Skip to main content
search
Monthly Archives

March 2008

Mar 01
Love0

CHECKING YOUR SUBCONTRACTOR’S GENERAL LIABILITY POLICY LIMITS

By Construction Insurance Bulletin

One of the most important ways in which you make an impact on your bottom line is through risk management. The key to successful risk management is the identification of all instances of risk retention. These are circumstances in which you are responsible for all or part of the loss.

Any risk that you as the insured can’t transfer to another party is retained by default. The deductible on your insurance policy is a classic example of risk retention. This type of retention is characterized as “known,” because you know you’re responsible for paying the pre-determined deductible before your policy pays any additional exposures up to the policy limits. Any amount of potential loss over the policy limits is also a retained risk. However, this type of retention is categorized as “unidentified,” the amount of the loss has not yet been determined.

As a general contractor, it is imperative that you identify both of these types of retention so that you can adequately protect your company. The problem arises when it comes to determining the unidentified retentions. One area in which you might be extremely vulnerable is subcontractor negligence. You can purchase additional coverage for this contingency; but the more financially prudent course of action is to require your subcontractors to carry their own Liability insurance that provides enough coverage to completely replace what you are constructing.

Here are some recommendations for handling the issue of subcontractor negligence:

  • Require your subcontractors to carry their own insurance. Minimum acceptable policy limits should be specified in any subcontractor contract, and these minimum coverage requirements should reflect the size and scope of the project.
  • Request periodic certificates of insurance from your subcontractors showing that their coverage is current. This will help ensure continued compliance. Additionally, you should specify in the contract that the subcontractor’s General Liability coverage is the primary coverage for the project. This will reduce your coverage to Excess coverage, meaning it won’t come into play unless the subcontractor’s coverage is exhausted.
  • Consider using a subcontractor indemnity agreement as an additional option if permitted by local law. This is basically a promise by the subcontractor to reimburse you for any money you are forced to pay to the project owner because of the subcontractor’s negligence.
  • Have all of your contracts reviewed to make sure that your policy continues to meet your insurance needs.
Mar 01
Love0

WORKERS COMP SYSTEM AND HEALTH CARE SHARE PROBLEMS

By Business Protection Bulletin

Many of the same problems that plague the U.S. health care system are spilling over into Workers Compensation, including rising costs, an increased incidence of potential injuries brought on by an aging workforce and the obesity epidemic, and regulatory uncertainties. In a speech at the 62nd Workers Compensation Educational Conference, Robert Hartwig, president of the Insurance Information Institute (I.I.I.), outlined these and other challenges facing the Workers Compensation system over the next 10 to 20 years.

Hartwig first applauded businesses’ efforts that have radically reduced the frequency of workplace injuries in America. Successes on this front have:

  • Helped companies remain productive, by lowering the number of future lost workdays that result from permanently disabling injuries or fatalities.
  • Increased and preserved worker incomes — Seriously injured workers have lower lifetime earnings, a higher incidence of bankruptcy, and increased dependency on public assistance.
  • Maintained and improved the quality of workers’ home life — Seriously injured workers experience a higher incidence of divorce, substance abuse and depression.
    Hartwig then turned his remarks to problems facing the Workers Compensation system:
  • The never-ending cycle of reform, fraud, and abuse, which will be an endless driver of costs in the future.
  • The shift in balance between medical benefits and wage replacement — In 20 years, he predicted, 80%-85% of Workers Compensation benefits will be medical, and only about 15% will be for wage replacement. As a result, the Workers Compensation system will face the same problems as the health care system, but even more so, because the Workers Compensation system doesn’t have the same tools to control costs, such as deductibles and copayments.
  • The aging workforce — Fatality rates for workers ages 65 and older are triple that of workers ages 35–44. The workplace of the future will require a complete redesign to accommodate the surge in the number of older workers.
  • The obesity epidemic — In 2006, the most obese workers filed twice as many Workers Compensation claims and had 13 times more lost workdays than healthy-weight workers.
  • Regulatory issues — Health care reform will be a major theme in the 2008 elections, as it was in 1992, when proposals surfaced that Workers Compensation be rolled into the general health care system. This could happen again.

Though this information is sobering, Hartwig urged businesses to use it to their competitive advantage and work to head off problems before they occur, and not wait until injury patterns emerge to take action.

Mar 01
Love0

PREPARING FOR A WORKERS COMPENSATION AUDIT

By Business Protection Bulletin

You are scheduled for a Workers Compensation audit, and the dreaded time is drawing near. No fear. A little common sense and preparation will save you a lot of time, money, and frustration.

First and foremost, make sure you have scheduled the audit at a time that is convenient for you and allows you to devote a few hours to the audit. You should stay with the auditor the entire time. If you feel you have been pressured into meeting at an inconvenient time, call and reschedule. You will need to devote your full attention to the auditor, and to the auditing process.

Before the meeting, gather and organize your payroll reports, classification divisions, certificates of insurance, and overtime payroll records. You can summarize each of these beforehand and have the summaries ready for the review. This can help to streamline the audit process somewhat and assist you in more effectively communicating your business’ important information. Furthermore, if your calculations are well organized and can be reconciled to payroll stubs, W2s and other payroll records, the auditor will feel comfortable relying on your data.

Be prepared for the auditor to question you about the job duties and classifications of various employees. This is to be expected and should not alarm you.

If you have a question about proper classification, call your agent beforehand. Make sure you understand the different employee job classifications and have all of your employees properly classified. For instance, if an employee works 90% of the time in the office and 10% of the time outside of the office, the auditor can charge 100 % of the payroll for that employee to the outside sales classification, a higher-rated class.

Again, being prepared and working beforehand to have a good understanding of the different classifications is key to ensuring your audit goes smoothly.

Next, make sure you adjust payrolls, deducting bonus pay from any overtime pay. Also, be sure to apply the minimum and maximum payrolls to your calculations, if applicable. These maximums and minimums vary slightly depending on the career and on the state. The minimums and maximums also vary greatly for executive officers, sole proprietors, and even partners. Do your homework here and apply maximums and minimums where needed.

If you have issued any payments to subcontractors that do not have certificates of Workers Compensation, these payments may be charged against your Workers Compensation. If you did not get a copy of a subcontractor’s Workers Compensation certificate, you can get it before the audit as long as the certificate is current and shows the subcontractor was covered while working for you.

Once you’ve taken the time to gather the necessary information, organize it, summarize it, and relax. Auditors are not there to do you harm. Work with them; giving direct and honest answers to their questions backed by applicable paperwork whenever possible. When the audit is complete, request the audit worksheet from the auditor.

The good news is that you have the right to request a corrected audit in the event you feel any errors were made. You also have the right to recover any overpayments made during the three preceding audit periods.

Lastly, if an independent agent or broker represents you, ask the agent to review the final audit for accuracy. The audit should be checked against the current policy and against the general liability audit, making note of any discrepancies in payroll estimates and classifications.

Mar 01
Love0

INSURE YOUR SMALL BUSINESS TO AVOID HUGE LIABILITIES

By Business Protection Bulletin

So, you’ve decided to launch your own business. Good! This can be an exciting time for you and your family, but don’t forget about the risks. Protecting yourself from financial disaster is a must and will preserve your long hours of hard work and determination, not to mention your future.

There are three types of small business insurance you need, including one that is mandatory. Although most employers must provide Workers Compensation insurance for injuries and illnesses that are job-related, other coverage for business property and liability, though not required by law, is strongly recommended. This optional coverage protects your business’ property, equipment, and inventory as well as providing protection against potential liabilities.

Property Insurance

Property insurance can be purchased on the basis of the property’s actual value (replacement cost minus depreciation), its replacement value (cost of replacing an item without deducting for depreciation), or an agreed-upon amount (commonly used for art objects and other unique items). Basic Property insurance will generally cover losses in the event of fire or lightning strike and will pay the cost of removing property to protect it from further loss. Also, a standard Small Business policy will usually cover further losses from windstorm, hail, explosion, riot and civil commotion, and damage caused by aircraft, automobiles, or vandalism. Optional coverage can insure against earthquakes, floods, building collapse, and glass breakage. You can even insure your property by categories or by events such as fire, theft, or vandalism.

You should take a complete inventory of all your business property, determine its value, and decide what is worth insuring. Make sure the items you want to cover are provided for in the basic policy; if not, buy more coverage. For example, you’ll want to make sure your building is covered and your inventory, furniture, equipment, and supplies.

Liability Insurance

Liability insurance will protect your business assets in the event you are sued. These days, with lawsuits at an all-time high, you will want to maintain a proper amount of Liability insurance to protect yourself and the business you have worked hard to build. Liability insurance will not only pay the cost of the damages but will also pay the legal fees and other costs associated with your defense in a lawsuit. The expenses of defending yourself against such claims in court can be enormous, regardless of whether the lawsuit has merit.

Liability insurance will not protect you against claims arising from nonperformance of work, sexual harassment, wrongful termination of employees, or gender and race lawsuits. Therefore, it might be in your best interest to take out a Surety Bond as performance insurance. Employment Practices Liability insurance (EPLI) protects your business against employment-related claims such as sexual harassment and is a good idea to have.

Business Owners Policies

Many insurance companies have bundled property and liability coverage into a Business Owner Policy, or BOP. This policy provides broad coverage with affordable premiums. Even if you have a BOP, it is advisable to consider adding coverage that might otherwise not be included. Since no two businesses are alike, Property insurance can be tailored to fit your individual needs. Because businesses face different amounts of liability (accounting offices vs. contractors), it is advisable to obtain Liability insurance above and beyond a BOP when needed. We can help direct you according to your business’ specifics.

Mar 01
Love0

BE CHOOSY WHEN HIRING A CONTRACTOR FOR HOME REPAIRS, REMODELING

By Personal Perspective

When hiring a contractor to add value to your home investment, it makes dollars and sense to verify the contractor’s Workers Compensation coverage. Otherwise, you might be responsible for injuries incurred by the workers while they are remodeling or repairing your home.

With this in mind, take a look at some important insurance issues before you select a contractor. To start, verify that the contractor you want to hire carries Workers Compensation coverage. If a contractor does not have this coverage, workers who are injured while working on your home could sue you. You might also want to see a copy of the contractor’s Workers Compensation policy and ask the same of subcontractors such as electricians and plumbers. It is important to make sure all of the contractor’s employees are covered — full and part time. It is advisable to get insurance policy numbers and to take that extra minute to call and verify that the insurance is still in effect.

You can also check the contractor or remodeler’s credentials, including whether the contractor or remodeler is licensed and/or a member of an applicable trade group. Of course, you will want to compare costs and solicit bids from more than one contractor or remodeler. When doing so, get all bids in writing and make sure each bid includes building specifications (what is being worked on and to what extent), labor costs, material costs, and time needed to complete the project. This will protect you from unforeseen costs while further protecting you from future misunderstandings and project mishaps.

You can call Better Business Bureau (BBB) to quickly and easily verify local references. The local BBB office will also be a good source for letting you know if there have been complaints made against the contractor or remodeler.

Lastly, most contractors and remodelers will gladly show you work done at other nearby homes. Take them up on this offer and see for yourself their workmanship and check customer satisfaction. Talk to former clients and see what they think of the contractor’s ability to meet their needs while staying on schedule and within the projected budget.

Mar 01
Love0

SIMPLE TIPS TO BURGLAR-PROOF YOUR HOME

By Personal Perspective

If you wanted to, you could build a panic room for protection from robbers or kidnappers. But what about protecting your belongings when you’re not home? Perhaps you really don’t want to install an alarm system — or maybe you do. Either way, here are some no-cost and low-cost tricks to make your protection more complete, and help keep your belongings away from thieves.

Outside Areas
Begin with the landscaping, which is the first thing a burglar sees and the first thing he will assess. To make it harder for a burglar to hide and gain entry:

  • Prune lower limbs from any big trees.
  • Trim bushes so a man could not use one for cover.
  • Move any decorative trellises away from windows or porch roofs so they cannot be climbed for second-floor access.
  • Consider planting thorny bushes below first-floor windows, and be sure they are close enough to the house so that an adult could not wedge behind one to jimmy a window without getting scratched up.
  • Remove any trees or bushes beside exterior doors. They can hide a burglar from passing cars and they can also hide intruders from your sight when you answer the door.
  • Make sure all ladders and tools are secure inside the house, not inside a garden shed.
  • If your yard is dim at night, install the brightest, biggest lights you can afford for all entries to your house. Use them. Turn them on when you leave the house at night; set up motion detectors to turn them on when you are away.

Inside the Home
Windows generally provide easier access for criminals than doors. Here are some window tactics:

  • Buy special window locks at your hardware store for all first-floor windows and any second-floor windows accessible from a porch or garage roof. DO NOT hang the keys on clever little hooks or nails beside the window. Crooks know that one and will simply break a pane and reach around until they find the key. (But be sure the whole family knows where the keys are in case of emergency.)
  • Don’t demonstrate the easiest window to enter by climbing in it. If a family member regularly forgets his or her key, consider leaving keys with a trustworthy neighbor for emergency use. DON’T CLIMB IN THE WINDOW EVER. Even amateur burglars can figure that one out, especially if they’ve seen you do it and figure the neighbors won’t notice.
  • For sliding windows, use the same techniques as for sliding doors, below.
    Some burglars like to enter like a guest, through the door. Here are some ways to discourage that sort of burglar:
  • Make every entry door solid core wood or metal; hollow-core doors are easily kicked in. The door should fit the frame snugly, with no more than 1/8 inch between door and jamb. If the gap is larger, replace the door, or install a heavy-gauge metal strip available at the hardware store.
  • Replace doors with decorative glass windows or panels. If that’s too expensive, install break-resistant plastic panes, or install a decorative grille over the glass.
  • It’s unlikely, but if an entry door has hinges on the outside, rehang it with hinges inside. If that’s impossible, reinstall it with pinless hinges. Burglars can pop pins and take off the door to enter.
  • Make sure locks on all sliding glass doors are sturdy. Then use a solid stick of wood or broom handle in the track of the closed door.
  • Adjust door rollers so the door cannot be lifted out of its track.

A Few More Hints

  • Close your garage door when you’re away, whether or not it also leads into the house. An empty garage equals “no one’s home.” Cover garage windows completely with shades or curtains so no one will know if there’s a car in there or not.
  • Don’t leave notes on entries; if you were home, you wouldn’t leave a note. Not even for FedEx.
  • Don’t hide keys in the yard; burglars know all the usual places, even those cute little garden toads with hollow bellies.
Mar 01
Love0

REPLACEMENT COST VALUE OR ACTUAL CASH VALUE: WEIGHING THE OPTIONS

By Personal Perspective

Property insurance policies often give policyholder’s the option of insuring to replacement cost value (RCV) or actual cash value (ACV). Which option should you consider?

In short, the difference between ACV and RCV is depreciation, or wear and tear.

ACV says that the property that was lost has probably depreciated by some amount over time, and attempts to inject depreciation into the equation. For example, say the property destroyed was a sofa that would cost $500 to replace. However, the sofa was 10 years old and although it might have been in good shape for a 10-year-old sofa, it was not brand new. Some wear and tear inevitably occurred.

Under ACV, the insurance company determines that $25 of depreciation occurred each year since the purchase so that the old sofa was only worth $250 at the time of the loss. They would then pay you $250 minus any applicable deductible and you would in a sense be paying an increased deductible in the form of the $250 depreciation. More precisely, you would be paying the difference between the replacement cost, the amount the old sofa depreciated by, and any deductible. You would be “co-insuring” that amount. That’s ACV.

RCV is, simply put, the cost of replacement of the lost property with an identical or similar piece of property. In our sofa example, if it costs $500 to replace the sofa, the insurance company will pay you the $500 less any applicable deductible. Case closed. It does not matter the sofa was showing the effects of age and you couldn’t possibly get $500 for it.

The question of which option to take cuts to the heart of what insurance is all about — making the insured whole again. ACV sometimes falls short. RCV, on the other hand, can create a beneficial state for the insured in some cases.

For example, forgetting any sentimental value the original sofa may have, if it is old and worn, but the insurance covers RCV, obviously the insured will benefit by receiving funds for a brand new sofa to replace the old one.

A more dramatic example might involve the loss of an old house in a fire. The house might have only been worth $200,000, because the components of the house, i.e., roof, HVAC, etc., were approaching the end of their life expectancy. Obviously, replacing the house with one containing similar features might result in a higher property value due to the new features.

Some insurers require that, in order to obtain the full replacement cost of the property, repairs must first be completed. They might pay the ACV up front and hinge the remaining payment of the difference between RCV and ACV on the actual repair or replacement being completed. This prevents the insured from pocketing the money and gaining financially from the loss, but the result of replacement at RCV is still beneficial and therefore, seems worth the small additional cost of coverage.

There is at least one caveat regarding the benefits of RCV, however.

David Patterson, CEO of Medici Insurance Services notes:

“Given the irrational real estate market, replacement cost may in many cases be less than actual cash value. Although depreciation has theoretically occurred,” according to David, “the run up in home values in recent years may have created a situation wherein the actual cash value of the existing home may exceed the cost of replacing the home with one that has similar features and qualities. Thus the extra cost of purchasing RCV may be inappropriate.”

As always, consult with your agent to determine which option to go with.

Close Menu