Many times landlords and tenants don’t realize that their commercial lease is unclear, contradictory or out of date until it comes time to resolve a claim, whether it’s a case of liability or property damage.

The payout is then delayed as the insurance companies review the entire lease to try and determine responsibility, liability and how the policy should respond.

“The real world is this — when the landlord and tenants go to renew an option, they just want to renew it. They don’t want to look at anything else because they don’t want to open up opportunities for negotiation that could be detrimental to either party,” says Phil Coyne, vice president at ECBM.

Smart Business spoke with Coyne about how knowing what’s in your lease and fixing problems now will save you a headache later.

What is one of the biggest risk exposures involved with a commercial lease? 

You can avoid significant risk by making sure the lease language doesn’t expand, broaden or increase the liability and exposure to the point where your insurance coverage either doesn’t apply or would be limited. Therefore, each party — tenant and landlord — needs to have an understanding of the intent of the lease and its language.

Also remember that it’s not only the insurance provisions that have an effect on the outcome of a claim, but also definitions, maintenance, landlord/tenant obligations, use of premise and indemnity provisions. The insurance section alone only outlines limits and coverage; it’s the other sections of the lease that outline responsibility and ownership.

If two insurance companies review the same lease, and there are questions, it delays the claim process. For example, who is responsible for or owns the improvements and betterments to the space? Is that the responsibility of the tenant or the landlord?

How can tenants and landlords best mitigate risk when drafting and negotiating commercial lease provisions?

By understanding the intent of the lease and its language, the tenant and landlord can mitigate a potential problem prior to a loss and have an understanding of how their policies will respond.

Therefore, both insurance brokers should have an opportunity to review the entire lease during negotiations. He or she can explain what each party is accepting and not accepting, and how your policy will respond in the event there is a claim.

Some important areas for discussion are:

  • Who is responsible for what, such as common area, tenant space,  maintenance and repairs.

  • Who is responsible to insure these items?

The commonly discussed issues in the insurance section are limits, coverage, indemnity provisions and specific wording, but policies respond to the entire lease and its language in sections other than the insurance section.

How should a lease be updated when up for renewal?

Many times lease options are renewed without re-examining the entire lease’s language. There could be simple items such as a name change or an increase in the square footage, other times it can be a change in use and occupancy and therefore changes in various other sections need to be amended and addressed.

Although the landlord and tenant likely just want to sign a quick renewal, it is important that all parts of the lease are carefully reviewed and understood. This will ensure each side is in agreement on the terms prior to a loss instead of after a loss, as the latter could lead to delays or restrictions in coverage.

Phil Coyne is a vice president at ECBM. Reach him at (610) 668-7100 or


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An effective safety committee will lead to fewer workers’ compensation claims and reduce your company’s experience modification factor and premiums.

“With lower claims your company may be able to obtain quotes from insurance carriers with lower rates than you could in years past,” says Kevin Forbes, sales executive at ECBM. “Lower claims may also provide alternative sources for coverage, such as captive programs and retention programs for companies that can effectively control their workers’ compensation claims.”

Smart Business spoke with Forbes about setting up a safety committee and driving down your workers’ compensation costs.

What’s the goal when forming a safety committee?

Employers who form safety committees are attempting to reduce injuries and meet compliance requirements of federal and state regulations. However, the overall goal should be to enforce and expand current safety procedures and continue to promote the organization’s safety culture.

Safety committees also are an effective tool in analyzing and ensuring regulation compliance. Making sure your company guidelines meet Occupational Safety and Health Administration (OSHA) minimum standards in the facility, yard, on job sites and over-the-road is a key function of every safety committee. Training can be provided by outside, certified instructors, and then committee members are responsible for passing on their training and monitoring new procedures.

Does a safety committee give you an insurance discount?

Depending on what state you are domiciled in, credits may be available. Pennsylvania offers a 5 percent credit to any employer who qualifies. New York and Delaware also offer credits, but New Jersey does not. To qualify, the safety committee has to meet guidelines laid out in the state’s workers’ compensation manuals and become state certified.

What ingredients do you need to set up a successful safety committee? 

To get the best results, any safety committee must have complete support and involvement from top management. And once procedures are implemented, they need to be communicated to employees, strictly followed and monitored for effectiveness.

The committee must meet regularly — typically once per month and at the same time for maximum involvement. Meetings shouldn’t always be in a conference room; some of the most effective meetings take place at job sites or on the factory floor.

The committee should be formed with volunteer members — management and employees — who show an interest in making the workplace safer. Since these individuals identify safety issues, develop new procedures and communicate them to the rest of the workforce, they should be from positions that will be directly affected.

Bringing on your insurance broker or risk manager as a member can be valuable. These individuals have the ability to analyze exposures and identify where the company is experiencing the most loss.

How important is employee buy-in? 

Without it, the safety committee will never help create an effective safety culture. By getting employees who are leaders from each level in the organization involved, the views formed in the committee can be transmitted throughout the organization.

Typically, when employees see a company invested and committed to keeping them safe, getting their buy-in is pretty easy. Management should also encourage employee involvement and suggestions. Employees have a much better outlook on participating when they see their suggestions being taken seriously.

Are there any risks you should be aware of when establishing a safety committee?

Be sure to comply with the jurisdictional law that has been established regarding the creation of safety committees and follow the rules. Once the committee is established and the plan is in place, it’s imperative to continue to run the committee in line with the mission on which it was established, which will include accurate record keeping.

Kevin Forbes is a sales executive at ECBM. Reach him at (610) 668-7100, ext. 1322 or


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All companies that own, rent or lease a building may need flood insurance, regardless of whether the business is near a body of water or it is a requirement of a lender.

“Even if your business has a low risk of flooding, it’s wise to obtain a quote on flood insurance. Twenty-five percent of all flood claims occur in areas that are considered low to moderate risk,” says Linda Cook, vice president, Personal Insurance Division at ECBM. “Flooding can result from sources such as broken water mains, runoff water, storms, melting snow and other natural causes.”

In the aftermath of Hurricane Sandy, many property owners were unsure of how their flood policies would respond.

Smart Business spoke with Cook about what you need to know about flood insurance, including what is covered and not, to take back control.

What’s the National Flood Insurance Program?

The NFIP was established to provide a means for property owners to financially protect themselves against flooding in participating communities. A participating community agrees to adopt and enforce ordinances that meet or exceed FEMA requirements to reduce the risk of flooding.

Why do you need flood insurance, especially if there’s federal assistance?

Most homeowner and business property policies do not cover flooding conditions or floods. A flood policy can be purchased through your insurance agent or directly through NFIP. All rates are set by FEMA and do not vary from one insurer to another. The premium for a flood policy averages about $700 annually, with maximum limits of $500,000 per nonresidential building and $500,000 for nonresidential contents. The maximum limit under a residential flood policy is $250,000 per building and $100,000 for contents. If higher limits are needed, they may be purchased under an excess flood insurance policy.

As for federal assistance, most forms of assistance are only available after the president declares an area a disaster, and less than 50 percent of all flood incidents are declared official disasters. In addition, most federal disaster assistance to businesses comes in the form of a loan.

How is property-flooding risk assessed?

There are several factors involved in assessing the degree of risk, but a prominent one is the flood zone of a property. This is an area that FEMA has defined according to varying levels of flood risk. An elevation certificate, acquired through a licensed surveyor or engineer, will be able to provide information on the flood zone, the base flood elevation of an area and how a building is elevated. For a favorable flood insurance rate, the building insured should be elevated above the base flood zone.

If you rent commercial space, does that mean you don’t have to do anything?

No. You will need to purchase flood insurance in your business name to provide coverage for your contents. The building owner should have a separate policy to cover the building and whatever contents he or she needs covered.

What else do you need to know when buying or using flood insurance?

A flood policy only provides coverage for direct physical loss by or from flood. Losses are paid on actual cash value (ACV), not replacement cost value. So if, for example, the cost in today’s market to replace your contents is $80,000 but the ACV may be determined to be $50,000, you may only receive the ACV amount, or $50,000.

One particular area where contents coverage is limited is in the area under the lowest elevated floor, which may be a basement, finished or unfinished, as well as an elevated area with lattice or walls. It is important to read your policy.

Some important items that a flood policy does not pay for are:

  • Loss of revenue or profits.

  • Loss of access to the insured property.

  • Loss of use of the insured property or location.

  • Loss from interruption of business or production.

  • Damage caused by mold, moisture or mildew over a period of time.

A list of excluded items is available from a licensed agent or consultant.

Linda Cook is a vice president, Personal Insurance Division at ECBM. Reach her at (610) 668-7100, ext. 1288 or

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With the election settled and a number of lawsuits decided, it’s clear the implementation of the Patient Protection Affordable Care Act (PPACA) is moving forward.

There could be numerous timing glitches with implementation through delayed issuance of regulations and enactment of the exchanges, but Matthew R. Huttlin, vice president, Employee Benefits Division at ECBM, says it is important that every organization continue with its planning.

“This law will continue to be modified and adjusted over the next few years and employers are going to need sound, detailed guidance to negotiate their way through the PPACA legislation,” he says.

Smart Business spoke with Huttlin about the decision of whether to continue your health care program or relinquish coverage to the exchanges.

What risks are employers facing from the PPACA and health care exchanges?

For employers with more than 50 full-time equivalent employees — considered ‘large’ employers under the law — a number of areas need to be reviewed in anticipation of the 2014 effective date of the government health exchanges. However, none is more important than the financial impact. Employers that do not provide adequate coverage or offer coverage that is considered unaffordable may face penalties. However, the calculation to determine whether any penalties will apply in 2014 is fairly straightforward.

Once you’ve assessed potential penalties, what’s the next step? 

The more difficult question is whether an employer should continue its health care program or relinquish coverage to the government exchanges. The two primary areas of concern are financial and human resources. From a financial standpoint, a risk manager can run a detailed analysis to determine the cost impact of each option. The results depend heavily on the current cost of coverage, both for the employer and the employees, and the salary distribution of the full-time employees. The human resource impact is difficult to quantify, having to gauge the impact of each option on retention and recruitment.

Do employers that continue to offer health plans need to revisit their decision?

Employers that decide to maintain their programs should test these programs annually. Rates vary from year to year and from group to group based on the impact of the group’s claim losses in the determination of their rates. The impact of a group’s actual experience on their projected costs increases as the size of the group increases for insured programs. The projected rates for self-funded plans are typically based solely on the group’s claim losses. Whether self-funded or not, the greater a group’s claim losses impact their rates, the more important it is to control costs through utilization management, wellness, plan design, etc.

On the other side of the equation, PPACA penalties are expected, at a minimum, to be indexed for inflation. Also, the cost to obtain coverage from the exchanges — particularly for employees with salaries that exceed 400 percent of the federal poverty limit — is anticipated to increase, possibly at a rate greater than inflation.

How should employers that decide to eliminate their health insurance handle it?

This is a major undertaking for the HR personnel. Detailed communications with the employees explaining the organization’s decision and guidance will be required. This decision also will have a critical impact on administration. Businesses that choose this path should reach out to risk managers and consultants for assistance.

What is the risk of upcoming ‘Cadillac’ tax?

Looking further out, there is another ‘test’ looming under PPACA for 2018, commonly called the ‘Cadillac’ tax. Under this provision, if the combined cost for health care benefits exceeds the dollar threshold limits of $10,200 for single person plans and $27,500 for other plans, the PPACA will tax these rich benefits at a rate of 40 percent on the cost above this amount. According to a 2011 survey by Mercer, approximately 60 percent of employers with more than 500 employees believe their plans would trigger the tax unless they take action to avoid it. Employers will need to keep a close watch on costs as they progress toward this test.

Matthew R. Huttlin is vice president, Employee Benefits Division at ECBM. Reach him at (610) 668-7100, ext. 1312 or

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Workers’ compensation claims and insurance are not things an employer can leave to chance. The company’s managers need to actively work to manage the direct costs of workers’ compensation insurance, as well as indirect costs from lost productivity.

Brian Chance, vice president, Claim Services, at ECBM, says workers’ compensation insurance cost is based on a fairly strict pricing model that is heavily regulated by states. An employer’s actual claim expenses play a large role in the calculations that are done in order to price their insurance.

“An employer’s workers’ compensation claim experience has a direct impact on the cost of workers’ compensation insurance,” he says. “Larger employers may be self-insured to some extent and pay every dollar of their claims, and therefore, time and energy should be spent to reduce claim costs. Each dollar saved could be their own or will reduce the impact the claim will have on their insurance pricing.”

Smart Business spoke with Chance about the best techniques for managing workers’ compensation.

Are there certain industries where managing workers’ compensation is more critical than others?

All employers are subject to the same insurance pricing model, and therefore, all employers benefit from managing their claims. However, in certain industries — especially construction — a company’s claim experience may be reviewed in order to qualify it for contracts. Companies with worse than average claim experience may find themselves precluded from bidding on certain projects. Consequently, employers that ignore their workers’ compensation claims will spend money they would otherwise be saving, and some may find they are precluded from working.

If a company doesn’t effectively manage its workers’ compensation claims, what can be problematic?

The direct impact of not managing workers’ compensation claims is an increase in insurance costs or the out-of-pocket expenses paid by larger employers. However, there are many indirect costs employers suffer when an employee is injured. Studies have shown that for every dollar paid for a claim, the employer suffers $5 in indirect costs. Some of these costs are lost productivity due to the missing employee, the cost of errors or rework caused by inexperienced replacement employees, and poor employee morale.

Another misstep is that many employers assume that their role in the claims process ends after they report a claim. Employers that take a proactive role in managing their claims and the actions taken by their insurance carriers see lower costs as a result. Employers should have an ongoing dialogue with their injured employees and their insurance carrier in order to ensure that all steps are being taken to facilitate a return to work and reduced costs.

What are some best practices to use when managing claims?

The first thing you, as an employer, can do is report employee injuries as quickly as possible after an injury. Injuries reported more than three days after they occur cost more for each day the report is delayed. When you ignore an employee’s injury, the employee might find his or her way to an attorney and feel as though you are trying to avoid responsibility for the injury.

You also should return injured employees to work as quickly as possible by utilizing a transitional duty return-to-work program. Employees working in a modified duty capacity tend to heal faster, return to full duty quicker and are less inclined to use their claim as a way to punish their employer.

Additionally, you should identify local medical providers to treat your injured employees. Medical provider partners are most important to the ultimate cost of the claim because they determine the need for treatment and the extent of the disability. Medical providers who specialize in occupational injuries and understand your transitional duty program are critical to your ability to manage your claim costs.

Are certain areas within workers’ compensation becoming more critical to monitor?

Yes. As all employers know, the cost of medical insurance goes up every year due to inflation. That same inflation impacts workers’ compensation treatment costs, as well. Therefore, it is critical for employers to partner with providers that offer high-quality care at a discount. Employers with transitional duty return-to-work programs enjoy lower medical treatment costs on their claims because employees who are working tend to seek less medical treatment.

In addition, the U.S. government has spent a great deal of time and money in order to protect the interests of the Medicare system. Claims involving Medicare beneficiaries must be handled properly; otherwise, the employer and its insurance carrier could be subjected to extraordinary fines and penalties.

Once you put management techniques in place, how should you measure their effectiveness and then adjust accordingly?

Once you, as an employer, begin to manage your claims, you should see a reduction in the number of lost workdays you record on your Occupational Safety and Health Administration log. You will also observe a reduction in the payments being made on your claims and have fewer employees out of work.

Brian Chance is a vice president, Claim Services, at ECBM. Reach him at (610) 668-7100 or

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Indemnity clauses are included in contracts to provide a means by which the contracting parties can shift the responsibility of risk.

“Indemnity clauses can expand, limit or even eliminate the obligations of one party to another with regard to property damage, personal injury and contractual obligations,” says Paula Devaney, Director, Claims Services, at ECBM. “Indemnity clauses are drafted in order to establish the terms and conditions upon which one party can shift risk associated with the performance of the contract.”

Smart Business spoke with Devaney about how to make indemnity clauses work for you, shifting risk away from your business.

What’s an example of how indemnity clauses work?

Here’s an example: Company A owns a building and retains Company B to complete parking lot repairs. As a result of the activities of Company B, a visitor to the building falls and sustains an injury. The visitor files a claim for damages against Company A. Pursuant to the indemnity clause in the contract, Company A demands that Company B respond to the claim since it arose out of their operations. If the contract did not include a properly drafted indemnity clause, Company A would have to bear the risk and costs of resolving the claim on their own behalf.

Do indemnification or insurance provisions apply first?

Indemnification provisions are evaluated first, as these clauses establish the parameters that will govern the risk being shifted. Insurance provisions are then evaluated to determine if the circumstances of the claim or demand will fit within the purview of the insurance coverage requested to be purchased. Not all of the risk that is shifted by an indemnity clause is or can be covered by insurance.

Both indemnity clauses and insurance are risk transfer vehicles. In a contractual relationship where an indemnity agreement exists, the parties will also include insurance language to support the indemnity. In the insurance world, the indemnity clause is commonly referred to as the ‘belt’ and the insurance provisions are referred to as the ‘suspenders.’

If the indemnity clause and insurance provisions are successfully drafted and implemented, the insurance purchased by the indemnitor will provide the indemnitee with a certain level of comfort that there is a means by which the indemnitor will be in a position to pay for the risk that has been shifted to them.

How does the language of the indemnity clause affect the end result? 

Language that must be thoroughly evaluated is anything in the clause that establishes very broad terms of the risk being transferred. Both parties who are depending on the viability of an indemnity clause should draft indemnity language that is specific to their relationship, complies with the jurisdiction in which the clause will be interpreted and clearly, or as best as possible, defines the proposed intent of both parties entering into the agreement. Effective communication is paramount to ensure that intent is clearly understood.

What must you include when creating a contract’s indemnity clause to provide the most protection for your company?

One way to establish a high level of clarity is to include or create definitions of key terms in the indemnity clause. Terms such as claim, damages and contractor/vendor conduct can be included in a definitions section of the contract so that there is little to question as to what type of act constitutes a breach, what constitutes a claim and what damages are subject to indemnification. Simplifying and defining the terms can allow a more clear and concise interpretation of the indemnity clause against the circumstances giving rise to the demand for indemnity.

The identification of the parties to be indemnified is also crucial. The party potentially granting indemnity will wish to limit the parties to be indemnified, whereas the party requesting indemnity will seek to expand or broaden the list of potential indemnitees.

The duty to defend and associated costs must be clearly established and can also include issues such as which party controls and/or must consent to defense, the degree to which one party must consent to settlement and the remedies available if there is a refusal to defend an indemnified claim.

Other factors to be addressed are:

  • Losses/damages or limitations on types of damages. Issues such as attorney’s fees must be included as a recoverable cost, while consequential damages should be contemplated along with fines and penalties.

  • The period of time in which an indemnity clause survives the contract.

  • Including and/or defining the type of event that can trigger the obligation to indemnify.

  • Insurance procurement. The indemnity clause in a contract should not rely on the viability of the entity granting the indemnity. If the indemnitor goes out of business, their insurance may still be in effect.

When your business is signing a contract that includes indemnity clauses, what should you watch out for?

It is crucial for both parties to read the contract, and specifically the indemnity provisions, carefully. Every indemnity clause is different. There is nothing standard, and many times nothing fair, about an indemnity clause. If you do not read the clause and carefully consider the implications, you can be accepting a tremendous amount of risk you never intended to undertake.

The indemnity clause should be drafted in a manner that carefully considers the intent of both parties. When negotiating indemnity provisions, you may win some battles and lose others. However, with effective communication between both parties and effective review of the contract by legal counsel and, just as importantly, your insurance broker, the intent of the contract will at least be understood. Therefore, you can enter the contractual relationship with an understanding of the risks and liabilities.

Paula Devaney is a Director, Claims Services, at ECBM. Reach her at (610) 668-7100, ext. 1216, or

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