By the beginning of 2011, the social networking Web site Facebook had more than 600 million users. An estimated 200 million people use micro-blogging service Twitter. The business networking site LinkedIn has reported that it has more than 100 million members. In addition, the Internet hosts millions of blogs and tens of thousands of podcasts. These sites and media, popularly known as “social media,” have opened up new ways for people and businesses to communicate with each other. As the numbers show, they have become extremely popular. Consequently, businesses are increasingly using social media to reach current and potential customers.
However, use of these services presents risks along with the potential benefits. For example:
- Employees making posts on these sites may make inaccurate statements, particularly when not all the relevant facts of a developing situation are known.
- They may inadvertently release confidential information.
- They may make statements that embarrass the company, such as negative remarks about racial or ethnic groups.
- They may make statements that violate a person’s privacy.
- Disparaging statements may provoke others to sue the company for libel. For example, if an employee of a restaurant posts on Twitter that a competitor’s stew looks and tastes like cheap dog food, the competitor may sue.
- Blog posts that offer advice may expose the employer to lawsuits if others take the advice and get undesirable results.
- Disgruntled customers, employees or competitors may post disparaging comments about the company.
- Any of these situations can harm the company’s reputation.
The company’s general liability insurance policy might not pay for the costs of defending against these claims or paying settlements. For example, the insurance will not cover losses resulting from:
- An injury caused by or at the direction of an employee when he knew that the action would violate a person’s right to privacy
- An injury caused by or at the direction of an employee when he knew that a statement was false
- Claims that the business’s products or services do not live up to statements about their quality
- Injury arising out of statements made on Internet chat rooms or bulletin boards the business owns or over which it has control
- Unauthorized use of someone’s name or product in a manner that misleads that company’s potential customers
In addition, the insurance only covers liability for certain types of injuries that are not bodily injuries. It will not cover a lawsuit filed by someone who suffered financially after relying on advice on the company’s blog.
To reduce the chance that an uninsured loss will result from the use of social media, businesses should consider:
- Written procedures for employee use of social media, including
- Who may post on the company’s behalf
- Definitions of acceptable and unacceptable behavior
- Employees’ personal sites should make clear that that the employees are not speaking on behalf of the company
- When a discussion should move offline and into the company’s regular workflow (for example, when a customer has a specific complaint that should be handled out of public view)
- The consequences of non-compliance.
- Company policies regarding employees’ ability to link to the company’s Web site on their personal social media pages. The policy should also address employees’ use of the company name, logo, or other advertising on their sites.
- Company policies on the content that employees may post on blogs, both those of the company and others blogs where the employees post on the company’s behalf.
- Purchasing special insurance to fill in gaps left by the general liability coverage
Social media offers exciting new opportunities for businesses to build relationships with customers. However, they need to approach it with care and proper planning if they want to reduce the risks.
Most employers look at workers’ compensation as just another necessary evil and unavoidable cost of doing business. It’s usually one of those out of sight, out of mind things when rates are low. It’s not until an employer is hit with a rate hike that they really start to give some thought to their workers’ compensation rates.
Employers need to constantly look at workers’ compensation as a tool to improve their business’s bottom line, and they certainly need to make an effort to keep their low rates over the long-term so that they can take advantage of some significant savings.
Here are four common mistakes made by employers that frequently deter their workers’ compensation savings:
- Assuming that lower rates equate to lower costs.
Don’t make the faulty assumption that your cost will automatically go down just because your rates have been reduced. Workers’ compensation insurers use an experience modification factor to examine the actual losses incurred by the insured company and establish cost. The actual losses are compared to other industry-alike companies. If the insured company’s past losses are below average, then the insurer gives the company a credit rating lowering their premium, but an added surcharge is applied to the premium if the insured company’s past losses are above average.
- Believing that employers have little control when it comes to the expense of workers’ compensation.
Employers know they’ve got to have workers’ compensation insurance. However, this acknowledgment shouldn’t lend to an employer thinking they’ve got to pay excessively for it; employers don’t and shouldn’t.
Cost reduction starts at the hiring process. Initiate effective interview techniques and background checks to help ensure the right people are hired for the right jobs. That said, there’s no way to completely eliminate the possibility of injuries in a workplace. Therefore, it’s equally important to have an effective return-to-work program in place to simultaneously assist injured workers return to work as soon as possible and reduce the cost of their claims.
- Neglecting or de-emphasizing cost containment and injury management during low rate periods.
Safety should be an unyielding focus at all times. This will not only help a company reduce their claim numbers, but also keep their rates low over the long-term. Employers need to keep an eye on the issues that frequently impact the costs of claims, such as medical care costs and lost wages. Also, remember that open claims mean escalating costs and negative impacts to the company’s modification factor. Of course, this causes an increased cost for coverage.
- Not making the association between cost containment and worker retention.
Studies have shown that fewer accidents occur among skilled workforces, but even skilled workers can have an accident. A large part of whether or not an injured skilled employee returns to work is based on how their employer responds to them during and after recovery. An important part of an employer’s response will be in having a return-to-work program that includes maintaining constant contact with all injured workers and their health care providers to monitor how they’re recovering and when and how they can get back to work as soon as possible. Skilled employees that are kept in the loop with a return to work program’s periodic phone calls about what workplace changes are occurring in their absence are more likely to return. On the other hand, skilled employees that feel forgotten, undervalued, and disconnected aren’t very likely to return.
Directors and officers liability coverage is important for all medium and small firms. This form of coverage protects personal assets of directors and officers during a lawsuit stemming from mismanagement. When they’re charged with mismanaging the company, directors and officers who don’t have this type of insurance face the risk of significant losses. Directors and officers liability affords them the protection they need, and money for their legal expenses is provided. If the company they work for must be brought into the lawsuit, this coverage may also be extended to include the company itself. There are many other beneficial provisions these policies offer. Keep reading to discover why this coverage is both essential and beneficial.
Directors And Officers Make Mistakes
Nobody is perfect, so it’s important to be prepared for directors and officers to make mistakes. Although most mistakes that require this coverage are the result of negligence, it’s important to remember that anyone is capable of making such mistakes. While training directors and officers to make responsible and ethical choices is necessary, don’t pay so much for training that there isn’t enough money for liability coverage. It’s better to create a healthy balance by both preparing representatives and obtaining coverage to protect them.
Lawsuits May Drive An Unprotected Firm Into The Ground
Unfortunately, many firms don’t implement a directors and officers liability policy. When a lawsuit is filed, the importance of this vital coverage is learned. In this litigious society, there are an overabundance of attorneys who are eager to help individuals or companies sue another party for negligence. If there is proof of the director’s or officer’s negligence, the case will be difficult to win. In a best-case scenario, a good attorney may be able to minimize the amount of damages the company or representative must pay. However, a good attorney is expensive. In addition to this, the damages that must be paid hurt the company’s finances. Some executives or companies are forced into further debt or bankruptcy to compensate for the lawsuit. There are many other smaller expenses that add to the total loss.
The Breadth Of Coverage Is Generous
Many companies forgo liability coverage for their directors and officers because they think it’s too expensive. However, it’s actually very affordable, especially when the many provisions are considered. Each insurance company varies slightly in their specific inclusions. For example, companies that provide basic policies may cover only the attorney’s fees for the company, directors and officers. Some insurance companies that have more extensive coverage may include lodging, travel expenses and childcare reimbursement for defendants who must travel for court proceedings.
The Likelihood Of A Lawsuit Is High
Whether or not a company is in a high-risk business, there is always a high risk for lawsuits against directors and officers. In a recent study performed in 2010, 25% of small firms said they purchased directors and officers liability insurance. About 12% of the executives interviewed stated that they experienced a lawsuit. The average cost of the litigation process was over $200,000. However, some executives reported losses as high as $5 million. This example paints a clear picture of how likely it is to experience a lawsuit. It also illustrates how expensive such legal procedures are.
It’s important to compare insurance companies before selecting a policy. As mentioned before, not all companies offer the same coverage. Comparing rates and provisions is the best way to get the most value for every dollar spent. To determine how much coverage is needed, it’s important to assess risks. Most insurance representatives are happy to provide current and useful resources for this matter. They usually ask a series of general questions. Most agents ask several industry-specific questions also. There are some policies that are better than others for specific industries. Another important aspect of searching for directors and officers liability insurance is researching underwriters. The companies who underwrite insurance policies have varying policies. It’s rare to find two underwriting companies with identical rules. By performing some research on each preferred insurance company’s underwriter, it’s easier to determine which policies are the most solid. Be sure the company is rated with an A. Avoid doing business with insurance companies who use underwriters with lower ratings.
As every business owner knows, risk is an unavoidable part of doing business. However, it is manageable and controllable. Although it is a challenge that requires time and experimentation, finding a perfect balance between profitability and peace of mind is essential. It’s impossible to eliminate risk completely, so it’s important to set realistic goals. Policies that are enacted in an attempt to fully eliminate risk may actually hamper business growth.
The Importance Of Risk Management
The common concept of risk management among small business owners involves simply purchasing regular insurance protection. Other aspects of protection often escape consideration. Risk management is much more complex than simply purchasing insurance and implementing rules. These are both necessary parts of every plan. However, there are many other things to consider.
Tips For Implementing A Realistic Risk Management Plan
It’s best to start with a simple plan that is easy to follow. The prime goals should be mitigation and management of business risks. After trying the plan, analyze it and make any necessary changes or additions. Consider the following steps in order to make a positive change:
1. Identify The Risks
There are some risks that are universal. However, there are also some that are specific only to certain types of businesses. It’s important to conduct a thorough risk analysis to identify them. The best way to accomplish this is to use a standard risk checklist. There is a Small Business Insurance & Risk Management Guide available from the Small Business Administration. This guide is helpful in outlining potential risks. While going through the list, pay close attention. Most business owners are able to think of other potential risks that are unique to their situation during this process. Some of the most important initial risks to consider include:
Property losses that occur from loss of use, physical damage or criminal activity.
Liability losses that happen to customers and are the fault of the business.
Business interruption losses stemming from fires, natural disasters or other unpredictable occurrences.
Key person losses or the loss of important employees, which results in a negative impact on the company.
Employee injury losses that occur when an employee is injured on the job and must be compensated.
2. Determine How Vulnerable The Company Is To Various Risks
Consider the various risks and how much each one would cost the company. Not all types of companies are as vulnerable as others. Companies with high vulnerability to expensive risks need to make those specific areas a strong priority in their risk management plan. The risks that aren’t worth worrying about should receive a much lower priority. Keep in mind that it’s not feasible to eliminate every possible risk. However, some need much more consideration than others. For example, a paper manufacturing company should consider the risk of employees losing limbs on dangerous presses in the manufacturing line before they become concerned with possible paper cuts to fingers of employees in the inspection department. As an overall rule, the cost of preventing the risk should never exceed the amount the estimated loss would be from that risk.
3. Create A Contingency Plan
There is more to this aspect than purchasing insurance. Be sure to implement plans that place employee safety higher than efficiency. Install a security system to protect all property from theft and damage. Avoid transactions with unknown customers. Implement plans to train supervisors to minimize loss of key employees.
4. Purchase Adequate Insurance
In addition to purchasing enough insurance, it’s imperative to purchase the right types. Some of the key types of coverage to purchase include:
General liability insurance, which covers the legal liabilities faced from injuries to third parties. Medical expenses, property damage and bodily damage are typically covered.
Professional liability insurance, which covers allegations of malpractice, negligence and other errors in services.
Product liability insurance, which covers the expenses related to injuries or damages resulting from a defective product. This is essential for all companies producing tangible products.
Commercial property insurance, which covers loss and damage costs for business properties. Business interruption is typically covered by this provision.
5. Revise As Necessary
Be sure to review and update risk management plans regularly. Reassess risks and make any necessary changes. It’s important to have regular review meetings with department heads, owners and a risk management consultant. Be sure to inform the insurance company of any changes or new risks.
Business owners who plan to raise capital from investors must be especially vigilant in their risk management planning. Having a good plan and regular updating of the plan is important for gaining their trust and making them comfortable with the opportunity to invest.
Since Title VII of the Civil Rights Act of 1964 passed, the issue of employees’ rights continues to be controversial. Employers involved in interstate commerce are prohibited from discriminating against applicants.
Understanding How Fast Lawsuit Risks Are Increasing
As more laws are enacted for workplaces, employers face a higher risk of lawsuits. The likelihood of discrimination lawsuits is especially high. In order to minimize this risk, employers need to create a workplace that offers workers equal rights, opportunities, job access, working conditions, job security and opportunities for advancement. They must also strive to create a workplace that is in compliance with federal employment guidelines for mature and disabled workers. During the time period between 1992 and 2004, the number of individual discrimination charges jumped from 72,302 to 79,432 annually. These figures, which were collected by the Equal Employment Opportunity Commission, include all types of discrimination filings.
The 2010 Wal-Mart Example
Claims of workplace discrimination hit a record high in 2010. The total number of claims was 99,922 during the fiscal year. This number gained national attention after the story of a class-action discrimination lawsuit was filed against Wal-Mart. The U.S. Supreme Court threw out the case. This case stated that over 1.5 million female workers faced workplace discrimination in the aspects of pay and promotions. The Court ruled that the case couldn’t continue because of the varied circumstances of the plaintiffs, which lacked uniformity. This was the most high-profile employee discrimination case of 2010. It was also the largest class-action lawsuit in U.S. history.
The Small Business Perspective
Wal-Mart had a policy against uniform employment practices. Since duties were delegated to individuals in specific branch locations, the case was overthrown. Smaller companies need to take the examples of larger companies by ensuring that they’re properly protected from such lawsuits. On a smaller scale, discrimination lawsuits could devastate or bankrupt a small business. When employers have more personnel policies in place, there are fewer lawsuits filed. This is especially true if the policies are outlined well in a handbook and given to new employees. Educating new employees thoroughly is important. It’s also essential to fully educate employees who already work for the company at the time such changes are made. However, even if the law is carefully interpreted, there are still times when employees may allege discrimination. During such times, employers are always thankful and reassured that they possess Employment Practices Liability Insurance. This coverage is commonly referred to as EPLI.
Importance Of Employment Practices Liability Insurance
Most people aren’t aware just how important this type of coverage is. The importance of it can be discovered by carefully examining the workplace. Most workplaces have an ethnic and racial composition that is constantly changing and evolving. In addition to workplaces, the entire country is changing because of this factor. Cultural aspects have become one of the most common roots of discrimination cases. Although America is known for high levels of educated workers, discrimination continues to thrive among employees. They’re taught in college to tolerate and accept other cultures. However, exercising equal treatment in the workplace seems to be a problem for many. In addition to this, sexual harassment, handicap bias actions and age discrimination lawsuits are common. Workplaces facing these issues are finding themselves in serious legal trouble.
In order to avoid legal battles, it’s important to have EPLI. Although many employers think it’s too expensive, it may save a company from going under if a lawsuit is filed. Have a professional perform a risk assessment to determine how much insurance is needed. In addition to having ample coverage, it’s important to implement policies in the workplace that encourage equality and discourage discrimination. Information needs to be made available to workers to make them aware of what discrimination is and how to avoid it. Encourage workers to treat one another with equal and mutual respect. The press and human rights organizations are becoming more vigilant about spotting discrimination in multinational companies. With so many scrutinizing eyes watching, it’s important to regularly assess the workplace to ensure that discrimination risks are low. Educate executives on proper hiring, firing and disciplinary guidelines. It’s important to ensure that the executives won’t be a liability.
There are two factors that have been blamed for the rising number of lawsuits. First, employees being educated about their discrimination rights is resulting in them understanding and standing up for those rights. In addition to this, the financial hardships people are experiencing from the recession are making them desperate enough to file claims that aren’t legitimate. Regardless of whether claims are legitimate or not, it’s essential to have EPLI to protect the business.
It’s no secret that insurance companies hire from among the best attorneys available, and those attorneys defend you when you get into a legal incident covered by a liability policy that you have secured. But you may ask these two questions: is it still cost effective to get such legal defense through an insurance policy and what policies does a business need to secure to get the best legal guns to defend themselves in a given situation?
If you get an attorney demand letter or any kind of notice of legal action, who do you call? Well you can always call an attorney who may be a friend, may have done a trust for you, or may have put together some contracts for you, but would they be the best litigation attorney for you if it came to that? Keep in mind the plaintiff will probably know if you have a qualified attorney or not and that will dictate how they will proceed and how much they are willing to settle for. The less qualified your attorney is, the more leverage the opposition will have against you and the more likely it is that they will drag out a settlement or even take the case to litigation. The worst part of this is when these legal issues take away time and distract you from running your business.
The bottom line is, hiring an attorney yourself can be very costly when compared to the benefits of going through your insurance company. Insurance company claims departments handle these kinds of incidents every day, and they know exactly how to keep costs low without compromising on skill. They specialize in managing attorneys and claims incidents. The bottom line is, they are so efficient that it costs them less to settle than it will ever cost you doing it by yourself. This savings is built into the cost of the premium for liability coverage. The good news is, this cost is capped every year for whatever your insurance policy premium is. By not having a policy, legal expenses can easily run into six figures, even before any settlement or litigation takes place. Also, in many cases those taking action against you, most especially if it is frivolous, would rather not face an insurance company attorney and this puts you in a much better position.
Does a liability policy cover every incident? Of course not, but you can mitigate your legal risks by making sure you have the right policies in place. Here are the most common policies that your business will need to cap your legal exposure:
General Liability (GL)
This is the most common type of business liability policy. GL covers injuries caused to others, damage to the property of others, and may cover personal and advertising injury coverage, such as incidents caused by libel or slander. Many of these policies include products liability, which covers defective products that may cause injury or property damage.
Employment Practices Liability (EPLI)
EPLI insurance is becoming more and more necessary for employers, both large and small alike. EPLI provides protection against employee lawsuits such as discrimination, sexual harassment, failure to employ, and many others. This coverage generally does not pay for punitive damages, but instead will pay for the company’s legal costs associated with a covered lawsuit.
Errors & Omissions Coverage (E&O)
Also known as malpractice insurance, E&O provides coverage to individuals and firms who provide a certain expertise and counseling to their clients. When a professional receives payment in exchange for services, they are held to a high standard by both the client and the legal system. While incidents are not common, when they do happen they are very costly. Having the right insurance coverage in place helps to allow continuity of a practice, while minimizing possible huge financial burdens and distractions by transferring these burdens to the insurance company.
Directors & Officers Liability (D&O)
This type of insurance is taken out to protect legal action against directors & officers of a company. Any firm who has a board of directors, such as privately held companies, non-profit organizations, and homeowners associations, need this coverage. Anyone serving on a board without this coverage is putting their own personal assets at risk. Legal action against Directors & Officers can come from competitors, government agencies, creditors, employees, stockholders, and other third parties.
A Contractor’s Pollution Liability insurance policy covers environmental liabilities excluded by standard General Liability insurance. This coverage helps protect contractors against pollution incidents, such as contaminated soil disposal, accidental release of fuel oil, chemicals/toxic gases from broken pipelines, utilities, and stationary and mobile fuel tanks.
A business should not neglect getting Auto Liability even if they don’t own any vehicles. If an incident happens during working hours and the injured employee was using their personal vehicle for business use, the business may be named as a party to legal action on any injury or property damage that may occur. If the business is using personal vehicles on the job full time, it is probably best to have those insured under the company to make sure the company has coverage against legal action due to an automobile incident.
Each business is different, which is why it’s so important to review all potential exposures with your agent to determine if any of these exposures can be covered by insurance. A business owner truly gets a great bang for their buck when having these liability policies because as mentioned earlier, you are dealing with experts who know how to leverage their expertise most effectively. These types of insurance policies also bring more certainty to your business, the premium is all you pay, you have no worries of losing your business or facing significant setbacks due to spending tens or hundreds of thousands of dollars defending and paying claims that most people have no idea how to handle.