In recent years there has been an increase in the number of claims filed against employers arising out of employment practice disputes. Many claims have no legal basis, but employers are still forced to defend themselves — spending time and money.
“Businesses are more likely to have an employment practices claim than a property claim,” says Marc McTeague, executive vice president at SeibertKeck. “There are over 100,000 charges filed annually against employers under statutes imposed by the Equal Employment Opportunity Commission (EEOC). The majority of these claims target smaller businesses. However, no business is exempt.”
Smart Business spoke with McTeague about understanding employment practices liability coverage.
What’s important to know about employment practice claims?
Employment law has grown at an incredible pace since passage of the Civil Rights Act of 1991 and the Age Discrimination in Employment Act, among others. Ambiguities in these laws allow the widest possible interpretation, which in turn opens the door for litigation.
The most frequent types of claims made against an employer are discrimination, sexual harassment, wrongful termination and retaliation. There’s also been an uptick in wage and hour lawsuits. Claims can come from potential hires, former and current employees, clients, suppliers or vendors.
Discrimination can be defined as the termination of an employee, demotion, refusal to hire or promote due to race, color, religion, age, sex, physical or mental disabilities or handicaps, pregnancy or national origin. Think about the times you or someone in the office told an off-color or racy joke to a new employee or client. It’s only a matter of time until this comes back as a claim.
The average claim costs an employer $50,000, and defense costs represent about two-thirds of the total settlement. Without a mechanism to transfer risk, these costs could cripple smaller businesses, or at least damage their reputation. For larger businesses, one uninsured claim can lead to potential shareholder lawsuits.
How does employment practices liability coverage mitigate this risk?
Businesses can purchase a policy that provides coverage for a wide spectrum of employment-related claims and offers risk management services to help minimize the risk of getting sued. This policy protects the corporation, directors and officers, employees (including leased and temporary), volunteers, and in some cases can be endorsed to include independent contractors (when working for the employer).
The definition of a claim includes arbitration, regulatory and administrative proceedings, and EEOC and Department of Labor investigations.
Limits can range from $500,000 up to $10 million or higher. As your business assets grow, so should your limits. Settlement costs and legal fees are typically included in the policy limits. However, some carriers will provide separate limits for these costs.
It’s important, however, to be aware of the varying contracts and differences in coverage and exclusions from one policy to another. There is no standard form. Sitting down with your trusted insurance adviser will help with this process.
Beyond buying insurance, what preventive measures lower claim risk?
Minimize the possibility of costly claims by:
- Creating an employee handbook detailing company policies and procedures.
- Educating employees on sexual harassment and discrimination, and offering sensitivity training.
- Establishing a procedure for handling employee complaints.
- Developing job descriptions with clear expectations of skills and performance.
- Conducting periodic performance reviews.
- Creating an effective record-keeping system to document employee issues, and what was done to resolve them.
- Instituting at-will employment.
- Implementing procedures for hiring, firing and disciplining employees.
Many carriers offer free risk management services. Online resources provide best practices training modules for addressing sexual harassment, discrimination, investigations and termination, while providing links to HR websites. ●
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Not all high net worth individuals started out that way; they’ve spent years building a business and career, slowly accumulating assets and wealth. Even though they have more items to insure and face different risks, they often don’t adjust their personal insurance to reflect their changing needs.
“They are so busy building a business, they often don’t take the time to adjust their coverage as their needs and circumstances have changed,” says Marc McTeague, president at SeibertKeck.
Most of these people would never go without necessary coverages on their business, but there can be major inadequacies with their personal insurance, he says.
Smart Business spoke with McTeague about where high net worth individuals need more or different types of insurance coverage.
What is the biggest area that high net worth individuals underinsure?
The biggest concern is liability. While it is upsetting to lose an expensive piece of jewelry, it generally will not ruin someone financially; a liability claim, however, can. With inadequate liability and/or umbrella coverage, one incident can affect the total wealth and earnings of an individual and their family.
If the individual sits on non-profit boards, or is involved with charity work, he or she needs to consider increasing his or her limits and supplementing coverage with an umbrella policy. If a non-profit is sued, it is common to name all the individual board members in the suit as well. Without the proper coverage, you could be footing the defense or judgment bill yourself.
For example: A high net worth individual sat on a youth athletic league’s board of directors, and a former coach sued all board members for improper dismissal. Thankfully he had a personal umbrella policy that covered him for liability resulting from unpaid or voluntary positions and paid for his entire defense.
Auto accidents are a common source of claims and can result in financial pain if you and your estate are not adequately covered. For example: An individual has a $1 million umbrella policy over a $250,000 per person liability limit with his automobile policy. Unfortunately, he or she had an accident in which a child was severely injured. The child’s care will more than likely exceed $5 million within 15 years; his or her estate, business and earnings will all be at risk to cover this situation.
What problems do you see with homeowner’s policies?
Homeowners policies come with limitations on certain items like fur, jewelry, fine arts and firearms. These provided limits are not usually adequate for high net worth individuals. As individuals gather wealth, they tend to gather expensive items that with a standard policy have a very limited amount of coverage. It is important to review these items with your insurance agent to be sure the items are properly and fully covered. Collectibles and rare or unique items often require a separate policy, known as an Inland Marine Policy.
Making sure the values on your homeowner’s policy are correct, and ensuring you use insurance products that are designed for higher risk, will be extremely important in the event of a claim.
How should household help be covered?
If household help, such as a gardener, nanny, cleaner etc., doesn’t come from an established company, you need to pay workers’ compensation. This will protect you in case they are injured in your home. If the employee comes through a service company, ask for proof of coverage with a workers’ compensation certificate. It is also important to inquire with the company about background checks for anyone coming to work in your home to make sure there’s compatibility, experience and no other issues. Your insurance agent will be able to assist you with determining if the company’s coverage will extend to the employee, or if you need to purchase your own policy for them.
A good agent will do a risk management audit, asking what you’ve got to protect and walking you through the different items you have to ensure there’s adequate coverage. By spending time with a qualified high net worth agent, you’ll know your assets and income are properly insured. ●
Marc McTeague is president of SeibertKeck, Best Hoovler McTeague. Reach him at (614) 246-7475 or firstname.lastname@example.org.
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Many small business owners only have a certain budget for insurance, so a strong relationship with an insurance agent who takes a proactive approach to mitigating risk and protecting their business is key. The cost of business insurance is not prohibitive, but replacing offices and not being able to work because of a loss can be.
“Remind yourself that having good coverage is one of the costs of doing business and part of your responsibility to yourself, your business and others who depend on you,” says Marc McTeague, president of Best Hoovler McTeague Insurance Services Inc., a SeibertKeck company.
Smart Business spoke with McTeague about what small business owners need to understand about their insurance coverage and risks.
What are the most important insurance coverages for small businesses?
Every business, even if it’s home-based, needs to have liability insurance. This provides both defense and damages if you, your employees, your products or services cause or are alleged to have caused bodily injury or property damage to a third party.
If you own your building or have content, known as business personal property, including office equipment, computers, inventory or tools, you will need property insurance that will protect you if you have a fire, vandalism, theft, smoke damage, etc.
It is also important to include business interruption/loss of earnings insurance as part of the policy in order to protect your earnings in the event the business is unable to operate.
Lastly, with commercial auto insurance, you can insure your work vehicles from damage and collisions. If you do not have company vehicles, but employees drive their own cars on company business, you should have hired and non-owned auto liability to protect the company in case the employee does not have insurance or has inadequate coverage.
The top 10 insurance coverages are:
- General liability insurance.
- Property insurance.
- Commercial auto insurance.
- Workers’ compensation.
- Professional liability.
- Employment practices liability.
- Directors and officers insurance.
- Privacy and security coverage, also known as cyber liability.
- Personal home and auto policy.
- Umbrella coverage.
Where do some business owners fall short on essential protection?
A business may fall short in identifying risks when its risk management measures are reactive and not proactive. It’s important that a business aligns itself with an insurance agent who takes a proactive approach to mitigating your risk. Meeting with your agent on a quarterly or semi-annual basis will help to identify exposures that could potentially cost a business everything.
In addition, a proactive approach to minimizing risks in the workplace may help to lower your insurance premiums by preventing future claims.
How much does the size and type of business impact what insurance is necessary?
Risks increase substantially as a business grows, as more employees are hired and as more services are rendered or products sold. While a crossbow manufacturer will certainly have different needs and risks than a website designer, having the right protection is equally important.
Creating a new revenue channel, opening a new location or making any significant change to how your business normally runs should be reviewed with your insurance agent. Major changes like these can lead to gaps in your insurance coverage, leaving a business exposed.
Business owners put a lot of time and energy into growing their business and providing for employees and their families, it is important they make sure it is properly protected.
Marc McTeague is President of Best Hoovler McTeague Insurance Services Inc., a SeibertKeck company. Reach him at (614) 246-RISK (7475) or email@example.com.
Insights Business Insurance is brought to you by SeibertKeck