Do You Need Professional Liability Insurance?

Running a small business can be very satisfying. You are your own boss and can do things the way you want with, generally speaking, and no one to answer to. However, the situation also has its downside. When something goes wrong, you are the one responsible. No matter how careful you are, mistakes and errors can occur. Even if nothing is wrong, a client could feel that he has suffered because of an action on your part. Or it could be a case of malicious intent. Whatever be the reason, you could be exposed to liability that could ruin you and the business you have worked so hard to build. Thatis why Professional Liability Insurance (PLI) is essential.

What Is PLI?

Professionals are expected to possess extensive knowledge in their field of specialization. They are expected to use this knowledge and their skills to perform services for which they are retained and do it at accepted industry standards. If the services are not up to standard or if the client thinks that is the case, the business can be taken to court for the damage that the client has suffered. This is professional liability.

Professional Liability Insurance is also known as Errors and Omissions Insurance (E & O Insurance). It protects you from claims of negligence or inadequacy of service when the advice or professional services given to a client do not meet the client’s expectations. There are various coverage options including:

• Negligence (either actual or alleged) –You are covered against claims for deficiencies in professional service, such as failure to deliver, providing incorrect advice and omissions.
• Personal Injury (libel or slander) –This protects you against both libel and slander claims if the actions were committed as part of your professional services.
• Copyright Infringement – If any copyright infringement occurred during the course of your professional services, you are protected from claims for damages or expenses.
• Defense Costs – When legal defense has to be mounted against claims for activities or actions covered by the policy, the costs of the defense are covered.

It should be noted that a client may require your business to carry PLI before entering into a contract with you. This will provide him the comfort of knowing that if he should suffer on account of any acts or damage on your part, compensation will be available.

Professional liability is a serious subject and a complicated one and having insurance cover to protect you from claims and lawsuits is the best way to protect your business. Remember, even if the case goes to court and the verdict is in your favor, the costs of defending yourself could be huge. The advice of an insurance professional will guide you to the right type of cover and the amount of protection you need. Even if you already have PLI, has it kept pace with the growth and changes in your business? A professional will be able to work with you to examine your existing coverage and recommend the modification you need to remain fully protected. Consulting your insurance broker about PLI coverage is not something you want to delay.

Understanding Cyber Risk Insurance

A data breach can bring your business to its knees overnight. Ask any cyber security professional and you will be told that there is no such thing as 100% security, as Sony Pictures knows. Obviously protecting your data is vital, but if it is hacked, what do you do next? You plug the holes and improve your defenses. But the damage has been done and it could break you. Your only protection against the financial loss is to transfer the risk. And that can be done through Cyber Liability Insurance Cover (CLIC).

CLIC Coverage

CLIC is a wide ranging term that includes a variety of options. Among them are:

• Data Breach and Privacy Risk Management: This will cover the costs of managing the breach such as investigating the cause / source, fixing the problem, data subject notification, call management, checking credit for data subjects, regulatory fines and legal costs.
• Extortion Cover: In other words coverage of any losses due to extortion and any fees for professional services to deal with the issue.
• Liability for Network Security: This includes third party damages for issues like denial of access, costs related to third party suppliers and expenses due to theft of data on third party systems.
• Media and Multimedia Liability: This will cover costs related to issues like infringement of intellectual property, defacement of websites and so on.

In some cases CLIC can overlap existing insurance coverage, in part or whole. An insurance professional will be able to advise you on what you are already covered against and what more you need.

CLIC coverage can range from highly complex policies that provide coverage against a huge range of possibilities to simple policies specially created for small and medium industries. Here too, the guidance of your insurance agent will be invaluable in choosing what is right for you.

Postponing Coverage Is Unwise

Almost all states have mandatory data breach notifications requirements. This in itself can be hugely expensive. Additionally as the sophistication of the tools used to breach security becomes more sophisticated and the expenses involved become increasingly large, the risk is not something that a business can afford to carry on its own. Protecting your business with CLIC is essential.

The tribe of malicious hackers continues to grow and data breaches are becoming more common. Cyber security is essential, but it is often reactive rather than proactive. Hackers are intelligent and creative and are constantly finding new ways to penetrate security defenses. Major multinationals spend millions on protecting their data. However, they still suffer losses regularly, due to security breaches and this news hits the headlines.

Small and medium businesses may offer smaller rewards to criminals, but they are also easier targets because they do not have huge security budgets. Cyber risk insurance is no longer an option – it is essential for any business that stores sensitive data. The potential losses could destroy your business. If you are not covered or want to check if the protection you have is enough, contact your insurance broker who will be able to advise you on what you need to do.

Do you trust your bookkeeper?

Does your small business or home owners association policy have Employee dishonesty coverage?  Most policies include a token amount of coverage. Make sure you have enough insurance for your business to survive an embezzlers theft. Almost every day you can read an article about some business's bookkeeper getting caught stealing money from their employer, ususally over a long period of time.

American Greed on CNBC has a weekly series on the Madoff’s and Stanford’s of this world of crime. According to the ACFE employee dishonesty causes up to $400 Billion in losses. But every day smaller thefts are taking place. For a few hundred dollars you can buy $250,000 of coverage to protect yourself.

As more executives get access to company assets and the technology that manages the company assets, employee dishonesty is the new pandemic. While earlier, dishonesty largely meant embezzlement or theft, now employees are finding newer and smarter ways to cheat their employers. 

Executives who work in the Administration, Finance and Asset Management departments of a company can commit forgery or manipulation of company documents, cheques and agreements. They can get access to the company’s cash reserves and initiate illegal fund transfers. Employees who work in Banks, Insurance and Financial Service companies are known to frequently indulge in computer or credit card fraud.

However, these are more common means of fraud and employee dishonesty which are covered by standard or standalone policies by most insurance companies.

It’s high time you asked yourself - does your business insurance have enough coverage for employee dishonesty?

Most policies cover a trivial amount automatically of $20,000 or less. It’s extremely inexpensive to add $200,000 or more. Stories like this are commonplace locally. The crooks are almost always caught after years of stealing and all the moneys gone. Think of Fry’s electronics whose millions of dollars were stolen by an executive recently. A local nursery was put out of business by an embezzler. Countless other examples of victims bilked by people they trusted.

If you are on the board of directors of a homeowners association or a commercial condo association you better make sure you have enough coverage to cover the total reserves in the association’s bank account. We have just reviewed 2 clients recently that have 0-$50,000 when they should have $250,000. As a board member, you can be held liable for this oversight.

Some companies include employee dishonesty insurance as a part of their other insurance contracts. The coverage can be added either by the base policy or by endorsement. The AICPA accountants program adds employee dishonesty coverage by endorsement.

However, this approach has its own disadvantages. The employee dishonesty component has its own limits, and this may not be adequate to cover new and unique kinds of frauds that are unearthed every day. For example, Business owner’s policies (BOP's) usually limit employee dishonesty component to $10,000, and this again covers only the first party committing the act of dishonesty.

Further, typical AICPA endorsements for employee dishonesty only factor acts committed by employees. Non employees such as agents, third party agencies such as Security companies who routinely transport or handle cash and securities are not factored. Also, these terms and conditions are outdated and do not factor computer fraud which is emerging as the number one choice for fraudsters and dishonest employees.

All this implies, you need to quickly evaluate your business insurance policies today.

Call Carlos or Mimi at Insurance by Allied brokers at (650) 328-1000 for a free insurance review.

The Kick Me Prank and What It Can Cost Your Business

The importance of business insurance, in its various forms, is apparent to most business owners. They study the nature of their businesses and the risks that exist and then take the insurance policies that they think offer them the kind of protection they need. But insurance is a complex subject and it is easy to overlook issues and leave the owner and the business exposed to needless risk. Employment practices insurance and legal defense coverage are cases in point. Many businesses either do not realize the risk that they face or undervalue the importance of the exposure they are accepting.

Even with the best of intentions, a small business owner cannot control every aspect of his employees’ behavior while they are at work. Issues such as sexual harassment, discrimination and so on can arise out of thoughtless acts or because of a misinterpretation of an innocent action or words.

Issues like wrongful termination or the failure to provide benefits are easy to raise and difficult to defend. All it takes is one uninformed employee or a vicious one to cause chaos that will carry a hefty price tag. One misguided employee causing pain or suffering to another can land you, the business owner, in the soup. The recent case of the INTEL plant in New Mexico is a good example of this.

Some employees taped a “Kick Me” sign to the back of another employee and then kicked him while others who were watching laughed. The employee went to his supervisor who, on seeing the sign, decided to join in the “fun” and also kicked him. A few more then joined in before the sign was finally removed. The employee suffered severe mental and emotional trauma and has filed a lawsuit of damages as well as attorney’s fees.

This kind of behavior has never been encouraged by INTEL and the employees, for the most part it appears, thought of it a harmless fun and a good prank. But it misfired and the one left holding the baby is the employer. Many of those who participated in the “prank” lost their jobs, but the lawsuit remains and while the damages claimed are not being specified, it could potentially cost the company millions of dollars.

As a small business owner, you may think you know your employees well and are certain that they will not behave in a manner that could cause you problems. But all it takes is one off day, caused by anything from a fight with a spouse to a fender bender on the way to work or anything else beyond your control, and the otherwise well behaved employee could, because of a bad mood, become a huge financial liability.

A lawsuit for damages that are not covered by your existing business insurance policies can ruin you financially and result in the loss of the business.

The cost of this essential extra coverage for a small company with about 15 employees is not
high at around $3,000 per year. As a business owner you will naturally have to consider the
requirement of such expenditure.  But how do you assess people’s moods and attitudes? Even the best behaved of people can indulge in a thoughtless or hurtful act and if it happens in the workplace, you will be the one who has to pay any damages that may be awarded.

If your business does not have employment practices insurance and legal defense coverage, the best thing to do is to talk to an insurance broker to understand the nature of the risks that will be covered, the cost and the benefits that such protection offers. All it takes is one thoughtless gesture or misinterpreted action to create a huge potential liability.

Insure Your Business Against Hacking

Identity theft is among the fastest growing of crimes in the country today. If the servers of the Department of Defense and companies like Apple, with their super high levels of security, can be broken into, no one is really safe anymore. Stories of people who have had their email accounts hacked and their bank accounts hijacked no longer make news – they are common everyday occurrences. Even if you religiously follow the advice of tech security gurus and create complex passwords which you change frequently and take every other precaution you can, your identity and assets that can be accessed online are never going to be completely safe. But you can’t cut yourself off from the online world – it’s an integral part of modern life. So you try to stay as safe as possible and hope for the best.

While personal identity theft is a serious matter, when it affects your business, it can be disastrous. Both organized crime and petty criminals now have access to the technology that makes breaking through the firewalls that protect online accounts, computers and mobile devices possible. A hacker located anywhere in the world can access your online data and corrupt or delete it. And also commit crimes using your identity that your business will be held responsible for. For example, a hacker can collect a great deal of personal information about one of your clients from websites and social media. The hacker can then contact your company and using the information gathered, establish his bona fides. From there to obtaining confidential information is a small step. The catch 22 here is that you need to be as helpful as possible towards your clients. But the more “helpful” you are, the easier it is to fall into the clutches of a hacker. And you could be held responsible for any loss that the client undergoes because of your actions or any crimes committed in his name using information that you have supplied.

Hacking and data/identity theft is a danger that businesses have to live with. Besides taking all possible precautions to maximize data security, it is essential to be insured against the consequences of any liability that may accrue to your business because you have been hacked. If confidential data in your business’s possession is stolen, the affected party can use you for negligence and even for breach of contract if there are contractual obligations in place. And if your business email accounts are hacked and mails sent in your name result in losses to those who act up them in good faith, the liability may devolve on you.

With technology advancing so rapidly, there is no guaranteed way to protect your business from hacking. But being properly insured and covered against any potential losses that hacking can cause you will protect you from the often ruinous consequences of an online security breach. How do you go about it? What do you need to do? How much will it cost? Call Allied Brokers to find out all you need to know about insuring yourself against liability from hacking and online security breaches.

Visit our website at www.alliedbrokers.com for information about all the types of insurance we offer. Or call 1-888-505-7988 for a free rate quote.

Workers’ Compensation and the Independent Contractor Myth

As an employer, you may think your employee is an independent contractor based on IRS rules and payroll withholding. But under workers’ compensation rules, your independent contractor is considered an employee. If you don’t have a workers' compensation policy for that contractor, you will be on the hook for all the benefits due to injury, death, disability and lost wages.

The government wrote the rules to force employers to pick up the tab for these costs- not the state. The state almost always sides with the victim/employee against the employer. Protect yourself and buy a workers’ compensation policy.

A true independent contractor is an established business which has:

1. Their own general liability and workers’ compensation policy.
2. Their own business license.
3. Advertises their services to the public and has other customers.
4. Performs work not normally performed by you.
5. Supplies their own tools and materials.
6. Charges a fee rather than an hourly rate.
7. Has complete control of how they do their job.

Any one of the following may cause the Workers’ Compensation Commission to decide that an employee relationship exists:

If the independent contractor:

1. Is furnished and office.
2. Is given business cards that indicate they are part of your company.
3. Is paid hourly rather than a fee for a contract service performed.
4. If you supervise their time.
5. If you supervise how they do their job.

The state is forcing employers to pay more for employees’ care and there is no way around it. As deficits rise, look for more aggressive enforcement by government agencies. For questions about workers’ compensation and other business insurance, call Allied Brokers.

Visit our website at www.alliedbrokers.com for information about all the types of insurance we offer. Or call 1-888-505-7988 for a free rate quote.

Squishy Definition of “Independent Contractor” Can Land You in Jail

In April two San Jose business owners and an employee were arrested for workers’ compensation insurance fraud and now face up to 5 years in the Big House plus $50,000 in fines and restitution.

The couple was busted when a part-time, weekend employee hurt himself on the job but reported his injury to his full-time employer instead. Fellow full-time employees who knew this was a lie ratted on him and the California Department of Insurance investigated.

What they found was that the weekend employer had not reported the man’s injury to their workers’ compensation carrier. The investigation also revealed that the employer paid part-time employees cash to keep them off the payroll and off the Employment Development Department’s radar.

With workers’ compensation premiums ranging from 1-50% of payroll and general liability premiums being as high as 15% of payroll, the expense of an employee is huge. Add that to the 8% payroll tax and Obama care, there is a growing incentive for businesses to hire only independent contractors(ICs) or consultants. More and more companies cheat by paying employees partially in cash and partially by payroll check.

A new law signed by Gov. Jerry Brown makes it important for businesses to follow the rules more closely. The law targets business owners using ICs by dramatically raising the penalties for those found to have willfully misclassified workers. Fines start at $5,000 and range as high as $15,000 per violation. The size of these penalties is unprecedented in the Labor Code- previously fines were in the $50 to $100 range.

It gets worse. If the employer is found to have engaged in a "pattern or practice" of
misclassification, these fines skyrocket up to a minimum of $10,000 per violation, with a cap of a whopping $25,000 per violation.

Basically, the state is trying to reduce the number of ICs so it doesn’t have to pay disability if they get hurt. A business using a true independent contractor does not have to provide workers’ compensation benefits. Also, the money paid to an IC is not charged as payroll on the business’s insurance policies for workers’ compensation and liability. These policies are audited regularly and the policyholder is charged a premium based on a percentage of payroll.

The state is forcing employers to pick up more of the tab for employees’ care and there is no way around it. As deficits rise, look for more aggressive enforcement by government agencies. For questions about workers’ compensation and business insurance, call Mimi Watson at Allied Brokers.

Visit our website at http://www.alliedbrokers.com/ for information about all the types of insurance we offer. Or call 1-888-505-7988 for a free rate quote.