Personal Automobiles for Business Use

According to the U.S. Census Bureau, there are more than 240 million registered motor vehicles in the United States, and an estimated one-fourth of those are used for business in some way. If you have employees who use personal vehicles for business use, you could be exposing your business to a significant liability risk.

Even if your employees have Personal Auto Policies (PAPs) for their personal vehicles, in the event of a serious accident that occurs during business use, your business could be sued to collect additional damages.

What is “Business Use”?

Activities that constitute general business use include visiting customers, picking up supplies, attending conferences, and commuting to and from work. For activities like this, the general business use of a personal vehicle is usually covered by a PAP. This is because a policy purchased for a specific vehicle is considered the primary insurance, which covers damages before any other policy takes effect.

An exception to general business use is livery, or carrying goods or people for a fee. Livery includes the delivery of items such as food, flowers, or wholesale or retail items to customers, as well as chauffeur services. Carpooling or ridesharing is not considered livery and is covered under a PAP.

Employees that work from home can still pose a risk if they use personal vehicles for business use. It may be more difficult to ascertain the driving habits of employees that work from home or the operational status of their vehicles. Communicate regularly with these employees concerning your company’s policy for the use of personal vehicles.

Employee PAP Coverage

For employees using their personal vehicles, the primary insurance on the vehicles will likely be their PAPs. You should know how your employees are covered for the business use of their vehicles. Encourage your employees to speak with their PAP carriers to be sure of their coverage and to make it clear to the insurance agents what business activities the vehicles may be used for.

Some PAPs appear to exclude coverage for business use, but they may include broad exceptions for a private passenger automobile, or pickup trucks and vans. However, some policies may be stricter depending on the circumstances. Clarification may prevent complications if a claim must be filed.

Four Ways to Reduce Risk

Though employees’ use of personal automobiles may pose a risk to your business, there are steps you can take to help protect both your employees and your business from liability.

Review driving records and create an approved-driver list: All employees that use a vehicle for business use should be cleared to drive by a manager. This process should include reviewing motor vehicle records and PAP coverages regularly and maintaining records to help reduce risk exposure.

Establish standards for personal vehicles: Even employees without any incidents on their motor vehicle records can be a risk to your business if they are driving personal vehicles that are not properly maintained. Establish company guidelines for maintaining personal vehicles. If employees are compensated for time spent driving or if they routinely use their personal vehicles for business, consider regularly collecting maintenance reports to gauge the reliability of personal vehicles.

Make the company policy clear: After you create guidelines for the use of personal vehicles at your business, be sure to communicate them to your employees in a clear and timely manner. Although it is common to have policies against the use of intoxicating substances or mobile devices while driving, reminding employees of all of your company policies is an effective way to mitigate risk.

Establish rental vehicle policies: The use of rental vehicles for business also presents exposure to risk. It may be beneficial to establish a relationship with a particular rental vehicle agency to determine which vehicles best suit the needs of your business and employees while traveling. You should also give your employees guidelines on which rental vehicle insurance coverages to accept during the rental process.

Obtaining Appropriate Liability Insurance

Additional coverage may be needed if any potential risks from personal auto use threaten your business. A standard Business Auto Policy (BAP) will protect your business from any additional liability after an employee’s PAP has paid for damages related to personal auto use.

Although employees who have personal vehicles should be required to have PAPs, obtaining liability insurance should be a priority to protect your business. In the event of a serious accident, your employees’ PAP coverage may not be adequate to pay for all the damages. Be sure to prepare a list of vehicles that may be used by employees and the type of business they may be used for, and contact Naught-Naught Agency in order to discuss your coverage options.

Understanding Construction Contracts

Construction contracts can contain terms that impact your company’s bottom line. Reviewing them carefully prior to signing is indispensable, and can save your company time and money. This contract review guide is meant to be a starting point for reviewing contracts in general. It highlights some common contract terms and their potential impact. You can begin to understand which terms are most often negotiated in contracts generally. Then, with the help of licensed inside or outside counsel, analyze the commercial risks associated with construction contracts in depth and understand terms and conditions to protect your company’s assets.

Scope of the Agreement

Examine the definition of services to be provided to ensure the language is clear enough for an unrelated third party to understand the scope. The contract should include a time frame for completion of services. The rights and obligations of both parties should be clearly outlined. Any mechanism for changing the scope of the contract, as well as any of the terms, if allowed, should also be outlined within the contract.

Terms of Payment

Terms of payment should be clearly listed within the contract so that the expectations of both parties are clear. The contract should specify the agreed payment schedule for goods received. 

Warranties

There are two types of warranties: express and implied. Both types are assurances regarding particular issues, such as performance. 

Express warranties are those that are defined specifically in the contract. Implied warranties are based in statutory and/or common law, depending upon your jurisdiction. They are two-fold: a warranty of merchantability, which requires that goods/services must reasonably conform to an ordinary buyer’s standards, and a warranty of fitness for a particular purpose, which states that if a seller knows the intended purpose for the product or service, the act of selling the product to that customer implies that it is fit for that purpose. 

Be aware of warranty disclaimers and understand how the disclaimer limits your statutory rights. If it disclaims all warranties, express and implied, then you will likely be limited to the remedies in the contract for issues related to things like performance. You should also examine any disclaimer in the context of the contract. While it may require you to disclaim your statutory rights, other contract language may give you adequate rights and remedies regarding the points about which you are most concerned.

Damages, Limits of Liability and Indemnification

These three items are often in close proximity to one another in a contract, as they are interrelated. Damages may be defined as certain types of losses that could create liability under the contract. A limit on liability would restrict the amount of damages that a party would be required to pay if found liable for such damages. Sometimes this may also include a limit for indemnification.

Indemnification provisions allocate risk and cost between the parties. It is important to examine whether the party assuming the risk is the party with the most control over that risk. For instance, when a company’s employees are required to work at a customer’s location, the company is often asked to release the customer from all liability relating to the employees presence at the customer’s location.

In some cases, indemnification is limited to negligence or to a specific dollar amount, under a heading of “limits of liability.” 

Insurance

Some contracts will contain minimum bodily injury and property damage liability coverage amounts that the party must possess and also may require that the customer is added as an additional insured on those coverages. 

Prior to consenting to any contract, it is prudent to examine insurance coverage against the amount of liability exposure in a particular contract.

Terms and Conditions

• Governing Law & Jurisdiction – Look at the governing law provision to make sure that you are comfortable with the implications of the state law chosen by the drafter. This can impact the interpretation of the contract from warranties to indemnification.  Additionally, when specific statutes or regulations are referenced in the body of a contract, it is as though that statute or regulation is wholly contained within the contract itself. It is vital to read and understand that language prior to giving your consent. This happens regularly in government contracting situations.
• Dispute Resolution – This is another clause with which you must be comfortable with the laws of the state or forum chosen by the drafter. The rules chosen to govern dispute resolution can impact the outcome. Additionally, you should consider whether dispute resolution is right for your situation.
• Intellectual Property – When you are disclosing and/or licensing your company’s intellectual property, be it trademarks, copyrights or patents, it is important to include a clause that recognizes the owner of such intellectual property and affirmatively states that the agreement does not transfer any rights.
• Standard of Care – A standard of care clause may appear in certain types of contracts. The standard of care that is provided by the law should provide the minimum standard of care for the provision of services under the contract.
• Term/Termination – The contract should provide both parties with the right to terminate the contract. The situations in which termination is allowed will vary from contract to contract. Some contracts will allow the right to terminate in cases of dissatisfaction; others will allow it with a specific notice, for no cause. It is important that you contemplate in what cases you would want the right to terminate the contract. There should also be language defining the term of the contract. Does it have a finite term? Does it automatically renew each period?
• Right to Cure – Related to termination, some contracts will contain a right to cure clause. This would give the defaulting party notice of a breach and a finite period of time in which to remedy such breach. 

Standard Form Contracts

Unlike other industries, construction lacks a consistent set of laws like the Uniform Commercial Code or a federal statutory scheme. Contracts produced by professional and trade associations for architects (American Institute of Architects), engineers (Engineers Joint Contract Documents Committee) and commercial contractors (Associated General Contractors of America) can serve as important references and benchmarks when drafting a new contract. They are a good source of industry best practices, and using them can greatly reduce drafting and review time, meaning lower overall transaction costs for your company.

For all of their advantages, there are several things that you should be cautious about when using standard form contracts. Note the following cautions about standard forms before using them.

• Standard forms, which are written broadly to encompass many different contexts, require transaction-specific and jurisdiction-specific modifications. For example, certain states require that indemnities be written in a certain way.
• Changes made to one part of the document, such as definitions of words or terms, may affect other parts that make reference to it.
• Custom-drafted and industry-drafted forms are often incompatible. Even industry-drafted forms from different publishers can be incompatible.
• Standard forms always contain the bias of the drafter. Use this bias; know when to use various standard forms published by different industry organizations.

General Understanding

Reviewing general terms and features of construction contracts will help you grasp the consequences of its terms and conditions for your business. In any case, to ensure its completeness and accuracy, it is necessary to submit each contract you must sign to legal review.

A Word to the Wise about Construction Defects: What You Can Do to Protect Your Business

Possibly no two words strike more fear in the hearts of architects, engineers and contractors than “construction defect.” A claim for construction defect can cost astronomical amounts to correct and defend. And then there’s the damage to your reputation and its impact on your future opportunities for work. It’s enough to break a business.

Construction Defect Risks

Today, your risk of becoming involved in a construction defect claim is greater than ever. New technology, materials and applications have changed the way commercial buildings, homes and condominiums are constructed.

Advances are enabling the design and construction of buildings that are more attractive and less costly. Yet, many of these advances have yet to be tested in real application over time, where problems may be uncovered that were never anticipated in the lab. 

At the same time, new applications require new skills from contractors, who may overlook important requirements for installation or take shortcuts that cause devastating consequences. When problems occur, it’s hard to know the cause without investigation, and everyone on the project is forced to become involved. Fingers point. Often, whoever has the deepest pockets or the most to lose becomes the primary target for plaintiff lawyers. Fairly or not, you could be left holding the bag for others’ mistakes.

Let’s consider two of the most costly recent examples of construction defect, EIFS and FRT plywood:

EIFS

Architects love to design using EIFS (exterior insulation finishing systems.) EIFS cladding systems resemble stucco, but are less costly to install and can be fashioned into a variety of architectural shapes, including soft curves and geometric designs. This unique flexibility makes EIFS treatments ideal for special elements such as porticos, archways, ornate overheads for windows, doors and decorative trim.

As with any exterior cladding, water can enter behind or around the system. Early applications often lacked drainage features more commonly used today. With no place to go, constant exposure to moisture can cause rot in wood and damage to other materials within the building or home. Moisture-related problems led to an avalanche of individual and class action lawsuits by consumers.

Are you using EIFS in your designs? If so, strict adherence to guidelines for materials and methods of application is your best defense against a construction defect claim. 

FRT Plywood

Back in the early 1990s, FRT, or flame resistant plywood, was touted as an alternative to fire walls in multi-unit buildings. It appeared to be a revolutionary product and was quickly adopted by architects and builders, especially in the Northeast. But high temperatures in attics caused early and unexpected deterioration of the material. Suppliers went Chapter 11, and builders were left to face clients with major defects in their buildings, condominiums and homes.

What new building materials are you using in your projects? Have you done your research? How confident are you in the manufacturer and the testing? Are you comfortable with the risk?

Types of Construction Defects

Generally, courts categorize construction defects in one of four categories:

1.     Design deficiencies typically relate to building designs that do not meet code or perform to standard.  

2.     Material deficiencies occur when use of inferior materials causes significant problems, such as when windows leak or fail to perform even when properly installed.

3.     Construction deficiencies are problems created by poor quality workmanship.

4.     Subsurface deficiencies usually involve cracked foundations or other structural damage caused when soil is not properly compacted and prepared for adequate drainage.

The goal of the court is to determine fault and damages, and require the party responsible for the defect to remedy the situation.

Insurance

Under the standard commercial general liability (CGL) policy, your insurance company has a duty to defend you for construction defect claims if any damages are potentially covered under the policy. Coverage for construction defect only exists if there is an “occurrence” under the policy.

If the court finds against you and you are a subcontractor, the policy will frequently pay for property damage caused by the occurrence. It does not, however, cover the costs to remedy your work – the faulty workmanship or material that led to the damage. In many cases, the cost to correct the construction defect will be greater than the actual property damages incurred. Keep in mind that if you are a general contractor, the whole project is your work. 

Architects and engineers will want to consider the additional protection of a professional liability policy. Professional liability provides coverage when a design does not function as anticipated or promised. Ask Naught-Naught Agency for details.

What You Can Do to Manage Your Risk

Many risks you face are not typically covered by insurance. In addition to insurance, you can reduce your risk in two ways:

1.     Transferring Risk

You can transfer some of your risk to a responsible third party. General contractors transfer risk to the subcontractors they use on a construction project through indemnification and hold harmless agreements as well as additional insured requirements in their construction contracts.

Indemnification and hold harmless agreements are typically included in standard construction contracts. Keep in mind that if the subcontractor lacks the financial resources to meet its obligations, you still could be obligated for any construction defect claims. That’s why it is important to check the financials of your subcontractors and choose wisely. And never under any circumstances use uninsured subcontractors. They put you at great risk and could increase the cost of your own insurance. 

Whenever you hire subcontractors, have them add your business to their liability policy as an additional insured. You will be protected by the subcontractor’s policy for work the subcontractor does for you, up to the policy limits. It’s a good idea to require liability limits of at least $1 million on the subcontractor’s policy. 

Always request coverage as an additional insured on a primary basis. This way, you assure that their insurance responds first to a claim. (Your insurance becomes excess coverage and responds only if the judgment exceeds the subcontractor’s policy limits.) Be sure to specify the length of time you will be added to the policy for completed operations. Construction defects often come to light long after a job is completed. You can verify coverage by requesting a copy of the certificate of insurance on an annual basis. 

2.     Risk Control

The best way to avoid a construction defect claim is through quality construction. Work only with architects, engineers and contractors who have good reputations and a track record of performance. Don’t cut corners. Plan and perform work in the correct sequence and with proper supervision. Be sure to document any and all plan changes. Organized records are critical to your defense. 

Rely on Our Construction Expertise

The legal landscape for the construction industry is complicated and changing. In today’s legal climate, customers who are dissatisfied with work are increasingly resorting to litigation. The recommendations here are a starting point for understanding and avoiding construction defect claims. Sleep better at night by consulting Naught-Naught Agency and your attorney. They are experts in their professions as you are in yours. Both will bring you good advice and recommendations, and make them partners with your business.

Article by Gregg Gaughran, Executive, Commercial & Specialty Lines for Westfield Insurance. Mr. Gaughran is a 25+-year insurance industry veteran. Westfield Insurance is a major regional insurance company headquartered in Ohio and one of the leading insurers of contractors in the state. Westfield Insurance is a Trusted Choice® member company.

Developing a Small Business Disaster Recovery Plan

Article from www.iii.org website

Businesses that are forced to close down following a disaster run the risk of never being able to open their doors again. While there’s no way to lower the risk of a natural disaster like a hurricane, there are critical measures that can be taken to protect your company’s bottom line from nature’s fury. A disaster plan and adequate insurance are keys to recovery.

Develop a Disaster Recovery Plan

No matter how small or large a business, a business impact analysis should be developed to identify what an operation must do to protect itself in the face of a natural disaster. Large corporations often hire risk managers to handle this task and some companies hire consultants with expertise in disaster planning and recovery to assist them with their plans. But small businesses can do the analysis and planning on their own.

STEPS FOR DEVELOPING A BUSINESS RECOVERY PLAN 

• Set up an emergency response plan and train employees how to carry it out. Make sure employees know whom to notify about the disaster and what measures to take to preserve life and limit property losses.
• Write out each step of the plan and assign responsibilities to employees in clear and simple language. Practice the procedures set out in the emergency response plan with regular, scheduled drills.
• Compile a list of important phone numbers and addresses.Make sure you can get in touch with key people after the disaster. The list should include local and state emergency management agencies, major clients, contractors, suppliers, realtors, financial institutions, insurance agents and insurance company claim representatives.
• Decide on a communications strategy to prevent loss of customers. Post notices outside your premises; contact clients by phone, email or regular mail; place a notice in local newspapers.
• Consider the things you may need initially during the emergency. Do you need a back-up source of power? Do you have a back-up communications system?
• Human Resources. Protect employees and customers from injury on the premises. Consider the possible impact a disaster will have on your employees’ ability to return to work and how customers can return to your shop or receive goods or services.
• Physical Resources. Inspect your business’ plant(s) and assess the impact a disaster would have on facilities. Make sure your plans conform to local building code requirements.
• Business Community. Even if your business escapes a disaster, there is still a risk that it could suffer significant losses due to the inability of suppliers to deliver goods or services or a reduction in customers. Businesses should communicate with their suppliers and markets (especially if they are selling to a business as a supplier) about their disaster preparedness and recovery plans, so that everyone is prepared.
• Protect Your Building. If you own the structure that houses your business, integrate disaster protection for the building as well as the contents into your plan. Consider the financial impact if your business shuts down as a result of a disaster. What would be the impact for a day, a week or an entire revenue period?
• Keep Duplicate Records. Back-up computerized data files regularly and store them off-premises. Keep copies of important records and documents in a safe deposit box and make sure they’re up-to-date.
• Identify critical business activities and the resources needed to support them. If you cannot afford to shut down your operations, even temporarily, determine what you require to run the business at another location.
• Find alternative facilities, equipment and supplies, and locate qualified contractors. Consider a reciprocity agreement with another business. Try to get an advance commitment from at least one contractor to respond to your needs.
• Protect computer systems and data. Data storage firms offer offsite backups of computer data that can be updated regularly via high-speed modem or through the Internet. 

REVIEW YOUR INSURANCE PLAN

Make sure you have sufficient coverage to pay for the indirect costs of the disaster—the disruption to your business—as well as the cost of repair or rebuilding. Most policies do not cover flood or earthquake damage and you may need to buy separate insurance for these perils. Be sure you understand your policy deductibles and limits.

New additions or improvements should also be reflected in your policy. This includes construction improvement to a property and the addition...

Read More at www.iii.org

5 ways to prepare your business for tornado season...

Thursday, April 04, 2013 via Secura Insurance 

Peak tornado season runs from mid-spring through early summer and, if a tornado strikes near your business, you need to react quickly. That’s why it’s crucial to develop a severe weather plan and safe areas for your employees. Follow these steps to get your company and employees ready for storm season:

1. Determine how much space you’ll require. You should have enough safe areas to fit all employees and any guests who may be in the building at the time of a tornado. Use the following guidelines from FEMA for how much space you need:

  •  Occupants (standing and seated): 5 square feet per person
  •  Wheelchair users: 10 square feet per person

2. Walk through your building to identify the safest areas. The basement typically is best. If your building doesn’t have a basement, select an area on the lowest level. Ideally, this space should be a small interior room or corridor. Avoid areas with windows and rooms with high ceilings or outside walls — these are more likely to be damaged during a storm.

3. Assess the exterior of the building. Look for trees, poles, and other items that could fall or hit the building. Don’t choose safe areas near these hazards.

4. Hold tornado drills often. Employees in all parts of the building should know where to go and practice the paths to get there.

5. Monitor the weather. A tornado watch means conditions are right for a tornado and there is a high probability of one in the surrounding area. A tornado warning means a tornado has been sighted in your county, or one is moving toward your area. It also could signify that weather radar indicates a high probability of a tornado.

Someone in your building should have access to a weather radio to listen for severe weather alerts. They also should monitor local radar information if a watch or warning has been issued and provide alerts and/or directions to employees.

For more information, visit www.disastersafety.org/tornado/protecting-employees or www.ready.gov/tornadoes.

Labels: Protect your business, Safety tips

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