have legal responsibilities when it comes to serving alcohol. Legislation called “social host” laws makes you responsible for the actions of your inebriated guests after they leave your party venue. Currently, 33 states and the District of Columbia have social host laws according to Mothers Against Drunk Driving (MADD).

There are specific circumstances that must be present for a social host to be liable for the injury or damage caused by an intoxicated guest:

  • They were aware, or should have been aware, that the guest who caused the injury/damage was intoxicated.
  • They knew that the guest who caused the injury/damage would be driving after they left the gathering.

There are some ways to protect yourself from liability if you do serve alcohol at your next party:

  • Stop serving alcohol after a couple of hours and serve coffee instead.
  • Make sure there is plenty of food available for your guests to eat while they are drinking.
  • Have designated drivers to take intoxicated guests home.
  • Keep a list of cab companies’ phone numbers by the telephone so that it is accessible if you need to call a cab for a guest who shouldn’t drive.
  • Remain sober so that you can monitor your guests’ sobriety level.

Another good way to protect yourself from liability is to check your homeowner’s policy before your next party to determine what your coverage is for property damage and liability. In the event of an incident, your homeowner’s policy would pay for covered liabilities up to the policy limit. You should also consider purchasing a personal liability umbrella policy for increased protection.

Apartment dwellers and owners of condos and co-ops typically aren’t covered for liability and personal property damage under their building’s insurance policy. Generally, the building policy only covers the common areas. That’s why renters should have renter’s insurance, and condo and co-op owners should purchase a HO-6 homeowner’s policy that is specifically designed for their needs. They should also review their condominium or co-op association’s master policy to determine what their responsibilities are in the event of an incident.

If you hire professional caterers and bartenders for your event, don’t assume that you are covered under their liability insurance. You must be specifically named on the policy to be covered in the event of an accident. However, if you are named on your party professionals’ liability policy, their insurance company will defend you if you are sued. That’s why it’s important to verify that they have liability insurance, the specific situations that are covered, any exclusions, and if you can be a named insured on the policy.

Bloggers Should Ensure Liability Coverage Is Up to Par

Over the past several years, millions of people have begun writing weblogs (or “blogs,” as they are more commonly known.) There are as many reasons for blogs as there are blogs. Some people keep them as a journal to let distant friends and relatives know what’s happening in their lives. Others write about subjects that interest them, everything from gardening to NASCAR. Blogs often act as forums for people’s opinions or news reporting. These types of blogs invite controversy; in extreme cases, they may invite lawsuits if a person or organization takes offense at a particular post. If that happens, can the blog’s author count on his insurance coverage to pay for his legal defense and judgments?

Unfortunately, if he has a typical homeowner’s insurance policy, the answer is probably no. This policy pays amounts for which the policyholder (the insured) is legally liable, plus the costs of legal defense, for bodily injury or property damage done to someone else. The policy defines bodily injury as meaning bodily harm, sickness or disease; it defines property damage as injury to, destruction of, or loss of use of physical property. Neither of these definitions includes saying or publishing something that injures another’s reputation or feelings. Consequently, the policy is unlikely to cover a blog post. For example, if Joe writes in his blog that Bob sleeps with a teddy bear, and Bob sues him for invading his privacy, the homeowner’s insurance will not pay for Joe’s legal defense or for any judgment against him, because Bob suffered neither bodily injury nor property damage.

Insurance companies may offer special personal injury coverage that they can add to homeowner’s policies. This coverage pays for the insured’s liability for several offenses, including oral or written publication of material that violates someone’s privacy, and oral or written publication of material that disparages someone’s goods or services. For example, imagine that Joe writes in his blog that the meatloaf at Bob’s Diner tastes like gravy-covered roadkill. Bob suffers an immediate loss of business, and he sues Joe for libel. The court awards Bob $200,000. If Joe has personal injury coverage, his insurance will pay for his lawyers and the $200,000 judgment (or his limit of insurance, whichever is less.)

Another potential source of coverage is a personal umbrella policy. An umbrella provides additional insurance in situations where a loss has used up the amounts of liability insurance under homeowner’s or auto policies. It also covers some liability losses that those policies do not cover, such as personal injury losses. Umbrellas typically carry a deductible of $250 or $500. In the previous example, if Joe does not have personal injury coverage with his homeowner’s policy, but he does have an umbrella, the umbrella will pay for his defense and $199,750 of the judgment ($200,000 minus the $250 deductible.) If he does have the coverage on his homeowner’s policy, and the court awards Bob $1,000,000, the homeowner’s policy will pay until its limits of insurance are used up, and the umbrella will pay the rest.

Blogs are fun and interesting, and they can be informative. However, in a litigious society, it is very possible that something posted in a blog can result in a lawsuit against the writer. Everyone who writes a blog should consider that possibility and think about buying some extra insurance.

Employment Practices Liability Insurance may Save Businesses from Costly Lawsuits

EPLI is an abbreviation for employment practices liability insurance. This type of coverage protects businesses against claims made by workers that the company is violating their rights as employees. In recent years, the number of lawsuits filed against employers by employees has been rising considerably. Although the majority of lawsuits are filed against larger companies, no business should assume immunity from such incidents. Since more insurers are recognizing the need for this coverage, many are adding it to their business insurance policies. An endorsement on a BOP alters the conditions and terms. However, some companies offer EPLI as an individual policy instead. This form of coverage offers protection for several types of claims, which include the following:

– Discrimination
– Employment Contract Breaches
– Sexual Harassment
– Wrongful Discipline
– Promotion Failure
– Employment Failure
– Wrongful Termination
– Wrongful Emotional Distress
– Employee Benefit Mismanagement
– Career Opportunity Deprivations
– Negligent Evaluation

The cost of employment practices liability insurance is not the same for all businesses. Premiums depend on the number of employees, the type of business and the history of the business. For example, a company that has faced such lawsuits in the past would have a higher premium than a company with a clean record. Multiple lawsuits put companies in a much higher risk category.

Employment practices liability insurance will reimburse companies for their court fees, judgement amounts and legal defense costs. Legal costs are covered regardless of whether the company wins or loses. If civil criminal fines or punitive damages are included in the incident, the policy will not cover either one. EPLI policies do not cover liabilities that are covered in other types of policies. In order to prevent lawsuits, all companies should work with their managers and employees to minimize problems in the workplace. Addressing issues before they arise and taking measures to make the company an optimal place to work are two helpful steps to take.

Companies should form good screening and hiring habits when it comes to adding new employees. This will help them avoid possible discrimination lawsuits. To make sure employees are aware of the company’s policies against negative practices, place posters in high-traffic areas of the workplace. These posters should clearly outline the company’s policies. It is also helpful to send policies to employees via email or written correspondence periodically. In addition to this, the policies should be included in employee handbooks and training manuals. If employees experience problems, they should know what to do next. For example, if an employee is the object of sexual harassment, he or she should know how to report the information and who is in charge of reviewing such reports. Any relevant incidents should be clearly documented by the company. For more information about this type of coverage, discuss concerns with an agent.