When your business is rocked by a property loss, it’s easy to get lost in the technical details of the claims process. However, there are several keys to effectively managing the claims process and getting the results you desire, says Paula Devaney, director of claims services with ECBM Insurance Brokers and Consultants.
“Engage the appropriate professionals, maintain clear communication with your insurance carrier and utilize the services of your insurance agent to maximize the benefits under your policy,” says Devaney. “It’s important for your agent to review your coverage and your losses, because he or she is trying to find every aspect of the policy that is going to apply. The agent also evaluates the loss against other insurance coverage you may have, in case those other coverages are impacted.”
Smart Business spoke with Devaney about how to manage the claims process after a loss.
How should businesses handle claims after a property loss?
First, report the claim immediately. It is not normally prudent to wait for more information to become available to report the claim. Engage the assistance of your insurance agent in reporting the claim, because the agent has the ability to notify the insurance carrier in the best light possible for the business. The insurance agent is responsible for analyzing the coverage at the outset, so that when you report the claim, all bases are covered.
In addition to reporting the claim immediately, it is necessary to make sure that the appropriate steps are taken to protect the property from further damage. That runs the gamut from requesting assistance from the agent to engaging remediation contractors or any appropriate professionals that might be necessary to help protect the property from further damage. If the property loss involves a building fire or water damage, you need to bring in a reputable general contractor or construction manager as quickly as possible to start assessing the damages.
What can businesses do to ensure they are prepared before a loss happens?
Any insured that takes the time to do a review or some disaster planning has a head start. Start to put together a list of vendors and contractors you can call upon immediately in the event of a loss. Beyond that, you should add service providers to that list. Also, have the information readily available offsite, so it’s not buried in an office that just burned down or flooded.
You should have the businesses that are essential to your operations conveniently maintained in a directory so you can call them immediately to let them know what’s happened and seek out whatever assistance is necessary. If a water damage claim wipes out all your business’s stationery and you have your stationery supplier’s information set aside, you are able to contact that vendor and get new stationery printed immediately.
You’re already under the gun. You don’t want to spend time trying to find that information. You want to get your business back up and running as quickly as you possibly can.
What are some common mistakes businesses make during this process, and how can they be avoided?
One of the mistakes I’ve seen happen is that, rather than engaging a general contractor, an insured goes out and gets an electrician, a plumber, a drywall contractor, etc. Then you’re trying to submit 15 estimates to the insurance carrier for consideration.
The easier way to handle this is to immediately engage a contractor with whom you have a working relationship. If you don’t have one, seek out references through your insurance agent. Then, get them out there to start to put together an initial assessment of the damages.
How should a business deal with the insurance company during a claim?
Because the insured knows the money is coming from the insurance company, it tends to rely very heavily on the insurance company. That’s not necessarily a mistake, but you, as an insured, are the one who knows your business best. You know what it’s going to take to put the business back together.
From the outset of a loss, to some extent, you have to think insurance doesn’t exist and do whatever is absolutely necessary. You have to keep the insurance carrier closely involved in what you’re doing, but what you don’t want is the insurance carrier calling all the shots.
Many companies sit back and wait for the insurance carrier to give them a number or give them the go-ahead to make repairs, and that’s a mistake. You have to view it as a partnership. You know your business; get your professionals out there. Let them put together the damages.
At the same time, make sure you’re talking to the professionals the insurance company has brought in. If you keep those lines of communication open throughout the entire claims process, you’re going to end up with a better result.
As soon as the initial assessment of damages is completed, ask the insurance company for money. Obviously, a property loss is not planned, so operationally, it can have a significant impact on budgeting. So you want to ask for an advance on the loss, and utilize your agent to help you do that. Insurance companies, for the most part, are going to give you seed money. If they don’t do it, it’s wrong. They should be funding the loss up to the point that the loss is completely resolved.
Also, it is better to have one particular point person with the insurance carrier. If that person is the one with the knowledge from the beginning through the end of the loss, then you don’t have competing information. It makes it easier for everyone.
Paula Devaney is director of claims services for ECBM Insurance Brokers and Consultants. Reach her at (610) 668-7100 or firstname.lastname@example.org.
Nearly all insurance policies contain limitations on the maximum amount of a judgment payable under the contract, and setting these limits is one of the most challenging aspects of insuring your company.
“Honestly, this is one of the hardest questions for people to answer and understand,” says Scott Nuelle, vice president, ECBM Insurance Brokers and Consultants. “For most people, it comes down to what they can afford. In many cases, companies are not buying enough, but they flat-out say they can’t afford to buy any more. So that becomes the key issue.”
Smart Business spoke with Nuelle about why insurance limits matter and how to choose the appropriate amount for your business.
Why is it important to purchase sufficient insurance limits?
In addition to the more obvious need to adequately protect your business and possibly personal assets, an often-overlooked component is the ability to appeal a large verdict against you. If the jury slaps you with a $10 million verdict and you’ve only got limits up to $5 million, the insurance company will post bond for the appeal of $5 million, but you have to post the other $5 million yourself in order to appeal. Otherwise, you lose.
If you don’t have adequate limits to appeal any verdict, you need to have the financial wherewithal to appeal. The lack of ability to appeal a verdict could put you out of business. You may be able to win that case on appeal, but if you don’t have the money to post bond, you’re finished.
What are the keys to choosing the right insurance limits?
First, you want to look at your assets and set limits that are appropriate to protect those.
The next thing you want to look at is your business operations and the likelihood of a large lawsuit. Are you in an industry where multiple people or properties could be damaged? For instance, someone in the hotel industry could have an incident in which many people are injured, a situation in which higher limits would be useful.
Contractors and trucking companies also operate in an environment where many people could be injured. If you are in those types of industries, you should consider the likelihood of large lawsuits, and for liability purposes, you are going to want to consider higher limits.
What can companies do to research appropriate limits for their specific needs?
Have your broker search for settlements and verdicts in your industry. That gives you an idea of common verdict results in those areas.
Verdict results can change by jurisdiction, as well. Some jurisdictions have historically delivered larger verdicts. If you have operations in one of these regions, you’re going to want to carry higher limits than you would if you were exclusively operating in an area that typically does not return higher jury verdicts.
When your broker completes the search, you’re able to see what verdicts are being returned against companies in your industry.
Your broker should also be able to benchmark your company by industry and size while planning and completing the research. Brokers can look at other companies and determine whether the limits you’re carrying are adequate based on what your competition is doing, based on the likelihood of large loss, as well as verdicts and settlements.
You should develop a matrix of where you fall within the realm of these different factors that can determine what limits you should be carrying.
How should companies determine limits for other types of coverage?
For directors’ and officers’ coverage, typically a company would look at its market cap and what its potential loss could be in the event of a lawsuit. As a basic guideline, companies should carry limits of at least 10 percent of their market cap. On employment practices liability insurance, the key issue to look for is how susceptible your company is to a class action lawsuit. If you are in the retail or hospitality industry, you are generally very susceptible to that type of lawsuit and would likely want to carry higher limits than if you were not in one of those industries.
If your company is in the manufacturing or retail sectors, you may have product recall coverage. The keys to determining limits for that coverage start with the likelihood of the chance of a recall. What are the potential costs associated with that, not only in terms of the product but in terms of implementing the recall?
Make sure you include that coverage in your insurance and set appropriate limits based on your analysis of those factors.
Are there ways businesses can keep costs down and still buy the appropriate limits?
The most common method is through the use of deductibles. Deductibles can help you reduce premium as opposed to not carrying enough limits to insure situations that could potentially put you out of business.
You want to set a deductible that will allow you to control costs but won’t interrupt your normal business operations in the event of a loss. It should be a level that you can fund through ordinary income.
Have your broker present multiple options for you to consider regarding the cost for various deductibles and limits. Determine if paying a loss up to the deductible will affect your business operation.
At that point, it becomes a financial measurement more than an insurance measurement.
Scott Nuelle is a vice president with ECBM Insurance Brokers and Consultants. Reach him at (610) 668-7100 or email@example.com.
The Fair Labor Standards Act was enacted in 1930 to regulate wage and workplace abuses. While the act is not new, the number of lawsuits and regulatory actions based on alleged violations is increasing. This can result in very expensive litigation that isn’t covered by any of your insurance policies, says Gloria D. Forbes, executive vice president with ECBM Insurance Brokers and Consultants.
Smart Business spoke with Forbes about how to reduce your business’s exposure to FLSA claims.
What types of actions might result in these claims?
These claims come in a variety of allegations but the most common are from misclassification, failure to pay overtime and other similar wage and hour claims.
One of the most common is wrongfully misclassifying individuals as independent contractors instead of employees. Claims can come from regulatory agencies, individuals or groups of individuals. Individuals or groups of individuals will often file claims because they are seeking access to benefits offered to those classified as employees. This could be medical or disability benefits, paid time off or sometimes pension benefits. These claims may start as an issue asserted by one employee, but others will join the suit and the claim my end up with class action status and a number of claimants. This makes these type of actions very costly and dangerous.
Regulatory agencies may bring actions if they feel, through an investigation, that there have been abuses of the system. There are federal regulations to consider and state laws that sometimes call for a more stringent adherence to status. Pennsylvania, for example, passed the Construction Workplace Misclassification Act on Oct. 13, 2010.
What does CWMA require?
The act is aimed at misuse of independent contractors in the construction industry and makes the intentional misclassification of employees a third-degree felony. CWMA states that an individual who performs services in the construction industry can only be classified as an independent contractor if the following three conditions are met: The individual has a written contract to perform the service; the individual is free from control or direction while performing the services; and the individual is customarily engaged in an independent trade, occupation, business or profession.
In addition to the fines the secretary of the Department of Labor and Industry can issue, it can petition the courts to issue a stop-work order. While the bill was aimed at abuse in the construction field, it is thought to be a precursor for judgments in other industries.
Is this the only type of misclassification?
No, often employees will allege wrongful classification of their job status as exempt employees. Because there are regulations related to overtime pay for hourly employees, there are situations when employees assert that they are wrongfully classified as exempt when, in fact, they are hourly or nonexempt. Like claims involving independent contractor status, these actions can end up with many claimants and take on a life of their own.
You mentioned other wage and hour issues. Can you expand on this?
We’ve talked about failure to pay overtime based upon misclassification, but failure to pay overtime or recognize other ‘paid time’ is asserted for other reasons as well. One recent suit under a collective bargaining agreement stated that the employer owed employees for the time they took to dress for work after arrival at the company facility. They were granted this time and back pay was ordered.
The retail and hospitality industries are particularly hard hit with these claims. Employees will claim that they work through breaks or often miss time off for meals. Sometimes these situations start as employees wanting to do a little more to get recognized but can end up later in a suit for back wages.
As a matter of fact, the Department of Labor reported in fiscal 2008 that 197,000 employees received a total of more than $140 million in minimum wage and overtime back wages as a result of violations pursued by the Wage & Hour Division.
Aren’t these claims covered under an employment practices policy or similar insurance?
Most directors’ and officers,’ and employment practices policies exclude claims that violate laws and regulations, and most specifically mention the Fair Labor Standards Act. They will often include language that the exclusion applies to ‘similar or related federal, state or local law or regulation.’ Policies with less specific language can result in some limited coverage based upon circumstances.
There has been a trend to provide some sublimit for defense only of these allegations, but those limits are generally between $100,000 and $250,000. There remains no coverage for any back wages, overtime pay or similar judgments that the employer might become obligated to pay. This is typically very inadequate for most of the cases and awards that we’ve seen in the last couple of years.
What can an employer do to reduce its exposure to uncovered claims?
The most important action an employer can take is to review all of its employment processes and procedures and be certain that it is not violating laws related to minimum wage, breaks, and overtime. Be sure that you have reviewed the classification of employees and that any employee who is considered ‘exempt’ truly fits within the parameters of that definition within the act. Human resource consultants and employment attorneys may be needed to review company policies.
Finally, have an insurance representative with the expertise and knowledge to review the fine points of your insurance contract before making a decision as to which insurance product is the best product for you.
Gloria D. Forbes is executive vice president with ECBM Insurance Brokers and Consultants. Reach her at (610) 668-7100 or firstname.lastname@example.org.
When you are negotiating a contract for services or a lease of premises, and the contract requires you to add an entity as an additional named insured or an additional insured, you must determine and understand whether or not to give these privileges to the requesting entity.
While there is no limit to the number of named insureds you can have on an insurance policy, businesses should recognize that there must be a reasonably close relationship to those entities in terms of ownership, management and operations.
“You don’t want to readily add any entity as a named insured, as this could allow full rights and access to the policy coverage and limits, which may not be the intent,” says Phil Coyne, vice president with ECBM Insurance Brokers and Consultants.
Smart Business spoke with Coyne about how employers can solve the named insured puzzle.
What importance comes with being a named insured?
There are three levels of who is an insured; named insured, additional insured and insured. The named insured has two levels: the first named insured and all other additional named insureds. The policy language is very specific about rights and responsibilities of the first named insured. That entity has the right to make changes to the policy, request cancellation, receive cancellation or nonrenewal notices, add additional entities and receive a copy of the policy.
The first named insured has the responsibility of paying the premium, and failure of the first named insured to pay the premium or ensure that the premium has been paid can result in the policy being cancelled, jeopardizing coverage for the other named insureds.
How can the question of who is a named insured create problems?
Because named insureds have full access to policy coverage and limits, unintentionally adding entities as named insureds has the potential to reduce or jeopardize coverage for the original named insured.
Consider a lease of premises in which the lease requires the tenant to add the landlord as a named insured. If the lease is not amended and the landlord is added as a named insured then, at the time of an incident, the landlord would have full access to the tenant’s policy even though the tenant may not be responsible for the incident.
This can also be true if the lease requires the tenant to be listed as a named insured versus an additional insured.
If an entity is not careful or diligent with the adding of additional named insureds versus additional insured, it may be unintentionally providing coverage for operations of the entity that is requesting to be added under its policy, thus eroding coverage for the first named insured.
When entering into a contract that requires the adding of entities as additional named insureds, versus additional insureds, you need to understand the relationship between the parties and how these requests can affect your coverage. A business needs to understand its contract: who the entity is, its relationship in that contract and its relationship to the business.
My suggestion is to make sure the entity is added as ‘additional insured,’ not ‘additional named insured,’ unless the intent is to provide full coverage and access to the entity being added.
How are an insured, an additional insured and a named insured different?
A named insured has full access to a policy’s coverage and limits. An insured may be covered under the policy, but only to a certain extent.
The named insured can be an individual or a legal entity. If the entity is an individual, then that individual is covered, along with that individual’s spouse. If the named insured is a partnership or joint venture, the partners are included, along with spouses, but only to the extent of performing duties related to the insured’s business. If the named insured is a limited liability corporation, the members of the LLC and the manager of the LLC are included, but only to the extent of the insured’s business. If the named insured is any other organization, the executive officers, directors and officers are included to the extent of the insured’s operations. Stockholders are also included, but only to the extent of their liability as stockholders.
Lastly, if the named insured is a trust, trustees are included, but only to the extent of liability as trustees.
Some entities are just ‘insureds’ under the policy, and their coverage is limited. Under the definition of who is an insured is the entity acting as the named insured’s real estate manager.
How can employers ensure that they have properly identified the named insured?
First, understand which type of legal entity you are considered: an individual, corporation, joint venture, or LLC. Understand what entities make up that organization and their relationship to each other.
Review your organizational chart and named insured schedule with your broker to ensure proper understanding of the organization and named insureds and/or additional insureds and insureds and their relationships to each other to ensure the proper exposure is covered for each insured.
Whenever you have a multiple listing of named insureds, the insurance company wants to know who and what these entities are and their relationship to each other and the organization and its operations and exposure. They want this information so they have knowledge of and understand the exposure they are insuring.
A proper and thorough review of the various named insureds and their operations and relationships will allow your broker and the insurance company underwriters to have a better understanding of your operations and risk. Better understanding by the underwriters usually lends itself to better coverage (product) and better pricing.
Phil Coyne is a vice president with ECBM Insurance Brokers and Consultants. Reach him at (610) 668-7100 or email@example.com.
Finding an underwriter and broker who can create the right insurance program for your particular industry has undeniable value. This is especially true for nursing homes and continuing care facilities, which have their own specific insurance issues.
“The predominant issues right now are fall prevention, pressure ulcers and dehydration,” says Jim Misselwitz, a vice president with ECBM Insurance Brokers and Consultants. “In general, those are the areas that are the most significant for nursing homes in order to improve the quality of care they give their clients. That also happens to be the area where the largest litigations are going on.”
Smart Business spoke with Misselwitz about how to build a strong insurance plan for nursing homes.
What steps can be taken to address the issues facing nursing homes?
One way to prevent falls is by implementing restraints. To do that, you have to have a lot of education and communication with the family to ensure they know the particulars, the background and status of this particular relative. Then, they will understand it is not done as a punishment but to maintain the safety of the individual.
There are also technical improvements that can help, such as nonskid surfaces in showers, automatic brakes on wheelchairs and edge protection devices that sound an alarm if someone gets near the edge of a bed.
Many nursing homes are developing the wound consultant position to combat pressure ulcers. Their job is to come in immediately when a pressure ulcer is recognized and begin a very aggressive treatment on that area that effectively limits further damage and growth of other ulcers.
Many pressure ulcers in nursing home settings are preventable through education and technology. The ulcers often appear on the backs of legs and heels. When a person is dormant in their nursing home situation, you have to provide movement to the body so the blood doesn’t stay in one area, which is probably the biggest contributor to pressure ulcers. Certain special boots and beds that vibrate can help.
Hydration, for the most part, can be improved by auditing and control. Keep good records. Make sure you know how much liquid each person has taken daily. Some marvelous systems allow the nursing home to know each patient’s fluid intake on a daily basis, and per shift, near automatically.
What are the keys to building the right insurance program for a nursing home?
There are three elements: a broker, an underwriter and the management of the nursing home itself. You’re looking for an underwriter who is very familiar with the industry, who has an established book of business in that field, who shows a willingness to become a partner with the facility, not only in terms of improvement but in giving them additional guidance, auditing and controlling the risks they find, and also giving them feedback on the losses that occur.
The program will be most effective when the nursing home’s management recognizes issues that need to be addressed from the top down, not the least of which is spending capital in order to bring some technical solutions to the facilities.
That has always been a tricky balancing act because funds are usually limited; income is steady but sometimes slow. So they have to be very cognizant of how to use money wisely to get the biggest return on investment.
Also, management needs to understand the importance of strong auditing and control mechanisms that allow them to troubleshoot problems before they become significant issues. When you get those two things from top management and you couple that with the underwriter, the third leg of the stool is the broker.
The broker’s job is to marry management’s expectations with what the underwriter can do in terms of pricing and coverage, then filter the importance and priority of the issues management needs to concentrate on — the issues with the largest potential risk.
Why is it important to hire a team with industry-specific expertise?
If you show up on the doorstep with just a general liability, professional liability or workers’ comp quote, that’s fine; it gives you the ability to transfer risk to the underwriter. But has it helped the facility control ultimate expenses down the road? If you’re not marrying those two issues together, when a soft market comes and prices are low, you’ll see premiums go down. When the market gets hard, you’ll see premiums go up.
Most nursing homes would like to get off that roller coaster. They want to be able to control costs in good markets and bad.
How can you determine which features to implement in an insurance program?
The key is examining where the facility is in terms of its development, in terms of addressing issues and implementing technical solutions. Then you need to look at the client mix inside the nursing home, the staff training needs and the kind of access you have to the staff in terms of supplementing their training needs.
Not all training comes from underwriters or loss control professionals. A lot comes from the vendors who sell the equipment. The equipment is often technically complex, so the staff has to learn how to use it and what to do in the event that something goes wrong.
Lastly, you need to develop and tailor a plan that fits the facility in terms of its continuum of development. Take its experience, capital budgeting process, staff, insurance costs and future plans, and marry that with an insurance program that will be supportive and flexible.
It should assist the nursing home to create a growth pattern and improve the quality of care to the clients.
Jim Misselwitz is a vice president with ECBM Insurance Brokers and Consultants. Reach him at (888) 313-3226 ext. 1278 or firstname.lastname@example.org.