As Cyber Threat Mounts, More Companies Take Measures

cyber attack protection

As attacks on businesses’ networks continue increasing at unprecedent levels, cyber risks have become the top concern among organizations of all sizes for the first time, according to a new survey.

The “Travelers Risk Index” found that 55% of executives surveyed said they worry “some” or “a great deal” about cyber risks. That’s more than they worry about medical cost inflation (54%), employee benefit costs (53%), the ability to attract and retain talent (46%) and legal liability (44%).

And the most common types of attacks, and which pose the biggest security threat to businesses, are phishing and fake e-mails. They are the hardest to combat because of the human factor involved, according to another survey, the “2019 Cyber Security Breaches Survey” published by the U.K. government.

In phishing e-mails, the cyber criminals will pose as colleagues or vendors to dupe an unsuspecting employee to hand over a password or click on a malicious link that will give them access to the company’s network.

In addition, ransomware has brought many businesses and government agencies to a standstill as the same technique is used to freeze an entire network and render it unusable until the company pays a ransom for a key to unlock the network.

As concerns about cyber threats have grown, more businesses say they are taking proactive measures to safeguard against cyber risks – even though a large percentage have not implemented preventive best practices.

The steps that companies are taking, according to the Travelers survey, are:

  • Purchasing a cyber insurance policy (51% of survey participants, up from 39% in the 2018 survey the insurer conducted).
  • Creating a business continuity plan in the event of a cyber attack (47%, up from 38%).
  • Taking a cyber-risk assessment for themselves (49%, up from 45%).
  • Taking a cyber-risk assessment for their vendors (41%, up from 37%).
  • Updating computer passwords (74%, up from 71%).

The fact is that a single cyber attack can put a company out of business. Taking the threat seriously and implementing a risk management program that addresses possible exposures can help a business not only avoid an attack, but also recover from one as quickly as possible.

How to lower the chances of an attack

The insurance company Chubb recommends the following steps to reduce the chances of a cyber attack on your organization:

Identify your sensitive data – Credit card and personally identifiable information is often the target of cyber attacks.

Educate your staff – Instruct your employees about cyber attacks and how to protect the network. The most important thing for them to remember is to not to open attachments from people they don’t know or in e-mails they don’t expect.
You should also post procedures for encrypting personal or sensitive information, and require them to change their passwords regularly.

Have security in place – You should have a web application firewall in place to protect your website, in addition to a firewall for your company’s network. If you accept credit card payments, you should have an e-commerce platform that is compliant with payment card industry data security standards Level 1.

Secure your hardware – Data breaches can be caused by physical property being stolen, too. If your servers, laptops, cell phones or other electronics are not secure and easy to steal, you are taking a big risk. Physically locking down computers and servers is a good idea.

Cyber insurance

As the cyber threat becomes more sophisticated and changes, cyber-insurance policies have evolved to meet businesses’ needs. There are many types of policies in the marketplace that are tailored for specific types of businesses. The key is getting a policy that best fits your organization and covers any eventualities that you may encounter.

Some coverages you may want to consider for inclusion in your cyber insurance are:

  • Business interruption – Covers the loss of business income due a cyber attack.
  • Computer fraud – Covers theft of money, securities and other forms of tangible property through computer fraud and social engineering schemes.
  • Data breach – Covers claims of failure to protect personally identifiable information and protected health information of clients.
  • Property damage – Covers replacement cost of computers damaged by a cyber attack.
  • Identity theft expenses – These are related to the business owner or their employees after identity theft.
  • Advertising and personal injury – Covers damage caused by defamation on website or social media.
  • Transmission of virus or malicious content – Covers failure to stop the transmission of a computer virus or malicious content.
  • Errors and omissions – Covers loss caused by failure to provide proper network security.

Some policies are stand-alone products, while others are endorsements to existing polices like a business owner’s policy.

The Importance of Employment Practices Liability Coverage

law lawyer file

Every employer, no matter how small, faces the specter of being sued by a past, present or prospective employee at some time.

In fact, such employment practices claims are widespread – so much so that most businesses are much more likely to have an employment practices liability claim than a general liability or property loss claim.

Nearly three-quarters of all litigation against corporations today involves employment disputes, which can be extremely costly. The cost associated with an employment practices claim can be significant.

In 2018, the Equal Employment Opportunity Commission resolved 90,558 charges of discrimination and recovered about $505 million in remedies for discrimination plaintiffs.

In addition, the EEOC recovered nearly $70 million for victims of sexual harassment through litigation and administrative enforcement that year, up roughly 50% from $47.5 million in 2017.

The massive jump in sexual harassment claims and recoveries is a direct result of a surge in lawsuits since the start of the #MeToo movement, which has emboldened many victims to come forward and file complaints.

Keep in mind, the above are just penalties and do not include defense costs, which can exceed $100,000 per claim for employers.

For these reasons and more, employment practices liability insurance is crucial for any employer. The risks of being sued by an employee for discrimination or harassment have increased substantially, particularly now in the #MeToo era.

Employers need EPLI coverage because comprehensive general liability policies and workers’ comp policies exclude employment-related claims.

EPLI coverage

Policies cover:

  • Defense costs (court fees, attorney fees and related costs).
  • Payment of settlements and/or judgments up to the policy’s limits.
  • Any fines or penalties levied by government agencies.

EPLI policies cover business owners as well as directors, officers and managers. Some policies also cover employees. Additionally, you can buy third-party policies to cover claims brought by non-employees, such as clients.

Types of action covered include:

  • Discrimination based on gender, race, national origin, religion, disability or sexual orientation
  • Sexual harassment or other unlawful harassment in the workplace
  • Wrongful termination
  • Failure to employ or promote
  • Retaliation
  • Employment-related misrepresentation
  • Failure to adopt adequate workplace or employment policies and procedures
  • Employment-related defamation or invasion of privacy
  • Negligent evaluation of an employee
  • Wrongful discipline of an employee
  • Employment-related infliction of emotional distress

NOTE: Wage and hour claims, or disputes regarding overtime pay for non-exempt employees, have become more expensive in recent years, so most EPLI policies exclude this coverage. Business owners may be able to find endorsements to add wage and hour coverage.

Costs

EPLI claims can be extremely expensive. The average cost of a discrimination claim is $125,000, and 25% of judgments exceed $500,000.

Most businesses are wise to have at least $1 million in coverage. However, higher coverage limits increase your premium cost, so you want to balance your coverage needs and your budgetary concerns.

Call us if you want further information or need help in gauging your EPLI coverage needs.

New Experience Rating and Physical Audit Levels Set

workers' compensation, X mod, physical audit,

Starting in 2020, the threshold for California employers to be eligible for experience rating (X-Mod) has been reduced by order of the state insurance commissioner.

Commissioner Ricardo Lara in September approved the recommendations by the Workers’ Compensation Insurance Rating Bureau to lower thresholds for determining eligibility for experience rating and when a carrier needs to perform a physical audit of an employer’s payroll records.

The threshold for physical audits that takes effect for policies incepting on or after Jan. 1, 2020 will be $10,500 in annual premium, a drop from $13,000. This means that any employer with an annual workers’ comp premium of $10,500 or more will be subject to a physical audit at least once a year.

“Physical audit” is defined as an “audit of payroll, whether conducted at the policyholder’s location or at a remote site, that is based upon an auditor’s examination of the policyholder’s books of accounts and original payroll records (in either electronic or hard copy form), as necessary to determine and verify the exposure amounts by classification.”

Additionally, the threshold for experience rating or to have an X-Mod, has been reduced to $9,700 in annual premium from $10,000.

The eligibility rating threshold is the amount of payroll developed during the experience period in each classification multiplied by the expected loss rates for each class. If the total for all assigned classes is at or above the threshold, then the employer is eligible for an X-Mod.

Changes to dual-wage class codes

The insurance commissioner in September also approved the Rating Bureau’s recommendations for changes to a number of construction dual-wage class codes.

While most workers’ comp classes have one rate, in some classes the difference in claims costs between high- and lower-wage workers is so great that a dual-wage classification is needed. In those cases, the workers above the threshold rate are assigned one rate, while those below that threshold are assigned a higher rate.

This is usually because the higher-wage workers are generally more experienced and tend to suffer fewer workplace injuries compared to those below the threshold.

The new thresholds are for 14 construction classifications, and any workers above the threshold will have a lower rate applied.

CLASSIFICATIONS AFFECTED         

Masonry – 2020 threshold: $28 per hour (+$1 from 2019)
Heating/Plumbing/Refrigeration – 2020 threshold: $28 (+$2)
Automatic sprinkler installation – 2020 threshold: $29 (+$2)
Concrete/Cement work – 2020 threshold: $28 (+$3)
Carpentry – 2020 threshold: $35 (+$3)
Wallboard application – 2020 threshold: $36 (+$2)
Glaziers – 2020 threshold: $33 (+$1)
Painting/Waterproofing – 2020 threshold: $28 (+$2)
Plastering/Stucco work – 2020 threshold: $32 (+$3)
Roofing – 2020 threshold: $27 (+$2)
Steel framing – 2020 threshold: $35 (+$3)
Excavation/Grading/Land leveling – 2020 threshold: $34 (+$3)
Sewer construction – 2020 threshold: $34 (+$3)
Water/Gas main construction – 2020 threshold: $34 (+$3)

As Wildfire Risks Increase, Insuring Businesses More Difficult

home wildfire

Business property coverage is getting more difficult to come by for operations located in areas that are susceptible to wildfires.

The devastating wildfires of the last few years, along with the thousands of homes and businesses that have been burned or damaged due to these events, has resulted in insurers becoming more selective about the properties they are willing to cover. This intense period of yearly wildfires has led to a record $12.8 billion in insurance claims.

As a result, some insurers have started non-renewing commercial property coverage in these high-risk areas – and others have just stopped writing new policies altogether. We are seeing renewals in wildfire-prone areas on a scale we’ve never seen before.

Companies that receive a notification that their insurer plans to non-renew their policies are faced with shopping in a market that is more selective and with insurers requiring that they take certain steps to better safeguard their properties.

What’s going on

More and more homes and businesses in areas susceptible to wildfires are at risk than ever before. The fires are becoming more frequent, hotter and more widespread. Insurers have had to pay out record amounts in fire claims during the last few years, which has taken its toll on many of them.

Some insurers are non-renewing property policies of all sizes in high-risk areas, and the practice has become widespread.

Typically, insurance companies are applying three metrics in evaluating exposure to fire:

  1. Brush mapping – This is a map of the tinder and brush, nearby trees and other natural items that could contribute to your building(s) catching fire. The insurer will use the mapping to see if you are keeping up your property by removing combustible materials from the perimeter and limiting the amount of shrubbery and trees.
  2. The nearby wildland-urban interface – The closer that a building is to wildlands (open spaces with combustible materials), the more likely it is that insurers will balk at writing the policy. A wildland-urban interface is defined by the Forest Services as a place where “humans and their development meet or intermix with wildland fuel.” Communities that are within a half a mile of the zone are included.
  3. Concentration of other properties an insurer covers in your area – If your insurance company already writes policies for many other businesses and homes in your area and they feel they have too much risk concentrated in that zone, they may opt to non-renew policies in order to reduce their exposure.

While we can sometimes work with an insurer to have the property owner clear brush and take measures that would reduce the chances of their property catching fire to satisfy the brush-mapping metric, it’s more difficult to negotiate about numbers two and three.

The options

If you have a business in a wildfire area and your insurer plans not to renew your coverage, and if other companies are not willing to underwrite your policy, we can help you find new coverage. If no admitted insurers (those that are licensed and regulated in California) are willing to cover your building, we have two options:

The non-admitted market – These insurers are not licensed to do business in California, but we can still use them to write policies for businesses. These insurers, which includes Lloyd’s of London, are usually willing to write buildings in higher-risk areas, but they too have increased their underwriting criteria.

The California FAIR Plan – If we are unable to find an insurer in the admitted or non-admitted market, the last choice is FAIR Plan, which is the state-run market of last resort for homeowners and commercial property owners that cannot get coverage in the regular market. Commercial policies are available for:

  • Buildings with five or more habitational units (e.g. apartment buildings, hotels, motels, or home-sharing services such as Airbnb)
  • Retail mercantile
  • Manufacturing risks
  • Office buildings
  • Residential or commercial buildings under course of construction.

Policies cover losses from fire, lightning, and explosion only. Also, policies are limited in what they will pay out, so if you have millions of dollars tied up in equipment and/or inventory, the policy may not be enough to cover all the damage you incur from a wildfire.

The maximum limit for commercial properties is $3 million for structures and $1.5 million for all other coverages, for a combined $4.5 million limit for all commercial properties at one location. But there are some exceptions.

What we can do if you go to the FAIR Plan

If the FAIR Plan coverage is not enough coverage or falls short, we can find another insurer that provides excess coverage that would kick in at a certain dollar amount of damage.

And for the aforementioned risks that are not covered, we would have to also find you a “differences in conditions” policy. Combined with FAIR Plan coverage, adding such a policy can nearly mimic the coverage of a commercial or homeowner’s policy.

A Lesson in Timely Claims Reporting

file claims

A recent appeals decision denied coverage to a company on its directors and officers (D&O) liability insurance policies for taking too long to file the claim.

In this case, the 5th U.S. Circuit Court of Appeals in New Orleans sided with an insurer that had denied a claim a company had made after being sued for failing to pay overtime wages to nonexempt employees.

The insurance company had denied the claim because the first employees’ claim was made in August 2014, but the company failed to inform the insurer of that and subsequent claims until September 2015.

This case illustrates the importance of filing claims in a timely manner.

When the employer actually got around to filing the claim it had an in-force D&O policy with the insurer, although there was an earlier policy in force when it had received the first claim of failing to pay overtime.

Under the policy in force at the time of the first claim, the insurer would have been obligated to pay all claims made against the company under the policy.

“That earlier policy would have provided coverage except that the insured failed to comply in 2014 with a notice provision. We conclude the district court was correct to rely on this difference,” the three-judge panel in the appellate court wrote in an opinion that upheld a lower court’s ruling.

Timeliness

One of the critical obligations of an insured is the duty to timely report claims or circumstances that may give rise to a claim. Failure to report a claim in accordance with the policy requirements can result in a claim being denied, or worse, having the entire policy voided.

D&O policies are “claims made” policies, meaning that coverage exists only for claims made during the time period the policy is in effect. Claims made while no policy or extended reporting period are in effect are not covered.

Claims-made policies also have retroactive dates. Ideally, the retroactive date is the day the insured started business, but it can also be the day that it first purchased professional liability coverage.

Assuming the retroactive date has not been advanced, the policy in force when a claim is made is the policy that will respond, regardless of when the negligent act, error or omission took place.

However, there is one important qualifier. This insurance applies to claims that took place after the retroactive date, but prior to the end of the policy period, provided that the insured had no knowledge of the claims prior to the effective date shown in the declarations.

In other words, if you knew of a claim prior to the time you renewed your claims-made policy but did not report it, and if a claim is subsequently made, the insurance company can deny coverage. It doesn’t matter whether or not it’s been continuously renewed by one insurance company, the policy excludes it.

This underscores the importance of timely reporting of all claims prior to renewal each year.

New Law Bars Hairstyle Discrimination

woman with curly hair

California Gov. Gavin Newsom has signed legislation that will make it illegal for employers to discriminate against employees and job applicants based on their hairstyle if it is part of their racial makeup.

The law, known as the CROWN Act (Create a Respectful and Open Workplace for Natural Hair),

amends the state Education and Government Code to define race or ethnicity as “inclusive of traits historically associated with race, including, but not limited to hair texture and protective hairstyles like braids, locks and twists.”

This broader definition of race means that natural hair traits fall under the context of racial discrimination in housing, employment and school matters.

The law could apply to anyone, but as legislation it was specifically introduced to stop instances of discrimination against black employees over their natural hairstyles. There have been a number of high-profile incidents over the past few years where employees and students were discriminated against based on their hair:

  • A sixth-grade Louisiana girl was expelled because her hair violated school policy.
  • In October 2018, a wrestling official in New Jersey ordered a black wrestler to cut his dreadlocks if he wanted to compete.
  • An Alabama woman sued her employer for discrimination after the organization had rescinded a promotion to another position because she had dreadlocks.

The new law “protects the right of Black Californians to choose to wear their hair in its natural form, without pressure to conform to Eurocentric norms,” said Sen. Holly Mitchell (D-Los Angeles), who introduced the legislation.

The takeaway

The law means that it will be illegal for employers to discriminate against someone because of their hairstyle if it’s tied to their ethnicity and race. Employees that fall into this category can sue their employer for discrimination based on race under California’s Fair Employment and Housing Act.

You should update your employee handbook to include this definition of race in the employment discrimination section, and also train your managers and supervisors in the change.

Remember, discrimination cases can be costly, even if the employer wins in the end. There are legal fees, costs of witnesses and damage to reputation to contend with.

The best prevention for discrimination is to have rock-solid policies in place. It’s also wise to secure an employment practices liability insurance policy. That’s a smart move for any business, particularly as the number of discrimination cases is on the rise nationwide, alongside higher jury awards for employees.

Is Your Business Prepared for Recreational Marijuana Use?

cannabis marijuana work

Companies in states that have legalized marijuana are wrestling with how to deal with employees that use, particularly if they did so the night before and are still feeling the effects the following day.

A new survey found that one-third of business owners are not prepared for managing the effects of legalized marijuana in the workplace. The biggest issue facing employers is ensuring that workers don’t come to work under the influence, or that they don’t sneak off for a few puffs during their lunch breaks.

The problem is that it’s difficult to see if someone is under the influence if they have smoked a little bit and are slightly “buzzed.” On-the-spot drug tests won’t work because marijuana can stay in the system for 30 days or more, making it impossible to know when they used it last.

With no clear guidance, some employers have responded by relaxing their drug policies to allow for employee consumption outside the confines of the workplace, while others have kept the zero-tolerance rules in place to thwart employees who may try to use cannabis during the workday.

Employer concerns

The biggest concern for employers is workplace safety, as well as the safety of customers and even the general public if a driving employee is using while on the clock.

When someone is under the influence their judgment is impaired and their reaction time is slowed. That could lead to workplace accidents and worker injuries. That, in turn, can result in fines by OSHA as well as higher workers’ comp rates, in addition to lost time by key employees.

If an impaired worker is operating equipment in a retail establishment and injures a customer or a vendor, you could be facing a substantial liability lawsuit.

If you have an impaired driver who causes an accident and injures or kills a third party, and/or destroys a third party’s property, you could also face a liability suit.

What you can do

First, you have to decide your business’s level of tolerance for employee marijuana use. Obviously, for workers using heavy machinery, or in other safety-sensitive jobs like drivers, it would be wise to have a no-tolerance policy in place that includes drug testing.

Whether pot is legal in your state or not, you are still free to ban marijuana use on the job, just as you can alcohol – and you can fire someone for using it on the job.

It’s important that whatever policy you put in place, it is communicated to employees through a staff meeting as well as in your employee handbook. You should inform them of the consequences of violating that policy.

For the sake of workplace safety and your overall liability exposure, you should consider restricting marijuana use to the extent permitted by law.

At the very least, you should prohibit marijuana use in the workplace, as well as marijuana impairment during work hours or in the workplace.

Your approach will depend on which state your business is located in. For example, California provides a constitutional right to privacy which restricts employers from monitoring off-duty conduct.

That said, pre-employment drug-testing is generally permitted, as long as it is conducted in a fair and consistent manner and administered to all applicants for a position within a specific job class.

After employees start working, they have a higher expectation of privacy. That means you should restrict any drug-testing to suspicion-based inquiries, like someone who appears under the influence. Random testing is highly restricted in California and should be reserved for certain safety-sensitive positions.

Remember though: There are exceptions for medical marijuana use. Most workers must be allowed to take medical pot, just as they would any other legal drug.

Conduct Diversity Training to Head Off Potential Lawsuits

Happy diverse people together

After R&B star SZA said she had security called on her while shopping at a Zefora store in California, the chain closed all of its U.S. stores for an hour to conduct “inclusion workshops” for its 16,000 employees.

Zefora understood the swift backlash that can hit a company that has acted inappropriately towards a customer, particularly if they are a minority. Unfortunately, Zefora is not the only company that has made the spotlight in recent years thanks to rogue employees that cross the line and harass or discriminate against a customer, co-worker, vendor or partner.

And in the age of people video-recording these encounters, a rogue employee could sink your company if the target decides to take legal action.

The second threat is the potential backlash of customers shunning your company once the word spreads on social media. This was the case with two Oregonians who ended up closing their bakery after the public backlash that followed their decision to not bake a wedding cake for a homosexual couple.

The best way for an organization to set a tone of tolerance is through diversity or inclusion training to guide them in their day-to-day interactions with co-workers, customers, partners, vendors and others. While this type of training is not mandated by any state or federal agency, it is recommended whether or not you have a diverse workforce or client base.

Implementing a diversity training program is also an important step in helping to reduce the risk of workplace discrimination and harassment claims. In settling discrimination cases, the Equal Employment Opportunity Commission often requires companies to educate employees on the importance of diversity in hiring and promotion, and how to avoid stereotypes.

A proactive employer that wants to avoid problems from the get-go would take that step without being required to.

More important than ever

Our country is becoming more diverse with each passing year. It’s not only different races and religions, but also sexual orientation and alternative lifestyles.

The norms that dictated behavior a half-century ago are transforming. To minimize the risk that employees, supervisors or managers step out of line in this new era, employers must develop an awareness of diversity within their business through appropriate training.

Diversity in the workplace is apparent in everything from our names to the types of food we eat, and long-taboo subjects are now discussed freely. People with disabilities often work alongside openly gay co-workers, and a variety of languages are spoken by employees and customers alike.

Elements of a strong training program

For diversity training to succeed, managers must find ways to integrate the training into daily tasks. It must go beyond a once-a-year training session. Here are some ideas:

Draw the line – Make it clear that intolerance is not acceptable, and that those demonstrating prejudice have no place in your organization.

Get management buy-in – Ingrain in your managers and supervisors the importance of diversity to both boost worker satisfaction and as a risk management tool to avoid lawsuits. Managers understand the personnel dynamics among the staff they manage, as well as interactions with customers.

Treat everyone with respect – Employees should be told that if they prejudge a customer or co-worker and treat them as a lesser individual, they can face be reprimanded and, if the offense is serious enough, fired.

System for handling complaints – Create procedures that all managers must follow if they receive a complaint about harassment or discriminatory behavior, or if an employee witnesses another employee treating a co-worker, customer, vendor or another person in a demeaning way.

Hold a seminar for all employees – Review what is acceptable and not acceptable, and cover all of the above. Try to focus on positives and give employees the opportunity to ask questions.

Why Your Business May Need Pollution Insurance

pollution

Many businesses that produce some type of pollutant throughout the course of daily business operations don’t know they are doing so.

Others know they are producing pollutants and have processes and safeguards in place to reduce their release into the environment. A business can be held liable for some very costly damages when these byproducts pollute another property or harm another individual.

Pollution liability clauses were once part of general liability policies, but the extensive asbestos problems in the 1970s spurred most insurers to remove pollution protection from their general liability policies.

Today, pollution liability coverage is obtained through a separate pollution insurance policy. Pollution insurance policies are written for businesses of all sizes, shapes, and forms – from pig farms and printers to apartment complexes, salons, and dry-cleaning businesses.

Why pollution insurance?

Many businesses run the risk of creating pollution during normal daily operations.

There’s also a risk from any existing pollution already on a business’s site of operation. In either case, a business could be held liable if its pollution ends up on a third party’s property, causes damage to the property or harms an individual.

Without insurance, the business would be on the hook for paying for those damages out of pocket.

What do policies cover?

The basic premise of a pollution policy is that an insured party gets a claim related to damages caused by pollution it caused.

This insurance will protect your financial interests in the event a clean-up becomes necessary. Buying pollution liability insurance will cover your interests against lawsuits where a third party could be injured by a toxic substance produced as a result of your work.

Like most types of insurance, the specifics of a pollution policy can vary somewhat from insurer to insurer.

Depending on the insurer, a pollution policy will typically cover

  • Damage to properties and individuals
  • The cost of cleaning up pollution on a third party’s property
  • Pollution incidents that occurred after the policy was
  • Investigative, legal, and court costs should the claim enter the legal system.

Who needs coverage?

Businesses that have risks related to the handling of pollutants and hazardous materials, design professionals who work with projects where there are environmental issues, as well as those who own and occupy premises that have environmental issues, need pollution liability insurance.

This includes:

  • Property owners and tenants whose buildings and land have a history of having pollutants on the property or premises. This would include a building on land that had an underground storage tank that leaked fuel oil before it was removed, contaminating the soil.
  • Contractors such as roofers who handle pollutants like tar as a part of their operations need contractors pollution liability insurance to cover damage resulting from a pollution incident.
  • Architects and engineers who are involved in projects that have issues related to pollutants need to add pollution liability to their errors and omissions insurance policy to manage the risk of making a mistake regarding the presence or absence of pollution issues as they plan and execute a project.

The takeaway

Don’t overlook pollution insurance as an important element of risk management. Should any questions or concerns about pollution insurance and insurance requirements arise, call us.

Business Growth Can Lead to Increased Risk

Business Growth

As the economy continues expanding, companies need to be careful about properly managing their risk, according to a report by Advisen Inc., an insurance research and data firm.

Increased activity typically means proportionally additional losses. For example, more trucks driving more miles will inevitably result in more accidents. However, there are other kinds of risk that can actually increase more than the jump in business activity. We look at three such areas here.

Workplace safety

Workplace injuries can increase as firms hire workers that have less experience. Typically, when employers expand their workforce to meet the growing demand for their products and services, the number of workers’ compensation claims tended to rise disproportionately.

New employees with less experience typically are more likely to sustain a workplace injury. At the same time, experienced staff may look for new job opportunities as compensation begins to take priority over job security.

What you can do: One option is to hire a temporary-staffing firm to fill positions. In these relationships, the client company is not responsible for covering temporary workers.

But you should be aware that OSHA requires what is known as the “dual employer doctrine”, under which temps are considered employees of both the agency and the company using them. And you are also not off the hook for providing them with a safe work environment and safety training specific to their job.

And remember: Check to make sure the temp agency has workers’ comp insurance.

Litigation increases

The risk of being sued rises as employees make mistakes due to pressure on existing staff to increase production, and again when less experienced workers are added to the payroll.

Your workers may be putting in extra hours. But fatigued workers make mistakes. For example, some of the worst industrial disasters have been in part the result of tired workers. Bhopal, Chernobyl and the Exxon Valdez oil spill all involved decisions made late at night or extremely early in the morning by people working long hours.

In addition, inexperienced employees are more like contribute to incidents where outsiders are hurt.

What you can do: Conduct thorough interviews, check references and carry out background investigations when appropriate to avoid hiring people with known problems. You are responsible for the actions of your employees.

Also, make sure that you are not overworking your staff. Provide proper breaks so they can rest, especially in jobs that require attention and strength.

Labor law violations

Trends in litigation and regulation make it more likely that companies will be charged with labor law violations. Employees are braver now about filing complaints, thinking they have a good chance of landing a new job if they are fired.

In addition, the federal and many state governments have cracked down on wage and hour law violations.

As well, some companies may try to add to their worker pool by using more independent contractors, in order to avoid hiring new workers. But the federal government has mounted a serious crackdown on companies that inappropriately classify employees as independent contractors.

What you can do: Pay close attention to your payment systems and audit your systems to make sure you comply with wage and hour laws as well as meal and rest break laws.

The takeaway

The lesson is to increase your vigilance in managing your risk and review your existing risk management strategies for gaps due to business growth.

You can take the following steps to reduce your chances of increased claims:

  • Maintain high standards when hiring new employees, such as conducting thorough interviews, checking references and, where appropriate, investigating backgrounds;
  • Properly train and supervise new employees during a growth phase;
  • Consider your current policies on temporary workers, and weigh the benefits of a flexible workforce against liability issues that temporary workers pose;
  • Revisit your policies about independent contractors, especially in light of the U.S. Department of Labor’s efforts to ferret out misclassification;
  • Pay attention to overtime rules to ensure compliance with the law; and
  • Keep shareholders informed as much as possible about any mergers or acquisitions, including terms of the transaction.