Archive for October, 2015

Record Rain Forecast from El Nino; Is Your Business Covered?

With forecasters predicting significant rainfall thanks to the El Nino weather phenomenon, you could be putting your business at risk if you are not properly insured.

The average commercial flood claim is $89,000, according to the National Flood Insurance Program. And 25% of businesses that shut down after events such as floods never reopen.

You might be thinking that you might qualify for federal disaster assistance. But most federal aid comes as a loan – not an outright grant. A $50,000 loan at 4% interest would result in an annual payback of $2,880 – over 30 years.

Damage from flooding, including flooding generated by hurricane-generated storm surge, typically is not covered under a standard commercial policy, including a commercial package policy or a business owner’s policy.

A business located in flood plains will usually carry some flood insurance, but 30% of all floods in the U.S. occur outside flood plains. With record amounts of rainfall predicted, even businesses and homes located outside of flood plains may be at risk.

When you’re evaluating whether you need flood insurance, you should ask yourself questions about your expectations and your needs. In many aspects, flood insurance differs greatly from other coverage for your business. Here are the major issues, according to the Insurance Information Institute.


What does flood insurance cover?

Flood insurance covers damage to your building and contents caused by flooding.

This includes losses resulting from water overflowing rivers or streams, heavy or prolonged rain, storm surge, snow melt, blocked storm drainage systems, broken dams or levees, and other similar causes.

Also, damage from mold and mildew resulting from the after-effects of a flood is covered, but each case is evaluated on an individual basis.
Mold and mildew conditions that existed prior to a flooding event are not covered, and after a flood, the policyholder is responsible for taking reasonable and appropriate mitigation actions to eliminate mold and mildew.

Generally, if water comes from above – for instance, from rain or melting snow overflowing gutters and leaking onto your inventory – you’ll be covered by your standard commercial property insurance.


What’s my risk for flooding?

This is a key question, of course. By far the best indicator for the risk you face is location: Is your business near the coast or a river, lake or stream?


What’s the weather like? Is there a threat of hurricane, tornado or severe storm?

Is the business – and its primary equipment and inventory – on the bottom floor of the building or higher up, where it would be safer?


Coverage limits

Commercial flood insurance typically provides up to $500,000 of coverage for your building, and up to $500,000 for its contents.


You can purchase what’s called excess insurance coverage to rebuild properties valued above those limits, and this type of coverage usually includes protection against business interruption.


Think ahead

Don’t wait too long. Most flood policies won’t take effect until 30 days after the purchase, so you can’t wait until a threat surfaces to make a decision to buy.



Five Ideas for Boosting 401(k) Enrollment

While some employees understand the need to set aside money for retirement, many – especially your younger workers – likely do not.

That mindset can perhaps be chalked up to inexperience and immaturity, or that they think they cannot spare the funds.

But you as an employer can help generate more interest in retirement savings through motivation, education and making it relevant to your workers.

As the start of 2016 looms, and with it open 401(k) plan open enrollment, it’s time to start thinking of ways to boost your employee engagement.


The website has the following recommendations:

  • Conduct fun, simple, engaging training periodically. Investments and financials can be intimidating to employees and, as a result, they can choose to simply avoid the benefit completely.

Work with your 401(k) plan administrator to develop content for 401(k) meetings that simplifies the plan and shows why this benefit is relevant. Have a third party lead the training sessions, so they can create rapport with your staff.

Trust is big when you are talking about employees’ money. One thing, though: too many numbers and statistics will often make your workers’ eyes glaze over.

Keep these meetings simple. Ask that complicated investment questions be asked one-on-one after the meeting.


  • Use ongoing, self-learning tools for employees to reference. These videos, usually available from your plan administrator, can be reviewed on their own and during their initial new-hire orientation.

Ensure that these short, simple five- to 10-minute videos answer common questions about 401(k) plans. Show examples for how to enroll, how savings can grow, and how the plan administrator can help them.


  • Consider offering auto-enrollment and auto-increase features with your plan. You will want to talk to your plan administrator to see if these options will work for your employees, but since many times people just forget to enroll or aren’t sure where to start, these features can be a great way to increase participation.

Start simple and low with auto-enrollment or auto-increase options. If people feel like the plan is a financial burden, they will opt out. You want deductions to be low enough for them to not miss the money, while still giving them the opportunity to save for long-term needs.


  • Your matching helps. Matching contributions for employees can help their money accumulate more rapidly. Doing so also shows your staff that you are concerned about their future. Employer matching can be the influencing factor that causes staff to participate.


  • Celebrate retirements. When people retire, celebrate that retirement. This celebration and the subsequent conversations around retirement will help other employees think about their retirement and long-term financial plans.
    Since employees are naturally more receptive to ideas from co-workers, this celebration could be the motivator that causes them to get serious about their 401(k) participation and contributions.


Talk to us about the resources available in terms of employee education, possible incentives and activities that would best be targeted to your employees.

The worst thing you can do is just let another year slip by when a number of your employees are too confused or afraid to even consider participating in a 401(k) plan. Instead, give them the gift of knowledge so they can make an informed decision about their future.

401 k nest egg

As DOJ Sets Sights on Executives, Your Firm Needs Protection

The Department of Justice is stepping up its efforts to prosecute individual company executives, which could see more directors and officers facing jail time and individual financial penalties.

The department issued a memo (obtained by the New York Times) to its prosecutors outlining best practices and recommending that allegedly responsible individuals should be the focus of investigations at the outset, and that they only consider a company to have cooperated in an investigation if it turns over information about the actions of individuals at the firm.

This type of prosecution can cost the executives involved and the company hundreds of thousands of dollars in defense costs and fees, potentially bankrupting both the individuals targeted and the business.

The latest effort comes as the DOJ has been criticized for not doing enough to hold company executives accountable and seeking criminal prosecutions against them, especially in the wake of the financial crisis. The move appears to be part of a larger push by the department to go after white-collar criminals.

With the stakes increasing, it’s more important than ever that you protect your executives’ and company’s assets by securing a directors and officers (D&O) liability policy. A D&O policy provides overage for defense costs and damages (awards and settlements) arising out of wrongful-act allegations and lawsuits brought against an organization’s board of directors and/or officers.

Coverage under a D&O policy typically has major coverage parts, or “sides”:

  • Side A covers the director or officer in circumstances when the company is not legally permitted to provide indemnification.
  • Side B covers the company for indemnifying the relevant director or officer when the company is legally permitted to provide indemnification.
  • Side C provides some limited coverage for the company itself.


But there are times when coverage questions may arise due to various circumstances, or times when costs exceed the D&O coverage amount.


Some issues that could arise include:

  • A company refusing to indemnify certain directors or officers because of concerns they may have done something wrong, or
  • A company exhausting its entire D&O policy and then refusing to pay a director’s or officer’s legal fees.


There is an additional policy – an excess “Side A Differences in Conditions” policy – that would fill the void in these circumstances. This policy will advance defense costs for directors and officers in the event the company doesn’t pay an otherwise covered claim for any reason.

These policies have fewer exclusions than normal D&O policies. They can often be triggered even when the underlying D&O policy is not triggered due to an exclusion. Also, there is usually no retention or deductible on Side A Differences in Conditions policies.


Top five reasons you need D&O

According to the “2012 Towers Watson Directors and Officers Liability Survey”, the main reasons that organizations purchase D&O coverage are:

  1. Directors and officers can be held personally liable for claims; organizations increasingly consider personal liability coverage as one of the most important aspects of their D&O program.
  2. D&O liability claims related to regulatory actions are increasing for all types of organizations, representing 23% of claims in 2012.
  3. Directors and officers increasingly desire additional assurances beyond corporate indemnification. In fact, 43% desire added protection in the event their company becomes bankrupt and/or insolvent.
  4. Directors and officers and their employers are susceptible to a wide range of claimants, including shareholders, competitors, customers, employees and government entities.
  5. D&O claims are increasingly common for private companies, public companies and nonprofits; 36% of all organizations reported claims in the last 10 years.


Study Finds Almost All Businesses Hit by Cyber Attacks

A new study has found that the majority of American businesses were victims of cyber attacks in the past year, greatly increasing the security stakes for companies of all sizes.

Risk managers are aware of the increasing threat of cyber attack, but despite that, a majority of them said that they are not doing enough to thwart such an event, according to the study by The Hartford Steam Boiler Inspection and Insurance Company.

The results are eye-opening and a wake-up call for all companies, especially firms that do not have a risk manager on staff.

Worse yet, while in the past the majority of cyber attacks were directed at large businesses and corporations, in the last two years, hackers and cyber criminals have increasingly targeted smaller firms that often do not have the same security measures in place as their larger counterparts.

The biggest concerns facing the businesses whose risk managers were surveyed are protecting the privacy of their employees, customers and vendors, as well as risks associated with cloud computing.


Some of the more significant findings are:

  • Nearly 70% of all businesses surveyed experienced at least one hacking incident in 2014.

QUESTION: How many hacking scares/incidents have you experienced in the last year?

  • 1-5 (37%)
  • 6-10 (10%)
  • 11-15 (4%)
  • More than 15 (18%)
  • None (31%)


  • More than half (55%) of the risk managers don’t believe their company is dedicating enough money or trained and experienced personnel to combat the latest hacking techniques.
  • Most risk managers are concerned about cloud security.

QUESTION: What do you think is the biggest risk when it comes to cloud technology?

  • Loss of confidentiality of information (76%)
  • Service Interruption (16%)
  • Government intrusion (5%)
  • Negative impact on employee satisfaction (e.g. perception of down-time risk) (2%)
  • Lack of service standardization (1%)


  • Personal information is the biggest concern for businesses.

QUESTION: What type of information are you most concerned about being breached?

  • Personally identifiable information (53%)
  • Sensitive corporate information, such as business plans, M&A plans, product development information, marketing (33%)
  • Financial information, banking credentials (14%)


The insurer surveyed risk managers at small, mid-sized and large companies in manufacturing/industrial; retail; financial services; government/military; medical/health care; and education, among others.


Cyber Insurance

As the cyber threat continues to evolve, so do the insurance options available for businesses.

Some trends are starting to become evident in the market, though: rates for retailers, financial and health care-related firms are on the increase, and so are deductibles.

Coverage varies from insurer to insurer, but most policies cover at least the following costs:

  • Forensic investigations.
  • Credit monitoring for affected individuals.
  • Legal fees and settlements.
  • Fines or penalties levied by government agencies.


Pricing will vary depending on your industry as well as the strength of your internal security measures.

Retailers shopping for cyber insurance are coming under pressure to secure their payment systems, just as homeowners are encouraged to install locks on doors and windows.

Insurers are also promoting newer technologies for securing payment card transactions that exceed credit card companies’ requirements, such as tokenization and end-to-end encryption.



Drug Testing in Workers’ Comp Skyrockets

Drug testing of injured workers by treating doctors has skyrocketed over the past seven years as painkiller abuse continues and physicians want to monitor their patients for staying with their prescribed drug regimen.

The use of urine drug testing on injured workers in California increased 2,431% between 2007 and 2014, according to the California Workers’ Compensation Institute (CWCI).

During that period, urine drug tests grew from 10% to 59% of all California workers’ compensation laboratory services, while drug testing reimbursements increased from 23% to 77% of all lab payments in the system.

The rapid increase reflects the growing concern among workers’ comp insurers and employers about workers getting hooked on high-strength pain medications known as opioids, and similar pain drugs.

Other studies by the institute have found that adding opioids into the picture can greatly increase the time an injured worker is away from work recovering, as well as the cost of the claim.

Also, doctors are increasingly using the tests to ensure injured workers are taking the medicines they prescribe. The downside is that the cost of the testing continues to increase and can easily be a few thousand dollars, adding significantly to the cost of claims.

And the trend is not unique to California. In a recent multi-state study by the Workers’ Compensation Research Institute on injured workers with long-term opioid use, the percentage of workers who received at least one drug test increased from 16% to 25%.

Not only are more injured workers being tested, but workers themselves are being tested more, as well.


Here are some other significant findings from the study:

  • Between 2003 and 2012, the average number of drug testing service dates for injured workers who received these services increased by 9% at 12 months post-injury; 35% at 24 months post-injury; and 350% at 36 months post-injury.
  • Among the injured workers who were drug tested, the average number of tests per employee more than tripled from 4.5 in 2007 to 14.9 in 2014, driving the average amount paid per date of service from $96 in 2007 to $307 in 2014 – a 220% increase.
  • The number of providers who were paid for testing injured workers climbed from 428 in 2008 to 876 in 2014. Much of that growth is attributed to a migration towards physician in-office testing, because testing equipment has drastically come down in price.
  • The amount paid for drug tests in California workers’ comp are based on Medicare billing rules. These rules were revised in 2010 and 2011, after Medicare determined there were questionable billing practices for drug tests taking place.
    The CWCI study found that after those changes were made, the mix of tests used on injured workers changed. Drug screens, which are used to identify the presence or absence of a drug, accounted for a smaller share of tests.
    Meanwhile, quantitative tests, which are used to measure the amount of a drug sample, increased sharply. The CWCI notes quantitative tests are not subject to the tighter Medicare billing rules, perhaps explaining the increase.


Is it necessary?

Drug testing is in part related to the increasing costs and prescriptions for drugs in the workers’ comp system, as well as the fact that testing has shifted from labs to doctors’ offices, which can now afford testing equipment that was too expensive in the past.

Several medical treatment guidelines do call for doctors prescribing opioids to also test for illicit drug use under certain circumstances, such as when addiction or abuse is detected or when patients are at risk for overdose and death, sources said.

Doctors need to identify patients abusing drugs because it is inappropriate to provide them opioids and it can change the treatment required for them.

Proponents of drug testing say it helps keep injured workers’ medicinal intake in check to ensure they are sticking with their drug regimens and also not abusing prescription pain medications.

Tests revealing that patients are using drugs for other than “clinical health” can also help workers’ comp payers arguing before a judge or hearing officer regarding their responsibility for the claimant.

The purpose of testing is to assist in medical management. Still, testing should be done based on medical necessity related to a claimant’s medical presentation, dispensed drugs and evidence-based medicine protocols.


Seven Ways to Protect Trade Secrets When Employees Go to a Competitor

Any employer that loses a worker to a competitor is right to be concerned about its trade secrets being leaked or losing customers who may be loyal to that employee.

When an employee leaves you to go work for a competitor, it’s likely that they’ve been planning the move for weeks, if not months. During that time, they could have been collecting important company information, like customer lists and detailed product information.

All of this is at stake if one of your crew leaves for a rival, but there are steps you can take to reduce the chances of any negative fallout from a defection of this type.

The employment law firm of Fisher & Phillips LLP in a recent blog recommended that companies in this position should consider:


  • Discontinuing remote electronic access – Besides accessing the company’s e-mail system through a workstation in the office, employees also are likely accessing it remotely using their smart phones, and even laptops.

When you learn that an employee is defecting to a competitor, you should “immediately discontinue a departing employee’s electronic access. Doing so can bolster an employer’s ability to seek trade secret protection for its information, and it can limit the ability of a former employee to electronically misappropriate key information,” Fisher & Phillips writes.

  • Ensuring return of records and property – Long-time employees likely have collected years of company records in both hard copy and electronic form.

It’s recommended that you seek written confirmation from departing employees that all records and information obtained as a result of their employment with the company have been returned. Don’t forget to collect their office keys, access cards and similar property.

  • Freezing usage of employee’s computer – If you are concerned that the departing employee could pose a threat to your company, you should remove their work computer from use. You can find out by searching the computer if they engaged in misconduct, and it preserves evidence of their actions.
  • Conducting exit interview – If possible and the employee approves, you should conduct an exit interview. Ask about their next job or plans for seeking new employment. You can also remind them of their contractual obligations (such as non-compete or confidentiality agreements), and ask that they return all company property.
  • Checking computers – Check for unusual e-mails or bulk transfers of information that could point to them amassing important company data. Remember: key files and information can be e-mailed to a private e-mail address or downloaded to a flash drive with the stroke of a few buttons.
    Unusual e-mails or bulk transfers can provide an employer with an indication that a departing employee may not have the best of intentions.
  • Transitioning clients – As soon as you can after learning that an employee is leaving, you should assign the customers they are handling to other staff.
    “This will enhance the employer’s chances of solidifying and maintaining the client relationship, and may uncover evidence of the former employee’s misconduct such as a breach of a non-solicitation agreement,” Fisher & Phillips writes.
  • Notifying former employee of contractual obligations – If your employees signed non-compete and non-disclosure agreements with you, remind them of their contractual obligations to you. Provide a copy of the contracts in this communication.


Business Umbrella, Excess Liability Insurance Essential as Costs Rise

As a responsible business owner you no doubt make sure that you are properly insured for any liabilities resulting from damage to other parties.

Imagine some of the following scenarios:

  • What if a visitor trips and falls at your business, breaking a leg and is unable to work for a few months while they recover?
  • What if a customer suspected of stealing later proves their innocence and sues for defamation of character?
  • What if one of your employees, driving a company truck, rams into a passenger car and severely injures some of the occupants?


The costs of a large financial settlement could surpass the primary liability limits of your existing insurance policies, leaving your business responsible for the rest of those costs. And a high-cost accident or lawsuit could potentially put your company out of business.

To avoid any of these scenarios, it’s wise to carry a commercial umbrella policy, which will essentially pick up where your primary insurance leaves off – or runs out.

All of your policies have limits. Once those limits have been breached, the other party can sue and go after your firm’s assets. Breaching those limits is getting easier due to the increasing prices of vehicles as well as health care costs, should the other party suffer physical injuries.

An umbrella policy will also cover you for liability for which there is no primary insurance, or when a primary policy includes an exclusion that the umbrella policy doesn’t.

An umbrella policy will kick after limits are breached for:

  • Commercial general liability (bodily injury, property damage, personal injury, defense costs and attorney fees, limited contractual liability)
  • Business owners liability
  • Business auto liability
  • Employers liability


Most umbrella insurers require you to purchase primary insurance coverage before selling you an umbrella policy. For example, general liability insurance, auto liability insurance, workers’ compensation or employers liability insurance.

Umbrella policy limits may range from $1 million to $10 million, depending on the policy and the insurance company underwriting the policy.



Excess liability

For companies that have potentially higher liabilities, an excess liability policy can be secured that kicks in after the umbrella policy is breached.

This coverage provides extra liability limits over an umbrella policy, and typically follows the terms of the first underlying insurance policy.

Higher limits may be necessary for businesses with high loss potential, high profile, sizable sales, numerous assets, large auto fleets, worldwide presence, and/or significant public exposure.


Federal Agencies Stepping up Audits. Here’s What They Are Looking at

As the Affordable Care Act takes hold further, government agencies are stepping up their audits of health plans across the country.

With many employers still unclear over exactly what they need to do to fully comply with all of the sections of the ACA – from providing affordable insurance to reporting on their plans – the risk is great that you may be found not in compliance at least in some area.

There are a number of government entities that are responsible for auditing employer health plans, and they all have different areas of responsibility:

Department of Labor (DOL)

  • ACA
  • Employee Retirement Security Act (ERISA)
  • Health Insurance Portability and Accountability Act (HIPPA)


Department of Health and Human Services

  • Summary of Benefit Coverage compliance
  • HIPPA privacy, security and breach notification rules
  • Medicare secondary payer


Internal Revenue Service

  • ACA (also including reporting)
  • Misclassification of workers as independent contractors
  • COBRA issues
  • Tax issues concerning employee benefits


Equal Employment Opportunity Commission

  • Americans with Disabilities Act issues
  • Age Discrimination in Employment Act
  • Genetic Information Nondiscrimination Act


While one entity may audit an employer, all four are now cooperating with each other and sharing information. Health benefits attorneys have noted that if an auditor finds an infraction that may not be part of their agency’s auditing purview, they are passing the information on to other agencies.

For the purposes of this article we will focus on the audits that are most likely to happen, and the main triggers for these audits:


DOL audits

  • Adult children – The ACA requires that group health plans allow their enrollees to keep their grown children up the age of 26 on their family coverage plans. The DOL requires a sample of the written notice describing enrollment rights for dependent children up to age 26 who have used the plan since September 23, 2010.
  • Rescission of coverage If the plan has rescinded coverage, the DOL requires a list of all affected individuals and a copy of the written notice 30 days in advance of each rescission.
  • Grandfather status Employers that are retaining grandfathered plan status must provide documentation to substantiate that status, as well as a copy of the required annual notice distributed to participants advising of the plan’s grandfather protections.
    It’s been reported that the DOL seems to have a general disregard for grandfathered plans and may give them extra scrutiny.
  • Waiting periods – The ACA bars employers from requiring that new hires wait more than 90 days before they are offered health insurance. Expect an audit if you are not complying with these rules.


IRS audits

  • ACA reporting – Employers are required to self-report about their efforts to offer full-time employees compliant health insurance coverage. Failure to comply with the reporting requirement may result in penalties of $100 per incident up to $1.5 million.

Employers need to make sure that they comply with these reporting requirements.

Also, there are assessments exceeding $3,000 a year per worker if the coverage you are offering your employees is not affordable.   Even if you are offering what you think is affordable coverage to all of your workers, because people are paid different wages, coverage may not be affordable to those who are paid the least.

  • Not tracking hours ­– The standard for discerning if an individual is a full-time employee is that they work more than 130 hours per month. If you have a number of part-time employees whose hours vary month to month, it’s going to be difficult to gauge who is full-timer.
    The IRS allows employers to use a few different methods for tracking employee hours for the purposes of the ACA, but the variable-hour tracking method is the most complex and may invite additional IRS scrutiny.



The takeaway

The key is preparation for any employer that wants to pass an audit without incurring penalties.

We can work with you to ensure that you have the proper supporting documentation in place in case you are contacted for an audit.