The Barkley Buzz Newsletter January 2010 Issue

Risk Management News and Tips brought to you by Barkley Insurance & Risk Management

In this issue:

• Did you know...?
• How Umbrella Coverage Works with Other Policies
• Insuring Employees Who Drive Their Own Cars
• SEXUAL HARASSMENT - Issues to Consider
• COBRA Premium Subsidy Extended
• How Employers Can Control Health Care Costs in 2010
• Customers “Benefiting” from Consultative Approach

DID YOU KNOW...?

The American Recovery and Reinvestment Act of 2009 (ARRA) provided a temporary subsidy for the cost of COBRA continuation health coverage. On Dec. 19, President Obama signed legislation extending and expanding this premium subsidy that was due to expire on Dec. 31. Along with the extension comes new compliance obligations for employers including new notice requirements that must be met on a tight deadline. Read about the details below.

Risk Management

~ How Umbrella Coverage Works with Other Policies

If your business is the typical small or mid-sized business, you probably have somewhere between $500,000 and $2 million in liability coverage under your business owner policy (BOP) or commercial general liability policy. Depending on your risk exposures, you might also have liability coverage under other policies, such as an automobile liability policy or employers liability policy. Sometimes, a liability claim will exceed the limits of these policies. When that occurs, an umbrella policy can help meet your coverage needs.

These policies provide coverage when you exhaust the limits of your “underlying” liability policy. Umbrella coverage can be attached to commercial liability, employers liability and automobile liability policies. It has three main functions:

• to provide excess coverage for underlying liability policies (for example, increasing covered loss limits from $1 million to $5 million)
• to “drop down” and make payments when underlying policy limits have been totally or partially exhausted (such as when maximum aggregate limits have been reached before the end of a policy term or when liability awards consume limits of other layered policies)
• to provide broader scope of coverage than primary policies offer (for instance, covering damage to property belonging to other parties but in the care, custody and control of the insured).

Although you might hear the terms “umbrella” and “excess” used interchangeably, these two types of policies differ significantly. Excess insurance simply provides higher limits than your underlying policy. An umbrella policy not only increases your limits, it increases the scope of your coverage as well. In other words, an umbrella policy can protect you from some losses excluded by your primary policy.

Policy terms vary, but umbrellas can cover claims filed outside the U.S. or Canada; claims of contractual liability (for both written and oral contracts); liability for items in your care, custody and control; and watercraft or aircraft liability—all excluded by the standard commercial liability policy. Before your umbrella activates this “drop down” coverage, an insured must pay a self-insured retention (SIR—usually $10,000 or $20,000) that acts as a deductible.

What to look for in umbrella policies

Most umbrellas furnish broader coverage and fewer restrictions than general liability policies, but if yours doesn’t, consider adding “broad as primary” or a “following form” clause in the contract. This will indicate that your underlying policy’s conditions will automatically be included in the umbrella coverage. When possible, amend the language to go beyond the underlying policy’s conditions, by agreeing that exposures not covered by the underlying policy will be picked up by the umbrella after your claim costs exceed the SIR. Anniversary dates of all underlying and umbrella coverages should coincide, to avoid potentially damaging coverage gaps or overlaps.

When your organization has several layers of insurance, be certain that covered losses and “drop down” language are identical. Some policies have separate limits for legal defense costs. If your umbrella includes defense costs within its policy limits, you might want to purchase higher limits. If the policy covers more than one company, be certain to insert a “severability of interests” clause; this will treat each company as a separate insured if an employee of one company makes a claim against another insured company.

Umbrella insurance can save the day when a major claim puts your company’s finances at risk. Please call us to evaluate your liability exposures today. We can help you structure an umbrella policy that will provide you the additional coverage you need. For more information, please call us.

~ Insuring Employees Who Drive Their Own Cars

In many companies, employees who drive during the course of their jobs—whether for making deliveries, calling on clients or picking up supplies—use their personal car rather than company cars. This has several advantages for the employer—it does not have to maintain a fleet, it does not have to worry about non-employees driving the car, and the employee’s personal auto liability policy provides the first layer of coverage. Accounting is also simpler—the employer does not have to account for an employee’s personal vs. business use of the car—all the employer has to do is reimburse employees for their mileage at the IRS rate (currently 44.5 cents per mile for business miles).

However, just because an employee uses a personal auto does not relieve the employer of liability if he or she injures someone while on the job. An employer would become “vicariously liable” for any injuries an employee caused to a third party during the course of work. (Time spent commuting to and from work is NOT considered work time; therefore, an employer has no liability for an accident that occurs during an employee’s commute.)

An employer can do a couple of things to protect itself from liability when employees drive their own vehicles for work:

A. For all positions that require driving, check applicants’ motor vehicle records (MVR) before making a final job offer. This will show any tickets they’ve received or accidents they have been involved in. Avoid hiring someone with multiple moving violations, especially for speeding or failing to obey signals. Studies have shown that these habitually careless drivers are more likely to become involved in accidents.

B. Require employees who drive for work to carry a personal auto policy with at least $500,000 in liability coverage. This will serve as your first layer of liability coverage, so be sure to notify employees that if they’re involved in a work-related accident, their policy will respond first. Require employees to submit proof of insurance, and make continuing coverage a condition of the job.

C. Consider buying a business auto policy to cover auto-related liability exposures. The BAP can be written to cover any of an insured’s auto-related liability exposures, indicated by “symbols” on the policy’s schedule of coverages. To see whether your policy covers employee-owned vehicles, check for either Symbol 1 (which covers “any auto”) or Symbol 9 (non-owned autos only) in the schedule of coverages.

The BAP covers only the liability of the named insured — that is, the employer. The business auto policy (and your other liability policies) will not cover the employee’s own liability.

The BAP and other commercial liability policies also will not cover any injuries an employee causes to a fellow employee. Workers’ compensation protects the employer from this type of claim.

In some states, employees can sue their co-workers for work-related injuries under certain circumstances. The employer’s workers’ compensation insurance will not provide coverage for this kind of claim, making the employee personally liable.

If you want to provide employees with liability protection for this and other situations, you can buy this additional coverage in an “employees as insureds” endorsement. The endorsement will provide employees with coverage under your BAP, secondary to the employee’s personal auto policy. Please note that if you have Symbol 9 coverage only (non-owned autos only), the BAP provides liability coverage only; it will not cover property damage to the employee’s car.

For more information on managing your firm’s auto-related risk exposures, please call us.

~ SEXUAL HARASSMENT - Issues to Consider

1) Harassment should be reported immediately
2) Requiring co-workers to work the harassment out between one another is bad management
3) Harassment can be caused by third-parties, such as vendors or clients
4) Same-sex harassment can occur, as in harassment of one man by another

The Department of Labor's Employee Benefits Security Administration COBRA page now has available model notices updated for the extension provisions of the 2010 Department of Defense Appropriations Act. They are available at http://www.dol.gov/ebsa/COBRAmodelnotice.html.

Group Employee Benefits

~ COBRA Premium Subsidy Extended

The American Recovery and Reinvestment Act of 2009 included a law in which COBRA-eligible individuals who had lost group health benefits due to involuntary job loss could receive a temporary partial subsidy for COBRA premiums. This law was set to expire December 31, 2009. On December 19, President Obama signed into law an extension and expansion of the COBRA subsidy law.

Eligibility Period: The eligibility period has been extended through February 28, 2010. Employees who become eligible for COBRA due to an involuntary termination during the period from September 1, 2008 through February 28, 2010 will be eligible for the subsidy (even if they don’t elect COBRA coverage until after the February 28 deadline).

Length of Subsidy: The premium subsidy for Assistance Eligible Individuals (AEIs) has been extended by six months for a total of 15 months.

Retroactive Payments: For AEIs whose nine-month subsidy period expired before the extension was passed, they may have either let their COBRA coverage lapse or been forced to pay the full premium amount.

- For those that let coverage lapse, they may retroactively pay the premiums at the subsidized rates for an additional six months to continue their COBRA coverage. The retroactive premiums must be paid by February 17, 2010, or 30 days after the AEI receives notice, whichever is later.

- For those who paid in full, the employer must either reimburse for the excess payment or reduce later payments to make up the difference.

Notice Requirements: Plan administrators are required to provide notice of the subsidy extension to any individuals who are AEIs at any time on or after October 31, 2009. This notice must be provided by February 17, 2010. In addition, election notices sent to individuals who experience a COBRA qualifying event on or after December 19, 2009 must include information about the subsidy extension. Notices regarding the subsidy extension must also be provided to individuals specified above who either are eligible to make retroactive payments or are eligible for reimbursement.

Model notices will be published by the Department of Labor on or before January 18, 2010.

~ How Employers Can Control Health Care Costs in 2010

Employer-sponsored health care costs are expected to continue growing in 2010. Below are several strategies you may use to control your health care costs in 2010.

1. Conduct a dependent eligibility audit to weed out ineligible dependents. Begin with an amnesty period to allow employees to voluntarily remove ineligible dependents without penalty.
2. If you have retirees on your health plan, make sure your claims administrator is correctly integrating with Medicare.
3. Audit your claims administrator to ensure that all claims eligible for stop-loss reimbursement have been accurately reported to your excess risk carrier.
4. If self-insured, negotiate changes in your ASO fees to reflect probable changes in your company’s wages and salaries next year.
5. Consider offering a Consumer-Driven Health Plan (CDHP). This often comes in the form of a high-deductible health plan paired with a health savings account (HSA).
6. Examine your prescription drug plan and consider adding alternate drug plans, such as a CDHP option. Or, if you have a three-tier Rx plan, redesign the tiers to encourage lower-cost generics. Consider adding a fourth tier for pricey “lifestyle” drugs.
7. Analyze carrier data to identify common chronic diseases or conditions within your company, and implement a disease management program.
8. Routinely educate employees on smart consumerism strategies, the importance of preventive care, and the availability of low-cost medical or prescription options in your area.
9. Raise your employee deductibles, copayments and/or out-of-pocket maximums. This will encourage employees to think twice about their health care expenditures, plus will save you money.
10. Increase your use of health and wellness incentives. Offer incentives for behaviors such as taking a health risk assessment or participating in a smoking cessation, weight management or fitness program. Incentives may include gift cards, cash or discounted premiums.

~ Customers “Benefiting” from Consultative Approach

An update on the Barkley Insurance Employee Benefits Division

Escalating health care costs, legislative and regulatory changes and service-challenged health insurers all have had a dramatic impact on employee benefit plans. What was once considered a straightforward issue has become one of the most complex and costly business decisions, requiring tailor-made solutions! Yet when service was being offered, it was usually on a reactionary basis, if it was being offered at all.

Many of our small to mid-sized clients have retained Barkley Insurance to provide professional services for their employee benefit programs. Currently, our benefits division is providing solutions for our clients’ health, short- and long- term disability, dental, vision and group life insurance needs.

In addition to providing the “traditional” services such as benefits program plan design consultation, carrier identification/selection, conducting open enrollment meetings and claims servicing, The Barkley model is to assist you from a federal/state compliance standpoint as it relates to personnel/human resources. This may include:

• Employee handbook audits/creation
• INS I-9 compliance
• FMLA policies/procedures
• COBRA coordination and outsourcing options
• Personnel record retention/storage
• Sexual harassment policies and prevention training
• ADA policies/procedures

Today, thanks to our clients and network of referrals, our benefits division is growing at an impressive rate. In response to the demand, we have taken steps to increase staff, invest in technology and dedicate more internal resources to broaden our customer service capabilities.

If you would like to find out more of how we can assist with your employee benefit needs, please contact Ed McClements at 805.483.1995.