Minimizing Downsizing Problems

A number of companies are downsizing, through either across-the-board personnel cuts or closures of marginal plants. Regardless of the method, a company needs to plan effectively for staff reductions.

If you're considering a downsizing, before a single employee is terminated, you need to be aware of any and all state and federal laws with which you must comply. These laws are typically put in place to ensure that employers are not terminating employees in a discriminatory fashion.

Two federal laws that you need to respect are:

• Workers Adjustment and Retraining Notification Act of 1998, which requires employers to give a minimum 60-day notice to employees prior to any plant closings, and
   
• Age Discrimination in Employment Act, which bars employers from discriminating against workers older than 40.
  After layoffs have taken effect, you may see a spike in your workers compensation claims. You will need to discuss this with your claims management personnel and to be on the watch for fraudulent work comp claims.

Employee Benefit Liability Coverage

One of the most misunderstood coverages is employee benefit liability. The coverage is typically provided by endorsement to the Commercial General Liability (CGL) policy, and it has been around since the early 1960s. Despite this fact, there is still widespread confusion about the purpose and extent of the coverage.

The coverage grew out of a need that followed a 1962 court case (Gediman v. Anheuser Busch) that held the employer liable to the estate of a former employee for providing incorrect information. The intent of the coverage is to protect the insured's officers, directors, and employees for negligent acts, errors or omissions in the administration of various employee benefit plans. Typically included in the group of covered plans are group life and health, profit sharing and pension, employee stock option, workers compensation and unemployment, social security, and disability.

The coverage is usually obtained by adding an endorsement to your CGL policy. While there is no "standard" endorsement, coverage from individual carriers is consistent and typically includes two broad areas of exposure:

• Insured erroneously calculates the amount of pension and the employee elects early retirement only to find that the amount is considerably less, and
   
• Insured neglects to enroll an employee for the company's benefit program(s).

While the endorsement is almost automatic on most CGL policies, in today's hardening insurance market, this may be one of the coverages that are eliminated from the policy. Additionally, since the coverage is written on a claims-made basis, it is important to watch the retroactive date. It is preferable that there be no retroactive date noted on the endorsement. You will need to make certain that the employee benefit coverage endorsement is included in any CGL renewal and that there is no retro date.

Don't Leave Home Without Your Umbrella

As liability claim awards climb higher and higher, it has become critical that businesses purchase liability limits in excess of the traditional general liability policies. This can be accomplished with the purchase of a commercial umbrella policy. Generally, an umbrella policy provides broad coverage with high limits to cover catastrophic losses. However, umbrella policies do vary significantly from insurer to insurer, so you need to make certain you have the right one for your needs.

While there are many considerations, one of the key features that any umbrella protection should provide is a drop-down provision. The drop-down feature comes into play when the underlying policy limits are reduced or exhausted through the payment of a loss. In these situations, the umbrella policy should become your primary coverage for defense, indemnity and related expenses.

Two things to review:

• Make certain that the scope of coverage is at least as broad as the underlying policies, hopefully broader.
   
• Make certain the umbrella policy will provide coverage if an underlying insurer's coverage becomes unavailable due to insolvency.

You need to understand all the provisions of your umbrella coverage as well as its drop-down provisions. Should any provisions of your policy be unclear or ambiguous, let us explain them to you.

Don't Bring an Escort

Having to terminate someone is a traumatic experience—traumatic for the soon-to-be ex-employee, the manager and the whole department. However, management must use care in handling these situations or they could be facing lawsuits.

In any termination situation, a company needs to be certain that a lot of legal issues are resolved prior to the actual termination. A frequently overlooked area is when the employee leaves the premises for the last time. Many employers have a policy that the employee is escorted out by a guard. The presence of a guard strongly suggests some element of wrongdoing. This kind of public display of security can provide the basis for a defamation suit since it could be perceived that the employee is untrustworthy or potentially violent.

While your firm may have decided to utilize escorts, just make certain to apply the policy consistently so no one thinks they are being singled out. It also is a good time to make certain that your company has broad, comprehensive Employee Practices Liability coverage.

There have been some changes in these policies over the past few years. Let our agency show you how to maximize your
coverage.

Auto Coverage Gaps

For the most part, the commercial auto policy provides a comprehensive package of first party (physical damage) and third party (liability) coverages. It has been designed to offer business owners broad coverage in a wide variety of applications. However, there still are some gaps in coverage that, as a business owner, you will need to monitor.

One of the most frequently overlooked gaps is the "Drive-Other-Car" (DOC) coverage. This coverage option is directed at owners and managers who do not own any vehicles in their own name. The company car that is driven is considered the "family car." Since the owner does not have any other vehicles, he does not have a need for a personal auto liability policy. As a result, if he were to rent a vehicle while away on vacation, he would have no other coverage except that provided by the car rental company.

The DOC coverage is specifically designed to provide protection for people while they are driving non-owned vehicles on personal trips. This additional coverage can easily be added to the company's commercial auto policy by adding the DOC endorsement.

We will be happy to discuss this situation with you and, if you have a need for the coverage, request the DOC endorsement for your policy.

Having Sufficient Limits

Maintaining adequate limits of property coverage is critical. Insufficient coverage limits can result from inaccurate assessments of property values, among other reasons. Inaccurate assessments usually occur because a formal appraisal of the property has not been made recently. Insufficient limits can also lead to non-compliance with coinsurance requirements as well as to coinsurance penalties.

Property that is situated at multiple locations may have insufficient coverage as well. In these cases, even though the overall limit is adequate, limits at individual locations may prove inadequate. To avoid such valuation problems, a “blanket limit” should be provided so that the overall limit is applicable to all locations. Even with blanket limits, you will want to make certain that there are no sub-limits placed on the schedule of individual locations.

With proper attention, you should be able to maintain adequate limits of coverage on your company's property. If you have questions regarding your property policy limits or single location limits we can assist you.

Independent Contractor

Many employers have discovered that by converting employees to independent contractor status they can save on some expenses. An employer might expect some savings in workers compensation costs since, if the contractor is injured, it will not go against the employer’s loss experience. However, it is sometimes difficult to determine if it is a true independent contractor relationship.

Recently the courts have looked at the nature of the contractor/employer relationship to determine liability in workers compensation claims. Among the primary issues the courts consider are:

• Control of the manner in which the work is done,
   
• Which party supplies the tools,
   
• Whether payment is by the hour or by the job, and
   
• The right of the employer to terminate the employment at any time.

Employers need to monitor their relationships with all workers. If temporary employees are used, employers need to abstain from controlling them as much as possible. Otherwise, workers that you believed were not your responsibility will
be looking to your workers compensation coverage in the event of a work-related loss. Remember, the one overriding factor that the court will look at is the control of the worker.

OSHA Issues Revised Record-keeping Requirements

In an attempt to make the recordkeeping requirement as easy as possible
for employers to accurately document workplace illnesses and injuries, OSHA is introducing Form 300. Form 300 was created to simplify the administrative tasks of reporting as well as to provide more flexibility to employers who chose to use computers to meet the requirement.

Effective date for the change is January 1, 2002.