Category: Liability

How Much Liability Insurance Is Enough?

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There aren’t many activities in life riskier than starting your own business. Two of the biggest risks any business faces are the loss of essential property and personal injury claims. In minor cases, these risks can cause loss of income, but in the worst-case scenario, they can bring your business operations to a screeching halt and force you to close the doors.

Obviously, your success is dependent upon keeping risks and losses to a minimum. Liability insurance helps you lower vulnerability to risk by transferring some or all of the risk responsibility to your insurance carrier. The more risk you can transfer, the less vulnerable you become. That’s why it is so important to evaluate your operation frequently to determine where there is potential risk. Through a risk analysis, you consider all possible risks and determine which are the most significant for your particular business.

There are many types of third-party liabilities that businesses should be covered against. In addition to property loss and personal injury, businesses should be protected against claims such as damage to the property of others, allegations of false advertising, and legal liability stemming from employment practices. In the event that a claim is filed against you, liability insurance will provide you with a legal defense. Should the judgment go against you, your liability insurance will pick up the tab for covered damages up to the policy’s limits. Keep in mind that liability insurance can also serve as the collateral needed to post an appeal bond. A large award can be potentially reduced or reversed on appeal. Without the ability to post a bond, however, your company will not be able to start the appeal process.

Evaluating your level of risk is a complex issue. Although young companies generally have a low level of liability risk, you should buy coverage with an eye toward the future. This is especially important if you are developing products with the potential to impact a large number of people. The greater the potential impact, the greater the possibility your company will find itself as the defendant in a class action lawsuit. Other factors you need to consider include the size of your company’s operations, geographic locations, industry trends, organizational structure, amount of capital at stake, you and your staff’s degree of experience and expertise in the field, and any general industry hazards.

Determining the amount of liability coverage you need should be considered a work in progress. As you expand, you will encounter situations that necessitate increasing your coverage. A review of your risk analysis should be done periodically, perhaps at each renewal. You should also review your insurance needs whenever you business changes in size, diversifies into new markets, or relocates.

Employers Paying the Price for Off-The-Job Injuries

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Employers have spent the last few years putting more emphasis on workplace safety, to meet with the ever-increasing demands of safety-based regulations. According to the National Safety Council, their combined efforts have lowered workplace death rates 17% since 1992.  However, while businesses have been working to keep their employers safer and healthier while on the job, their efforts have been thwarted by the rate of fatalities occurring off-the-job, which has risen 14% in that same period. Companies find themselves spending a great deal of money to cover injuries from accidents unrelated to the workplace.

Statistics gathered for 2004 indicate that twice as many workers (which translates to 6.8 million people) were seriously injured while they were away from work than were injured while working. There were 49,000 injury-related deaths in 2004 that involved workers, and approximately 90% of these happened during non-working hours.

During that same period, the cost of employee injuries, both on- and off-the-job, was over $330 billion. Almost 60% of this figure went towards medical costs for injuries that occurred while employees were not at work.  This translates to a $200 billion loss by the companies in payouts to employees who didn’t even qualify for worker’s compensation. In addition, non-work related injuries caused employees to lose 165 million days of work time. Compare that number with the 80 million lost workdays that resulted from actual workplace injuries.

The impact on business is even more significant than may appear on the surface. The Agency for Healthcare Research and Quality discovered that more money is spent on medical care to treat trauma and poisoning for people of working age than for any other health condition including cancer, heart conditions, mental disorders, upper respiratory conditions and asthma. In fact, the fallout from non-work related injuries on businesses is becoming so important that the country’s first “Off-the-Job Safety Symposium” was held at Disney’s Contemporary Resort in Orlando, Florida in early 2006. Businesses are beginning to understand the economic value of keeping their employees safe both on and off the job.

A survey of 1,300 companies conducted by the National Safety Council verified that businesses implementing off-the-job safety training programs are already realizing the benefit: 58% reported a drop in the number of employee injuries that occurred outside of work. Compare this to research presented at the 17th World Congress on Safety and Health at Work in the fall of 2005, which showed that every dollar businesses spent on safety instruction yielded $3 to $6 in savings in future health care costs, proving once again that prevention is the key.

Private Companies Increasing Risk as Their Scope Widens

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Competition is the name of the game in American business, and staying competitive means taking some calculated risks. Everyday, more privately held companies are choosing to take those risks by entering areas that were once considered the exclusive turf of large corporations. Of course, as these smaller players enter the arena of the big leagues, they find themselves part of another once exclusive domain of the large corporation – the liability lawsuit. Add workplace fraud and extortion to the mix, and you can’t tell the players apart without a scorecard.

The existence of this brave, new world of small business is revealed in data presented by the 2005 Chubb Private Company Risk Survey. The data showed that 67% of the private companies surveyed are planning to enlarge the scope of their product offerings, while 20% plan to reduce employee benefits, 21% plan to eliminate workers, 18% plan to take on an outside board member, 27% plan a significant acquisition, and 31% plan to outsource some part of their operations.

Despite their newfound need to push the envelope, amazingly enough, 33% of private companies questioned do not plan to purchase any type of management liability insurance such as directors’ and officers’ liability, employment practices liability, fiduciary liability, errors and omissions, crime, kidnap/ransom and extortion, and/or workplace violence. The two major reasons given for not obtaining coverage were that they didn’t see a need, or they felt there was an extremely low risk of the company encountering a problem. High hopes aside, about two-thirds of the private companies responding to the survey had experienced some management liability situation within the past five years, primarily in the areas of employment practices liability, directors’ and officers’ liability and workplace crime. The 161 companies that admitted to having been a defendant in an employment practices liability lawsuit or Equal Employment Opportunity Commission charge faced an average cost of $1.1 million. Companies that were victims of stolen company funds, equipment, inventory or merchandise saw an average loss of $348,000.

Most of the private companies polled indicated that they had tried to implement business practices that would mitigate risk from a liability lawsuit or crime:

  • 9 out of 10 companies have a written policy regarding employment discrimination and sexual harassment;
  • 73% have policies, procedures and training programs regarding loss prevention;
  • 64% provide employment discrimination and/or sexual harassment training to their employees;
  • Approximately three out of four companies use contracts in dealings with third-party clients;
  • 71% use employee background checks;
  • 44% have a written corporate governance program;
  • 24% have implemented corporate governance rules under the Sarbanes-Oxley Act.

Despite their previously utopian outlook, many executives of these surveyed companies realize that they are entering into much more turbulent waters: 43% indicated concern about a possible lawsuit over termination, discrimination or sexual harassment in the year ahead. However, only 33% of these companies protected themselves by purchasing employment practices liability insurance. The unfortunate conclusions drawn from this data seem to show that companies most vulnerable to a liability lawsuit or crime are the least likely to purchase any type of liability coverage.

EEOC Casting a Bigger Net to Catch Systemic Discrimination

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Commissioner Stuart Ishimaru of the U.S. Equal Employment Opportunity Commission issued a stern warning to American businesses when he spoke at the Employment Practices and Fiduciary Liability Symposium sponsored by the Professional Liability Underwriting Society. He cautioned that the EEOC is shifting its focus from small individual cases to larger systemic issues, even some that will cut across entire industries. He added that the change in emphasis was the result of limited resources that were stretched too thin to fight all potential employment discrimination cases.

Commissioner Ishimaru also noted that the agency needed to choose its targets more carefully, especially in litigation. In order for the EEOC to change attitudes and deter bad behavior in employment practices, targets must be bigger than they’ve been in the past. To that end, the agency has adopted recommendations from an internal task force report that focuses on strengthening its nationwide approach to investigating and litigating systemic cases.

The task force was established in 2005 to examine the EEOC’s systemic program and recommend new strategies for handling this type of employment discrimination. The task force worked for nearly a year, conducting interviews, holding focus groups, and polling EEOC staff. One of the outcomes of their work was a specific definition of systemic cases as a “pattern or practice, policy and/or class cases where the alleged discrimination has a broad impact on an industry, profession, company, or geographic location.”

Another outcome was a plan to revitalize the agency’s systemic program by having district offices analyze data to spot problems within their regions’ industries.Most employers are required to file an EEO-1 report that breaks down race, gender and ethnic composition of employees. These EEO-1 statistics will be used to uncover problem employers and industries. In addition, members of the EEOC Commission and employees involved in outreach will be encouraged to educate employers and other members of the public about systemic discrimination, including trends and issues the agency has identified and cases the agency has handled.

Commissioner Ishimaru also hinted at the possibility of the EEOC using testers either directly or indirectly in enforcement. Testers are job applicants with similar resumes but different races or ethnic backgrounds that apply for the same jobs.

In addition to those changes described above, the Commission also approved some other significant operational changes:

  • Systemic investigations and litigation will be conducted in the field, and the systemic investigation and litigation units in headquarters will no longer exist.
  • Each district in the field must develop a plan that will ensure the Commission is identifying and investigating systemic discrimination in a coordinated and effective manner throughout the agency.
  • The Office of General Counsel should staff systemic cases using a national law firm model, meaning that cases will be staffed with employees who have the expertise suited to each particular case.

The most significant change in this overall shift in focus is the decentralization of the agency. Field offices are expected to handle all systemic investigations and litigation. They will be partnering to share expertise, in order to maximize resources. Headquarters will now assume a secondary role as a provider of assistance and support for the field offices’ systemic program.

Data Shows Slight Decline in Federal Products Liability Lawsuits

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Product liability cases can send companies into a financial tailspin as they strike at the very core of a business. A company in the midst of a product liability suit can find itself faced with having to pay punitive and compensatory damages, recall and/or redesign products, respond to regulatory actions, make up for lost cash flow because of the devaluation of its stock, deal with negative publicity and try to stem the flood of employees leaving because of bankruptcy fears.

Given all of these damaging consequences, it’s relieving that information compiled by LexisNexis Market Intelligence database shows a downward trend for the second year in a row in the number of total federal product liability lawsuits filed in the U.S. The number of lawsuits dropped 14 percent from 2004 levels to less than 24,000 in 2005.

This downward spiral broke the previous upward trend that had begun in 2001 when just over 5,000 filings were made. That number increased to over 13,000 cases filed in 2002, and continued upward in 2003 when 17,000 filings were made.  The number of filings peaked in 2004 with nearly 28,000 lawsuits.

In spite of this good news, companies aren’t completely out of the woods yet. Product liability lawsuits are still at very high levels from a historical standpoint. Many legal experts are trying to determine if this recent decline is just a temporary aberration or the beginning of a real downturn in the number of new suits.

Whether a temporary stay of execution or a lasting change, your company can still be vulnerable. That’s why every company should have a products liability risk management plan. Use the following questions as a guideline for determining if your company has an effective product liability risk management program:

–    Do we have a product liability plan that is routinely reviewed and updated as necessary?

–    Have we integrated our product liability plan into our corporate strategy?

–    Is our product liability program fully supported by our senior management team?

–    Do we have the policies, procedures, and tools in place to maintain proper documentation throughout the life of the product?

–    Have our business units been tagged with the responsibility to reduce overall product liability costs?

–    Is our product liability plan based on best practices?

–    Is planning for product liability issues part of our product design team and/or product development team?

–    Are we factoring in the potential product liability risk when pricing our products?

–    Have we integrated our product liability plan with our business continuity plan and/or our emergency response plan?

–    Have we incorporated external and internal communication activities within our product liability plan?

–    Do our product liability plans ensure compliance with all applicable regulatory requirements?

–    Do we have the necessary resources to deal with a product liability event?

–    Do we have the applicable tools in place to aid in mitigating any financial impact due to product liability?

–    Do we understand how our vendors/suppliers deal with product liability on those supplies they provide to our manufacturing facility?

Above all, always keep an eye on the marketplace and on your competitors. Knowing what is happening to other members of the industry can help you avoid product liability lawsuits rather than find your company as the defendant.

Take Three Steps to Controlling Your Workers’ Compensation Costs

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Controlling workers’ compensation costs is not as difficult as you may think. The secret is a three-step approach that is firmly grounded in common sense: avoid injury claims, use proper industry classification codes for your employees, and find an insurance agent with experience in workers’ compensation coverage.

It sounds like a clichГ(c) to say that avoiding claims is a way to control costs. It’s such a simple concept, but it is actually made up of several complex components. The first is properly training new employees to perform their jobs safely. This requires developing a written program that is presented to all new hires during their initial orientation. This can be a difficult process, especially if you don’t have someone who is trained to design and implement training.

If you need help to develop a program, you can find it through OSHA’s Outreach Training Program. This is a voluntary train-the-trainer program through which OSHA develops trainers who are authorized to teach construction and general industry occupational safety and health standards and policy. For information regarding trainer certification requirements for the construction industry, course guidelines, training tips etc., visitwww.osha.gov/fso/ote/training/edcenters/index.html. You can also find information about locations offering this certification training.

Once you have conducted the initial training, it’s important to maintain safety awareness. You need to continually remind your employees to practice safety by posting reminders in common areas and holding meetings to discuss the specific issues affecting workers. These meetings are a good way to discover emerging problems and to brainstorm possible solutions. Employees who are part of the solution development process are more likely to buy into the process.

The other element you need to incorporate into a program that will successfully lower the number of on-site accidents is responsibility. Safety is the job of every employee, regardless of job title. Keep in mind that in the majority of states, workers’ compensation is “no fault.” Injuries that occur in the workplace are covered by workers’ compensation insurance no matter what caused the accident, including employee negligence. It is essential that you continually create an environment where employees take ownership for maintaining a safe workplace. A good way to encourage this is to provide incentives like raises or extra time off for employees who make it a habit to work safely.

The second step in the three-step program is to properly classify your employees. There are more than 600 job classification codes and each one is associated with the level of risk necessary to perform that job. Never use one code for all of your employees and always use the most recent edition of the classification codebook for your state. If you don’t take the time to properly classify your employees, you may actually increase your workers’ compensation rates by assigning codes that have more risk than your employees face.

The last step in the strategy is to find an insurance agent that specializes in property and casualty insurance, particularly workers’ compensation. This person will be able to design a program that not only meets state mandates, but also offers you the best value for your premium dollar.

Study Reveals Number of Workplace Lawsuits Decreasing

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Each year, Jackson Lewis Law Firm conducts a Workplace Survey during law conferences around the country, asking several questions concerning legal disputes and other situations that arise in a workplace.  The most interesting results for 2005 include the following:

  • Fewer lawsuits were brought against companies in 2005.  On the survey, only 49% of the participants said that they had experienced a lawsuit in the past year.  In 2004 and 2003, 57% of the companies had been sued.
  • The most popular lawsuit was gender discrimination.  51% of those sued cited gender discrimination as the cause. Racial discrimination was 45%, age discrimination was 40%, disability discrimination was 40%, and nationality discrimination was 17%, which were relatively unchanged from the 2004 survey.
  • Sexual harassment complaints are decreasing.  48% of the participants said there were no reports of sexual harassment at their companies. This is down 4% from 2004, and 11% from 2003.
  • Sexual harassment prevention training is more prevalent. 90% of all companies surveyed provide mandatory sexual harassment training, up from 71% in 2004 and 56% in 2003.
  • Drug and alcohol testing has become routine.  62% of all companies surveyed conduct drug and alcohol testing, with 91% conducting testing on a pre-hire basis.

Proper Treatment, Proper Place: The Key to a Smooth Workers’ Compensation Procedure

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The longer an injured employee is out of work, the harder it is to return to their job, according to U.S. Department of Labor statistics.  Employers are also generally unaware that the time that lapses between an injury and the filing of a claim significantly increases the resulting costs. The Hartford Research Study in 2004 found that claims filed over a month after the injury cost an average of 48% more to settle than those reported in a timely fashion.  The study also found that even a delay of a week results in 10% more costs.  The delay in a claim could also delay the treatment, which could add to the cost of medical care and wage replacement.  The best strategy is to implement a 24-hour injury response process.

However, the duty of the employer does not end with the filing of the claim.  It is the employer’s responsibility to ensure that their employee receives appropriate care, for the benefit of both parties.  Proper medical care that can still keep the employee in the normal routine of coming to work is the key to maintaining an injured employee.  However, even if a physician or provider is credentialed through a network, it doesn’t necessarily mean they are familiar with injury management, or are aimed at returning the employee to work as soon as possible.

Factors to evaluate the appropriateness of a provider are:

 

  • Availability of case management
  • Use of standardized work restriction forms
  • Ability to identify ergonomic job risks
  • Treatment guidelines in the care of the injured worker
  • Willingness to coordinate and manage treatment and rehabilitation to facilitate a speedy recovery and return to work.

 

This is also an important step in establishing effective employer-employee relations, because when employers take on this responsibility, they will be able to:

 

  • Improve access to care that results in early treatment and speedier recovery
  • Establish origin of injury: is it really a workers’ comp claim?
  • Improve effectiveness of treatment
  • Reduce claim costs
  • Show your employees that you value them and are committed to their return.

 

Lower claims costs and a quick, effective recovery benefit all parties involved, and will maintain both your worker satisfaction as well as the productivity of your company.

Court Rules Undocumented Worker Eligible for Workers’ Comp

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In a July 2006 ruling, New York’s 3rd Appellate Division ruled that The Immigration Reform and Control Act (IRCA) doesn’t automatically pre-empt the New York Workers’ Compensation Board practice of ignoring immigration status in determining workers’ compensation eligibility. The IRCA, enacted in 1986, requires employers to only hire persons who may legally work in the U.S., such as citizens and nationals of the U.S. and authorized aliens. The employer must verify the identity and employment eligibility of anyone hired.

In the case of Jose Hernandez vs. Excel Recycling Corp., Hernandez filed for workers’ compensation benefits after he was injured in August 2003 while working for Excel Recycling Corporation. At a hearing before a Workers’ Compensation Law Judge, he admitted to buying his Social Security card to obtain work in the United States. In spite of this admission, the judge established the case for injuries to the claimant’s back, left leg and left foot, and awarded him benefits. Excel and its workers’ compensation carrier, the State Insurance Fund, applied to the Workers’ Compensation Board for review of the decision. They asserted that benefits should not be awarded because Hernandez is an undocumented alien who is not legally authorized to work in the United States. The Board denied the application because the issue was not raised when the case was brought before the Workers’ Compensation Law Judge.

The carrier appealed, arguing that the Immigration Reform and Control Act as interpreted by the United States Supreme Court in Hoffman Plastic Compounds vs. National Labor Relations Bd. pre-empts the Board’s policy of disregarding immigration status in determining eligibility for workers’ compensation benefits. The carrier admitted that the issue of the law’s applicability here was not originally raised before the Workers’ Compensation Law Judge. However, the carrier maintains that the Board was incorrect in declining to include the issue because it is a matter of law. The appeals court rejected the argument that the IRCA applied and agreed that the board is not obligated to consider an issue that was not raised before the Workers Compensation Law Judge at the time of the original hearing. Hernandez’s original benefit award was upheld.

Use of Generic Drugs Decreases Workers’ Compensation Costs

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A recent survey conducted by The Hartford revealed that the growing use of generic drugs has resulted in the first annual overall decrease in workers’ compensation pharmaceutical costs for 2005. The research data also showed that the increase in usage was directly related to the greater availability of generic substitutes, especially when it comes to expensive name-brand drugs. The Hartford has been publishing studies analyzing workers’ compensation pharmaceutical costs since 2001. Each of these studies has shown that although costs rose, the increase was becoming progressively smaller each year.

The study noted that the continued use of generic substitutes for OxyContin and Neurontin, which are two of the more expensive and commonly used drugs for treating pain in workers’ compensation cases, is having a positive effect on pharmaceutical costs. In addition, the withdrawal of Bextra and Vioxx, which were often taken to manage pain and inflammation, is helping to cut costs.

However, not all of what the study revealed was good news. According to the data, the overall increase in the use of drugs could slow down cost-cutting efforts. The use of OxyContin declined, but that decline was offset by adoption of its generic version, Oxycodone, which costs about 50 percent less. Total consumption of this painkiller increased by 6 percent.

Neurontin was last year’s second-highest ranked drug. It dropped to number 20 on the list, while its generic version, Gabapentin, took over the number two spot. Gabapentin was not even on the list in 2004, yet its popularity results from it being priced about 35 percent lower than Neurontin. Despite this savings, over the course of just one year, The Hartford survey noted a 25 percent price per-pill increase for both versions of this drug.

The Hartford isn’t the only study to uncover these trends in workers’ compensation pharmaceutical costs. Recently, The National Council on Compensation Insurance (NCCI) reported that the trend of rising drug costs in workers’ compensation cases was slowing in 2004, the most recent year for data. The increased rate in 2004 was 8.2 percent, down from 10.2 percent in 2003.

Many experts believe that drug costs for compensation claims are difficult to reduce because the work force has a growing population of older workers who typically use more medication after an injury.