Directors & Officers Liability (D&O) insurance is one of the fastest growing yet least understood forms of insurance. In our increasingly litigious society, headlines abound with stories of class-action lawsuits and major claims against company managers.
Not just for mega-corporations, D&O insurance can protect directors and officers of small-to-medium enterprises, volunteer board members and non-executive directors as well.
What is Directors & Officers (D&O) insurance?
D&O insurance is designed to protect personnel from claims that arise due to actions they have taken within the scope of their duties as officers, directors, or company individuals. There are actually three parts or “sides” to D&O insurance:
Side A: protects directors and officers when the company cannot indemnify them as individuals;
Side B: reimburses the organization when it indemnifies individuals;
Side C: eliminates disputes of coverage allocation when directors, officers and the insured organization itself are named as co-defendants in securities and class-action lawsuits.
D&O insurance can cover all current, future, and past directors and officers of a company and its subsidiaries.
What types of claims are covered?
D&O insurance covers most employment practices and HR issues, shareholder actions, reporting errors, inaccurate disclosures of company accounts, misrepresentations, inappropriate decisions made by company officers, and failure to comply with regulations or laws.
What types of D&O insurance claims are typically made?
More than 50% of claims against a company are related to employment practices, including discrimination, wage disputes, sexual harassment, and wrongful termination. Shareholder suits are common as well. Lawsuits are not only initiated by employees. They can be brought by competitors, customers, creditors, investors, government agencies and vendors.
Why should you have D&O insurance?
If your for-profit or non-profit operation has a board of directors and/or corporate officers, you should consider D&O insurance. Your director and officers are at risk of losing their life savings from legal actions filed by customers, stockholders, or disgruntled employees. When you consider the cost of defending your company from claims as well as the risk of a major settlement against your firm, you can appreciate the importance of a D&O insurance policy. If you sit on the board of directors of an organization, especially if that board is occasionally faced with making unpopular decisions, you should make sure that organization has D&O insurance. If you are looking to attract board members and officers, you want to be able to assure candidates that you have appropriate D&O insurance in place.
D&O insurance can be quite complex to procure. Rollins Insurance is here to help you navigate the complexities and challenges of adequate and appropriate D&O coverage for your organization. Call us for a comprehensive review of your needs and specific recommendations.
Photo: Emdot via Photopin cc
Once the ball drops in Times Square on January 1, 2014, your business is likely to have new requirements for employee health insurance, thanks to the Health Care Reform Bill. How do the new regulations affect your business, and does it make sense for you to take advantage of the new Small Business Health Options Program (SHOP)?
Depending on the size of your business, rules regarding employer-provided health insurance vary. The size of your employee population has implications not only for the health insurance provision but for tax credits, penalties for non-compliance, and government-sponsored programs as well.
How small are we talking about?
If you have less than 50 “full-time equivalent” employees, each of them will be required to have his or her own health insurance. “Full-time equivalents” refers to the total equivalent of full-time and part-time employees. (In other words, if you have 100 half-time employees, you have 50 full-time equivalents). Even though you are not required to pay insurance, you may choose to provide this benefit in order to attract your best employees. Luckily, you may be able to find competitive rates through SHOP.
What is the SHOP?
Beginning in 2014, health insurance will be available to small businesses via state-run “exchanges” through a program known as the Small Business Health Options Program (SHOP). Small businesses will be able to pool together to increase their purchasing power, allowing them to offer health insurance to employees at rates that may be comparable to large corporations.
In addition, small businesses that purchase health insurance for employees through SHOP will receive business tax credits up to a percentage of the premiums. Tax credits are on a sliding scale based on the number of employees and average annual wages, and may be impacted by the sequestration.
More than 50 employees
If you have more than 50 employees, you are required to provide insurance to your employees. Moreover, you may need to pay penalties if that insurance is “too expensive.” Depending on the state where your business resides, you may be eligible for the SHOP if you have up to 100 employees.
Be aware that the rules change in 2016 and 2017. Rollins is here to help you navigate these changes. We will keep you up to date on the latest developments so that your business and your employees can greet the New Year with good health and happiness!
In previous posts we discussed how an E&O policy can provide your company with a shield for various liability claims. As with all liability policies, E&O claims that are paid out will always go to a third party: the law firm providing your defense or the claimant if there should be a settlement or judgment made against you. The insurer will never make out a check with your name on it, right? Wrong. Here’s how you can get paid by your own E&O policy:
With the adoption of technology platforms (the Internet) as a source of income and the proliferation of new regulatory guidelines, businesses face many new financial risks. Most of these have, to date, gone unaddressed by traditional insurance policies. For example if your company is selling its products or services either partially or entirely over the Internet, and that channel is compromised by a hacker you will lose revenue. Even if you have business interruption coverage on your company’s standard policy, it will not respond to the loss as there needs to be physical damage to tangible property. Some errors and omissions policies now offer business interruption/lost revenue protection for security breach and other internet related losses. Another example that highlights this gap in 1st party insurance coverage (meaning the policy holder is paid by the insurer, not a third party claimant) has to do with privacy. Suppose you collect data from your clients or users and have a security incident. Almost every State now requires that you notify these users that their personal data may be at risk as a result of your security failure. Some requirements go as far as to require ongoing credit monitoring for several years. For a company with thousands of clients/users this could pose a huge financial burden. Breach notification coverage, available on some E&O policies, will provide you with the necessary funds to cover these expenses.
Errors and Omissions insurance has morphed in recent years to address risks such as those cited in the examples above. This insurance often goes by other names such as “cyber insurance” as the intent is to cover the losses associated with doing business on the Internet. As a Tech company you would be wise to have a hybrid policy that provides the liability protection of an errors and omissions policy along with the first party coverage that is found in cyber insurance. This way you transfer the risk of defense and indemnity (liability) to the insurance company – while also protecting the top line of your balance sheet.
This is a re-blog of one of our most popular posts which was originally published in October 2010. The same concept still applies – health insurance is available to small NY businesses, but it is not cheap! We also wrote a guest post in BetaBeat on this topic that generated a lot of feedback.
"How to Get Health Insurance as a Startup Founder in New York"
Let us know how your company is handling the challenge of group medical insurance.
One of the biggest challenges for startups is finding a solution for employee health insurance - without bankrupting the company. In order to grow your company you are going to have to be able to attract and retain the best talent. Sure, a nice salary will go a long way, but everyone is going to want to know that they will have a good medical insurance plan in place if they work for you. This is especially true if they have a family (including children - who spend a lot of time in doctor's offices), or they are coming from a company (or are being recruited by other companies) where they had extensive benefits.
Why you might as well start smoking
The first thing you need to understand is that, as a startup, you will have fewer than 50 employees. This means that you will be subject to NY State's community rating guidelines.....these dictate that any company with fewer than 50 employees can purchase medical insurance and the rates cannot deviate from one employer to another. So your firm of 3 healthy people in their mid-20's that never go to the doctor and never have medical claims will get the same rate as the three 60 year old chain smoking, former coal miners running an asbestos removal company next door. So for obvious reasons the insurance companies are not inclined to provide their best rates to employers with less than 50 employees.
(once you reach 50 employees your company stands on its own performance - insurers will negotiate their rates, and as a "healthy company" you will have lower rates....lower than the community rates)
One solution is a PEO, where you can get broad employee benefits packages as part of their large group of employees. The downside is that you have to buy everything else the PEO is selling plus pay their administrative fees. The alternative: Do it yourself.
The million dollar question - answered
That brings us back to the original question: How much does health insurance cost for a startup? The rates vary by insurer and change quarterly. There are also variables that will affect your bottom line expense (employee contribution, increasing deductibles and copays, etc). If you are interested in the current rates for a NYC company follow the link below.
The acquisition of a D&O policy is often triggered by one of the following events:
- new board member requires that company has D&O
- new investor (such as a VC) requires D&O insurance as part of term sheet
Ultimately the D&O policy is the mechanism by which you will be shielding the personal assets of the officers and directors - as well as the balance sheet of the company (most company have an indemnification agreement in their bi-laws that basically translates into this: the company is responsible to cover claims against the D&O's out of its coffers...the problem comes when there is no money available or the indemnification is prohibited by law). Most people who will agree to be on your board will not be willing to risk their personal assets based on the performance of your company. You might not either.
So back to the original question - When? As soon as company is operational with a management team and board AND as soon as you can afford to transfer the risk to an insurer (minimum premium can be about $2,500/year)
One other important point to consider - as a private company your biggest threat of action against the management team will be from employees. D&O policies can cover employment practices claims (wrongful termination, failure to hire, discrimination...) once you have a workforce it will increase your risk and be another factor to consider when thinking about D&O insurance.
Selecting the appropriate limit of any kind of liability insurance is a bit of a crapshoot. There are a variety of factors that should be taken into account for D&O including:
- Employee Count
- Do you want to incorporate coverage form Employment Practices (the single biggest source of claims against D's&O's for private companies)
- Are you entering into sophisticated transactions that could result in litigation (such as M&A)?
- What is your company's financial condition?
- Is your company public or private?
- Does your Board or VC have a limit requirement?
- How does D&O coverage fit into your overall risk profile - are you spending insurance dollars wisely with a higher limit or would you be better off with a lower limit on D&O, with the additional dollars go toward another coverage like E&O?
Assuming we are talking about a private startup company, generally speaking, startups will carry $1MIL - $3MIL. Keep in mind that for most policies defense costs will deplete the limit of liability, so make sure your limit is high enough to cover defense AND settlements. One other point - ask your broker for benchmarking info with data from peer companies. This may give you some additional insight and guidance. Now go get 'em, slugger!
Find more answers to your insurance questions here:
Does My Company Need Employment Practices Insurance?
According to a recent study by Business Wire, more than 65 percent of small business owners expressed concern that their workers would file an employment-related charge against them. However, studies also reveal that a mere 1.2 percent of businesses have Employment Practices Liability (EPL) coverage.
High Price Tag
Employment-related claims can be extremely costly, especially in cases that drag on for years. With a slow economy and increasing adoption of worker-friendly laws, these cases are on the rise – in fact, discrimination claims are reaching their peak, with more than $376 million awarded to employees in 2009. Many small businesses cannot afford to pay these costs and keep their company afloat.
What Puts Small Businesses at Risk?
Understandably, it can be much more difficult for small businesses to defend themselves against employment-related claims because they tend to have fewer resources and a different work environment. Small businesses are particularly at risk for employment-related claims for the following reasons:
- Many have a minimal staff and lack of in-house counsel and/or full human resources department to rely on.
- Overall lack of extensive recordkeeping on employee performance.
- More intimate working environments may cause personal riffs during layoffs.
An Affordable Solution
Fortunately, with employment-based lawsuits on the rise and the economy’s sluggish upward climb, EPL coverage is becoming more affordable. More companies are beginning to offer EPL insurance policies with comprehensive coverage to smaller businesses to protect them in tough times. In fact, EPL insurance is becoming so important to the success of small businesses that it is being offered at more affordable prices and being tailored specifically for those smaller companies. With employment charges costing upwards of $40,000, EPL coverage may be a smart choice for you.
This Coverage Insights is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.
We know that traditional Tech Errors & Omissions insurance covers failure to perform scenarios. But what about claims that are not related to the performance of a technology product or service? For example suppose you provide an internet platform that allows users to buy comic books online. You post pictures of comic book covers and characters on your website and maybe even allow visitors to read pages of the comic book. And as part of the order fulfillment you collect the home address and credit card info from your shoppers. Now suppose you do this for thousands of people. Everything is going great until the day you get a letter from Marvel's attorney with a request for damages since you were using their images, trademarks and characters without proper authorization. Or maybe the letter is from a law firm representing your irate customers, saying that your site was responsible for a series of privacy violations - and demanding millions in damages. In these scenarios your platform performed perfectly, just the way it was supposed to….so no E&O coverage, right? If you have a typical, basic E&O policy the answer would be yes. However inthe past 15 years E&O insurance policies have evolved to recognize the many additional exposures to claims that are a result of the Internet. So these "non-performance" claims can be covered by an Errors and Omissions policy. The policies provide broad protection for issues such as: privacy, copyright infringement, trademark infringement, trade dress, trade secret (yes, you can get coverage for claims that you stole someone's trade secret) and a full array of media exposure that you have as an internet
based "broadcaster" (disparagement, libel, defamation, false advertising..)
These E&O policies go by many names such as: plain E&O, CyberLiability, CyberInsurance, Internet liability and even Multi-Media insurance - and no two policies are the same. To make it even more confusing most insurers choose to brand their policies with their own names like "pro tech" or "fail safe". They can cover (and exclude) a wide variety of risks making it imperative to match the policy to your companies own unique risk profile.
If you are running a social media company, large or small, and have had to buy an insurance policy you have most likely encountered significant difficulty and pushback when trying to get even the most basic coverage. Why? Pretty simple - insurance companies, like all companies, are in business to make a profit. And many of them view the risks presented by social media to be too great to make a profit from. If you were any other small, office-based startup in NYC you would most likely be looking at a basic General Liability policy running you somewhere in the neighborhood of $150 per month. For that, the insurer would provide you with one million dollars of liability coverage (available for defense costs and settlements). And in most cases there will never be a claim on that policy. For social media companies, however, insurers feel the risk of claims is exponentially higher - such that they could not even charge enough to offset the claim potential. Therefore many will typically just pass on offering a quote or coverage. Here is what they are thinking:
At their core, General Liability (GL) policies exist to cover claims that your company, it's people or it's products & services caused Bodily Injury or Property Damage to a third party. For most companies in an office environment that scenario is rather unlikely. Sure someone could slip and fall while on your premises, but those situations are fairly rare. As a social media company the risk of a bodily injury claim is slightly different. Take the "cyberstalking" scenario: two people meet online in a social network, agree to meet in person and one of the people physically assaults the other. Was it the fault of the social network platform? Probably not. Will they get sued? Probably. In the end there are defenses to justify why the social network is not responsible - but that may be after tens or hundreds of thousands of dollars in defense costs. Insurers may say that their General Liability policies do not intend to pick up that "contingent" bodily injury, only direct bodily injury caused by you - but they also know covering this type of claim may be unavoidable. So the easiest thing for them to do is not take a chance in the first place.
IP, PI & the Big P
GL policies have a few other components that are important to note: they also cover Advertising Injury and Personal Injury (AI&PI). This is big. AI covers claims for things like false advertising and copyright/trademark infringement. PI covers claims such as libel, slander, defamation, privacy, etc. Once again think about your average small office-based business. They might have a website but it doesn’t generate any income, no one advertises on it. Their likelihood of a false advertising claim is negligible. And they don't really have the potential to infringe on another company or individual's intellectual property. On the PI side, could they defame or disparage someone, say at a cocktail party, and then be sued? Sure they could - although this, too, is a remote possibility. Social media companies on the other hand have robust web platforms where users control the majority of the content. This opens Pandora's Box of risks for personal injury, copyright infringement (think: posting videos, music or other copyright protected material)…the social media platform becomes the unfiltered megaphone anyone and everyone. Is this OK? Aren't we operating under a Constitution that provides freedom of speech?? Of course we are - insurers just don't want to bankroll the litigation that often accompanies new avenues of communication. Especially not for fifteen-hundred bucks a year. Finally: privacy. Possibly the biggest risk facing social media companies and their insurers is the potential for a massive privacy claim. This can come from a security breach that results in unauthorized access to personally identifiable information or credit cards. Or, as Facebook recently discovered, sharing your user's data in an open infrastructure brings with it the potential for a privacy violation.
As social media evolves and companies work out the best ways to monetize their platform, and thousands of loyal users, it often means selling a product. So let's just say that your social network is a platform to bring together like minded people in the skateboarding community. What better way to leverage the group buying power than to offer you’re your own name brand skateboards, helmets, ramps and other goodies?? Have I mentioned that your typical basic General Liability policy covers product liability? So now your 10 person "office operation" is selling products that may result is severe head trauma and death. You can substitute any product from q-tips to alcohol to children's apparel - if someone gets hurt using a product that you sold them you might be on the hook. And by you, I mean any insurance company that provides your General Liability coverage.
Perfect Storm of Risk
Believe it or not, there are probably four or five other significant reasons that most insurers are very skeptical about providing social media companies with a simple business owner's policy. While some companies may even have one small part of their business viewed as high risk, Social Media companies have the potential for high risk in just about every category. This is not a defense or justification for the insurer's unwillingness to provide coverage, but rather an explanation for perplexed execs at social media companies. Part of it has to do with the newness of this type of business - insurers have no track record to base their appraisal of the risk on. And frankly that's how the actuarial system works. In five years this may be a non-issue, as every company is evolving toward embracing social media. Insurers are just going to have to adapt and overhaul their underwriting philosophies. There are already some progressive insurance companies that think they have a handle on the risk today and are able to offer coverage at a reasonable cost. You just have to find them!
So what can you do?
Work with a broker that has experience with Social Media companies. They will know upfront which insurers will, and which will not, offer coverage for a company like yours. This alone could save you from the potential for lost time while an unfamiliar broker looks under rocks for something that isn't there. TechAssure is a national network of brokers that specialize in insurance for technology and digital media companies.
Don't wait until you have a client contract that requires you to get insurance. Start the process early so you don't end up in a mad scramble and risk losing revenue. This will also give you time to price out the best possible solution.
Do Cliff's Notes still exist? I owe much of my High School academic mediocrity to those little yellow books. Right about now many Americans would love a Cliff's Notes version of the Patient Protection and Affordable Care Act ("Obamacare" or PPACA), which effectively kicked in on September 23, 2010. The goal of the Act is to simplify our healthcare system, making insurance available and affordable for all Americans. In written form it is a maze of political jargon involving everyone from the IRS to the Department of Homeland Security. Many changes, large and small, began in September and will continue over the course of several years - until 2014 when every American must be insured.
So as an individual, business owner or executive how will you be impacted by the changes that are taking place? It's hard to say, really, as many of the reforms are still "subject to change" and the overall plan literally moves on a daily basis. However, there are some significant points that may have an immediate impact for you, your company & employees and your family:
The Patient Protection and Affordable Care Act (PPACA) technically had a trigger date of March 23, 2010. Any changes made by the PPACA went into effect 6 months later, in September. One provision in the PPACA states that plans may be "grandfathered", meaning if they meet certain criteria, they can are exempt from having to conform to the new rules. In order to have this grandfathered status, essentially you must have a plan that has had no material changes since the legislation was enacted in March. This includes no changes in co-pay, deductibles, etc. And if your company has more than one plan, each may be considered for grandfathered status individually. Bottom line: you may not have to worry about some or all of this…for now, anyway.
Many companies use Employee Benefits to attract and retain key executives. One way this is done is by offering special plans that provide richer coverage benefits for just key individuals such as C level executives. Moving forward this is a major no-no. Significant fines will be assessed to any company that has discriminatory plans - as much as $100 per day, per employee. If you are Grandfathered this is one of the changes that will not apply to you. So how do you show those key execs the Love? Just pay 'em.
Dependents to Age 26
You know that college grad that you just hired to do programming? He can continue to be covered on his parent's health insurance - until he's 26! It doesn't even matter if he lives at home or gets married (his spouse can't be covered, though). This may mean that many companies can reduce the number of covered employees, reducing their overall employee healthcare costs and improving the bottom line. (It may also mean more covered people for larger groups, where your premium is based partly on claims experience - and therefore higher costs!) For NY companies individuals can also be covered until they are 29…they just have to cover their own premium for the three years after their 26th birthday.
According to the PPACA there can no longer be limits on certain "essential benefits". While the term essential benefits is still up for debate, this does mean that a medical insurance policy can no longer have a lifetime limit or policy limit such as $1,000,000. There can also no longer be limits on the amount of coverage is available for prescription drugs. Some parts of this are still being worked out such as the number of days that are available for physical therapy. All in, this should be a positive change.
There can no longer be a charge or co-pay for preventative care. Guess there goes your last excuse to not have that annual physical, tough guy.
Crack Down on Flexible Spending Accounts
As of January 11, 2011 Flexible Spending Accounts (FSA's) will no longer allow certain types of over the counter drugs to be covered without a medical prescription. Aspirin, allergy meds, and yes even anti-gas products are no longer eligible for FSA coverage (Band-aids are still covered!). The list is long and your guess is as good as mine as to where the lines were drawn.
For more information check out our healthcare reform toolkit.
* This article by John Moccia was originally published on the website www.businessinsider.com/