What Are Surety Bonds?

Surety bonds are a form of protection that dates back to Babylonian times.  Such bonds are a key piece of many public and private sector transactions.  U.S. Customs, for example, requires importers to carry bonds to ensure compliance with rules and regulations.  Courts require bail bonds to release criminal case defendants.  Property or project owners require contractors to carry performance bonds.  The Airline Reporting Corporation requires travel agents to meet certain requirements when carrying airline ticket stock, and an ARC Bond meets those requirements.

In the U.S., suretyship is considered a form of insurance and is regulated accordingly.  This is something of a misnomer since insurance is typically a two party transaction, while surety bonds are a three party transaction.  The three parties to a surety contract are:

·        The Principal:  The party that takes out the bond as a guarantee against a stated obligation. 

·        The Obligee:  The party to whom the guarantee is made by the surety on behalf of the principal. In the above examples, a property owner, U.S. Customs, and the Airline Reporting Corporation are potential obligees.

·        The Surety:  The entity that steps in and pays the obligee in the event of a specific failure to perform or meet an obligation on the part of the principal.

There are two primary categories of surety bonds. Contract Surety Bonds and Commercial Surety Bonds. Contract Surety Bonds provide financial security and construction assurance on building and construction projects by assuring the project owner (obligee) that the contractor (principal) will perform the work and pay subcontractors, laborers, and material suppliers.

Contract surety bonds include:

·        Bid bonds – financial assurance that the bid has been submitted in good faith.

·        Performance bonds – protection for the owner from financial loss should the contractor fail to perform the contract in accord with its terms and conditions.

·        Payment bonds – guarantee that the contractor will pay certain subcontractors, laborers, and material suppliers associated with the project.

·        Maintenance bonds – guarantee against defective workmanship or materials for a specified period.

·        Subdivision bonds – guarantee to a city, county, or state that the principal will finance and construct certain property and infrastructure improvements.

Commercial Surety Bonds guarantee performance by the principal of the obligation or undertaking described in the bond.

Commercial surety includes:

·        License and permit bonds – required by state law or local regulations to get a license or permit to engage in a particular business. 

·        Judicial and probate bonds, also known as fiduciary bonds – secure the performance on fiduciaries’ duties and compliance with court order.

·        Public official bonds – guarantee the performance of duty by a public official.

·        Federal (non-contract) bonds – those required by the federal government, e.g. Medicare and Medicaid providers, customs, immigrants, excise, and alcoholic beverage.

·        Miscellaneous bonds, e.g. to guarantee employer contributions for Union benefits, and workers’ compensation for self-insurers.

One of the main differences between an insurance and surety contract is that an insurance premium is usually based on a certain expectation of losses.  Surety contracts are designed to prevent loss, according to the Surety Information Organization (www.sio.org).  In this model the underwriting process involves pre-qualification and the bond is underwritten with little expectation of loss.  The premium is mainly a fee for pre-qualification services.  In some cases a surety company will require indemnity of the owners of a closely held corporation. The two main reasons for this requirement are that the surety company requires all personal/business assets to back the guarantee and that there is less chance a principal will avoid stated responsibilities if personal/business assets are at stake. If an underwriter is unable to approve a bond request based on the qualifications given by the principal, the company may suggest depositing some form of collateral as an inducement to write the bond. In practice, many bonds are written on this basis, particularly ones that are considered financial guarantees.  

Obtaining a surety bond is like opening a line of credit.  And similar to a banking experience, developing a long-term relationship with a surety company can be an important step for you or your business.   Call us for further details on surety bonds and how they apply to your business.

Hiring a Nanny – Know and Manage Your Risks

Many working parents have had their various issues and complaints with daycare and childcare centers. As an alternative to these forms of childcare, more and more parents are choosing to hire their own nanny or share one with another parent. However, many parents aren’t fully aware of the many financial risks involved with bringing a nanny into their home.

When you hire a nanny, you’ve basically just become an employer. Did you know that your new nanny could cause you IRS problems if you improperly pay him/her and not withhold payroll taxes? Even if you withhold payroll taxes, you can still find yourself facing some costly penalties and fines if they aren’t calculated correctly and submitted on time. One way to eliminate this risk is by hiring a payroll provider to appropriately handle the taxes, just as any other employer would do.

Another financial risk is being sued by your nanny following an injury on the job. This risk of injury is why it’s prudent to purchase worker’s compensation. Otherwise, you’d be responsible for paying all the benefits that your nanny would’ve received under such a policy and any penalties or fines that your state might impose. Before you falsely assume that your nanny’s injury would be covered by your umbrella liability policy or homeowner’s policy, it won’t. These policies typically exclude any injury where workers’ compensation would normally be due to the injured party.

However, you will need an umbrella policy that includes excess employer’s liability coverage beyond that provided by worker’s compensation coverage. Your nanny’s spouse, children, or other family members could initiate a lawsuit for loss of his/her services if your nanny is injured on the job. Employer’s liability coverage is provided under workers’ compensation coverage, but lawsuits of this nature can easily exceed the limits.

One final concern would be from another parent’s child being injured while under the care of a nanny at your home. Even if the parent was involved in the vetting and hiring process of the shared nanny, you could still be sued by them for the child’s injury. If you share a nanny with another family, then you’ll want to ensure that your personal umbrella limits are high enough to adequately protect your assets.

If you want to avoid all the liabilities and insurance concerns, but still have the benefit of a personal nanny, then you might consider using an agency nanny. When you hire a nanny through a service or agency, the nanny is their employee, not yours. This puts the responsibility of payroll taxes, insurance coverage, background and reference checks, and so forth on their shoulders, not yours. Some agencies will even have added perks, such as having an equally qualified nanny on standby for times when your regular nanny isn’t available. Considering that you can avoid the countless hours interviewing nannies, potential liability risks, and the need for various costly insurance policies, the additional fees associated with a nanny service may be well worth it to you in the long run.

What Factors Influence Malpractice Premiums?

According to a November 2005 article published in the Insurance Journal entitled, “How to Write the Diverse Business of Lawyers Professional Liability,” between $1.5 and $2 billion is spent annually on Professional Liability coverage. With numbers such as these, it is important that any firm in the market for this insurance understand the factors affecting coverage rates.

Determining premium rates is a complex matter based on a combination of factors. However, there are two main factors insurers review when underwriting an insurance application. The first is your geographic location, because each state has a different risk assumption.  The level of risk is measured by the number of suits brought against other lawyers in your area. The second important factor is your practice area(s). You can expect to pay more for coverage if you specialize in high-risk areas such as securities, banking and/or real estate.

Other factors that insurers consider include:

·                                Liability limits and deductibles selected

·                                Breadth of coverage desired (prior acts, extended reporting, etc.)

·                                Number of attorneys covered

·                                Personal claims history of your firm’s attorneys

·                                Length of time covered attorneys have been associated with your firm

·                                Number of malpractice prevention controls utilized by your firm

The length of time covered attorneys have been associated with your firm is important, because insurers typically use step rates to calculate premiums for a new attorney.  Risk exposure increases during the initial years that an attorney practices as the number of potential plaintiffs increases with every new case. After a certain point, this risk flattens out.  So premium rates on a new attorney will automatically increase in set steps until the risk exposure matures.

It is also important to realize the significance reinsurance holds in determining premiums. Insurance is a way of transferring risk. You transfer risks to an insurance carrier, and the carrier will often transfer some of that risk to another company. By reinsuring, a carrier increases its capacity to underwrite more policies.  When reinsurance rates rise, the increased cost can be transferred to you in the form of higher rates.

Sport Utility Vehicles Improving Rollover Safety Record

According to Newsweek, one in four automobiles sold in the United States is a sports utility vehicle. Every SUV purchase nets an average of $15,000, according to Forbes magazine, in profit for the vehicle’s maker. Because of this high demand and lucrative sales potential, the makers of SUVs have been accused of ignoring safety when it comes to the design and production of their products. The biggest safety complaint about the SUV is its high rollover record.

This lax attitude toward safety, however, is an item of the past. The National Highway Traffic Safety Administration (NHTSA) recently released new rollover results for 2006 and 39 SUVs earned four-star ratings, which was the highest rating earned by the vehicles tested. No SUV earned the top ranking of five-stars. Under this ratings system, a vehicle rated at five-stars has a rollover risk of less than 10%. A four-star vehicle has a 10% to 20% risk, and a three-star vehicle has a 20% to 30% risk.

Newly tested SUVs that received four stars included: the Chevrolet HHR, Honda Pilot, Toyota RAV4, Subaru B9 Tribeca, Hyundai Tucson, Mercedes-Benz ML Class, Suzuki Grand Vitara and four-wheel drive versions of the Chevrolet TrailBlazer.

Among top-scoring SUVs, the HHR had a 14% chance of rollover and four-wheel drive versions of the Pilot had a 15% chance.

The four-wheel drive version of the Nissan XTerra had a 25% percent chance of rollover, the highest percentage among the new SUVs tested. The two-wheel drive version of the XTerra, the two-wheel drive Chevrolet Tahoe and Hummer H3 each had a 24% chance of rollover, and all received three stars.

The new statistics also reveal that SUVs have shown consistent improvements in the area of safety. Only two-dozen SUVs received four stars last year, and just one SUV earned the ranking in 2001. In addition, the agency noted that 7 in 10 new SUVs are equipped with electronic stability control. This feature is an anti-rollover system that automatically applies the brakes if the vehicle begins to skid, which helps to stabilize the vehicle. Government studies have found stability control reduces single-vehicle sport utility crashes by 67% compared with the same models sold in previous years without the feature.

Since 2004, NHTSA has asked auto manufacturers to voluntarily install electronic stability control because of its proven potential for saving lives.  As a result, nearly all automakers now offer electronic stability control as standard equipment on a total of 57 SUV models, and on 6 SUVs as an available option. This is up from 20 standard and 14 optional in 2003. NHTSA is expected to issue a new proposal later this year specifying a performance criterion for stability control.

Protect Your Home from Power Surges This Summer with Surge Protectors

The arrival of summer can mean several welcome events: a return to outdoors living, an opportunity for vacation, and more time with the family. One of the issues people may not associate with summer are the power surges that often occur due to the tremendous demand for energy, especially to cool homes. A power surge is a brief spike in electrical power. While on the surface it may not seem like much to be concerned about, power surges can cause serious damage by burning up electrical circuits inside appliances. They can also damage electrical outlets, light switches, light bulbs, air conditioner components, and even garage door openers.

You can protect your valuable electrical appliances from the damaging effects of power surges. The most cost effective way is by purchasing surge protection strips. You can plug in your television, DVD player, and stereo into the strip and it should provide adequate protection against most surges. It’s a good idea to pick up a surge protection strip for the kitchen counter so that you can protect small electrics like the toaster, blender, food processor etc. You can also find surge protectors that fit into electrical outlets that will protect your phone and answering machine. You can buy most types of surge protectors in any local hardware store.

When it comes to your PC, however, you will have to be a bit more selective about protection, because of the delicacy of its internal components. Back-up power packs that are specifically designed to protect your hardware can be found in stores that sell computer accessories as well as in many electronics chain stores. They can be somewhat expensive, but are certainly less expensive than replacing your entire system.

Before you purchase any surge protector, there are certain features you need to look for. The first feature to look for is a surge protector that is labeled with the Underwriters Laboratories (UL) logo. The UL logo tells you that the unit has been tested to determine if it meets certain standards. Any product that is UL tested will be labeled as a “transient voltage surge protector,” which means that it meets or exceeds the minimum standards required to be an effective deterrent against power surges.

A surge protector’s performance is rated in three ways. The first is clamping voltage, which is the level of voltage surge that has to occur before the surge protector kicks in and diverts excess voltage from the item being protected. You want to find a surge protector that has a low voltage number so that it takes less of a surge to activate it. Look for a protector with a clamping voltage of less than 400 volts.

The second way to rate a surge protector’s performance is response time: the amount of time it takes for the surge protector to respond to the surge. You should look for a unit with a response time of one nanosecond or less.

Just like any other appliance in your home, your surge protector will eventually wear out. The third performance-rating factor is energy absorption, or how much energy the unit will absorb before it fails. For the longest lasting performance, look for a unit rated between 300 and 600 joules. Remember, the higher the number, the longer the life of the surge protector.

Buckle Up- It’s the Law

Many people invent reasons not to wear their seat belt.  Some just don’t bother and others think – “nothing will happen to me.” The statistics show that this statement is definitely untrue. From 1992 through 2001, roadway crashes were the leading cause of occupational fatalities in the U.S., accounting for 13,337 civilian worker deaths (22% of all injury-related deaths), an average of 4 deaths each day.  Between 1997 and 2002, 28% of fatally injured workers were wearing a seat belt; 56% were unbelted or had no seat belt available. Belt use was unknown for the remaining 16%.

Seat belts are effective in preventing fatalities, 50% more effective in preventing moderate to critical injuries, and 10% more effective in preventing minor injuries, according to the National Highway Traffic Administration.  What is most surprising is that by 1992 over 40 states had enacted seat belt use laws and still only 55% of the people traveling in cars were wearing them.

In addition to seat belts we are even more fortunate in that cars are now equipped with supplemental restraint systems (SRS), more commonly known as air bags.  What is not commonly known is that the air bag will only fully protect the passenger if they are wearing their seat belt.  This is another good reason to buckle up.  Insist all passengers in your car do the same and make every trip a safe one.

Occupational fatality data
*Census of Fatal Occupational Injuries (CFOI), 1992-2001 (special research file prepared for NIOSH by the Bureau of Labor Statistics; excludes New York City).

†Fatality Analysis Reporting System (FARS), 1997-2002; National Highway Traffic Safety Administration (NHTSA) (public-use microdata files).

Above Average Hurricane Activity Expected This Year – Check Your Insurance Coverages Now

According to the latest forecast from researchers at Colorado State University, the U.S. coastline has an above-average chance of getting hit by at least one major hurricane this season. Researchers estimated the likelihood of at least one hurricane with a category of 3, 4 or 5 making landfall this season at 63%, above the average for the last century of 52%.

The official Atlantic hurricane season runs June 1st through November 30th. Once a storm is within range of land it is too late to change or add coverage. Therefore, it is imperative that homeowners review their insurance policies now.

Make sure your homeowners’ policy reflects your needs in the following areas related to hurricane coverage:

Hurricane Deductible – Some states have implemented separate deductibles for hurricanes based on a percentage of the home’s insured value. Note that wind damage caused by non-hurricane storms is subject to your policy’s general deductible not the hurricane deductible.

Flood Insurance – Flood damage is not covered under a standard homeowners’ policy, but flood insurance is essential in high risk areas.

Replacement Cost vs. Actual Cash Value – Replacement Cost policies cover the amount needed to replace or repair a home without a deduction for depreciation. These policies generally cost about 10 percent more, but they provide much more comprehensive coverage than Actual Cash Value policies.

Guaranteed or Extended Replacement Cost – Provides additional coverage if widespread damage inflates the cost of building materials and labor.

Inflation Guard – Automatically adjusts policy limits to reflect changes in construction costs so you do not have to increase your limits each year.

Building Code Upgrades – If your home is severely damaged, it will need to be rebuilt to comply with current building code standards that could add increased building costs. Law and ordinance coverage ensures these extra costs are covered.

Additional Living Expenses – Covers the costs of living elsewhere while your home is being rebuilt or repaired.

To protect your assets in the event of a hurricane, also:

  • Inventory, photograph or video tape all household items. Keep receipts, inventory lists, copies of your insurance policy and insurance company contacts in a safe place that can be accessed in the event of a storm.
  • To minimize losses, take steps to protect your property when a hurricane is imminent, such as covering your windows with shutters, siding or plywood.
  • Keep materials such as plywood and plastic on hand in case you need to make temporary repairs after a storm. Keep receipts as repairs are made, as they may be reimbursable by your insurance company.

Be wary of rushing into a contract or placing a hefty deposit with a company for repairs. Unfortunately, fraudulent contractors often flock to natural disaster sites, so it is important to consult your insurance agent before hiring anyone.

Understanding a Builder’s Risk Coinsurance Clause, Common Mistakes, and Penalties

Coinsurance clauses are commonly found in a builder’s risk completed value policy. As one might deduce merely from the name, a coinsurance clause involves the policyholder becoming a co-insurer of the risk of loss with the insurer. In other words, certain conditions would result in the insurance company not paying the total amount of loss, thereby leaving the policyholder to bear the remainder of the loss amount. The insured and the insurer jointly assume the risk.

Those unfamiliar with such a clause are probably wondering why any policyholder would even consider a coinsurance clause. The benefit of buying an insurance policy with such a clause is that the policyholder will usually have relatively low premiums compared to other similar policies that don’t contain a coinsurance clause. That said, anyone considering a coinsurance clause should understand what it entails and requires, so that they aren’t taken by surprise with penalties if a loss should occur.

A typical coinsurance clause found in a builder’s risk completed value policy will say that the insurer will not pay more for any loss than the proportion that the limit of insurance bears to the value of the structure described in the declarations as of the structure’s date of completion.

The way a coinsurance clause works with the policy limit is often a source of confusion for policyholders. Take a loss of $20,000 with a policy limit of $100,000 for instance. It would superficially appear as though the insurer would be responsible for the total loss. However, once the coinsurance clause is figured into the equation, the insurer might not be responsible for paying the total loss amount. This will depend on the policyholder maintaining enough insurance to avoid the coinsurance penalty.

If the coinsurance is applied, it might look something like this:

Still using the $100,000 policy and $20,000 worth of damage from above, the completed value of the project will be determined as $120,000 at the time of loss. The value of the $100,000 policy is only 80% of the $120,000 actual value of the project. So, the insurer is only responsible to pay $16,000, which is 80% of the 20,000 dollars worth of damage.

Anytime the policyholder receives a lesser sum than what the full value of the claim is because of a shortfall between the completed value of the project and the policy limit, it’s termed a coinsurance penalty. The discrepancy between the two numbers can be the result of a number of mistakes made by the policyholder.

Policyholders often make the mistake of failing to report when expected costs are surpassed. Any increased completed value must be shown in the policy limit when costs overrun original figures. The best way to make sure the policy limit is updated is by keeping your insurance agent apprised to the overruns so that the appropriate changes can be made.

All too often a policyholder makes the mistake of setting their limit of insurance based on the amount of the construction loan for the structure. Most of the time, the completed value of the project is greater than the amount of the construction loan. An example would be a significant portion of a building project being funded by cash, but not computing the cash amount when totaling the completed value. If the insurance is only for the financed amount, then the policyholder will suffer a coinsurance penalty for any losses.

Another common mistake occurs when the policyholder doesn’t include profit and overhead in the completed value. These are generally figured at 10% for each. If not accounted for, this can cause a substantial coinsurance penalty.

Sometimes, it’s what shouldn’t be included that may lead to problems. Land value, excavations, and underground work, for example, shouldn’t be included in the completed value. These aren’t covered losses on typical policy forms. So, the policyholder would just be paying additional costs for items that wouldn’t be covered during loss.

What Coverage Limits Do You Need for Homeowner’s and Auto Insurance?

Most people avoid thinking about scenarios that would cause an insurance claim – our homes damaged by fire or tornado, someone injured on our property, or family members hurt in an auto accident.  However, it is necessary to give some thought to these upsetting possibilities to ensure that you are adequately prepared and protected in the event of a catastrophe.  Reviewing your insurance coverage will also clarify if there’s a need for an additional umbrella policy for extra protection.  So, let’s try to summarize some of the basics on coverage limits.

Homeowner’s Insurance

Homeowner’s insurance covers three areas:  damage to the home, damage to the contents of the home (personal property), and your liability for injuries to others.

Prior to obtaining homeowner’s insurance, it’s a good idea to stop and consider exactly what you want the insurance to cover.  You may want coverage just to pay off the mortgage in the event you can no longer occupy your home.  It’s more likely you’ll want to continue living in your home after a claim or sell it at market value, so you will want your insurance to pay for repairs caused by wind, fire or some other covered peril.  In most cases, reconstruction means you will need insurance that actually covers more than the home’s market value.

Replacement value, which is the cost to reconstruct a damaged home, is typically higher than the cost of buying a similar home on the market due to the specialized nature of reconstruction as opposed to new construction.  For example, in reconstruction there is an initial cost of debris cleanup.  New construction starts at the bottom and builds up, but with reconstruction it is often necessary to take off the roof and build down, which is more expensive.  Additionally, after a natural disaster, construction costs may rise due to increased demand.  Keep in mind that your insurance can cover not only the costs to rebuild, but also the costs for you to live elsewhere, if necessary, while the home reconstruction is completed.  An experienced insurance agent can help you assess your coverage needs as well as determine available coverage based on the age and condition of your home. 

Also, you will need to consider whether you want replacement coverage for clothing, furniture, appliances, and other personal property inside your home.  Without replacement coverage, your coverage for personal property is depreciated by the age and wear of the items lost.  Due to depreciation, the computer you paid $500 for three years ago may be valued at only $150 or $200, which is all the insurance company would pay if you don’t have replacement coverage.

Some insureds will need more coverage for personal property (contents) than their policy provides. The amount of personal property coverage is usually limited to 70% of the coverage limit for the structure.  For instance, if you have an art collection, antique furniture, jewelry, or other valuable possessions, talk to your agent about supplemental coverages, such as fine arts or scheduled property endorsements, to adequately protect your investment in these items. The cost is modest for the extra protection.

Liability limits generally start at about $100,000; however, some experts recommend that you purchase at least $300,000 worth of protection, which covers personal liability for damage to property or personal injury caused to others.  The additional coverage also help to protect your assets in the event you are found liable in a personal injury lawsuit.  Additionally, you may want to consider purchasing a separate liability umbrella policy (discussed below).       

Auto Insurance

There are six different types of auto insurance coverage.  Three relate to liability, two for damage to your vehicle, and one provides specific coverage for accidents involving you and an uninsured or underinsured driver.

Collision coverage covers the costs of damage to your vehicle caused by collisions with other cars or objects; comprehensive coverage covers theft or damage to the vehicle caused by events other than a collision with another car or object.  The amount of coverage you need depends on the value of your vehicle.

Auto liability insurance is required in most, if not all, states, but the liability limits that drivers are required may not be enough to protect your assets.  Even one serious injury caused by an accident for which you are liable could cost into the six figures, or more in extreme cases, just for medical expenses.  And the amount only increases if there are more injured people.  It’s easy to see that the $50,000 of per accident liability coverage required in many states would not be enough to pay all the costs of property damage and bodily injury.  Auto insurance companies recommend that you have $100,000 of bodily injury protection per person and $300,000 per accident. If your personal net worth is more than $300,000, consider buying additional liability auto insurance.

What About an Umbrella Policy?

Unfortunately, even with our best intentions and efforts, accidents may happen for which we are legally at fault.  Medical costs can skyrocket.  If someone were permanently disabled by an accident, the expenses of lifetime care could be astronomical.  If someone killed left behind survivors who were depending on that person for support, you could be liable for damages to the survivors.  Be aware that any costs not covered by insurance will come out of your pocket.  Hence, you could be forced to sell property or to turn over part of your earnings for years to come, perhaps the rest of your working life, to an injured party.

There are limits on the amount of liability coverage available as part of your homeowner’s and auto insurance policies.  If you have total assets valued at more than these limits – including, say, your vacation home, investments, rental property, boats and vehicles — or if you have a high income, an umbrella policy offers a great deal of protection for a relatively low premium.  

In addition to the assets you want to protect, you may want to consider your risk of being sued.  Do you live in a state that is particularly friendly to plaintiffs?  Do you have frequent guests on your property?  Do you have a swimming pool, trampoline, swing set, or other sports equipment in your yard?  Do you have a dog that is overly protective of your property?  Are you or any of your household members aggressive, fast, or careless drivers?  If so, your risk is greater that someone may be injured, perhaps very seriously, and you would be legally at fault.  In fact, any situation that could result in serious injury, long-term physical impairment, psychological damage or death could put your financial well-being at risk.

Once the liability limits are exhausted on your home or auto policy, your umbrella policy takes over and provides another layer of liability protection.  Policies typically start at $1 million with coverage available up to $10 million.  Premiums start at around $300 a year – less than a dollar a day for a great deal of protection.

The best way to determine whether you need an umbrella policy is to discuss your financial status, lifestyle, and current and future assets with your insurance agent.   Ask him or her to review the liability limits in your current policies and suggest the best strategy to ensure protection of your assets in the event of an injury for which you are legally liable.

Cut-Throughs to the Rescue

Whenever A.M. Best, Standard & Poor’s, Moody’s or Fitch drop an insurance company’s rating below an A, businesses become worried that an insurance company might not have enough capital to pay their claims. To reassure the risk managers of these businesses, insurers often seek cut-throughs from their reinsurers.

A cut-through is an endorsement to a reinsurance agreement that requires the reinsurer, in the event of the ceding company’s insolvency, to pay a loss covered under the reinsurance agreement directly to the insured or its beneficiary. The endorsement gets its name because reinsurance claim payments “cut through” the usual route of payment from reinsured company-to-policyholder, substituting instead payment of reinsurer-to-policyholder. A cut-through affects the payment only, and does not increase the risk to the reinsurer. Most cut-throughs are provided only for property, almost never for casualty, unless the cut-through can be limited to claims on a yearly basis.

Those insurance companies that get a cut-through from reinsurers are borrowing the size and rating of their reinsurers. A cut-through permits the insured or its beneficiary to collect insurance proceeds directly from the reinsurer if the insurer becomes insolvent. The insured does not have to wait for the liquidator of the insolvent insurer to pay claims, usually paid at a discount, which could take years.

A cut-through can be written on a blanket basis, where the reinsurer assumes liability for a complete line, or for specific policies. The fee or surcharge paid to the reinsurer can vary considerably, depending on how urgent the primary insurance company needs the cut-through and how willing the reinsurer is to consent to the plea.

Because of the continuing hard insurance market, obtaining a cut-through is difficult for a downgraded insurer. One reason for the difficulty is in the event of an insurer insolvency, the reinsurer has to become involved with adjusting claims. Because reinsurers don’t handle claims directly, they would have to hire a third party.

Further complicating the cut-through provision is determining which policies have the cut-through and which do not in the event of insolvency. Sometimes, records of the insolvent insurer can be incomplete or missing, and the reinsurer has to spend considerable expense to determine which claims are to be paid to the receiver and which to the beneficiary of a cut-through. If the accounting is not carefully fulfilled, the reinsurer may pay the same claim twice.

State insurance regulators are opposed to cut-throughs, arguing they give an unfair preference to sophisticated insurers and third parties at the expense of consumers and should not be enforced. The officials contend that reinsurers have a statutory obligation to pay reinsurance proceeds to the receiver of an insolvent insurance company.

Almost every state requires that reinsurance contracts contain an “insolvency clause” if the cedent is to receive financial statement credit for the reinsurance. An insolvency clause obligates the reinsurer to pay claims to the receiver of the cedent without diminution due to the insolvency of the cedent. A guiding principle of receiverships of insolvent insurers is that all creditors of the same class are treated equally. Ordinarily, this means all policyholders and loss payees would be paid the same proportion of their allowed losses.

But in some states, the “insolvency clause” contains language allowing payment of reinsurance proceeds directly to the insured if there are cut-through provisions. This difference can cause conflicts between contractual cut-throughs and receivership policy and case law on the other.

Safety Tips for SUV Drivers

Considering the increase in fuel costs and environmental awareness, it is surprising that the most popular vehicle in America is still the sport utility vehicle.  With a higher rollover occurrence, higher center of gravity, and increased difficulty of handling, driving a SUV can be dangerous. 

SUVs are completely different from lower-bodied sedans.  They need much more braking distance between themselves and the car in front of them.  They also are much more prone to slip, skid, or flip in hazardous road conditions; according to research done by the National Highway Traffic Safety Administration, more than 10,000 people each year die in SUV rollovers.. By following these basic tips, you will be better informed of how to safely maneuver in a SUV.

·        Slow down. Driving too fast is dangerous; driving too fast in an SUV is even more so.  The longer you have to react, the less likely you are to cause or be involved in an accident.

·        Avoid sudden or sharp steering.  An SUV is not designed to make fast, sharp turns as a smaller, lower, car can.  Allowing yourself more time to react will allow you to make smoother steering transitions.

·        Learn to brake in an SUV. While driving your vehicle, you should be considerate of those around you.  Those behind and beside you will not be able to see around you, so the more warning you can give before you brake, the better. 

·        Check blind spots frequently.  The biggest mistake most SUV drivers make is feeling invincible.  You are in the largest car, but that doesn’t mean you are in the safest.  Many SUV drivers do not use turn signals, or check blind spots, before pulling out or changing lanes, making a collision with a smaller vehicle all the more likely.

·        Avoid overloads. Carrying a great deal of cargo, or even passengers, can throw off the center of gravity even further, making the car more likely to flip over. This also wears on tires and brakes, overheats tires, and can result in a blowout.

Simple Tips to Prevent Auto Theft

Every thirty seconds, a vehicle is stolen in the United States.  That means over 1 million vehicle owners each year find themselves victims of auto theft.  In the event your car is stolen, contact the police with the following information immediately: make, model, year, color, license plate number, VIN, approximate time of theft, location, and witnesses, if any. You should know this information, or have it available at all times.  Then, contact your insurance company.  Preventative measures, however, could prevent this tragedy from ever happening.

Some tips to consider:

·        Install an anti-theft device.

·        Never leave the keys in the vehicle, or the vehicle running, while unattended.

·        Keep doors locked at all times, and windows up.

·        Never store valuables or packages in plain sight.

·        Have your VIN etched into windows and other parts of your car, making resell on the black market more difficult.

·        When parking on the street, turn your wheels, use your emergency brake, and park between other cars (making it harder for a thief to tow).

·        Avoid parking in long-term lots if at all possible.

·        Park in a safe, well-lit, or well-traveled area at night.

Workers’ Compensation Is Necessary to Protect Businesses and Employees

Because workers’ compensation pays for medical expenses from on-the-job accidents and work-related injuries, it protects both the employer and the employee. In fact, most states require workers’ compensation for certain employer groups. In addition, as insurance agents we strongly recommend all employers carry this coverage (regardless of the number of employees) as an obvious protection against liability.

Yet, workers’ compensation can be costly for small- and even medium-sized businesses. Therefore, laws enacted in the late 1980s allow the use of “preferred providers” to curb medical care costs and promote a quicker return-to-work process, with increased emphasis on fraud detection and better price points among workers’ compensation insurers. Even so, the coverage and price of workers’ compensation policies still vary greatly.

With this mind, it pays to shop around for workers’ compensation packages that fit your needs, and your budget. Also, check with your state’s labor department for its definition of an “employee” as it may include a full-time, 40-hour-per-week person, as well as someone who only works three hours a week. Obviously, such variances will affect your needs and your cost for the plan.

Each state has its own workers’ compensation requirements, including a list of illnesses and injuries that qualify for legitimate claims. The state also mandates the level of benefits you must provide for employees. These rules will typically address the amount of coverage required for each employee and the percentage of the employee’s salary that you must pay. A good idea is to review this list and keep it accessible for future reference for you and your employees. These initiatives will prevent the filing of uncovered claims and serve to minimize misunderstandings.

Workers’ compensation policies may pay medical benefits, disability income benefits, rehabilitation benefits, and death benefits. These policies may also utilize a managed care program that sends injured or ill employees to a doctor in your insurance company’s network, further protecting the employer while minimizing costly confusion.

As with all insurance plans, too much workers’ compensation coverage is certainly better than too little. In addition, many workers’ compensation insurance policies provide liability insurance to cover you and your business in the event the family of an employee who is killed in the workplace sues an employer. This option should also be closely examined when striving for maximum coverage.

Should Your Collision Coverage be Dropped?

If you are like most new car owners, then you probably paid the extra money to include the protection offered by collision coverage in your insurance policy. However, as your vehicle has now begun to age and depreciate, you’ve likely started to ponder if and when you should drop the pricey collision coverage that’s running up your insurance bill.

There’s not a one-size-fits-all answer to this question. After all, everyone won’t have the same comfort level on risk or the same insurance needs and wants. However, there are some factors that you can consider to help you determine if and when you should drop your collision coverage:

1. Determine the value of your vehicle.

The first thing you should do when deciding if you should drop your collision insurance is determine approximately how much your car is worth. There are several ways to go about this, but one of the best methods is by getting an actual cash value (ACV) estimate. Kelley Blue Book and N.A.D.A. guides are excellent sources. However, you might want to call your insurance agent to find out which ACV source is used by their claims department, as ACV figures will often vary slightly from source to source. Do remember to factor in the wear and tear on your vehicle. Dents, scratches, upholstery holes or tears, and fading or chipping paint are just a few of the factors that can lower your vehicle’s ACV.

2. Weigh your potential risk against the cost of your collision coverage.

Although your collision coverage premiums will generally decrease slightly as your vehicle ages, you still need to make sure that the cost of your collision coverage remains a worthy expense to cover damage that may or may not occur to your vehicle. Weigh what you’re paying every year for collision coverage against the potential risk of not having it. The ACV of your vehicle should also be a factor in your decision process. For example, the new car you bought several years ago may only be worth $3,000 dollars today, and if you’re paying $600 per year for your collision coverage, then you’re paying 20% of what your car is worth for just this one coverage.

3. What’s your deductible?

Your deductible is another important factor to consider. Most drivers usually select a collision coverage deductible between $250 and $1,000 dollars. You might have even selected a higher deductible to keep your premiums lower. In any case, you need to remember that your deductible is the amount of money you’ve agreed to pay out-of-pocket before your insurance coverage takes effect. You need to decide if the combination of your collision coverage premiums and the deductible amount you’d pay after an accident are still reasonable costs for the value of your vehicle. For example, you’d be looking at a $1,600 out-of-pocket cost for the year for your damaged vehicle if you have a $1,000 deductible and you’re paying $600 for your annual collision premiums. If your vehicle’s value is anywhere close to what you’d pay out-of-pocket, then you can see where you’re likely wasting your insurance dollars. On the other hand, if your vehicle would cost a great deal more to replace or repair than what you pay out-of-pocket with your collision coverage, then it’s likely worth the expense.

4. Can you live without the perks of your collision coverage policy?

You’ll need to decide how valuable the perks of your collision coverage policy are to you. For example, your collision coverage policy might offer a free rental following an accident. Without the collision coverage providing this, could you rent a car on your own or find alternative transportation?

The bottom line is that there’s no cut-and-dried answer about dropping your collision insurance. Consider the above points and how they apply to your unique situation before making your decision. You can always schedule an appointment with your insurance agent if you have any doubts, concerns, or questions during your decision process.

Start Off on the Right Foot – Choosing the Correct Slip-Resistant Shoe

In 1997 more than 180,000 foot-related injuries occurred in the workplace according to the National Safety Council.  According to the Bureau of Labor Statistics (BLS), three out of four footwear injuries in the workplace are the result of employee non-compliance. Choosing the right type of slip resistant shoe for your workplace environment and wearing them everyday is essential for your safety.

Transitions in height, and unexpected changes such as transitions from tile to carpet can be factors that contribute to slips and falls.  Rough floor surfaces offer more slip-resistant characteristics by offering sharp peaks that contact the sole material of the shoe, but this can also contribute to the wear and tear of the shoe causing it to be replaced more often.   Some jobs present more than one hazard to be protected against such as slip resistance and puncture protection.  To help meet this need manufacturers are providing shoes that cover more than one aspect of the safety footwear market.

Slip-resistant shoes should have the following characteristics:

·        The sole should have a raised tread pattern that extends over the whole area of the shoe.  The shape of the tread creates a tunnel through which liquid is dispersed.  A circle grip outsole is the best choice with the rubber hitting the flow and water dispersing rapidly every time a step is taken on a wet or oily surface.

·        There should be about three millimeters between the sole of the shoe and the bottom of the tread.  The tread will be reduced, over time, through wear.  It is important to monitor this and replace your shoes when necessary.

·        For added traction look for shoes that are designed with snipes or small cuts that divide the tread shape into three or four moveable parts.  These are also great indicators of wear and will assist you in determining when to replace your shoes.

·        There should be at least two millimeters of space between the tread pattern for maximum safety.  If the treads are located too close together they could generate a hydroplaning effect on a wet surface.  There must be enough space for liquid to be channeled through to the outer edges of the outsole.

For comfort it is a good idea to choose a shoe with extra support in the heel of the insole.  As an added bonus today’s shoe manufacturers produce occupational footwear that is stylish enough to be worn in everyday life.

Why You Should Require Liability Insurance for Those You do Business With

Are the people you do business with insured? You may want to ask them.

If a vendor, contractor, cleaning crew, gardener/arborist, or other service provider does not have insurance, you may be out of luck if they cause property damage or injury. Also, people who do not carry insurance are probably less likely responsible than those who are insured. They may not be the ideal people you would want to hire. It’s worth paying a little more to get someone who is insured.

Never just take the word of a vendor. Many who are not insured may say “yes” because it’s likely they don’t want to embarrass themselves. Instead, ask them to have their broker send a certificate of insurance. By having their broker send (fax or email) it to you, you know the policy has been paid for and has not been cancelled.

Some vendors, especially small firms, will try to convince you that they do not need insurance. Do not fall into this trap as you will be letting an amateur convince you to purchase product or service that lacks the protections an insurance policy provides. As a courtesy to existing clients, we can give you advice on any insurance certificate that is emailed or faxed to us.


Suggestions on who you should request insurance certificates from:

  • Contractors who are working on a home or commercial remodel
  • Repair or installation service for your auto, home, or business
  • Service contractors, such as gardening and maids/cleaning services
  • Independent Contractors or Contract Employment
  • Professional Services, such as such as a CPA, Consultant, Mortgage Broker, Staffing Firm, Insurance Broker, Architects/Engineers, and others who provide professional services (professional liability)
  • People who rent or lease from you


Types of Insurance you should request:

  • General Liability
  • Workers Compensation – for operations that have workers on your premise
  • Commercial Auto Coverage – for those who use vehicles on the job
  • Professional Liability (Errors & Omissions Insurance) – for those who provide professional services


Should you request a certificate for every purchase? It’s your call, but if someone is entering your premise or you are purchasing a bigger ticket item, you should strongly consider asking for insurance documentation.

Don’t Let Water Damage Delay Your Construction Project

Water, water everywhere — and it can bring your entire construction project to a halt. From rain entering a structure through openings in the roof and unfinished windows to plumbing systems that leak when tested to flood waters that appear when snow melts, water damage is a significant cause of loss to buildings under construction. It can ruin interiors, spur the growth of mold, damage electrical equipment, and cause slip-and-fall accidents. It can also result in major construction delays as affected areas dry out and damaged materials are discarded and replaced. Even when insurance applies to the loss, the contractor will pay at least some of the costs out of pocket in the form of deductibles, debris removal costs that exceed the insurance coverage, and income lost due to delays. Preventing water damage claims adds to a contractor’s bottom line.

Prevention begins before construction does. During the planning phase, a contractor should:

* Develop a quality control program, if one does not already exist, and make any necessary changes to it based on past experience;

* Review the building plans and specifications for areas that may be susceptible to water infiltration, such as areas around plumbing systems, roof flashing, and foundations;

* Evaluate the potential effects of the materials on building systems for vulnerability to water damage; and

* Schedule testing of systems that use water early in the project before much finish work is done.

During the construction process, a number of steps can help prevent water damage, including:

* Establishing a team to track, monitor and repair actual and potential water problems;

* Tracking and resolving all water issues at least weekly;

* Testing for problems frequently and quickly resolving any that are discovered;

* Delaying the installation of finishes until all building openings have been enclosed;

* Inspecting the work to ensure that it meets all specifications; and

* Covering finishing materials stored inside the building with water resistant materials.

The contractor should test the roof for leaks upon its completion. The roof should be kept free of scrap and unused materials and monitored for the development of low spots. Any low spots detected should be corrected as soon as possible. Automatic sprinkler systems should be tested for both functionality and leakage; any problems should be immediately addressed. Before letting water into the piping, the contractor should conduct air pressure tests and monitor for loss of pressure. When the piping is charged with water, the contractor should do so one area of the building at a time so that each segment of the system can be evaluated and no large discharges are overlooked. The contractor should have the piping system monitored for several hours after it is opened to water.

After construction is finished, the water damage team should continue to track and resolve water issues on a weekly basis, resolving any that arise as quickly as possible. Should water damage occur, take immediate steps to limit and mitigate the damage.

The contractor’s insurance company may have technical experts who can assist with preventing water damage claims. It is worthwhile to check with the insurance agent to find out what resources are available. A contractor’s history of preventing or suffering water damage losses can make or break its reputation for quality work. Focusing on prevention will help the contractor get future projects, increase profits, and lower its insurance costs.

Safety Experts Say Smoke Alarms Are Decreasingly Effective

In early 2006, a federal jury ruled that the design of ionization smoke alarms was defective in a fire that trapped 56-year-old William Hackert Jr. and his 31-year-old daughter Christine in their house near Albany in 2001. However, even before this ruling, safety experts were already questioning whether this type of smoke alarm is adequate to deal with the threat of fast-burning synthetic materials prevalent in American homes.

Ionization alarms, which use radioactive material to detect smoke, react earlier in fast-burning flaming fires. Photoelectric alarms, which detect changes in light patterns, react earlier in slow smoky fires. Experts agree that both types save lives. However, a problem arises because the time needed to escape has shortened significantly because of fast-burning synthetics used in furniture and carpets. Smoke alarm use standards may need to change to accommodate this phenomenon.

In 2001, Consumer Reports recommended that homeowners install at least one of each type of alarm on every level of a house to provide sufficient warning time for different types of fires. A recent report from the Public/Private Fire Safety Council noted that some test escape times were “tight or insufficient” with either alarm for bedroom or living room flaming fires. The group suggested that Underwriters Laboratories (UL) modify its standard to require faster detection of smoldering fires. Current UL smoke alarm standards require alarms to respond within 4 minutes of a flaming fire and in a smoldering fire before smoke obscures visibility by more than 10 percent per foot.

In today’s homes, the synthetics in furnishings, fabrics and carpeting smolder longer, but burn faster than natural materials like wood and cotton, which char as they burn. Synthetics melt and pool which produces significantly more energy when they burn. This has shortened the time between first flames and combustion of an entire room due to accumulated heat and gases to approximately 2 to 4 minutes. The average time between first flames and complete combustion 30 years ago when the UL standard was developed was 12 to 14 minutes.

In February of 2006, UL began studying the smoke characteristics from 40 materials commonly found in homes in the effort to make alarms more effective. Also under study are the byproducts of today’s smoke, which can be lethal. Results of these studies are expected by the end of the year.

Another reason for UL concern is the increase in U.S. fire fatalities in the past 12 months to a rate of about 3,500 annually. One likely factor is the increasing use of candles as mood lighting. Candles now cause about 18,000 fires a year, triple the number five years ago.

States Without Motorcycle Helmet Laws May Be Contributing to Unnecessary Deaths

Last year traffic deaths reached their highest level since 1990 due to an increase in motorcycle and pedestrian fatalities. Motorcycle deaths rose for the eighth consecutive year in a row. This according to a new study titled “Characteristics of Motorcycle-Related Hospitalizations: Comparing States with Different Helmet Laws” conducted by researchers at West Virginia University and funded by the Agency for Healthcare Research and Quality.

In fact, the research shows that almost nine percent of all U.S. traffic deaths are attributed to motorcycle riding. In 2004 more than 4,000 people were killed in motorcycle accidents, which represents an 89 percent increase since 1997. Another 76,000 people were injured.

The researchers also discovered that states without universal helmet laws had more crash victims hospitalized with a primary diagnosis of brain injuries. These states reported 16.5 percent of accident victims suffering brain injury as opposed to 11.5 percent in states where helmet use is mandatory. The in-hospital death rate among states without mandatory helmet laws was 11.3 percent versus 8.8 percent for those requiring helmets.

Conducting a state-by-state analysis of injuries, the researchers found that patients from states with no universal helmet laws had a 41 percent increase in risk of a Type 1 traumatic brain injury. Type 1 brain injuries are more likely to result in permanent disability, including paralysis, persistent vegetative state, and severe cognitive deficits.

The research also showed that a large proportion of patients with severe brain injuries would require long-term care. Hospitalized patients in states without universal helmet laws are more likely not to have private health insurance. This means that the public will carry the financial burden for the care these patients require. The findings went on to suggest that partial use laws are of modest use because there is only a slight difference in the age distribution of hospitalized cases if you compare states that require those under a certain age to wear helmets to states with no helmet laws.

Universal helmet laws require all motorcycle riders to wear helmets while riding. States with partial helmet laws only require motorcycle riders who are under age 18 or 21 to wear a helmet while riding. The study is based on data from 33 states. It is the largest study and most current one available on the hospital care of motorcycle accident victims. Of the 33 states studied, 17 had universal helmet laws, 13 had partial use laws, and 3 had no helmet laws.

Securing Auto Insurance for a Foreign Employee

For a foreign employee temporarily transferred to work in the U.S., getting permission to own and drive a car can be a long and tedious process. Before the non-U.S. citizen can apply and be granted a driver’s license, in most states he or she must be issued a social security card, which usually takes two to eight weeks. Also, most auto insurance companies will only insure a driver with a valid driver’s license. Finally, large corporations usually impose their own practices and rules on foreign nationals to protect them against liability in case the non-U.S. employee has an accident.

An insurance agent or broker that is familiar with the licensing and insurance requirements in each state can often help ease the process of a non-U.S. citizen acquiring a driver’s license and insurance coverage.

Lately, in an attempt to encourage global trade, many states have arranged driver’s license reciprocity agreements with other countries. These agreements usually exempt foreign drivers from having to obtain a driver’s license in the state where they are temporarily living. Whether a specific state has reciprocity with another country can be determined by calling the state’s department of motor vehicles.

An example of a state that has accepted some reciprocity with other countries is New York. In New York, the foreigner holding a driver’s license from his or her own country does not need to apply for a New York license unless they become a permanent resident of New York.

Once the requirements for a driver’s license are met, there are several insurance companies that will provide coverage to foreign visitors. Usually these are “non-standard” divisions within the insurers.

Because obtaining a driving record from a foreign country is difficult and time consuming, underwriters regard persons from another country as having no driving record and usually place them in a “high-risk” pool. The policy is the same as for any high-risk driver, with premiums substantially more than those paid by a U.S. driver with an excellent driving record.

When applying for auto insurance in most states an International Driving Permit will not substitute for a U.S. driver’s license. An IDP only provides evidence that the non-U.S. citizen has a valid driver’s license in his or her own country. An IDP, however, will enable a foreign national to rent a car.

Although renting a car may be feasible for a brief stay of several weeks or even a month, the cost of the various insurance coverages, especially the collision damage waiver, offered by rental car companies can be expensive. Charges for such coverage can be $15 to $40 per day depending on the type of vehicle rented. In just a month or two these charges could add up to much more than the cost of a six-month auto insurance policy.

Check Coverage Before Hitting the Road in Your RV This Summer

Whether you drive 600 miles a year in your RV (recreational vehicle) or 6,000, you need to have suitable insurance protection before hitting the road. Because insurance policies tailored to the needs posed by motor homes, recreational vehicles, fifth-wheels and/or travel trailers vary from state-to-state and policy-to-policy, it is important to insure your RV with at least the basics.

Most insurance specialists agree that comprehensive coverage is, indeed, a must as it covers most direct, sudden, and accidental losses including those caused by collision, theft, vandalism, fire, smoke, landslide, windstorm, lightning and hail. You may also want coverage for RV awnings, satellite dishes, and other accessories. There are even policies that cover emergency expenses including lodging or travel expenses home if the RV is damaged or destroyed by a covered loss while more than 50 miles away from home.

Look for an insurance policy that provides adequate campsite/vacation liability, coverage for when the RV is parked, and for when you are using the RV as a temporary residence. Because it protects the RV from costly depreciation, total loss replacement coverage may also prove to be useful and is well worth the minimal added cost.. With total loss replacement coverage, the RV owner gets a new RV of similar kind and quality if the vehicle is destroyed within its first five model years. This is unlike standard automobile policies that only pay the actual cash value of the RV at the time it is destroyed. Add replacement cost coverage on personal belongings that are stolen from the RV or destroyed while in the RV and you can rest assured you will be adequately protected.

RV owners should also consider buying a special stationary policy that offers extensive comprehensive and contents coverage if the RV is used as a seasonal or permanent residence. This includes coverage for liability, medical payments to others, and property damage claims caused by an accident for which RV owners may be held liable . Your homeowners or auto insurance policies may not cover exposures related to the use of your RV as a residence – even if just seasonal.

Because such special coverage policies vary from one state to the next and some coverages aren’t offered in all states, it is important to do your homework, or better yet, your “RVwork,” and find a policy that suits your travel needs.

Understanding Directors and Officers (D&O) Liability Insurance

Directors and Officers Liability insurance, or D&O, covers corporate activities. Because a corporation is legally a person, as are the directors and officers who direct it, D&O serves to protect each from liability associated with various actions and inactions.

But what happens when corporate interests differ from those of these individuals? In short, the coverage is not the same. An indemnity policy protects the corporation, while a D&O policy covers the individual acts of directors and officers. The two types of policies can work hand-in-hand to provide complementary coverage. They can also work apart.

D&O policies do not cover criminal acts and are primarily for civil remedies, mainly damages. First and foremost, D&O policies represent the interests of the shareholders, as a group, and other corporate constituencies in directing the business and affairs of the corporation within the law.

D&O policies offer individual directors and officers the protection they need from personal liability and financial loss stemming from wrongful acts committed while acting as a corporate officer or director. Most policies also cover the liability of the corporate entity itself when the liability is from a claim involving the company’s purchase or sale of securities.

Keep in mind, all companies – those that employ one or more individuals, work with customers, clients, or even competitors – are at risk. Any perceived violation leaves both the directors and officers of the company, as well as the corporate entity itself, at risk for lawsuit and in need of applicable coverage to adequately protect the business as well as the directors and officers involved.

Employment Practices Liability (EPL) can provide additional coverage, acting like an excess policy in an employment situation, and can also involve claims by and against management. Enhanced coverage on a standard D&O may cover EPL, but should be verified with your insurance agent.  Actions including wrongful termination or demotion, breach of contract or agreement, negligent evaluation of an employee’s performance, refusal to hire or promote someone, workplace harassment, failure to follow the company’s personnel manual and more, can fall under EPL.

Insurance experts advise protecting yourself and your business with indemnity or D&O coverage and suggest you understand exactly what your policy covers. Remember, if your D&O policy does not cover EPL, you should consider purchasing EPL coverage, or have it written into your D&O policy.

Don’t Forget to Update Insurance Policies when Moving

Anyone that has ever moved can attest that the process has a considerable impact on everything from transportation to and from work to how and where free time is spent. When considering a move, one change that’s often overlooked is insurance coverage. Often a move will affect whether or not various insurance coverage policies are still adequate.

Homeowner’s insurance is usually a concern when moving. For the average person, a home will be one of the largest investments they make in their lifetime. What was adequate for previous housing might not apply to the new home. The homeowner will need to carefully assess the differences in their new home versus their previous location to determine if a new policy or transferring previous coverage is best; for example, the new home may be in a flood area or otherwise high-risk area or contain more property to cover. It’s always prudent to research the rates and coverage from several insurance companies.

Auto insurance is also usually impacted in moves further away or closer to employment. A move closer to employment or to a suburb may translate to a lesser risk. Safer driving conditions could mean lower rates. Conversely, a further distance equals a greater amount of driving time. And, this is an equation that insurers view as the driver being a greater risk. A drive that now involves a more congested roadway may also translate to a greater risk. In any event, when an insurer views a driver as a greater risk, higher rates soon follow. In the event that rates are increased from a move, there are a few steps that can help return the premiums to the previous level or at least lower them.The driver might consider increasing the deductible, buying multiple policies through the same insurer for a discount, or installing anti-theft hardware on the vehicle to lower the overall cost of the insurance.

After attending to homeowner’s insurance and vehicle insurance, the next insurance that should be examined is life insurance coverage. How moving affects life insurance coverage might not be so obvious as homeowner’s and vehicle insurance. Those that are upgrading their home or purchasing a home with a much higher price tag will most likely no longer have adequate life insurance. The coverage should ideally be adjusted to account for the increased monetary commitment of a higher mortgage and household expenses. Yes, this is an added cost, but necessary to prevent leaving loved ones unable to maintain the home.

Electrical Insulating Gloves – Give Your Employees a Hand

Injuries caused by electrical shock are one of the most severe that workers can experience on the job.  According to the National Safety Council more than 1000 employees are killed and 30,000 injured each year from electrical shock.  Many of these injuries involve the hands since they are the most common source of contact with an electrical current.    Electrical current travels through the body causing damage to internal organs and possibly resulting in cardiac arrest.  Such injuries from electrical shock can prove fatal. The best line of protection is to use electrical insulating gloves.

It is important to know that electrical shock can result from contact with low voltage (under 600 volts) as well as high voltage lines (over 600 volts).  The effects of this exposure depends on the amount of current (which is measured in milliamps or amps) flowing through the body, the amount of time it is in the body and the path of the current.  Exposure to 100 milliamps flowing through the body for only 2 seconds can cause death by electrocution.  This is not much current when you consider a hand-held electric drill draws 30 times that amount. OSHA requires that workers in high and low voltage applications wear electrical insulating gloves and that all insulating gloves be electrically tested every six months.  There are several labs in the United States that perform this required testing.

Rubber electrical insulating gloves are rated for their particular application.  Workers should be trained to select gloves for the amount of protection needed against the circuits they are working with.  For example, a Class 1 glove can be used for up to 7,500 volts AC, a Class 2 up to 17,000 volts AC, etc.  It is also important to understand and recognize regulatory standards when it pertains to electrical safety awareness.  These standards are easily accessed on OSHA’s website, www.osha.gov.

Finally, it is imperative that employers have in place an electrical safety program to ensure that all employees are aware of the potential electrical hazards in their locality.  Both qualified and unqualified workers should be trained in avoiding the dangers of working on or near exposed and energized equipment.

Research Shows Side Air Bags Can Save Lives

In a recent study, The Insurance Institute for Highway Safety estimated that side air bags offering head protection could save the lives of about 2,000 drivers a year if every vehicle were properly equipped. The study was based on federal crash data involving 1997-2004 model year cars involved in crashes from 1999-2004 and 2001-2004 SUVs involved in crashes from 2000-2004.

The agency’s conclusion is based on insurance industry research that shows driver deaths in side-impact collisions dropped by more than 50 percent in SUVs equipped with head-protecting side air bags. The study also found that the risk of death dropped 30 percent in side collisions involving SUVs with side air bags that only offer protection to the chest and abdomen.

In passenger cars struck on the driver’s side, the risk of the driver being killed dropped 37 percent in autos with side air bags that have head protection. The risk of driver death fell 26 percent for cars with side air bags providing just chest and abdomen protection. The researchers discovered that fatality risks were lower across the board in vehicles with side air bags, whether the crash involved older or younger drivers, male or female drivers, and drivers of compact cars or larger passenger vehicles.

The side air bag was introduced in the mid-1990s, and has been credited for allowing motorists to escape serious injuries and death when struck in the side. In a head-on crash, the vehicle’s front-end absorbs most of the impact. However, a motorist struck in the side has very little protection without the side air bags.

Side-impact crashes are a major concern. In 2004, the government estimated that 9,270 people were killed in these types of crashes, which amounted to almost 30 percent of traffic deaths reported that year.

Although federal regulations don’t require side airbags in passenger vehicles, more and more manufacturers are installing them as standard equipment. This is due primarily to a 2003 voluntary agreement among automakers to improve occupant protection in side impacts for SUVs and pickups. The agreement is supposed to result in all cars, SUVs, and pickups having side airbags with head protection by 2010.

The auto industry has been keeping pace, and almost four of every five new car and SUV models already have standard or optional side airbags that include head protection. This is a significant increase since side airbags were introduced in the mid-1990s. If you would like model-by-model information on side airbag availability in 1996-2006 models, log on to iihs.org/ratings/ side_airbags/side_airbags.aspx

Is Your Homeowner’s Coverage a Mystery to You?

If you feel in a quandary when you look at your homeowner’s insurance, take heart; you are not alone. In fact, a recent study conducted by Harris Interactive for Travelers Insurance shows that a large number of American homeowners are unsure of their coverage specifics. Many of these homeowners are underinsured and the smallest disaster could send them into a financial hardship.

The researchers questioned more than 1,300 homeowners to determine exactly what they knew about their coverage. They also asked the study participants how often they reviewed their policy to ensure they maintained appropriate coverage and how they conducted their review.  According to the survey data, more than 44 percent of those surveyed had not examined their insurance coverage in the past year. Some respondents had not reviewed their insurance policy in the last 10 years.

The “Travelers In-synch Homeowner’s Insurance Study” also indicated that nearly 27 percent of these homeowners weren’t sure whether their policy would cover the cost of rebuilding their home. Thirty-six percent didn’t know whether their policy would cover damage caused by a hurricane. Forty-two percent were unsure if they had earthquake coverage. Twenty-six percent didn’t know if they had coverage against flood damage, and 37 percent didn’t know whether their policy would cover a prolonged hotel stay if their home were damaged.

Many items impact the amount of homeowner’s coverage you need. That’s why it is important to review your coverage frequently. Here are some criteria to use in your review:

·   Have you recently remodeled your home?
If you’ve improved your home, chances are you’ve increased its estimated replacement cost.

·   Has the inflation rate increased since your home was last appraised?
Certain conditions, such as severe weather, can increase the demand for labor and materials, which raises costs beyond the normal inflation level. It is important to update your coverage each year to account for changing inflation.

·   What factors influence building costs in your area?
Replacement costs are directly proportionate to factors, such as the availability of labor, the current demand for labor, and the cost of construction materials. Adjusting your coverage regularly can ensure your policy will provide the money you need to rebuild.

To determine whether you have adequate coverage you should know your home’s estimated replacement cost. Keep in mind that your replacement cost could be higher or lower than your home’s market value. You should also consider the building materials used to construct your home. The more difficult the building materials are to find, the higher your replacement cost. Your coverage needs to reflect these increased costs.

The best way to stay ahead of changing costs is to contact your insurance agent annually to discuss your current coverage and your changing needs. They can help you manage risk by updating your coverage so there won’t be any surprises should your home be damaged.

Should a Project Owner Accept a Contractor’s Builders Risk Insurance Policy?

While a construction project is underway, who should be responsible for the property insurance on it — the project owner or the general contractor? Often, the contract puts this responsibility on the owner. However, some courts have decided that the contractor actually bears the risk of damage to the property before the owner accepts the completed project. The owner’s policy may not cover some significant perils, such as flood and earth movement, leaving the contractor uninsured for losses they cause. It therefore makes sense for the contractor to obtain builders risk insurance with the broadest coverage possible.

Many contractors carry master builders risk policies that provide automatic coverage for all their projects. The insurance company bases the premium on the values of the projects the policy covers. For the contractor, this has several benefits. The master policy can act as a viable alternative to the owner’s policy, making the contractor’s services more attractive to potential clients. Also, the contractor’s policy may be broader than the owner’s coverage. It may include “differences in conditions” coverage to fill in gaps left by the owner’s policy. For example, the contractor’s policy may cover losses from floods and earth movements such as mudflows. Finally, buying one policy to cover all projects may be more cost-effective than buying individual policies for each job.

Common features of master builders risk policies include:

* Coverage for all projects that begin during the policy term, even if they continue past the term’s end. Depending on the policy, coverage may extend for up to 36 months past expiration.

* The contractor must report the values of all jobs in progress periodically during the policy term. Reports may be due semi-annually, quarterly or monthly. The insurance company calculates the final premium based on the average of the values reported.

* The company may offer the contractor a variety of premium rates, coverages, deductibles, and limits for certain coverages. The company bases these choices on several factors, including the type of construction (wood, steel, concrete, etc.), the fire protection in each project’s location, the intended use of the building (manufacturing, retail, office, etc.), exposure to flood and earthquake, and others.

* Coverage options such as insurance for systems testing, extra expenses and project delays, and reduced deductibles.


While the policy may automatically insure most projects, the insurance company may reserve the right to approve some projects before it will provide coverage. For example, the policy may automatically cover all projects with values of $10 million or less and require pre-approval for more expensive jobs. It may require pre-approval of jobs above a certain limit based on the type of construction — for example, all wood frame structures with values exceeding $5 million. It may also require pre-approval for flood coverage for all projects located in special flood hazard areas or earth movement coverage for jobs in locations susceptible to earthquakes. In addition, pre-approval may be required at different times of the year for jobs in certain locations, such as projects in the southeast during hurricane season.

If a project owner is going to rely on the contractor’s builders risk policy, she should review it in advance to ensure that the terms and coverages meet her needs. The contractor should work with his insurance agent to answer any questions about the coverage and to address any deficiencies. Should the owner decide to accept the contractor’s policy, each side must adjust to new responsibilities for things like premium payments, amending the construction contract, providing acceptable evidence of coverage, and reporting values. If handled properly, this arrangement can be advantageous and cost-effective for both owner and contractor.

The CLUE Report: Don’t Be Left Clueless on Insuring Your New Home

If you don’t properly educate yourself on the home buying process, it can very well be like walking into a minefield. Most buyers at least have a novice understanding on areas like their credit, pre-approval, a home inspection, and so forth. However, most buyers don’t have a clue what a CLUE report is, much less what an important element it is when buying and insuring a new home. Considering that around 90% of all insurers underwriting homeowner’s insurance subscribe to the CLUE service, it’s certainly something that you should know about.

What Is CLUE?

The Comprehensive Loss Underwriting Exchange, or CLUE, is a database that allows auto and homeowner insurers to exchange information about property loss claims. Unless your state specifically requires it, prior notification isn’t required before your information goes into the system. ChoicePoint, one of the largest personal consumer data compilers in the United States, maintains the database. Property loss claims and even inquiries into coverage are entered into the CLUE database.

Your insurer can access the CLUE database when you apply for homeowner’s insurance on your new home. The system will allow them to see any past claims that previous owners filed on the house. It also allows them to see past inquiries on damages, even if there wasn’t a claim filed. You could find yourself in an insurance nightmare if a bad CLUE report causes insurers to be unwilling to provide you with coverage. Furthermore, it’s not just your new home under scrutiny. Old claims that you made on your previous home are also available through the CLUE database and can affect the cost and/or availability of homeowner’s insurance on your new home.

What Do I Do About CLUE?

The best thing you can do to keep CLUE from affecting the cost of your homeowner’s insurance and/or your ability to obtain insurance is to know your rights. Just as with any other credit reports, CLUE reports fall under the Fair Credit Reporting Act, or FCRA. This means that you’re entitled to certain rights, including the following:

* Notification if the insurer intends any adverse actions, such as increasing the cost of your new policy’s premiums or denying your new policy, based on the information they obtained from your CLUE report.

* Get a copy of your insurance scores and the actual CLUE report. The FACT Act is a recent amendment to the FCRA that entitles you to one free copy of your CLUE report per year. Aside from your one free copy, you’re entitled to get another copy of your CLUE report if you’ve had your policy canceled, coverage limited, premiums increased, or an application for insurance denied.

* Dispute incomplete information or inaccuracies within the CLUE report. You can do this at the ChoicePoint website. ChoicePoint is required by law to investigate your dispute. If you aren’t satisfied with the investigation by ChoicePoint, you can file a statement. This statement must be attached to all future reports.

In summary, you can see how a CLUE report can substantially impact your home purchase. Do keep in mind that you can’t obtain a CLUE report on a home that you don’t own yet. This means that you will need to ask your real estate agent to obtain a CLUE report for any property you’re considering purchasing.

An Insurance Policy Can Be Forever

A risk manager for a large manufacturing company discovered one stormy morning, to his consternation, that his company had been identified as liable for the release of hazardous materials into a local river – not 5 years ago, or even 20, but 32 years ago. Quickly, yet apprehensively, he pulled out his insurance files. Searching through the old policies and records, he at last pulled out a fat stack of papers. After examining them, he leaned back with relief. Safe in the file was a catastrophe liability and property policy that eventually covered the full cost (well into seven figures) of cleaning up the river.

All too often, when these situations face risk managers, they find the insurance policy drawer empty, or filled with worthless policies and records. Increasingly, claims for exposures that were never considered valid a decade ago are now being recognized by the courts as legitimate and insureds are being hit with monetary demands. Often, these unforeseen events are covered by older insurance policies that were written decades ago and had fewer exclusions than policies do today.

Further, having a central repository for all insurance policies and information is especially prudent when a company has a history of mergers and acquisitions, downsizing, office closures and relocations. It is the responsibility of the policyholder to establish the existence of a policy if a claim is submitted for an exposure blamed on an acquired company. If you don’t have the policy, or even just the declaration page, persuading the issuing insurance company that such a policy once existed can be difficult and may require hiring a firm that specializes in searching for old policies. While brokers or agents may retain clients’ policies, most only keep your policy and supporting documents for, at most, seven years after you have ceased to be a client. To be sure you can find that long-ago insurance document when you desperately need it, risk managers should establish a retention system covering the company’s insurance policies.

Storing them is now convenient and inexpensive by scanning them onto digital media where they can be saved and stored on a CD. The cost of preserving these policies is low compared to the potential benefits you could realize in the future by quickly uncovering the exact policy to cover that years-old exposure.

While there is no hard and fast rule on which policies to keep and for how long, some experts suggest keeping all policies indefinitely. In many cases, millions of dollars have been recovered from “old” liability and property policies. Remember, when you purchase insurance, you purchase a promise by the insurer to pay, subject to the conditions and limitations of the policy. And today’s courts are increasingly interpreting policies more broadly than they were originally intended.

But if you don’t want to keep all your polices, consider retaining all liability policies – general liability, commercial auto liability, errors & omissions, officers and directors, workers’ compensation, excess and umbrella, and others. It’s okay to throw away the correspondence related to them at normal intervals per a company retention policy, but keep the vital parts.

Most of the time property policies can be discarded after the expiration of the policy, but should be kept if there are any claims outstanding, such as a business interruption claim. Once in a while, an old claim on a property policy may arise involving structural failures, for instance, of a building that developed after the expiration of the policy. The policy may offer coverage for that claim.

The best advice: Keep all insurance policies forever. You just never know when having that exact one will save your company millions.

Does a Homeowners Policy Cover Your Home-Based Business?

With both technology and the internet, more and more people are running home-based businesses, either full-time or part-time. But will a homeowner’s policy cover the risks of a home-based business? In nearly every case, the answer is no. The only exception to this might be if a homeowner’s policy has a special endorsement, such as an endorsement to run a day care operation from your home. Yet fewer and fewer companies offer such endorsements. Additionally, some policies may give a very limited amount of coverage for business property, such as a computer. The bottom line is, nearly all homeowners policies clearly exclude business operations and not having a proper coverage in place can leave you with uninsured exposure. This is why you need separate business insurance to cover your home-based business risks.

Home-based business owners may feel that they do not need coverage because nobody steps foot on their premises. The problem is that liability claims often happen away from the business premises. This can include a number of scenarios, including someone taking action for information on your website or someone getting injured from the product or service you provide. Most business policies include coverage for personal injury lawsuits, which means someone takes legal action against you for things like libel or slander. Competitors and customers both can sue a business owner for personal injury. A business policy also covers off-premises injury, such as if someone trips on, slips on, or is injured by any kind of property you take out in the field. It will also cover you during trade shows and usually meets the insurance requirements that some trade shows may require.

From a property standpoint, any business property you may have in your home is usually excluded or has very limited coverage under a homeowners policy. Getting coverage to protect your computers, equipment, furniture, inventory and any other physical assets helps keep your business in operation with minimal disruption and financial loss. A business policy also usually covers loss of income, which is payment for income you did not earn as a result of a loss covered under your policy. Policies may also include coverage for things like valuable papers, damage to property of others, property coverage off-premises and a number of other additional coverages.

A business owner’s policy includes the coverage described above, and is specifically designed to protect the unique interests and property of a business owner. This package policy includes nearly all, if not most, of the coverage you need. However, if you are providing some kind of professional advice, consulting, or other non-tangible professional services, you may also need a professional liability policy. This is also known as Errors & Omissions Insurance. In addition, if you have any employees, you are probably required by law to get Worker’s Compensation insurance. Depending on the type and size of business you own, you may have further insurance needs.

Hoping that your homeowner’s policy is going to cover you in the event of a claim will leave you frustrated if your business experiences a loss. Businesses have a much higher risk than a homeowners policy allows for, and homeowners claims adjusters will quickly deny coverage for business-related claims in the event of a loss. Talk to your insurance agent today to explore your business insurance needs and options. 

Liability Insurance: Hired and Non-Owned Auto Policies Provide Necessary Coverage

Non-owned auto coverage and hired auto coverage both provide coverage for you and your business in the event an employee is involved in an accident while working on your clock. But the similarities stop here. These different policies offer very different types of coverage, and it is important to understand each to ensure you find the policy that is right for you.
On one hand, non-owned auto coverage protects your company if sued as a result of an auto accident that you or one of your employees has in a personal vehicle while on company business. On the other hand, hired auto coverage provides your business with liability insurance for vehicles that you rent on a short-term basis for business purposes. 
These coverage options should be considered if your company rents cars or vans for business purposes (including travel to conferences, visiting clients, etc.) or if employees use their personal vehicles to run company errands.
Hired auto liability will pay for damages to a third party if you or one of your employees causes an accident or injury to someone while driving a rented vehicle for business purposes. For instance, if you rent a vehicle to drive employees to a conference or to visit a client and cause an accident during the trip, the person you hit will undoubtedly look to your company to pay for damages. Without this coverage, your company will have no insurance for the rented vehicle.
The same applies if you have an employee run an errand or visit a client in his or her personal car. If the employee causes an accident, the injured party will look to your company to pay damages since the employee was using the car on company business.
Both of these coverages are usually added to a general liability policy. When there are no vehicles titled in the company name, this additional coverage will serve to meet the contract requirement for commercial auto coverage in most states.
Hired auto coverage replaces or augments the liability coverage offered by auto rental agencies. However, the vehicle must be rented in the company’s name. This does not replace the physical damage coverage that applies to damage caused to the vehicle rented by your company.
Non-owned auto coverage protects your company in the event it is sued as a result of an employee accident, but it will not protect you or your employee personally. Only your personal auto insurance policy can do that.

Non-owned auto coverage and hired auto coverage both provide coverage for you and your business in the event an employee is involved in an accident while working on your clock. But the similarities stop here. These different policies offer very different types of coverage, and it is important to understand each to ensure you find the policy that is right for you.On one hand, non-owned auto coverage protects your company if sued as a result of an auto accident that you or one of your employees has in a personal vehicle while on company business. On the other hand, hired auto coverage provides your business with liability insurance for vehicles that you rent on a short-term basis for business purposes. These coverage options should be considered if your company rents cars or vans for business purposes (including travel to conferences, visiting clients, etc.) or if employees use their personal vehicles to run company errands.Hired auto liability will pay for damages to a third party if you or one of your employees causes an accident or injury to someone while driving a rented vehicle for business purposes. For instance, if you rent a vehicle to drive employees to a conference or to visit a client and cause an accident during the trip, the person you hit will undoubtedly look to your company to pay for damages. Without this coverage, your company will have no insurance for the rented vehicle.The same applies if you have an employee run an errand or visit a client in his or her personal car. If the employee causes an accident, the injured party will look to your company to pay damages since the employee was using the car on company business.Both of these coverages are usually added to a general liability policy. When there are no vehicles titled in the company name, this additional coverage will serve to meet the contract requirement for commercial auto coverage in most states.Hired auto coverage replaces or augments the liability coverage offered by auto rental agencies. However, the vehicle must be rented in the company’s name. This does not replace the physical damage coverage that applies to damage caused to the vehicle rented by your company.Non-owned auto coverage protects your company in the event it is sued as a result of an employee accident, but it will not protect you or your employee personally. Only your personal auto insurance policy can do that.