Friday, April 30, 2010

Its a bad Environment to do business in.

With the massive oil slick containing hundreds of thousands of gallons of oil bearing down on the gulf coast I thought it was a good time to talk about Environmental Liability coverage. Now, I know that most small businesses are not faced with the possibility a of multi-billion dollar environmental disaster like this one; however, the level of the disaster is in the eye of the beholder and how relative it is to them.

Most businesses fail to recognize their own potential for some type of environmental mishap due to their operations. Environmental exposures are perceived to be exclusive to specific types of business, such as contractors, oil companies or automobile service operations. Any business that has large equipment/machinery (i.e. processing machines, refrigeration units, vehicles), storage tanks, chemicals etc has a potential for a pollution loss that should not be underestimated. Hotels, schools, manufacturers, hospitals, retail stores and restaurants all have the potential for an environmental mishap that could not only involve expensive clean up costs, but also expenses to restore the reputation of the business.

All businesses need to evaluate thier potential risk for some type of environmental liability loss and what they should do to manage it. Some of the critical questions to ask are:

What are its exposures?
What will the response be should an event occur?
How will we pay for the clean up & and any claims that may result

The cost of an event can not be understated. Management should understand when it comes to paying for any losses that their Commercial General Liability(CGL) coverage, in almost all cases, specifically excludes Environmental related claims and can not be relied upon as a financing source. The CGL policy was never intended, nor priced, to provide coverage for these types of losses. Fortunately there is insurance coverage available for these risks.

Known as Environmental Impairment Liability Coverage, it is designed specifically by insurance companies to handle the unique exposures and losses related to environmental issues. Key areas of coverage include:

  • Remediation Expense includes actual clean up costs, compensatory costs for cleanup costs incurred by others and related legal and defense expense.
  • Coverage for losses arising out of contamination due to the insured’s waste or products at Non-Owned Locations
  • Coverage available for loss arising out of contamination due to transport of the insured’s waste or product by the insured or a third party carrier
  • Underground Storage Tank coverage available
  • Coverage available for loss arising out of contamination due to the insured’s contracting operations
  • Coverage available for Business Interruption and Extra Expense due to contamination at an insured location
  • Image Restoration Coverage to assist the insured in restoring their reputation in the event of a claim or remediation expenses
  • Disciplinary proceeding defense cost
  • Coverage for the ‘midnight dumping’ at project sites or owned and leased locations – Contaminants illegally disposed of or abandoned by a third party
  • Coverage for the insured’s Emergency Expenses, to protect third parties or the environment from an imminent endangerment due to contamination
  • Coverage due to mold, legionella and low level radioactive matter or waste
  • Property Damage includes coverage for Natural Resource Damages
  • Bodily Injury includes medical and environmental monitoring
  • Remediation Expense includes both clean-up to the extent required by law and in absence of such laws to the extent recommended by an Environmental Professional

This coverage, though not inexpensive, is readily available from many insurance carriers for a wide variety of operations and situations. A true risk manager or responsible business owner will recognize having the insurance is does not preclude responsibility. Each business needs to set up a proactive strategy to deal with an event in a fast, yet effective manner should the need arise. The insurance should not be thought of as the exclusive remedy, but merely as the financing tool that allows them to be aggressive and timely in their response. A business should want their neighbors, customers, regulators and the public in general to know they care about what happens, and are acting quickly to mitigate the effects of the loss, thus limiting the harm.

Talk to an independent insurance agent who understands this type of coverage and can help provide you with the tools to evaluate your potential exposure. Stay ahead of any potential problems so they do not blind side your business. After all, the real potential damage from these types of losses is to the business environment you operate in

Monday, April 5, 2010

Your skill is what can get you into trouble!

During an economic downturn, especially a protracted one such as we are in now, many individuals turn to working from home as the new means of employment. In fact many companies will "down size" only to hire back an employee as a contractor to do the same work they were doing as an employee. This new "self-employed" status for individuals can create a range of new exposures to loss that may be missed without careful consideration.

The new exposures now faced with this "home-based" business include:

  • Property - some coverage can be found on the Homeowners (HO)policy but the amount can vary significantly from carrier to carrier. Also specialized coverage for computers, software, loss of income, valuable papers & records, etc; are virtually non-existent on a traditional HO policy.

  • General Liability - coverage for Bodily Injury (BI) & Property Damage (PD) related to the business can be endorsed on a LIMITED basis on a traditional HO policy. However it is usually only for on-premises (the home only) and fairly restricted in the types of business operations it will allow. No coverage for Advertising injury (libel, slander, copyright infringement, etc) is afforded either.

  • Professional Liability - This is by far the most likely area of exposure for a self-employed professional and for which there is NO coverage available on the HO policy .

It is this Professional Liability exposure I would like to address in greater detail. As a "Professional" or "Expert" you are typically being hired for your knowledge or skill in a given area. The subsequent advice or services you provide based on that expertise is what the client will in turn make decisions on. These decisions will have financial ramifications on the client's own business, and the results of those ramifications are your biggest exposure, especially if they are negative to the client's bottom line.

The damages your professional expertise may cause to a client is what you need to protect yourself from. More importantly it is the mere accusation of harm that can cost you tens of thousands of dollars in defending yourself from. You may be entirely blameless from having caused any financial harm to the client, but you still have a long and expensive road to go down in order to exonerate yourself and your reputation.

A Professional Liability (PL) policy, sometimes referred to as and Errors & Omissions policy, is your best protection from claims of negligence on behalf of clients who feel you provided faulty or unsound advice or services. The policy is fairly customized around the type of services you are providing. Often times it can be tailored to very specific types of work and are usually written with Insurance Companies well versed in your area of expertise. You want to be sure you choose coverage with knowledgeable insurers so that you can avail yourself of their legal and loss control experts should the need arise.

The PL policy is not a license to be reckless. You want to have good risk management strategies to help mitigate your exposure to claims from a disgruntled client. A critical component of risk management for the professional is a solid contract that clearly spells out the terms, conditions and expectations of the services to be provided. A contract is not a firewall against litigation, but may be an important piece of your defense. You should work with a good attorney who is knowledgeable about your business and where potential litigation arises from. Your contract will be the 1st line of defense should an issue arise.

When comparing coverage between insurance companies you should proceed carefully. There is no standardization between coverage forms of the various insurance companies that provide PL coverage. It is important to work with an Independent Insurance Agent to help you navigate through the various offerings to determine which policy is providing you with the best coverage for your premium dollars. Some things to look out for include:

  • Defense Costs- Are they included in the coverage limit or outside the limit of liability?

  • Deductible - Is it applicable to defense cost, damages or both?

  • Definition of covered services - Does it clearly define what you are doing as covered?

  • Territory of coverage - is it United States and territories, or is it world wide.

  • Coverage basis - Is coverage on a "Claims-Made" or "Occurrence" basis.

These are just some of the aspects of the coverage you should be cognizant of when procuring a PL policy for coverage Make sure you avail yourself of the knowledge and skill of your independent agent when looking in to this vital coverage for your business. After all you are hired for your expertise and skill, you should trust in theirs.