Business Protection Bulletin

Without a doubt, directors and officers are becoming the whipping boys of the financial world. Whether the market rises or falls, asset valuation and expectation drives lawsuits towards those in corporate governance and top management.

Directors and Officers Liability is one of the fastest growing areas of liability claims and settlements. Why? Largely because directors and officers must make critical decisions without perfect knowledge while those impacted by these decisions can reflect on outcomes with hindsight’s perfect knowledge.

Since Sarbanes-Oxley laws were enacted, financial reporting requires attention to minute detail, impeccable accuracy, and transparency. If values and regulations were not subject to change, this accounting would be easier.

In the case of the real estate bubble bursting over the stock market, values dropped in the real estate and stock markets quickly and sharply. Is it realistic to believe the trustees of your retirement account should foresee this economic disaster? Should stockholders be compensated when outside forces decrease the stock value so dramatically?

According to the trends in liability lawsuits, many employees and investors believe so.

When the stock market rises to record levels, the trustees are held to account if their investment returns lag behind the optimal numbers, or even the average returns.

Company stock prices are expected to rise with the market, regardless of which sectors are advancing.

So what can directors or officers do?

Even contracting out the governance of retirement accounts does not remove the liability from the board.

The only solution to this problem is transferring the risk through insurance contracts. Assuming the board and officers are doing a better than average job, too many outside influences can change the financial landscape for a company.

Claims frequency and severity are on the rise. The directors and officers, as a group, need protection from litigation, including costs of litigating. The company cannot afford timid officers or directors lacking confidence. Nor can it afford indecisive leaders with one eye on the deposition.

The proper risk management decision includes high limits D&O insurance with proper monitoring of the documents for decision making. What circumstances drove decisions? What were the compelling reasons for changes in direction or maintaining the course? These documents and notes will help in the long run.

Property risk management in this real estate climate offers tricky valuation issues. Start with the balance sheet: what is the book value of the real estate assets? This number is the primary concern.
The practical value, the operations value, represents the nuts and bolts of the business. If your real property suffers a major loss, how easily can operations be transferred, set back up, and continue? If the business requires massive machinery rigged and moved, the cost can be quite high. This extra expense to relocate, whether temporary or permanent, is an intangible asset, and may require special attention to insure properly.
Real property, buildings, depreciate. The book value, under normal real estate market conditions, is typically significantly lower than the replacement cost of the buildings. An actual cash value, replacement cost less depreciation, will theoretically equate to the book value. But, you may need a new location.
First Contingency Question: Is our current location perfect, or could we move to a new site?

As your business changes, needs change. Offices can be more remote, industry requires some ground transportation, usually trains and trucks, or do you ship by sea? These considerations may have changed since your current site was chosen.
In a perfect world, where would you locate your operation as a new start-up? If it’s where you are now, you need to assure you can replace the building you are currently in, or build the redesigned building you may need to keep up with current building codes.
If you could move or would desire a new location, consider the current market value of your land, and add to that the actual cash value of your buildings. Can you acquire new facilities at the more desirable location for that budget? If so, your contingency plan might include this move, or possibly a rent to own option in an existing building.
Think through the disaster response. Would we want to literally replace what we have, or would that be a good time to change the operations, even slightly. This thought exercise gets better results when you’re not under the pressure of an actual disaster.
Second Question: Does our funding, including insurance coverage, reflect our catastrophe plan?

An important step in risk management – funding the risk. Review your policies, building valuations, amount of coverage, and any extra coverage like extra expense or loss of income.

It is interesting, that unlike most other natural disasters, earthquakes are sneaky and come absent a warning – they creep up on us and then without warning the ground begins gyrating and buildings and people are victims of violent and frightening shaking, Standing in line behind most moderate to severe earthquakes, waiting for their chance for causing havoc are avalanches, landslides, flash floods and more. This chain of events makes earthquakes the most feared natural disaster as well as the most costly natural disaster.

Amazingly, in California, where 99 percent of homes face earthquake threats, only 12 percent have earthquake insurance. Countless businesses in California, including startups and fledgling small businesses run from homes. Be aware, your standard homeowner’s insurance does not cover earthquake damage neither does a standard BOP insurance or business property insurance.

In 1994, an earthquake centered around Los Angeles lasted no more than 20 seconds and was felt as far as Las Vegas. Fifty-seven people died due to the earthquake and there were at least 5,000 fatalities. There really is no way to value 57 fatalities or five-thousand injuries. But property damage totaled more than $20 billion. It was one of the most expensive natural disaster in the history of the United States.

In addition, often there are aftershocks following a large earthquake. On their own, they cause much damage, and they can last for months.

Protecting Your Business From Losses Due to Earthquakes

The Earthquake Endorsement

Since standard business insurance policies do not cover earthquake losses, there are two ways to get coverage.

The first is an endorsement to your business policy, and the second is to buy a separate Earthquake Loss insurance policy.

Endorsements must come from the business insurer. Though in California businesses can use the California Earthquake Authority (CEA) for coverage. The state created the CEA as the insurance companies were reluctant, after the 1994 California Northridge earthquake, to continue writing the insurance. Their cause of the reluctance was the increasing population of CA. More people mean more infrastructure, more homes, building. and businesses. The risk was too great so the government stepped up and filled the void.

Additional Separate Policy

Purchasing a separate policy makes sense for larger companies. It is a good strategy for keeping the overall insurance premium low. Yet, having policies with multiple insurance companies may prove difficult for small and new businesses.

The best way to get the best policy for your premium dollar is to meet with your independent business insurance advisor. He or she will go over the options available to you, the cost per $1,000 of property insurance and more. Be sure and discuss the pros and cons of the CEA. Your independent business insurance agent has your best interests foremost in dealing with you.

More than anything else, data drives business in America. Some business data is proprietary such as customer lists, patents in progress, the recipe for the secret sauce, and the like. If this data is lost, stolen or destroyed it can cause great damage to the company. While many businesses carry data protection insurance, the cash payout to a pharmacy company cannot replace years of research and the recording of irrecoverable data.

Other sensitive information attaches to your clients and customer records. This information has data such as: Employer Tax ID numbers, Social Security Numbers, banking information, credit card information, patient medical records and more. Compromising this data leads to nothing good, at best your customers and clients are upset with your company, at worst you face either multiple lawsuits or a class action lawsuit. Again, there is insurance that covers you for these types of mishaps, but do nothing to save your business’s reputation and regain your client and customer trust.

Finally, with the advent of Internet connections to workplace data, the problems about safe data storage grow exponentially. Some portable devices are keys to your data, or worse have confidential company or customer information on them, including medical records.

Seven Steps for Data Safekeeping

Every computer or mobile device that accesses your company data is the first line of defense in protecting the company data. Every device and computer must have anti-malware software to guard your system from invaders and hacking.

Spyware and dangerous viruses are easy to attach to legitimate looking files. These malicious files compromise computer and server performance, corrupt files or destroy data. Run proper antivirus and anti-spyware safety software on every computer and device.

Firewalls are an important part of the software team that protects computers from unwanted and dangerous viruses, programs, or spyware that breach your computer. There are a number of software firewalls available, but the best protection is from hardware-based firewalls.

Educate employees to never open attachments from unknown senders and never open attachments from senders that are not among contacts.

Never allow employees to use business computers to visit sites that are for adults over 21 only. The sites tend to harbor launch software for mischief-making programs such as spyware.

When critical security updates arrive from Microsoft or Apple install them. This keeps your operating system protected from recently discovered security gaps that are a hacker’s dream to exploit.

Establish a policy that laptops and tablets have all protective software, have no stored usernames or passwords for accessing the company data. Another policy is for devices that leave the premises be locked in car trunks and removed from the car when the employee gets home.

Resources (cash and time) are limited. Involve IT professionals in choosing the hardware and software used to make sure it addresses critical problems.

Social media is a great way build your business’s reputation. Interactivity between merchants and customers has helped many unheard of boutique shops become Internet darlings with maxed out sales. However, fostering social media on your website or participating in social media on another’s blog is dangerous.

The danger is Internet Defamation.

What is Internet Defamation?

Defamation is when a person makes false statements about your business such as you use discriminatory practices in hiring, or you use dishonest practices dealing with your customers. Making statements like these and putting them on the Internet for anyone and everyone to see is libel. There are important elements for a statement on the Internet to earn the label of a defamatory.

• The person who published the statement was not the person defamed
• The statement is a false statement of fact
• The false statement was understood to be:
• About the plaintiff and
• Designed to harm the reputation of the plaintiff
• Should the plaintiff be a public figure he or she must also prove malice.

Businesses with a presence on the Internet, especially if the Internet site encourages comments and dialogs among visitors need to be especially vigilant monitoring about what other users post on their site. There is a powerful federal law known as Section 230 of Title 47 of the United States Code (47 USC § 230). This federal law is part of the Communication Decency Act of 1996. This law has precedence over any local or state laws and protects owners of interactive computer service providers from claims of defamation from postings made through reader’s comments, entries of guest bloggers if you support a business blog site. In other words, this law gives you as a web host protection from claims made from hosting information written by third parties.

Then why should a business watch what third parties say on their site? is a valid question. You want your site and blogs to promote your brand, not distract from that purpose by allowing a “flame war” on your sites.

Allowing an offensive statement to stay on your site, even when written by a third-party is off-putting to potential clients and customers,

Your own employee gives in to baiting into a discussion and trying to defend your business engages in Internet Defamation costing you customers and even cash if a lawsuit against you goes to court.

Insurance for Internet Defamation

Even though the Section 230 language and the truth – if what you said is true it is not libel – help keep the threat of you being successfully sued for Internet Defamation lower, it is a risk that your insurance advisor can cover through your BOP policy, your General Liability Insurance, or an Umbrella Policy.

Talk with your advisor to understand your risk and the best way to cover it with insurance.

1.It continues to pay for your legal liabilities, including legal defense when the limits of any of your primary liability are met or exceeded due to claims.

2.It takes over when the total limits of a claim of an underlying policy reach exhaustion because of earlier claim payments

3.It provides protection against certain liabilities for which you have no coverage, subject to the assumption by the named insured of a self-insured retention.

•Contractual liability both written and oral

•Liquor law liability

•Non-owned aircraft liability

•Slander and libel

•Much More

Your business insurance value has no relation to your policy premium or your policy premiums, the value of your insurance portfolio related directly to the risks you insure against. If you are not an insurance expert, it is important for you to meet with an insurance advisor to check your policies, their limits, the risks they cover, the risks they do not cover and any duplicate or missing coverage for your business.
Understand the Language
One example of not understanding the language of insurance affects manufacturers. Many insurance carriers slip into your policy an insurance clause called a Classification Limitation Endorsement. The danger with this endorsement is that the limitation of work is not known until only after a claim has been filed against you. So, you the coverage you thought you had does not exist because there are scores of manufacturing classifications. If you have a claim and are misclassified, who pays the bill is often a decision you hate.
Do you have claims made or Occurrence Professional Liability Insurance?
Occurrence Professional Liability Insurance
The occurrence professional liability form of insurance pays for claims that occurred during the policy period, regardless of when the claim if filed. This kind of policy provides gives long-term protection for claims filed after the policy ends but happened while the policy was in force.
Claims Made Insurance
This form of insurance covers claims made during the active life of the policy. Although this type of professional protection is less cost than occurrence insurance, often it is a false saving. If your insurer stops writing this policy or you want to switch to an occurrence based policy, an incident that occurred during the covered period of your claims-made coverage but reported afterward get no response from the old carrier. You are on your own, unless you buy Extended Reporting Period (ERP) also known as “tail insurance.” The cost of this insurance can be twice the price of your claims made policy.
With a better understanding of insurance language, a meeting with your insurance advisor, whether you are a general contractor, a lawyer, or a retailer proves useful. The following endorsements (coverages you add to your base policy) impact your insurance policy and your bank account.
Pollution Exclusion:
Your Commercial General Liability policy always excludes liability from pollution. Through an endorsement it can be added to your policy. To get it, always ask your insurance advisor for the widest package of protection available – then ask if you have coverage for legal liability arising from an injury or property damage caused by pollution.

Per Project Aggregate:
the acronym is PPA and it covers extending the limits on every job you do to the full limits of liability. Say you carry $1 million per occurrence/$1 aggregate. A per project aggregate raises the aggregate for each project to $1 million. this insurance, just like pollution insurance applies to those in the environmental protection design or building industries.

Additional Insured:
The term applied mostly to liability and property insurance. An extra insured often is the owner of a construction project who wants the additional insured on the general contractor’s liability and property insurance. To get the status of additional insured and the insurance coverage that status provides the general contractor uses an endorsement that either specifically covers the named insured or by a description in a blanket additional insured endorsement.
Other coverages your business needs looking at include:
Employee theft

Inland Marine

Libel/slander

More
Many times when endorsements are added to the policies you inadvertently duplicate coverage. An insurance advisor help you avoid that waste of premium dollars and helps make sure you buy the coverage you need – that is where the value is for the business insurance portfolio is.

If you are a startup business or a growing business, chances are you purchased the least amount of insurance so your cash flow stayed manageable. Often, after your first meeting with your insurance agent, or bought your insurance online, you haven’t had the time to have an insurance expert go over your insurance portfolio.

Commercial General Liability Insurance

Most of the time businesses, especially those who buy insurance online, buy Commercial General Liability Insurance (CGL). This insurance protects you, your employees and your business from property damage and personal injury claims up to the policy limit. CGL insurance allows you to add more coverage, such as employee theft, employee auto business liability, and many other business risks that owners encounter and use endorsements to add coverage to their CGL policy.

However, when you add endorsements, two things can occur;

1. Each time you add an endorsement to your premium rises and
2. Often, when you add one or more endorsements, it includes coverage you already have.

Business Owners Policy

A Business Owners Policy is an insurance policy designed for small and medium-sized businesses. Just like Commercial General Liability Insurance it covers you, your business, and employees from legal liability for property damage or personal injury up to your policy limit.

But that is just the beginning of a BOP policy. Additional standard coverage includes:

Personal Injury Liability Insurance: This is far different from Personal Injury Insurance, this type of coverage includes protection from legal liability for your employees, yourself and your business for claims arising from things such as libel and slander, false advertising, and other similar civil rights violations.

It also protects people employed by you, yourself and your business from legal liability related to advertising such as:

• Libel
• Slander
• Theft of intellectual property
• Infringement of trademark of company name

Buildings Coverage and Business Personal Property

Other coverage that comes with your BOP is coverage for Business Personal Property. This protects you from loss if:

Property owned by the company and used by it suffers damage or destruction.

Interior property loss, such as furniture, fixtures, and equipment placed permanently at your business site.

Building additions completed for the expansion of your business site

Customer’s property under the care of the company

If you do not do an annual insurance review, schedule one now. Speak with an independent insurance advisor to choose the best kind of policy for your business.