Environmental Concerns and D&O

Directors & OfficersDirectors and Officers (D&O) coverage protects company and individual assets from claims regarding the management professionalism of the upper levels of companies.

The leading cause of D&O claims and payouts concerns financial reporting. The books don’t have to be cooked necessarily… they just need to be inaccurate to provoke a claim.

Relatively new accounting standards require real property values to properly reflect environmental impacts and potential clean-up costs. For example your company purchases a piece of land for $50 knowing it is environmentally impacted with an anticipated clean-up cost of $950. The book value of the property is $50 because that is what you paid, and it is the net value including clean-up. Now let’s assume new regulations require an additional $49 of remediation. You must either write down the value by $49, or if the property is held for sale, you can optionally write down only actual costs reflected in the sales price.

Of course, as with most future conditions, it can be difficult to predict what costs will be when we re-mediate the site.

Unfortunately, directors and officers must make management decisions in real time while arm-chair stakeholder quarterbacks get to review results with the power of hindsight. Will the Chief Financial Officer (CFO) decide on a conservative cost structure and reduce the value of the stock? Or, will he choose a more optimistic scenario and not reveal the full extent of the environmental impact thus falsely inflating values?

In today’s regulatory and transparent business environment, adequate D&O limits are a requirement of good management. Also, the CFO might want to consider environmental impairment insurance.

In the spirit of insurance and great risk management, the CFO can swap a premium (known expense) for a future potential claim (unknown loss), thus transferring the loss on the asset, to an expense. The asset value remains unchanged.

These valuation rules are very complex and you should consult with both a licensed insurance agent and a CPA regarding your specific needs. Give us a call… we’ll be happy to make introductions.

Employee Lawsuits – Curb Your Liability

employee lawsuitsDisgruntled workers can sue your business at any time – and even if you win, you’ll be out time, money, and energy defending yourself from employee lawsuits.

The first step in reducing this risk is to ensure that every hire is “clean”, and made purely on the basis of job requirements. The Americans with Disabilities Act has very strict ruleas about what employers can and cannot ask during the hiring process.

To help the cause, industrial relationship experts recommend these guidelines:

  • Avoid discriminatory language when advertising job opportunities. For instance, an advertisement stating “young” or “recent grad” might discriminate against older job applicants, while “’salesman” implies discrimination based on gender.
  • Have a specific job description that gives the essential functions and abilities of the job.
  • Use a standardized interview form that asks all applicants the same questions – which must be related to the job.
  • Don’t ask applicants questions that might identify their membership in a protected class such as age, religion, or national origin, unless it’s essential to the job (For example, a parochial school can ask about the religion of a potential teacher, but not a maintenance worker).
  • Never ask whether an applicant is married, pregnant, has children, or is planning to do so.
  • Ask only questions related to the applicant’s ability to perform specific job functions, not personal items such as past history as such as drug addiction.
  • If an applicant is otherwise fit for a position, don’t refuse to hire him or her based on presumed susceptibility to injury. You can, however, set bona fide physical criteria required by a job, such as the ability to lift a certain weight.

Although these “ounce of prevention” tips can help curb hiring-related discrimination claims, your business also may need a comprehensive Employment Practices Liability Insurance (EPLI) policy to protect against employee lawsuits.

For more information, just give us a call. We’re in the business of protecting you.

Having a Breakdown?

equipment breakdownIt’s a sign of the times. In today’s high-tech world, every business depends on increasingly complex electronic and electric equipment to stay in business. But what happens when these systems break down? Thanks to Equipment Breakdown insurance, YOU don’t have to have a lose it when things get rough.

Consider this nightmare scenario: You’re facing a deadline under a major contract when a voltage spike surges through your electrical lines, burning out its computers and telephone networks, and shutting down your operations. In addition to lost productivity, you’ll need to spend time and money repairing or replacing the damaged systems – not to mention the revenue you’ll lose until you can get back up to speed. The total cost could easily run into six figures.

Equipment Breakdown insurance to the rescue! “Think of this policy as Accident, Health, and Disability insurance for your equipment,” says Mark MacGougan, Assistant Vice President of The Hartford Steam Boiler Inspection and Insurance Company. The coverage, also known as Boiler & Equipment Insurance, can pick up the tab for: 1) repairs and replacement of equipment damaged (some policies will even cover green construction and disposal and recycling expenses); 2) expenses of limiting the loss or expediting the restoration process; and 3) income lost when a covered breakdown causes a partial or total business interruption.

Many businesses carry Equipment Breakdown coverage under their Commercial Property insurance. More sophisticated operations might prefer a stand-alone policy. Some insurance companies offer such preventive services as infrared scanning technology or onsite inspections to identify maintenance needs.

The coverage you need depends on the nature and size of your operation, the exposures you face, and the type of equipment you use. As insurance professionals, we’d be happy to tailor an Equipment Breakdown policy to fit your needs, at a price you can afford. Give us a call!

 

Singing in the Rain

umbrella liabilityI love that scene from the 1952 classic “Singing in the Rain” where Gene Kelly belts out the title song while twirling an umbrella, splashing through puddles and getting soaked to the skin. I recently discovered that he was actually ill during the filming of that sequence – with a fever of 103! You know what they say… “The show must go on!”

The same is true for your business. Unfortunate circumstances come into our lives, and we must deal with them. Life doesn’t stop just because it would be convenient for us, does it? Enter the Umbrella policy.

What do umbrella policies do?

Insurance professionals can’t help themselves. We rely on wonk-ish diatribes to describe umbrella policies because they are technical in nature.

So let’s try to simplify.

Most companies buy insurance because they are required by law. Workers’ compensation and automobile liability allow companies to hire employees and use public highways. If they own property, their lender requires insurance. If the company leases space, the landlord requires premises liability.

But the real reason to buy insurance: trade a known loss (premiums) for unknown losses (claims). Your company can budget for the acceptable level of known loss which protects against normal, everyday losses associated with entrepreneurship.

With an umbrella policy, you’re buying catastrophic loss coverage for imaginable claims. Imagine the multi-passenger near fatal car wreck or the nightmare products liability claim that costs millions in damages.

You’re also buying coverage for unimaginable claims. Claims not covered by your automobile, general or employer’s liability:

  • Do you promote your company through social media? Libel and slander losses are covered by personal injury liability, usually excluded in general liability policies, usually covered on umbrellas.
  • Do you send employees out of the country? The stated territories for coverage under standard general and automobile insurance is the United States and Canada. For umbrellas, it’s worldwide. Now, some umbrellas specifically expand territory language to include “anywhere” because of commercial space travel.
  • Any possible sexual harassment in your organization? Again, usually excluded by general liability, but included under umbrella coverage.

These examples of rare occurrences give a taste of the importance of umbrella liability. Your company can be blindsided by large liability claims that are not anticipated by your typical liability coverage. Broaden the territory, widen the safety net, spend a little more premium, get more peace of mind.

Trade a little more known loss, your umbrella premium, for a lot of protection against the unimaginable loss. Then you too will be able to sing in the rain.

Data Breach – You’ve Been Hacked. Now What?

No matter how prepared you are – or you THINK you are – you can still suffer a cyber-security  data breach. According to a recent report released by the Online Trust Alliance, over 740 million records were exposed in 2013 alone, making it the worst year for data breaches to date. What you do next can have a profound impact on the reputation of the business, customer loyalty, employee morale, and, ultimately, your bottom line.

An effective communication strategy should follow these guidelines:

  1. data breachNotify key regulatory and legal authorities as soon as possible, unless this might impede a criminal investigation. Even if notification isn’t required by law, it’s an important courtesy.
  2. Make sure that staff roles and responsibilities for communicating the data breach are outlined and understood clearly.
  3. Tailor the notification process to the audience – high-value customers, senior employees, or individuals who might be particularly vulnerable (such as the elderly, the disabled, and minors) and to the nature of the breach; Handle the theft of confidential client information differently than the stealing of employees’ Social Security numbers.
  4. Have legal counsel review the method and content of all communications.
  5. Prepare for media inquiries to deliver a clear message for parties affected directly or indirectly. Be sure that your spokesperson is qualified and trained to deal with the media.
  6. Provide ways for victims of the data breach to ask additional questions and/or learn how to minimize potential harm.
  7. Test the plan: If you had to execute it, how well did it work, and how did you update it? Many businesses have discovered holes in their response plans after failing to consider the impact of a cyber security data breach on daily operations, or underestimating the attention the event drew.

To learn more about spreading the word after a data breach, please get in touch with us.

In The Cloud? Protect Your Data

the cloudMore and more businesses are storing data on off-site service providers (known collectively as “the cloud”) to reduce costs and boost efficiency. However, many companies either don’t realize how vulnerable this information is, or don’t have contracts that make third-party cloud providers responsible for lost, stolen, or corrupted data. Check out five of the top data breaches of 2013 here.

If there’s a data breach when you’re using cloud-based services, who should be held responsible? Storing software and/or databases on the servers of a cloud provider with shared infrastructure immediately eliminates many of your cyber security controls. Backing up data in multiple locations increases the likelihood that it will survive, but also raises the odds of a data breach. What’s more, shared infrastructure can leave this information exposed to malware or other computer viruses.

What about connectivity? After all, your cloud provider can’t guarantee that you’ll have access 100% of the time. If the remote server goes down or there’s a data breach, how long might it be before you’re able to restore operations? How might such an incident affect your company’s reputation, and its financial position?

An effective Cyber insurance policy can reduce these risks significantly by:

  1. Allowing you to limit the spread of sensitive or confidential information by reacting to cyber extortion as soon as possible
  2. Notifying your clients that their data has been lost
  3. Hiring a PR firm to get out the message to clients about the measures your company is taking to prevent future breaches
  4. Providing the ability to set up a data center
  5. Reimbursing customers and clients for confidential information compromised by the breach

Our agency can help you select comprehensive coverage that can protect your data in the cloud. Give us a call today.

Target Security Breach – Wake Up Call

security breachThe security breach of customer data at Target Corp. during the recent holiday season underscores the growing threat of cyber theft to retail businesses.

Between last November 27 and December 15, hackers stole data on up to 110 million debit and credit cards from customers of Target, the nation’s second largest discount store. The security breach occurred when a virus infected the company’s point-of-sale terminals throughout the chain, compromising debit and credit cards account numbers, expiration dates, cardholder names, e=mail addresses, home addresses, phone numbers, and credit verification value – information that bad guys have used to make counterfeit credit cards.

Immediately after a third party discovered the security breach, the retail giant: 1) alerted the relevant authorities and banks; 2) partnered with a forensics firm to investigate the crime; and 3) warned recent customers to monitor suspicious bank account activity, and contact the Federal Trade Commission and credit card monitoring systems portals. Said Chief Executive Officer Gregg Steinhafel, “Target’s first priority is preserving the trust of our guests, and we have moved swiftly to address this issue, so guests can shop with confidence.”

The company fended off thousands of complaints from customers about fraudulent charges on their credit cards and bank accounts, as well as dealing with a significant number of class action lawsuits alleging invasion of privacy.

Although it’s too early to put a price tag on the security breach, in 2009 retailer T.J. Maxx paid $9.7 million in a settlement with 41 U.S. states over the loss of customer data after hackers stole information on 45.7 million credit and debit cards two years earlier.

The Target data breach offers a stark reminder of why your business needs to protect confidential customer information – and to carry Cyber Liability insurance.

We’d be happy to help the cause. Just give us a call.

Internal Fraud – Fight Back!

An industry seminar on fraud risk, prevention and response, found 778 internal fraud cases in 2012  (more than two a day!) These scams included fake billing, corruption, and expense reimbursement.

Although the companies affected suffered minimal losses in more than half of these cases, their headaches came from private civil claims, potential government investigations, criminal prosecutions, and bad publicity.

Fraud can be uncovered by everything from employee tip-offs and management reviews to internal audits and even “gut” feelings by an experienced observer.

If you’ve been scammed from the inside, start with a prompt and thorough internal investigation. Gather the facts, preserve evidence, assess legal repercussions, and take corrective action – before an outside authority does. Being the first to report the incident to the government can take the sting out of an official probe.

internal fraud
To correct the situation you should:

1) make amends to the victims

2) revamp corporate-compliance programs

3) strengthen internal controls. Make sure that these actions are tangible and specific.
Consider offering substantial financial incentives to employees who might suspect that something fishy is going on, but may not want to get involved.

Lastly, insurance can help protect your business from the loss of money, securities, and inventory resulting from employee dishonesty. For example, Fidelity and Crime coverage usually includes property theft, losses due to forgery, and electronic wire transfer fraud.

Your insurance program should include a cyber policy. A recent court decision expands coverage of cyber losses under fidelity bonds. Damian Brew, managing director of Marsh’s FINPRO practice warns, “Having insurance coverage without cyber insurance is like playing hockey without a goalie.”

Our business insurance professionals would be happy to review your internal fraud-control program. Just give us a call.

Lessor’s Risk Insurance – Protection for Landlords

If you rent out residential property, you face a variety of financial risks… everything from damage from fires and windstorms, through fines for building code violations, to a disgruntled tenant who sues you.Lessor's Risk

Lessor’s Risk insurance to the rescue! These policies cover losses to the property, medical payments for tenants or visitors injured on the premises, and your personal liability for alleged negligence.

The amount of coverage depends on your financial situation. If you’ve taken out a mortgage on the property, the lender will probably insist that you buy a policy large enough to cover the loan balance. As a rule of thumb, the higher the value of the property and the greater the risk of potentially catastrophic liability, the more coverage you’ll need.

Your premium will depend on the type of losses covered and the extent of reimbursement. If you choose comprehensive or all risk coverage (which will pay for damage from all causes unless specifically excluded), your cost will be higher than if you buy “named perils” coverage (which covers only losses due to specific causes). Expect a higher premium for replacement value, which will reimburse you fully for rebuilding your property, than for actual cash value coverage, which will pay only the value of the property, less depreciation.

You can also reduce your premium by increasing the deductible of your Lessor’s Risk policy, which usually ranges from $100 to 5% of the building coverage.

Optional coverages include repayment for rental income lost if the property becomes uninhabitable, and for risks of doing business with tenants, such as legal fees and liability against claims for libel, slander, and discrimination.

Our personal insurance specialists would be happy to help you select a Lessor’s Risk policy that offers the best value. Just give us a call.

Walt Disney, Magical Advice for Business (and Life)

Walt DisneyIn the world of entertainment, perhaps no name is more widely known than that of Walter Elias Disney. Today marks the 112th anniversary of his birth, and has me reflecting on the impact this great man – the Magic behind the Kingdom of creativity – has had on our world. He was such an influential innovator and entrepreneur in his day, and even now, he is teaching still. Using some quotes from the legend himself, here are a few of the lessons I’ve learned from Walt Disney – about business, and life.

Dream big.

“All our dreams can come true if we have the courage to pursue them.”

What would you do if your dreams had no limits? Don’t let your comfort zone hold you back from where your dreams would take you. We have so many fears – fear of the unknown, fear of not being good enough, fear of what others may think, fear of failure. Insurance can mitigate many risks, and often we fear something that will never happen. If you have a dream, chase it. Find a way to make it happen and above all, don’t let anyone else limit your dreams.

Communicate your vision.

“Of all the things I’ve done, the most vital is coordinating those who work with me and aiming their efforts at a certain goal… you can design and create and build the most wonderful place in the world. But it takes people to make the dream a reality.”

You have a vision. Success in bringing your dream to life is directly related to how effectively you communicate that vision to the people you work with. According to a study published in Claremont McKenna College’s Leadership Review, when leaders discuss their organizations’ vision in a specific way, not only is the vision better understood, the leaders are also seen as being more effective in general. Want to have people who are as invested in your dream as you are? Communicate your vision with clarity and passion.

Send the right message.

“Disneyland is a show.”

What kind of experience are you providing for your clients? Remember that everything you do (and everything you don’t!) is communicating a message. From your voicemail greeting right down to delivering your product or service to the consumer, all of it is speaking for you. Make sure it’s saying the right thing.

Embrace your setbacks.

“Everyone falls down. Getting back up is how you learn to walk… all the adversity I’ve had in my life, all my troubles and obstacles, have strengthened me… you may not realize it when it happens, but a kick in the teeth may be the best thing in the world for you.”

Don’t waste any experience. Difficult circumstances hold within them lessons to be learned. Often what we perceive as a negative situation can become a catalyst for personal and professional growth. Take the experiential wisdom gained with setbacks and carry it with you into the future. You (and your business) will be better for it.

Just do it.

“The way to get started is to quit talking and begin doing.”

I don’t know about you, but I have a lot on my plate… and I don’t have a magician’s apprentice to help me get it all done. At times it can be overwhelming. Taking a cue from Disney, if you’re obsessing about a massive to-do list, it’s time to stop thinking stressing about everything in front of you and just.do.something.

Aspire to Excellence

“Whatever you do, do it well. Do it so well that when people see you do it they will want to come back and see you do it again and they will want to bring others and show them how well you do what you do.”

Yeah. What HE said. :-)

How about you? Do you have a favorite Walt Disney quote? We’re discussing today over at our facebook page. Join us!