Struggling for Survival: Businesses That Went Thin on Insurance

business insurance

Imagine several small businesses located around the country. Each is well-established and profitable. Each of them bought business insurance – property, liability, automobile and workers’ compensation.

They told their agents they wanted the lowest possible price for coverage, and the agents came through. But they didn’t also take their agents’ recommendations to purchase additional coverage.

Unfortunately, they each suffered losses that threatened the very survival of their businesses. This is how they each got into such a fix:

The underwater restaurateur

The owner of a restaurant on the south shore of Long Island, NY, rejects his agent’s offer of flood insurance when he sees the price.

He relies on property insurance instead. Superstorm Sandy hits in 2012, and the restaurant has 38 inches of water in it, causing tens of thousands of dollars in damage.

That’s when he learns that his property insurance provides no coverage for flood losses.

Sofa seller on shaky ground

A furniture wholesaler in Modesto, California, buys an “all risks” property insurance policy at a low premium.

One day, a major earthquake shakes his building, breaking internal water pipes, collapsing racks of furniture, and damaging several high-priced pieces and some forklifts.

He has to close until city engineers can certify the building as safe. The losses from water damage and breakage are well into six figures, not including the lost sales.

But, when he submits an insurance claim, he learns that his policy does not provide any coverage for earthquake damage.

Tech trouble

A Pennsylvania contractor does work for a national chain of retail stores. Employees in the contractor’s office receive e-mails from what they believe are trusted sources.

However, the e-mails contain malicious software that steals network passwords. The perpetrators of the e-mails use the stolen passwords to log in to the retailer’s networks.

Credit card and personal information records on 110 million people are exposed. The contractor never even considered buying cyber liability insurance.

Tragedy on the grounds

The owner of a small apartment complex in Kentucky considers himself well-insured with commercial general liability insurance limits of $1 million for each occurrence, and an umbrella policy with another $1 million limit.

One night, a 29-year-old woman visiting a friend is attacked in a dark parking lot. Because of her injuries, she will never be able to resume her practice as a hospital pediatrician. She sues the apartment complex for more than $20 million, including medical costs, pain and suffering, and lost future earnings.

The owner finds himself significantly underinsured.

Small shop, big troubles

A Virginia tool and die manufacturer suffers a major fire. The owners carried $20,000 of business interruption insurance, assuming they could be back in business within a couple of months in case of a disruption.

However, the shop cannot produce anything without two special machines made by a German manufacturer. It will take six months for the replacements to be ordered, manufactured, shipped, installed and tested.

The shop’s lost revenue will far exceed the $20,000 of business interruption insurance.

The takeaway

All of these situations could have been avoided had the businesses not limited themselves to securing the minimal insurance they could get by on. The key is knowing what your risk is, and then seeing if it can be addressed with insurance.

There is certainly going to be a greater cost with securing the insurances a business truly needs, but the cost of not having necessary coverage can be much greater.

Worse yet, it can put you out of business. If you think you may have some blind spots, give us a call so we can go over your coverage with you.

The Holidays Have Their Own Workplace Perils

office holiday party

All year long you have been reminding your employees to “work safely … don’t take short cuts … prevent accidents.”

To do this they have to keep their minds on their work, but this time of the year as the holidays near, their minds might be everywhere else but on work.

They may be thinking “what to buy for everyone for Christmas – I hate shopping!” and “how will I pay for Christmas?” Meanwhile, relatives coming to stay add yet more distracting thoughts.

For some employees, the holiday period is a wonderful time, and for others it is dreadful, but it is stressful for most anyone. Normal routines and schedules are disrupted, and there is a lot of rushing around the town to crowded and chaotic stores and malls.

Be aware that accidents may be more likely to happen at this time of the year at the workplace, on the road or at home. Employees tend to take extra physical risks ― such as when hanging lights and lugging trees around.

And when roads and freeways are jammed, auto accidents increase.

In-office safety

When planning decorations for the office, it is important to keep holiday safety in mind.

Decorating the office helps workers enjoy the spirit of the season together, but remember that proper safety precautions should be observed at all times:

  • Be mindful of potential fire hazards when selecting holiday decorations and where you place them.
  • Be careful of stapling holiday lights, do not add too many strings of lights and make sure illuminated items are turned off.
  • Verify that all fire extinguishers are in place and fully charged and accessible.
  • Do not block exits, hang decorations on fire extinguishers, fire alarms or fire hose boxes, or obstruct the view of exit signs.
  • Do not hang decorations from sprinkler heads or electrical panels.
  • Without proper planning, holiday decorations can create tripping hazards. Extension cords should not be run through traffic areas where they pose trip hazards and, if you have to use an extension cord, use the proper one.
  • Avoid placing trees, freestanding decorations and presents in traffic areas.

Holiday party

The holidays bring office parties and, if alcohol is being served, keep in mind the liability involved.

Provide plenty of alternatives to alcohol, such as soft drinks, coffee, tea, water and cocoa. Consider non-alcoholic beers and virgin drinks at the bar.

Also, so your staff is safe on the way home, stop serving alcohol a few hours before the party ends.

It’s essential to make transportation arrangements for employees who should not drive – whether the party is held at the office, restaurant, your home or any other location.

The takeaway

If you keep in mind that the holidays put extra pressure on everyone, it may help you to keep your workplace free of accidents.

By following a few simple safety tips, it will be easy to enjoy the holiday and the events at work without dealing with injuries or damage to property.

When planning for the holidays, incorporate safety precautions into the planning process.

Need Gift Ideas for Your Christmas Party?

Give a gift of safety that just might save a life. Here are some ideas of safety items we don’t think about until we need them and/or it’s too late:

  • A smoke detector and batteries.
  • A quality fire extinguisher.
  • A flashlight and batteries, or light sticks.
  • A first aid kit.
  • An automobile safety kit including jumper cables, flares, fix-a-flat and reflectors.
  • A carbon monoxide detector.
  • An emergency kit flashlight, energy bars, batteries and first aid kit ― packed in a small travel bag.
  • A radio that runs by cranking rather than batteries.

More Employers Get Premium Bills for ‘Misclassified’ Workers

contractor

One outgrowth of a new California law that applies more stringent criteria for what constitutes an independent contractor is that many employers are likely to see more audits and calls for additional premium from their workers’ comp insurers.

In fact, it’s already happening in some industries, according to the insurance industry trade press. More and more employers are being hit with sizeable surprise bills for additional premium by their insurers for allegedly misclassifying independent contractors as employees, according to one article in the Workers’ Comp Executive trade publication.

And this problem is only like to get worse in 2020 as the full effects of this year’s landmark independent contractor law, AB 5, take hold.

What’s happening now

The Workers’ Comp Executive reported that the California Department of Insurance’s administrative hearings bureau is receiving an increasing amount of complaints from employers that are disputing their workers’ comp insurers’ request for additional premium for workers that had originally been classified as independent contractors.

The publication cited the case of a construction company that State Compensation Insurance Fund says misclassified 42 individuals who worked for the company as independent contractors in 2017 and hence should pay an additional $114,000 in premium for that year. The dispute is currently in front of the administrative hearings bureau.

In 2018, the California Supreme Court handed down a game-changing decision in the case of Dynamex Operations West, Inc. vs. Superior Court, in which it rejected a test that’s been used for more than a decade to decide who qualifies as an employee or independent contractor.

The court instead said that California employers must answer ‘yes’ to the following three questions if they want to classify a worker as an independent contractor:

  • The worker is free from the control and direction of the hirer in relation to the performance of the work, both under the contract and in fact;
  • The worker performs work that is outside the usual course of the hirer’s business; and
  • The worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed for the hirer.

The impact of AB 5

In 2019, Assembly Bill 5, which essentially codifies the Dynamex decision into state law, was signed into law ― and it will take effect Jan. 1, 2020. But while the Dynamex decision specifically excluded the independent contractor test from use in applying workers’ comp premiums, AB 5 does not. The new law will apply to workers’ comp on or after July 1, 2020.

The law is not retroactive, however, so insurers should not be able to apply the new test for workers’ comp premium assessment purposes for policies that took effect before July 1.

Industry observers say they expect more California employers to receive additional premium calls from their workers’ comp carriers after the law takes effect. The law will have the most significant workers’ comp implications on industries including construction, real estate, professional services and fitness, which often have many workers classified as independent contractors.

Your workers’ comp insurer will not send you a demand for additional premium without conducting an audit of your payroll. If the insurance company deems any independent contractors that you use as employees, then it will calculate the amount of back premium it thinks you owe for them.

For employers who think the insurance company erred, they can usually challenge the decision with the insurer. However, if that fails, businesses have a second opportunity: to file a complaint with the Department of Insurance.

Monitoring Employees without Getting Sued

monitor record employee meeting

As a business, you have to keep employees happy but still maintain workplace discipline. And it’s important that you protect your customers and your assets without making it seem you don’t trust your employees.

Companies employ a variety of methods to make sure their workers stay on task and aren’t goofing off. But you don’t want to be overbearing or act like a taskmaster in the process.

One way to monitor workers is by using modern technology to keep an eye on them. But there is a fine line between monitoring and invading their privacy, and you have to make sure you don’t cross it.

A 2017 study by the American Management Association and The ePolicy Institute found that:

  • 66% of employers monitor employees’ internet connections.
  • 65% use software to block employees’ access to some web sites.
  • 43% monitor workers’ e-mail.
  • 45% monitor the time employees spend on the phone and the numbers they call.
  • 16% record employees’ phone conversations.
  • 9% monitor voice mail messages.
  • 7% monitor workers’ job performance using video surveillance.

Also, in certain industries, employers search workers’ workstations and lockers, perform drug tests and physicals, investigate their backgrounds ― and even monitor their activities outside of work.

When an employer disciplines or fires a worker based on the information it learned through one of these methods, the individual may become angry enough to sue the company for invasion of privacy.

How to keep lawsuits at bay

While federal and state laws generally permit employers to monitor workers’ activities and use of employer property, some suits succeed and all of them divert financial and human resources away from the employer’s main business.

There are several things you can do to avoid this:

  • Establish a workplace policy about non-business phone and internet use, and include it in the employee manual. The policy should describe the extent to which you will monitor phone and internet use, if any, and the consequences should employees violate the policy.
    Ensure that employees are aware of the policy by discussing it at staff meetings and asking them to document that they have read it.
  • Be careful about audio recording of conversations. While state and federal laws generally permit employers to use video monitoring of employees, some restrict the ability to make audio recordings or to listen in on conversations. You should become familiar with the wiretapping laws in your state before using audio monitoring.
  • Keep employee e-mails confidential. Employers have the right to monitor their employees’ use of the business e-mail system, but making e-mails public (absent some legal or business requirement) may violate employee privacy rights.
  • Include in the employee manual a written policy regarding employer searches of desks, workstations and lockers. This should describe your right to conduct searches, the reasons you may do so, and the consequences should an employee refuse to cooperate.
    Conduct searches only when absolutely necessary for business or legal reasons, and take care to respect the employee’s dignity by doing the search out of the view of other employees.
  • Perform drug tests for legitimate business reasons and at appropriate times, such as during the hiring process and following a workplace accident. If you will administer random drug tests, you should have a written policy stating as much in the employee manual ― and you should conduct the tests with as little privacy infringement as possible.
  • Obtain a job applicant’s written consent for a background check, and investigate only those factors relevant to the position. For example, a credit check may be appropriate for a position that requires handling money.
  • Keep employee information safe from individuals outside the company. Instruct managers and staff not to discuss personnel matters with outsiders and employees who do not need to know the information.

The takeaway

Employers must run an efficient operation, maintain a safe workplace free of harassment, make employees feel comfortable in their work and make a profit. Following the above steps will reduce the chances of employee lawsuits and allow your business to focus on its core mission.