Business Protection Bulletin

1. Nutritionist – design specific diets for employee conditions such as diabetes or weight

loss. Teach employees proper health habits for themselves and their families.

2. Exercise coach – design and encourage exercise routines specific to employee conditions,

such as water aerobics for joint rehabilitation.

3. Prevention – flu shots and vaccines at work.

Employment Practices Liability (EPL) differs from other professional and management coverage since it protects the company from acts which violate the employees’ legal rights of employment.

What are these rights?

1. Sexual Harassment
2. Discrimination (sex, race, national origin, age religion or color)
3. Wrongful Termination
4. 4. Constructive Discharge
5. Infliction of Emotional Distress
6. Violation of the Family Leave Act

The meaning of the laws regarding these rights and insurance coverage for these acts is fairly well established.  Policy language and court cases have hammered out some of the conflict.

From a risk management perspective, sensitivity training and the development and implementation of strict behavioral guidelines greatly reduces the risk of claims.

Three factors in this risk change almost daily and must be addressed.  State laws may expand the protected classes (sexual orientation) covered by employment law.  These suits are massively expensive to litigate.  Thirdly, outsiders like contractors, customers, and suppliers are now claiming under this tort.

Although States regulate insurance, insurance companies tend to be regional and national; therefore, policy language does not always represent state law or the conditions under which the laws apply.

Have your state-licensed insurance agent read policy language to assure proper coverage in each state your company operates.

The policy limit includes litigation costs and claim payouts.  Legal fees are not add-ons as in other liability policies.  So, as the insurance company lawyer negotiates at length, your available funds to settle dwindle.  This process can become a very dangerous game of chicken for your assets.  Increase limits accordingly and keep informed as to the progress of any negotiations.

Customers, suppliers and contract labor are beginning to avail themselves of this course of action.  Train all employees and implement strict behavioral protocols at all levels and duties.

Most important, assure your managers spot poor or reckless behavior early, and correct it.  Zero tolerance policies work in this area.  You wouldn’t want to work in a truly hostile environment.  Don’t turn your back on these behaviors

When my nephew was eighteen, he wanted to buy a new car on credit.  I counseled him to buy a car he could afford for cash and begin saving what would have been his monthly payment for the next six years.  If he wanted a new car then, he would have the cash to buy it and could begin the savings plan anew.  He got someone else to co-sign.

The point of the story is he did listen; he just didn’t have the discipline to save, a fault many businesses suffer.  Very few business plans include setting aside savings equal to depreciation costs, sinking funds for equipment replacement or modernization, or self-insured retentions.  All funds which will be needed at unpredictable times.

Self-insured retentions include deductibles on property claims, retentions under umbrella policies, uninsured claims, or even disagreements over valuations.  Realize these situations will occur over time and preparing for them is important.  It’s a good bet that every business will have fluctuations in good and bad markets over a twenty or thirty year period of time.  The worst problems invariably occur during down cycles, usually because corners are being cut on a regular basis.

Start your sinking fund discipline by reviewing your insurance policies and internal procedures to determine how much cash could potentially be required to respond to emergent situations: collision damage to a car, window replacement in buildings, or any other minor but usual event.  Put this amount aside or create a plan to save it immediately.

Next, consider normal long-term issues like property fires, depreciation, or equipment upgrades due to modernization.  Begin buying Certificates of Deposit or other cash equivalent interest bearing investment.  You want low risk and liquid to respond to these types of issues.  You can buy CDs on an annual basis and have some mature each calendar quarter to get a bit better returns.

Once the quick cash reserve is in place, you can begin investing these deposits in longer-term higher-yield investments like stocks or mutual funds.  The important step is to begin a program of savings for the unexpected.  This advice is some of the best risk management: be prepared for the disaster, and it won’t be a financial disaster.

A recent Wisconsin court case found manure spread on a farmer’s field is a product; but once the manure runs-off into his well, the bacteria in the fertilizer is an environmental hazard, not part of the product.  For the purpose of this discussion, let’s assume the bacteria residing normally in the well is distinguishable from the bacteria normally residing in manure.

Illness from bacteria involves the species of bacteria and its population.  The population is measured in “colony forming units” (CFU)  Homogenized milk might be home to 10,000,000 microbes per ounce, which is a healthy addition to your digestive system, no problem.  Anthrax can make you very ill at 100,000 CFUs.

The court struggles with the origin of the bacteria, and the factors raising its population to pathogenic levels.  Something of a chicken and egg question.  The bacteria in cow manure will be those found in milk, think about the host for both.  If the population of human health-threatening bacteria in the well is increased by feeding them manure, then the manure is a product and the bacteria is a contaminant.

Where will this finding be applied next?  Consider the food service industry.  Will restaurant dishes now be considered the product while salmonella is an environmental contaminant?  Do restaurants need to begin investigating environmental liability policies?  Yes.

Don’t overreact to this news.  Each state individually regulates insurance.  Wisconsin folks might need to review their options if the appeals court upholds this division of bacteria and source.

Ask your professional agent to read the policy language in your general liability products form and interpret the environmental exclusion.  These policies have different language.  Redouble your efforts to eliminate any bacteria which could be a health hazard.  Follow health department guidelines, particularly for food handling.

Every business will be affected by this ruling.  Good risk management analyzes exposure in advance of the crisis.  Where can bacterial infections originate in your operation?

Malpractice reflects many occupations: design engineers, doctors, lawyers, any advisors, consultants or professionals who render opinions. Sometimes referred to as professional liability or errors and omissions insurance, let’s use malpractice as a catch-all for these purposes.

Malpractice concerns a standard of care, an expected level of professionalism. For example, architects should use the building code as an important reference. But building codes are minimums; do you really want your house built to a minimum of safety standard? Yet, when design professionals stray from strict building codes, they must prove the betterment, have it approved, and then they are still liable in the event of failure, or perceived failure.

Deck collapses are frequent and potentially disastrous. Most occur because the deck is overloaded well beyond design capacity within the building codes. Knowing this fact, should the architect stray from code and reinforce the connection between structure and deck more? Does this create a duty to inspect the construction to assure the changes were implemented? Does this variance from strict code increase or decrease the design liability?

These are the questions all professionals should ask themselves. Fifty years ago, doctors were not sued for malpractice. Today, it is commonplace. What advances occurred in medicine over the last fifty years? If longevity increases lifetime discomfort or dis-ease, has advancement created expectation among patients for living longer and healthier, but disgruntlement when any set back occurs?

Consumers are more savvy today, and will be even more in the future. Science and technology advancements occur as a trial and error iterative process. New drugs, products, designs, and best management practices take time and unexpected consequences happen. The political process to accept change and betterment is also slow. So as a professional attempting to raise the standard of care, you must be aware of the legal consequences.

Review your limits of liability on your professional liability policies. Read or have a professional explain coverage as it relates to “experimental” or “developed” solutions.

According to Julie Nelson in her paper “Are Women Really More Risk-Averse than Men?”, this question is like stating Canadians are right-handed, since ninety percent are.  But, you would reject that thesis immediately.  Studies demonstrate that women are more risk-averse than male counterparts, at least in the social laboratory; however, no study has shown that risk-aversion is feminine or quintessentially female.

The real question, when risk management and loss control programs are designed, is what risks are acceptable.  Risk aversion may be the essence of great risk management.

The value of diverse opinions, risk tolerance, viewpoints, or just questioning standard operating procedures is enormous in retooling or creating a safety program in the workplace.  Efficiency experts and quality control people often go to the first person along the assembly line and show them the finished product.  They ask for input for improvements by way of the product, work conditions or safety.  After carefully listening, they continue to move down the line getting more input.  Why?  Because these folks spend eight hours a day thinking about it.  Nobody is more expert.

In the end, the management of the company has views from several stops along the assembly procedure, from divergent personalities, and from different levels of understanding the finished product.  Inevitably, this source of information proves most valuable and accurate.

Now consider your safety program review.  Everyone should be interviewed from the person ordering safety protection equipment to the president of the company.  Don’t ignore the office staff – very often are the best source for what really concerns the workers or how they view the company safety culture.  Don’t bias the study by interviewing only men or only women about certain jobs.  You want to know the concerns of the most risk averse and the mentality of the least risk averse employee.

You may find the women to be very willing to take measured risks in some areas while men are very timid in the same.  The important data involves what are the areas of agreement for what is universally acceptable risk and unacceptable risk.  The middle is the range of risk aversion.

Regardless of the sex of the individual, some training may be appropriate to bring the most risk averse into the mainstream and the most risk tolerant into a safer mental environment.

Lost three hours on the line to tend to an industrial accident.

Supervisor spent ten hours following up with hospitals, doctors and an incident investigation to understand how the injury occurred.

Managers needed to buck up employee morale and communicate what the company is doing for the injured employee.

Post-injury training programs were implemented to avoid the problem in the future.

Executives dealing with any negative publicity.

OSHA fines, hearings, documentation or just being shut down for their investigation.

And these are just the most obvious indirect costs.

Classic Causes

If your first answer was slips and falls or other premises liability issues, you are correct. These classic causes of liability loss still occur frequently. Rental properties are particularly prone to attract liability claims.

Food Preparation and Processing

The second category is food preparation and processing. The increasing frequency in these numbers concerns the insurance industry. Some hidden long-term issue similar to the asbestos disaster may be lingering in preservatives or other common chemicals used in food. There have been plenty of scares associated with long-term exposures like alar (proven false) or red dye #2.

Computers and Mass Communication

Computer and communication driven liabilities come in a strong third. Cyber-attacks, social media miscues and intellectual property litigation becomes more common daily.

The high cost to litigate and mitigate these computer losses combine for a high severity problem as well.

Professional Services and Management

Professional services and management claims occur with greater frequency. Professional liability, especially among lawyers and medical providers, has become very commonplace target.

Employment practices claims, a relatively new source of liability actions, increase in numbers monthly. The trend is definitely an increase for the foreseeable future.

Director and officers liability claims have increased substantially over the past few years.

Environmental claims play a role in each of the other liability issues.

Notice the claims trending greater frequency have little to do with operations and premises. Management, leadership, communications, computer interface and pollution are the sources of claims in the future.

Companies need to renew their risk management diligence in these areas. Employment practices claims can be reduced through proper procedures. Invest in educating your human resource group in handling sexual harassment complaints and hostile workplace incidents.

Rules for company use of social media and email/text content need to specifically exclude offensive content. Employees need to know how to avoid incoming content from phishing sites or hackers.

Environmental audits should be completed on an ongoing basis as needed. Documentation is critical in this area.

Overall, risk management must take a hard look at increasing specific underlying coverage and increasing umbrella limits.