The Barkley Buzz Newsletter November 2009 Issue

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

In this issue:

• Did you know?
• D&O Coverage: No Longer a Luxury
• Tackling the Telecommuting Risk
• This Just In
• H1N1 Employment Law-Related Questions
• Reform Not to Slow CDHP Growth

~ Did you know?

The Department of Justice has been increasing enforcement efforts against employers suspected of discriminating against members of the armed forces seeking to re-enter the civilian workforce after returning from active duty. Members of the armed forces are protected under the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA), which entitles them to return to civilian employment at the same level of pay, benefits and employment status they would have attained if continuously employed.

Risk Management

~ D&O Coverage: No Longer a Luxury

A recent survey found that more than 95 percent of Fortune 500 companies maintained directors and officers (D&O) liability insurance. However, D&O insurance is becoming an essential tool for companies of all sizes to attract and retain top executive talent.

Who Needs D&O?

Corporate headhunter Nicole Weber says C-level executives now routinely demand appropriate D&O coverage before even considering a job offer. “These guys are at the top of their profession,” she says. “They are not going to put their personal financial assets in the firing line in case they get sued for actions they take as part of their jobs. It’s simple: if you want top talent, D&O coverage is an essential part of the package.”

D&O coverage is equally important for investors. They want to know that there is adequate financial backing in case gross mismanagement makes their investment in a company go sour.

D&O coverage also insulates companies and their executives from employment practices lawsuits against company directors. According to specialty insurers Gaston & Associates, employment practices suits constitute the single largest area of claim activity under D&O policies. More than 50 percent of D&O claims relate to employment practices.

Who Sues?

Unfortunately, a whole host of constituencies are just waiting to sue company directors and officers. The most frequent legal actions come from employees who allege wrongful termination, harassment and breach of contract.

Almost as prevalent are shareholders upset at a declining stock price, inadequate disclosure, dishonesty, bad decisions and missed business opportunities. D&O lawsuits can also be filed by competitors, environmental activists and government and regulatory authorities such as the EPA, IRS and SEC.

What Effect Has Sarbanes-Oxley Had?

According to insurance consultant Andrew Barile, the Sarbanes-Oxley Act of 2002 gave a huge impetus to lawsuits against directors and a corollary increase in demand for D&O insurance. “Sarbanes-Oxley specified the legal responsibilities of directors and officers. It’s not enough to just be the golfing buddy of the CEO anymore,” said Barile.

How Much Does It Cost?

No standard D&O policies exist. Underwriters will tailor coverage to your company’s needs and determine your rates based on the exposure your company presents. A company with unsound management practices creates higher risk exposures for the insurer; likewise companies in unstable industries. The more information you can provide to demonstrate your company’s good management practices, the better coverage terms you will be able to secure.

To apply for D&O coverage, you will likely have to present information on any past shareholder or employment practices claims, copies of corporate bylaws and minutes of board meetings, copies of employee handbooks, biographical information on your board members and more. For more information on preparing an application for D&O insurance, please contact us.

~ Tackling the Telecommuting Risk

Telecommuting allows companies to save money on office space and increase productivity, while workers enjoy increased flexibility and reduced commute times. But telecommuting represents a serious challenge for risk managers, as they find themselves responsible for workers outside the controlled office environment.

The courts have yet to define the exact scope of employers’ responsibility for employees who work at home. But experts in the field agree that most traditional areas of employer responsibility apply equally whether the employee is toiling away on the company’s premises or working in pajamas in the comfort of a home office.

Insurance Issues

Employers must provide telecommuters with workers’ compensation coverage – unless they are independent contractors. However, companies can’t simply declare someone a contractor to get out of paying workers’ comp or employment taxes. The Internal Revenue Service and state tax authorities have very strict rules for what constitutes an independent contractor. (For details, see www.irs.gov/pub/irs-pdf/p1779.pdf)

Risk managers must also ensure that their general liability policies cover the acts of employees working from home. They should check that their policies do not include a “designated premises endorsement” that would limit coverage to their main place of business. Similarly, they must make sure that having a dedicated home work space does not violate the employee’s homeowners policy.

Identifying the Risk

The risks of injury in a home office may be far lower than in factories, mines and mills. But telecommuters are as likely as other office workers to suffer from back injuries, repetitive strain problems and other office hazards.

And they face risk of injury from fire if they lack an adequate electrical system, or if they don’t have a smoke detector or fire extinguisher nearby.

Many employment experts offer guidelines to assure that the telecommuter’s home office is safe and ergonomically friendly. However, a survey by the American Management Association found that only 7 percent of teleworkers had been formally trained to work outside their normal office environment. Fewer than half had the necessary equipment to conduct business from home, and they complained that they lacked adequate technical support when working at home.

Providing Solutions

Jacqueline Jones, a labor and employment attorney encourages employers to formulate a policy reflecting their expectations for telecommuters.

“The policy should provide clear outlines as to when the employee is considered to be working as opposed to personal time,” Jones explains. “Employers should also inspect the home-office work site and ensure work-office standards are met.”

Determining the extent of such supervision can be tricky, notes employment attorney James E. Pocius. If an employer exerts control over home working conditions, the employer probably will be responsible if an accident occurs at home. But if the employer does not exert control, dangerous home conditions might result in employer liability if an accident occurs, since courts traditionally take a broad view of employees’ rights to workers’ compensation.

Case Study

Financial giant Merrill Lynch & Co. attempts to finesse this potential problem with a detailed training program for potential telecommuters.

Telecommuters and their managers attend training programs on topics such as how to communicate with the home office and how to plan ergonomically correct workplaces. Each employee also spends two weeks in a telecommuting simulation lab at the company. The company supplies the computers and the teleworkers purchase their own office furniture. The company also requires workers to verify that telecommuting will not violate terms of their homeowner’s insurance.

The company inspects home work spaces for safety and productivity and the company requires all telecommuters to go to the office at least once a week. So far the company has not had a single telecommuting-related workers’ compensation claim.

The following rules can help your company minimize telecommuting-related risk exposures:

1) Ensure telecommuters have workers’ comp coverage.
2) Verify that the company’s general liability policy applies to the acts of telecommuters.
3) Check that home work space does not violate the telecommuter’s homeowners insurance policy.
4) Offer training and guidelines for efficient teleworking.
5) Provide workers with the right equipment and support.

~ This Just In

A survey by ComPsych Corp has found an alarming rise in “presenteeism”— employees who come to work when they are sick. Eighty-three percent of workers surveyed had at some point ignored sickness in order to work, a 6 percent increase since 2005.

A variety of factors motivated employees to come to work sick. Thirty seven percent cited a workload that made it too difficult to take time off; 26 percent said it feels “risky” to take time off; and 21 percent wanted to save sick days for when their children were sick. Presenteeism increases the risk of spreading viruses and the risk of accidents, because sick workers will not perform properly, often making mistakes and misjudgments.

Group Employee Benefits

~ H1N1 Employment Law-Related Questions

The 2009-2010 flu season is underway. It is expected that with the addition of H1n1 flu outbreaks, this season will be more dangerous than others. The following are common employment law-related questions you may have in your workplace.

• Can we require our employees to get a flu shot? Generally, no, unless the employer can show that a mandatory flu shot is job-related and consistent with a business necessity. Hospitals and the military are examples of industries where the flu shot requirement is permissible. Voluntary programs are fine as long as those not participating are not penalized.
• Can we send employees who exhibit flu-like symptoms home? Yes, employees who come to work sick or who get sick during the day can legally be sent home. It is important to have a workplace policy in place and to treat all employees consistently with this policy.
• If an employee catches the flu while at work, is it covered by workers’ compensation insurance? State workers’ compensation laws vary. Generally, illnesses are only covered as work-related if they arise out of and in the course of employment. The contraction of the flu cannot generally be traced to the workplace to make it covered by workers’ compensation insurance. Some states, however, mandate workers’ compensation coverage where contraction of the disease is inherent to the nature of the employment (i.e., a health care worker who contracts the flu from a patient.)

~ Reform Not to Slow CDHP Growth

The momentum of CDH plans – specifically HSAs – continues, as they gain ground with individual health plan markets and large and small employee groups alike, and growth is not expected to slow with reform. Because high deductible health plans have the lowest premiums, employers are looking to these plans as a matter of survival, while employees use HSAs to save for future medical needs. And with the proposed bill expanding wellness incentives, many of which are integrated into CDHPs, the market will continue to experience the shift to consumer-directed health.

Source: Consumer-Driven Market Report