Tag: Professional Liability Insurance

Hammer Clause

A Hammer Clause Transfers Some Risk for Defending a Lawsuit Back to a Business From The Insurer if The Business Does Not Take a Recommended Settlement.  

A Hammer Clause is a clause within an insurance policy that allows an insurer to compel the insured to settle a claim for an amount the insurer recommends. In some instances, a Hammer Clause is also known in some circles as a blackmail clause, settlement cap provision or consent to settlement provision. A Hammer Clause is usually a part of a directors and officers or errors and omissions insurance policy. The main purpose of this policy is to allow the insured to choose if they want to settle for what is offered or accepted by the “injured” party. Also known as the consent to settle provision, without this provision in a policy the insured is at the mercy of the insurance carriers desire to settle. Frequently, insurance carriers know the recommended settlement is the better outcome financially based on historical pay outs. The Hammer Clause can help a business determine if they want to fight the suit in court in an attempt to preserve the precious image of the company. When a business decides to do this, they take on some or all of the cost to fight the claim in court.

Crafts, Wrought, Iron, Smith, Heat, Wrought Iron

When Does a Hammer Clause Kick in?

A Hammer Clause kicks in when the insured refuses to settle for an amount the insured recommends. In many cases the insurance carrier will recommend to settle for an amount they feel confident will be less than the defense and indemnity costs of a particular lawsuit. Hammer Clauses have developed because insurance carriers deal with these situations fairly frequently. The carriers have reliable data to help them predict how much a lawsuit will cost. Business owners do not deal with getting sued very frequently, but insurance companies do. The Clause is typically there to encourage the business owner to settle for the recommended amount. In turn, the insured is penalized for not accepting the settlement only if the judgment amount plus defense costs exceed the amount for which the claim could have been settled. Frequently lawsuits among businesses are a time when pride and emotion can effect the judgment of many good business owners. The Hammer Clause is there to prevent pride from getting in the way of sound judgment. unfortunately, it does not prevent emotion from getting in to the way. It does spread the risk to the business owner who decides to take on the additional risk.

How Can a Hammer Clause Be Arranged?

There are several different ways a Hammer Clause can be arranged. The most common type of Hammer Clause is a Full and a Modified Clause. A Full Clause states that if the insured refuses to settle for the recommended amount they take on the full amount of the settlement costs. A Modified Clause is set up to give the insured the option of refusing to settle, but requiring them to take on some of the costs of this decision. If the costs amount to more than what was originally offered. Typically, if the insured refuses to settle than the costs will be shared at an amount of 50/50. It is not uncommon for some policies to go higher to a 70/30 split of the costs.

Tool, Hammer, Axe, Planer, Pliers, Workshop Craft

Important Facts to Remember About a Clause

The important part is that Hammer Clauses Exist and this is something a business owner should always speak about with their agent. A Full Hammer Clause is taking a lot of risk and it puts a business owner at the mercy of their insurance carrier. It is in the best interest of the carrier to settle quickly. For most businesses some version of a Modified Hammer Clause is best. A Modified Hammer Clause allows a business owner to make the decision for their business in the event they determine it is worth the reputation of the business to risk losing in court. When deciding what type of insurance policy is best for your business, it is important to speak long and honestly about a Hammer Clause with a skilled insurance agent.

Insurance policies are not all created equal

Taking the leap of starting your own business is never an easy one. Whether you are a weekend warrior looking to pick up some extra income or branching out all on your own; you are taking a risk and putting yourself out there. this is something that most of the population could not fathom, but you are truly the future of our economy.

Most new businesses determine a budget, buy tools/equipment, set up a website and plan for all the business to come in. Insurance tends to be a side note that you know you will need to check off your list, but far too many too not take this aspect serious. Many new business owners seem to look at insurance and attempt to find the cheapest price they can find. This is a mistake that can lead to financial disaster for your business. Here is why this method of thinking can get you into trouble:

When you are a new business a few things tend to be very common. You generally know what kind of work you want to d. You might or might not have an idea of what work you are not willing to do. You also might have only a few employees, but you probably don’t know how much you’ll pay them. On top of that who knows how much sales you will have your first year. When you are shopping for a General Liability Insurance Policy these are all things you need to know. Before picking up the phone to call an insurance agent, here are a few things you need to keep in mind when comparing quotes:

 

Compare the Total Premium but also the rate being charged

Many companies will quote based on minimum premium. For an owner only company this might keep you at this level and not be a problem. Once you start adding employees or increase your operating space, other coverages might be necessary. The rates could increase much faster with one company as your company starts to grow. Talk with your insurance agent about these types of things so you have a ball park idea of what to expect down the road.

Look at the Exclusions on the Policy

As a general rule no insurance policy covers everything. All insurance policies will have some sort of exclusion. These exclusions outline a “hazard” that the insurance carrier will not be responsible for covering. This is very important to know, so you can avoid these exposures. Especially since your business will be on the hook for them. A lot of times they are exclusions for a reason. It is not typically for a carrier to strip down the policy just for a cheaper price. Most of the time these inclusions are in higher hazard areas. In the past these areas have cost insurance companies big and they are attempting to limit the risk they take. Taking this approach in your business operations can help you decide what work are not willing to do. It is usually easiest to make changes early on in your business as opposed to later down the road. Knowing these exclusions is important to minimizing the risk to your business and helps you determine what amount and type of risk you are willing to take in your daily operations.

Occurrence or Claims Made?

General Liability forms are written on either an Occurrence or a Claims Made basis. Occurrence is typically going to be more expense. If it is even available. Claims Made Policies limit the reporting period that you can report a claim to be covered under your policy. Professional Liability policies are typically offered only on Claims Made basis. If Claims Made is your only option, one of your main priorities should be making sure you don’t have a lapse in coverage. A lapse in coverage can leave your business vulnerable for much more than you may think.

 

Compare rating factors

Depending on the policy type, your type of business and coverages being offered; rating factors could vary into what determines your premium. Here are a few variables that can drive the premium though:

Square Footage: The amount of space for your building, the amount occupied and the amount of retail space can directly impact pricing of your liability policy. This is especially important for retail businesses. As well as General Liability, it can also impact your Commercial Property Coverage.

Payroll: Payroll is a direct rating factor for all Workers Compensation Policies. It also is a primary rating factor for most Contractors General Liability policies as well. Getting help to anticipate what your payroll will be should be something a decent agent can help you with.

Employee Count: Employee Count can be a direct rating factor for some General Liability Policies. It can also be a determining factor for Employment Practices Liability Insurance Policies.  In some cases full time vs part time can make a difference as well.

Property Value & Valuation Type: The amount of Value, Reinsurance rule and Valuation type can all impact your pricing for your property coverage. If the Valuation is Replacement cost vs Actual cash value, than the coverage is very different. This is because of how the claim will be paid and the amount your business is insured for. If the valuation amount is not sufficiently covering the amount of property you have this can leave you not receiving the full value you lost in the event of a claim. This is something that is much better to compare when choosing an insurance policy than hashing it out with your insurance carrier when its too late and you have a claim.

Gross Sales, Garaging Zip Code, Location Address: These are a few other of many variables insurance carriers will look at in quoting your insurance policies. Sometimes they are direct rating factors but on most policies they can be a gauge for determining your pricing.

 

There are many factors to consider when determining which policy and coverages are right for you. There are less expensive policies that don’t cover as much, and there are also Cadillac plans that might cover more than you are looking for and many options in between. The key to take from this is not that you have to go with the Cadillac or to take the cheapest option, but make sure you are comparing the correct variables to know you are choosing the right option for you and knowing what you are covered for and what you are not covered for.

6 Types of Insurance every Home Healthcare Small-Business needs.

Home Health Care is one of the fastest growing industries in the country. With the baby boomers moving up in age, the need for these services is growing larger every year. The need for proper insurance in these businesses is also becoming more important. For a business owner, most of the clients in this industry are nearing the end of their life. Most are not in good health. Many get hurt or are sick frequently. Protecting your business from mistakes or court costs is crucial in this industry. Below are 6 types of coverage every Home Health Care Business should carry.

Home Health Care

  • General Liability
  • Professional Liability
  • Business Personal Property
  • Hired and Non-Owned Auto
  • Workers Compensation
  • Commercial Crime/Employee Dishonesty

 

General Liability

General Liability (GL) Insurance, in most cases, is the most important insurance coverage a home health care business can obtain. In most states it is required by law and it is usually the first line of insurance purchased by a business. It protects your business from most liability exposures other than automobile and professional liability. Other coverages are usually added to this depending on the business needs, but all businesses need General Liability. Unlike Workers Compensation Insurance this coverage protects your business from liability to third parties.

 

Professional Liability

Professional Liability Insurance is coverage for professional businesses that give expert advice or provide technical services for a fee. It is designed to help protect a business against any claims of negligence. Therefore, professional liability insurance helps business owners defend themselves from lawsuits and helps pay the damages awarded in a civil lawsuit. Professional liability insurance is commonly referred to as errors and omissions (E&O) or medical malpractice.

 

Business Personal Property

Business Personal Property Insurance is usually an addition to a Commercial Property Insurance Policy. It protects your business from damages to your buildings and property of your business. The personal property of your employees and the personal property of others you might be responsible for. In most policies it also provides additional coverages including: debris removal, pollutant cleanup, preservation of property, fire department service charges, increased cost of construction, electronic data, newly acquired or constructed property, off-premises property, valuable papers and records, outdoor property, and nonowned detached trailers

 

Hired and Non-Owned Auto

This type of auto insurance coverage is for when employees of a home health care business use their own vehicle or a rented vehicle to do company business. This can be as simple as an employee running to the grocery store to buy snacks for a meeting, an employee using a rented vehicle while away at a conference or using a rented truck to transport your equipment.

 

Workers Compensation

Workers’ compensation insurance differs from most other forms of business liability insurance. That is because it is specifically designed to cover your employees and not third parties. Workers Comp covers insurance claims by employees in the event they are injured on the job. The function of workers compensation insurance is to insure a business is not liable for most accidents that occur on the job and employees have comfort knowing their doctors bills and some lost wages will be covered if they are hurt on the job.

 

Commercial Crime/Employee Dishonesty

This type of insurance coverage is mainly for employee theft of money, securities, or property. Most policies include some or all of the following types of employee crimes: forgery or alteration, computer fraud, funds transfer fraud, kidnap, ransom, extortion, and counterfeit money. It is usually written with a per loss limit, a per employee limit, or a per position limit.

Faulty Workmanship Coverage

Faulty Workmanship Coverage, offered by Builders and Tradesmen’s Insurance Services (BTIS)

One coverage that most carriers exclude is Faulty Workmanship Insurance. However, one carrier writing liability insurance is Builder & Tradesman Insurance Services (BTIS). Some might assume this would be a coverage included in Commercial General Liability (CGL), bnut many times it is not. Usually this is a standard exclusion from CGL policies. Faulty Workmanship Insurance is coverage for a contractor. It is coverage for property damage due to the contractor’s own faulty workmanship. Are you thinking why would this not be a standard coverage for CGL policies? Well, liability policies are designed to protect the insured when the contractors have defective materials or cause injury to property other that the insured’s own work or products.

Faulty workmanship can also fall under a design Errors and Omissions Policy. This can mean poor building or installation by the contractor. This could also be anything from a bad roof repair or install, to bad wiring done on a remodel. Most insurance policies do not cover the cost to repair or make the errors right. For $30 in additional annual premium BTIS is able to offer that coverage on the back of most CGL policies.

Three exclusions are known as the “your work” exclusions and are excluded coverage’s by the insurer. Damage that arises out of defective workmanship, damage to the defective work and damages incurred to replace the defective work. Business owners should generally absorb their own replacement and repair losses. After all, if you accidentally did damage to either the product you were installing or did damage to the property while installing the product, you typically want to show your client it was an error on your part and fix the damage.

The annual premium on this coverage is very modest for contractors. This is one of many reasons it pays to understand and know what coverage’s are included or excluded on your liability policy.