Phillip Crum: Welcome back. I’m Phillip Crum, the Content Marketing Coach. And that right there is Kathleen Mills, Practice Mentors. How are you doing, Kathleen?
Kathleen Mills: I’m good. How are you doing today?
PC: I’m just fine, just fine. It’s a gorgeous day.
KM: It is a gorgeous day today.
PC: And we’re going to have some fun because we’ve got two insurance guys in the house.
KM: I know, right? That’s a scary thing.
PC: What are we going to talk about today, and who’s that sitting next to you?
KM: Well, we’re going to talk about some misconceptions about small business and that pertains to liability and insurance coverage, all that kind of stuff. And on my left is the great one-and-only John Sutter with Coverica. Hi, John, how are you?
John Sutter: Just fine. How are you this morning?
KM: I am well. Tell us a little bit about you and Coverica before we launch onto the other side and do the intro for Rick.
JS: Sure. I’ve been in the insurance business about 37 years man and boy, and work for Coverica Insurance which is one of the largest retail agencies here in Dallas. What’s unique about Coverica is in addition to the retail side, we also have an agency network of our own. We’re part of Strategic Insurance Agency Alliance, which when you put us all together we’re the fourth largest broker in the United States, but gives us a lot of market impact and reach and allows us to do better things for our clients. And I brought with me a sidekick today, Rick Brewster who is manager of our small accounts division. Rick – how are you doing this morning?
Rick Brewster: I’m doing good, thanks.
PC: I thought he was your bodyguard or driver. Both? Whatever. Okay.
RB: I qualify as both.
PC: There you go.
KM: Yes, you do.
JS: Together we fill out some goomba suits, that’s for sure.
RB: I like my gel.
KM: (Laughs.) Rick, how are you today?
RB: I’m doing good, thanks.
KM: Tell us a little bit about you.
RB: I’ve been in this crazy game for about 20 years. Most of my career specialized in the small- to mid-sized businesses, and as John said I recently took over the small business unit at Coverica.
PC: What does that involve?
RB: It takes… we have a small book of business of small business owners, and as they come up for renewal, one of the things we do is we go through it to make sure that we feel they have the correct coverages.
PC: [ 2:11 ] (Coughs)
RB: And sometimes they do. Sometimes they don’t. So we go through the marketplace, look for maybe a better program that fits what their industry is doing, and then we get a lot of referrals for small business and we do the same thing.
PC: You just said, “Go through the marketplace and look for a better program for their industry.” And I was expecting you to say what every other insurance agent says is, “Look for a better price.”
RB: No, I haven’t focused on price in probably 15 years. Every new agent when they start out, that’s the big thing: “Oh, I can beat their price.” Well, for me I can beat their program. Cheap insurance is just that: It’s cheap insurance. You know, what this liability costs $1 to compare to this liability costs $2. The $2 one is always going to have the better coverage, so for us we just kind of figure out the best we can figure out where we can make the biggest impact in case of a loss, and that’s what we go to cover. I don’t focus on price. I lose a lot because of price, but that’s okay. I’m not there to sell $1 policy. I’m there to sell a program that covers the client in case of a loss.
KM: I guess a small business owner, you really don’t think about loss. You’re more focused on how am I going to get the revenue to come in?
PC: Well, it’s never going to happen to you anyway.
KM: It’s never going to happen to me, and so I’m going to buy the less- you know, you get what you get thing until something catastrophic goes on and then your eyes are awakened and you really figure out that that $1 policy wasn’t anything, didn’t do anything.
PC: Before we get started, we did a little brain dump.
KM: Yes, we did.
PC: I asked them to tell me the top five things that you don’t know that you don’t know about liability insurance coverage from a professional services provider point of view.
KM: Small business.
PC: Yeah. So essentially I suppose that’s another way of saying, “Where am I not covered?” Well, in my cheap policy. Everybody loves cheap. It’s a good thing to save $1, but saving $1 up front and costing everything you have on the back end is not a good play. So we came up with a list of about seven or eight items, so you got a couple of bonus points here coming up. So top on the list, and immediately off of the lips of the elusive but always popular Rick Brewster, was the slip and fall and the frivolous lawsuits that come from that. So why don’t we tap Rick a little bit more and find out what you know about that?
RB: Unfortunately, a little too much you just see them all the time; especially with you have professional criminals (I guess you can call them out there) that that’s specifically what they do. They go to these small businesses and it could be an office. It can be a grocery store. People don’t think that just having an extension cable across maybe a walkway, all of a sudden there’s a $25,000 claim. People don’t think like that. They don’t think the way that we look at their industry and I just see it all the time. We’re working with a claim right now where a lady fell in the parking lot. It’s raining. She’s wearing flip-flops in the rain. And she’s the only one that videotaped her falling – her friend did. So it’s kind of like, where’s that going to go? More than likely it’s not going to get paid as a settlement, but the company is going to defend that claim against for their client. That’s going to cost thousands of dollars. We know attorneys – they’re not inexpensive. They like to charge a little bit.
PC: They don’t work for free.
RB: That’s right. So that’s where they jump in.
PC: Even if it’s a scam, you still have to go through the motions and the motions cost money.
RB: Exactly. This lawsuit’s probably going to cost $30,000 and it’s not going to go anywhere, but the defense of it is where the cost comes in.
PC: Kathleen, do you have any examples – I’ll put you on the spot – of frivolous lawsuits that you know of?
KM: Are you talking about me personally?
PC: I’m just talking in general whether it’s personal or you know somebody else.
KM: Yes. I’ve been through a frivolous lawsuit, yes. And you still have to go through it just like Rick said. You have nothing else but to protect- I mean, that’s just part of...
PC: Give me a ballpark idea of what it was about and how much it cost you. In fact, what was the outcome of the frivolous lawsuit?
KM: Well, the outcome was it settled two weeks before the civil trial.
PC: Were you exonerated or were you fitted immediately with an orange jumpsuit?
KM: I was exonerated but the settlement money was paid by me, the corporation.
PC: Four figures? Five figures? Six figures?
KM: The settlement actually was five figures. The legal things that were before it were over six.
PC: And this wasn’t covered?
KM: Some of it was because at that time I had the slip and fall, which really did some really good- I had really good defense coverage, but up to a point. Up to a point. Up to $50,000 worth. And then they just turned it off because they thought it should have been settled, which that’s what we were trying to do but of course the other side doesn’t want to play like that and so it doesn’t matter. Insurance goes, “This is as far as we can go,” and the rest of it was up to me.
PC: John’s got his hand up in the air going, “Pick me! Pick me!” So what are you thinking?
JS: I was listening to her story and it’s one that we hear all of the time. People are talking to us about the insurance experience that they’ve had and in her particular case she ran out of limit, and the insurance company basically looked at it and said, “We have a $50,000 limit. Looks like this claim is going to go much higher. We’ll write you a check for $50,000 and we’ve washed our hands of it,” and gone on their merry way. That’s tragic in that particular case that it happened that way because the difference between $50,000 limit and $1 million limit is pennies.
KM: And I will say, too, in concert with John, the coverage that I had was for my slip and fall, not my malpractice liability. I think many counselors assume that the defense coverage that they purchase pertains to a lawsuit, and it really doesn’t.
PC: So is the slip and fall coverage a separate policy, or is it an add-on to your liability? How does that work?
JS: You have to look at your policy because it can be both ways when you’re talking about certain industries where the professional liability and the general liability are put together on the some policy. But they are separate coverages, and even a combined policy will treat them as such. So you’ll have professional liability – which we’ve talked about before – deals with that professional exposure, whether you did something you shouldn’t have or didn’t do something you should have. General liability is completely different. It is causing damage to something or injury to somebody as a result of your operation. So that could be slip and fall because you’re on a premises where you’re inviting people in. So that’s a separate coverage. The $50,000 limit is probably the lowest I’ve ever heard of. Traditionally you’re going to look at most policies giving $1 million on that coverage as well.
PC: Congratulations, Kathleen. You’ve bought a cheap policy.
KM: I did!
PC: Okay, good. So slip and fall: What are the tips that I need to know? Make sure I have it?
JS: Absolutely. Look at the limit and the other thing you probably want to pay attention to is what it’s based on from a premium standpoint. Most operations that are office-related are either going to base it on the area of the office that you have under the theory that the larger the office, the more the premium. Or if it’s a policy that Rick writes and it’s what we know as a business owner’s policy, then they’re just going to ask questions about it, but it’s all included in one premium.
PC: Okay. Anything to add to that?
RB: No. You can also include payroll in there. The thinking is the more payroll you have, the more traffic that you have coming in the office as well. So those are things that you need to kind of look at. The best way that I tell my clients is if you’re walking into your office, just look down on the ground. What can somebody trip on? There’s your exposure.
PC: Alright. The second thing off the educated lips of these gentlemen was data protection. Data prot- huh??
KM: Yeah, what does that mean?
PC: Tell me about data protection.
KM: My client files are protected, right?
PC: I lock the front door every night.
JS: If you say so.
KM: I lock the front door. I turn my computer off, and all is well, right, Rick?
RB: Right. Well, data can come in various different avenues. It can come electronically from your computer. It can come from your phone. It can come from your iPad. It can come from the files that sit in your office. When we think of data, everybody thinks oh well I don’t keep anything on the computer. That doesn’t necessarily mean the computer. If somebody breaks into your office and steals all those files that you have in your cabinets, well all of a sudden you’ve had data theft and all the same information is on there. When it’s working with professionals that you guys have the HIPAA laws and everything like that, that becomes very valuable to protect and that’s not going to be protected by your professional liability. That’s going to be protected on your small business owner’s policy there. So it’s just a coverage that we always emphasize with our small businesses because they’re the most attacked. They’re the easiest to get to. Most small businesses can’t afford the Fort Knox of firewalls where they can’t get the hackers coming in and everything like that. They can afford the off-the-shelf Norton or whatever.
PC: MacAfee or whatever.
RB: Which is good, but it-
KM: You mean that doesn’t help me totally?
RB: No. Not to an experienced hacker. They’re going to get around those.
PC: John has an interesting little story. He’s itching to get in with his little red car story. Let’s hear it.
JS: I was at a seminar last week on cyber liability and on cyber crime. And the presented flashed up a picture of a field and it had a dirt road going down the center and there was a red barricade across the road, and the presented said, “That is the security that you buy. That’s the Norton, the MacAffee, whatever anybody puts on their computer to keep hackers from being able to get in.” And the funny thing about the picture to all of us is it had all of the tracks in the dirt going around the side, and he said, “That’s an accurate picture of cyber protection. You block the road and all the hackers do is go around on the side.” And so they’re going to get in if they can hack into the NSA, if they can hack into Target and all of these huge companies that spend millions of dollars on hiring people to keep hackers out, what chance does a small business have of keeping them out with off-the-shelf software? He said if you wanted to protect your computer, put it in a safe, bury it eight ft. in the ground and then probably they will not be able to get the data off of it, but he wouldn’t guarantee it.
PC: Well, that’s not encouraging.
KM: That’s just depressing. I think I need counseling now.
JS: I’m sorry. I wanted to be a little cheerier this morning.
PC: Do you know a good counselor?
KM: I don’t know any good counselor that can help me with that.
PC: Oh my gosh. So what’s the solution for the small business counselor that needs to protect data? I guess there’s the actual protection itself, then there’s the insurance coverage protection. So we’ll do a show in the future where we have these fellas from Coverica and somebody from Security Metrics perhaps, and talk about both sides at the same time.
KM: I think the more that you know your HIPAA and the more you do your policies and procedures as you’re required to do with HIPAA, the better you’re going to know what to ask your insurance coverage person. Because you’re really going to understand the breach and the privacy and the security that you have to maintain for client folders and files and transactions and all that. It’s just going to help you go, “I think I need the hacker stuff, and I think I need the data protection, and I think I need this and that.”
PC: So talk about hacker data coverage and what I need to look for. What’s available? What do I need to look for?
KM: Is that a separate thing? Is that included in usual insurance policies?
RB: They usually include a small amount. It’s usually a supplement. Then it goes again to the interview with the client – it just depends on what kind of data we keep and how much and how well is it protected. You can buy… so main coverage what it does is when you get a breach, you have to inform everybody that is potentially breached, “Hey, I’ve had a breach.” So letters have to go out. When you talk about using credit cards and stuff like that, well then all of a sudden you have to pay for every person that could potentially be breached. They have to pay for that credit protection. And this is all coming either out of your policy or it’s coming out of your pocket. I went to a seminar- John and I probably go to a lot of seminars throughout the years. We just like the education of it. They talked about – and I can’t remember if it was an Avon rep or a Mary Kay rep – and she had around 2,200 clients and she had everything in her laptop. The only coverage she has was the little $10,000 limit you get with your homeowners for the small business. And her laptop was stolen. All of the information – credit cards, everything – was on there was captured. So when you talk about 2,200 clients, all of a sudden she’s paying I think it was $12 or $15 per client to send an official letter, and then the protection was $60/year per client and then six of those clients actually got taken for a couple hundred thousand dollars each. So they threw that on there. By the time the claim was ended and the nightmare was over, she was into it for about $2.5 million. So it just depends on what the exposure is for the coverage that you look for. I laugh about it because we always talk about the gloom and doom, but it’s the reality of it, too. We work in insurance, that’s for sure, but we also work with fear and probability. That’s what’s going to happen if you don’t fear what can happen then you’re the one that’s going to get taken. I’ve seen it time and time and time again, and you hear all the stories about it.
PC: Well, you’re the easy target. You’re the mark. You’ve just outlined yourself and put a flag up that says, “Here I am. I think this will never happen to me. Come get me.”
RB: Mmm hmm. That’s it.
KM: You’re not Superman.
PC: Icky poo. Okay, we’ll do more in depth on that another time. Interesting stuff though. So number three on the list: You can’t cover everything.
PC: Is there no policy that will cover everything? Sure there’s a policy that will cover everything.
KM: I thought my $1 million / $3 million did it all.
PC: Meteors. Nuclear strikes.
KM: Everything – tornados. Go for it, Rick.
RB: I look toward John a little bit on this one, but-
PC: What’s the ugly truth?
RB: You can’t. There’s several exclusions within the policies, and if you don’t look at those when you get your proposal or ask that question, “So what’s not covered?”
PC: When you say you can’t cover everything, the companies that you work with – the insurance providers, insurance companies that you work with – can’t do it? So I’ll go find somebody that can? Or there ain’t nobody?
RB: Well, here’s the thing I always tell my clients: Lloyds of London will insure for anything for a price. So you could probably get a price for nuclear, but I have no idea what that would cost. But every policy that I’ve seen over the last 20 years excludes it.
PC: Did you hear that? “Nuclear.” George Bush guy right here, I guarantee it. Go ahead, I’m sorry.
RB: That’s okay.
PC: It’s a political season thing.
RB: Right. So when you go through your exclusions and you kind of look – earthquake is always an exclusion. Well, you can buy that back. So just because it’s excluded doesn’t mean you can’t get it, it’s just ok what am I going to pay for to get it? But then there’s always the stuff that you just don’t know – nuclear, you always go to that because you just never know what’s going to happen. There’s just coverages out there that can’t be foreseen.
PC: One of my favorite authors from long ago – John MacKay – said in one of his books, “If you have enough money, you don’t have any problems because you can buy the solution for almost anything.”
RB: Yeah, if you can think about it, but who can think about everything?
KM: When you’re a small business, you don’t have that-
PC: But if I’m a small business and I can’t possibly cover everything, then I’m screwed from the get-go. Sorry, that was an insurance term there.
KM: (Laughs) Not necessarily.
PC: So, should I just throw up my arms and move on, or what?
JS: No, not at all. Knowing that you can’t insure for everything doesn’t mean you can’t insure for 99.9% of the likely things that are going to happen to you. And that’s really what you want. You don’t want to be in a situation where you have a claim and you’re told, “You’re not covered for that. But you could have been if you would have bought this $60 option.” That’s the height of frustration and probably the beginning of a suit against your insurance agency for not doing a very good job of working with you to get the coverage. But at the end of the day, you have to make practical business decisions. But you need to have them presented to you and then go through the list, as Rick talked about, of this is why our policy is better than this one and it’s why you’re paying a little bit more for this than this one over here. And we talked about cars – it’s the difference between buying the 20-year-old car or buying a brand new one. Why do you spend that extra dollar? Or several extra dollars? And it’s because it’s going to be more dependable. It’s going to get you where you need to go and maybe there’s a little bit of luxury involved and comfort. Well, there’s comfort in knowing that you’re covered better than you were before. It’s what I call the worry factor. If you’re laying awake at night worrying about whether your insurance is going to cover you or your deductible is too high and how are you going to afford it if you do have a claim. Your insurance is set up incorrectly. You need to be able to sleep soundly at night with the sense that I’ve done everything I can. I’ve talked about it. I know what’s on my policy and I’m comfortable with it.
PC: Like we talked about last time: If the insurance coverages you need, you truly need and should have, cost more than you can afford, what are my options?
JS: Not going into business, or taking a different line or business, or you make a conscious decision that right now I’m going to go without that. But the instant my business reaches this point and my bottom line gives me the extra $100 or $200 or whatever it may be, that’s the first thing I’m going to do. That may be an alternative. There are ways to finance. You don’t have to come up with the premium all at once. You can put it over monthly payments and that will help your cash flow and be able to afford it, but you really do need to look at the coverage and buy what’s going to provide you the protection you need.
KM: You bring a great point, because when you do your auto insurance you get to do monthly, quarterly, all at once. There’s that flexibility, which is good for the small business but it’s good for the homeowner, too, because they can sleep at night.
PC: You know I don’t have a real good concept of the cheap liability and policy that we’re railing against. What does that cost a year? Just the bare bones, basic. Are we talking $300 a year? Or $1,500 a month? Just ballpark – what are we looking at?
KM: Are you talking about malpractice liability or just slip and fall?
PC: Malpractice liability. Just the basic.
KM: Maybe $300-375 a year for $1 million / $3 million.
PC: Alright. And I realize that there’s a lot of variables. Oh boy – he’s getting worked up over here. Go ahead, John.
JS: I had to grab my chest. The $300-375-
PC: Get the aspirin ready.
JS: What’s the policy that you buy that may not cover all those things that you may need it to?
KM: It’s not “may,” it’s “won’t.” I’ll just clarify that right there for you.
JS: So I think a good policy for a smaller consultant may be $100 a month. So you’re $1,200 a year. I think that’s going to a be a policy that has a lot-
PC: That’s where I was going. What’s the super cheap, out-of-the-box, bare bones, say $300 a year versus – and I know there are a lot of variables, I get that. So you’re saying $300 a year versus maybe $100 a month? Give or take?
JS: Yeah, for the small consultant I think would be right in that range and you’re going to pick up the extra coverages like the administrative hearing protection. You’re going to broaden that policy into some of those areas that you are likely to have something happen. I don’t know what percentage of people have a complaint filed against them with the governing body, but it’s one of the first things that’s attacked. It’s the easiest thing to do. It doesn’t cost a lot of money to go ahead and file with the state and let them be the bad guy. So then you’ve got all the cost of those administrative hearings. That’s an extra coverage and you want to make sure you have a good limit for that.
PC: So if I think that I cannot afford $100 a month, then perhaps all I have to do is buy the Starbucks coffee at the grocery store and brew it at the shop instead of at the drive through every day and I’ve just saved my $100.
JS: Sure. The other thing to think about is if you can’t afford $100 a month for the protection, how are you going to afford any claim you have? If it’s not going to be covered by your policy then you’re going to either pay it out of all of your savings or you’re going to close your door up and go find another business.
PC: Well, that’s exactly what I was going to say. I’ll just close up shop and do something else. What’s wrong with that?
JS: Other than the social responsibility that you might have.
KM: It will follow you whether you stay open or not, buddy.
PC: I thought we were going to need the Heimlich there.
KM: You can’t quit and then it goes away! I mean, I think that’s a great point.
PC: So you get sued because you didn’t have coverage. And you owe somebody $1 million. Okay, you owe somebody $100,000 and you don’t have it in the account. If you did, you would have bought the correct insurance. I’ll just close up and go get a job at Walmart or whatever.
KM: I’ll file for bankruptcy.
PC: Where does the $100,000 judgment go?
JS: Well, that’s a legal question because you have all kinds of attorneys that you probably paid a whole lot more than that $100 to-
PC: But that tie clip makes you look very attorney-like.
JS: That’s true.
PC: I’m scared of you.
JS: And I deal with attorneys, that’s why I wear this so I can be on equal-ground with the attorneys I face every day.
PC: There you go.
KM: Oh, the power play.
JS: That’s right. One side against the other. They’re going to set you up with corporations and LLCs and everything to shield you from that, and that may be effective in doing that. You still lose everything connected with that LLC. When you’re talking about a profession and a professional liability though where your license is there, normally that can’t be shielded. That’s against the individual and that’s going to follow you, and so will you lose your home as well? Those are all the exposures that you have and it’s the old for want of a- the nail in the horseshoe. The kingdom was lost. It’s the same thing for failure to pay just a little bit to get proper coverage, you’ve left yourself exposed and you could lose everything you have.
PC: Quit drinking coffee.
JS: That’s right.
KM: So it is about your business set up as well.
PC: Did you, during your travails – your four or five years worth of grief – did you lose any houses?
KM: I did. I didn’t lose a house. I sold the house.
PC: That’s the same thing. You had to get out of there.
KM: To be fiscally responsible to my faithful attorneys.
PC: So you ended up paying… you won everything. The outcome was in your favor on everything, right?
PC: Okay. But you still had to pay attorneys.
KM: You still have to go through it. You still have to pay your attorneys.
PC: Was it a big number?
PC: And you sold your house to help pay.
KM: Retirement fund, couple other things.
PC: So it didn’t go away? The problems didn’t go away?
KM: No. You still have to deal with it.
KM: Yeah. Even if I would have closed the company, I still would have had to defend. You can’t just lock the key and walk away and then it’s somehow magically over.
PC: Yeah, you see businesses close up all the time and, as the public, that’s all you see. Oh they’re gone.
KM: Oh they’re closed and everything’s fine.
PC: But those people are spending the next two years going through bankruptcy or whatever they’re doing and it’s ugly.
KM: The litigation is the litigation.
PC: And Rick Brewster is about to tell us about business income and extra expense. That’s typically not covered?
RB: No, it an addition to the policy. So business income and expense, I always like to look at as a little bucket of money that you have just in case. Small businesses, there’s not a lot of profit there that they can overcome a substantial claim. And when I talk about that, it could be a fire. Let’s say that the office catches on fire and you’re unable to occupy that location for six months. And so you have to still keep going. You still have to operate. You have your patients or customers, however it is, and you still need to work. You still need to make money. Well, when you start looking around, maybe you signed your lease three years ago when rent was this and now all of a sudden you get a six-month short-term lease your rent is going to be three times that. That little bucket of money to the left is for those reasons. It helps pay the extra expense for you to continue going on in your business. So it would help pay the additional amount that you would normally pay for rent, phone service, anything like that. It just kind of helps you stay on your feet until your back in.
PC: They wouldn’t really do that to me, though, would they?
PC: Raise the rent like that?
RB: Oh. Probably not you.
KM: Not you. Everybody else. You’re special.
PC: I’m special all right.
KM: Yeah, you are.
KM: I appreciated the extra income during the business fire that we had awhile back. It helped pay my lost wages while we helped build out new space. Would not recommend that on anybody but it sure did help a bunch.
JS: It takes a lot of the worry off.
KM: It does.
PC: Anything to add to that?
JS: I was just going to say that it’s one of the least purchased coverages that really should be. And it’s a sad statistic that oh the business has suffered a major loss – a fire, calamity, something like that. More than 50% don’t open for that reason because they don’t have the capital and the funds, the savings, set aside to pay those continuing expenses while they’re waiting for that business to come back. Or they’re a manufacturing plant and don’t have the money set to the side that’s going to bring in and continue to bring in the income they were producing to pay all of those expenses.
PC: Did you have an event with a fire?
KM: I did.
PC: Give me the short version. What happened?
KM: There was a call at 4:30 in the morning. I had to go to the office because there’s been a fire, and you need to come quickly. The building was gone and yeah. Gone. I mean, it was a shell but for all practical purposes- and the reason- well, what about the- who caused the fire? Because you’re talking about prosecuting and all that kind of stuff. Well, the fire was caused by a small business independent contractor who officed right above our suite, and she left the burning candle. She didn’t blow out the candle. The cleaning crew saw it. They didn’t blow it out. And so therefore-
PC: But the fire smelled really good though.
KM: The fire was just spiffy.
PC: Whole cinnamon thing going on there.
KM: Yeah, that cinnamon thing. And so, well I could sue the independent contractor for failing to agree to the contract that you should have no burning candles in your office. But she didn’t have any insurance at all.
PC: So you could sue her and win and obtain a judgment that would never get paid.
KM: I’d still have to pay my attorneys to sue. I’d still have to go through the whole… I’d win the judgment but there’s no cash. And she was in contempt of- she should have had slip and fall coverage for the office building, and the office building didn’t make her cough it up and oh there were a lot of people extremely angry about that.
KM: Yeah. Well so could I sue the landlord? Well, I could.
PC: It don’t make friends and influence people real well, does it?
PC: Then you got Rick over here trying to raise your rent three times.
KM: There you go.
PC: Okay, let’s move along. Workers’ Comp.
KM: Yes, Workers’ Comp. Talk to us about that, sir. I’m a small business, I only do this for-
PC: What does Workers’ Comp have to do with-?
KM: I only want to work 15 hours a week. What do you mean Workers’ Comp for my guys?
RB: Workers’ Comp – Texas is the only state in the US that doesn’t require bylaw for you to carry Workers’ Comp. So a lot of small businesses choose to not carry Work Comp, but they don’t understand – they’re still carrying it. They’re just the insurance company now.
RB: Exactly. And if you look at what some of the laws are in handling claims and everything like that, the $1,000 or $500 a year for small business that it would take to cover Work Comp is far worth what it would actually cost if you had a worker get hurt. You’ve got to pay the medical. You’ve got to pay the time off. You’ve got to pay everything else that goes with it. With Work Comp, your employee can’t sue you. If you don’t have Work Comp, your employee is going to sue you. It’s kind of a round robin table that small businesses don’t understand, that for a small portion of premium they’re completely covered when it comes to a work-related injury.
PC: Is Workers’ Comp a program that you participate in with the state, or is Workers’ Comp an insurance program you buy?
JS: It’s an insurance program that you buy, but it is set up statutorily. So that’s one of those lawyer double-speak things that I’ve learned real well.
PC: It’s the tie.
KM: It’s the clip.
JS: So there are multiple sections to the Workers’ Comp policy. You have medical, which is really truly complete and unlimited. Whatever the medical expenses are going to be for an injured employee, it’s going to cover that. Then there is what’s set up statutorily is the benefit for disability or for lost income. If you can’t work, if you’re partially disabled, those type of things are all set by the state and there are various limits and things that you’re obligated to pay for that. And the third part is the liability section which is the employer’s liability which is coverage in case in the very, very rare instance that your employee can sue you, then there’s liability there for that. But as Rick said, the other statutory part is where you have Workers’ Compensation and it blocks them in almost every case from suing you. Workers’ Comp is their sole right to recovery. That was the trade off back in the days when Workers’ Comp was created when we had all the sweatshops and everything and people were rallying to get some sort of medical coverage. Well, there was a give and take. The give was that injured workers would be covered by some sort of an insurance policy. The take was that then you can’t sue your employer if we have this benefit that’s your sole right to recovery and you can’t sue us for that. That’s a very valuable protection to have because the defense cost in suit is the main cost in the suit itself.
KM: So except for Texas, all small businesses outside of Texas know that they have to do the Workers’ Comp?
KM: W2. 1099.
KM: And they do it? All of them?
RB: They do it.
PC: Or somebody come after them and let them know.
JS: You mentioned 10-99, which is important, and a lot of people think well if I don’t have “employees” then I’m going to be okay. I don’t need to have the Workers’ Compensation. One: the definition of a 1099 or making sure that your people are truly subcontractor where they can’t come back against you is a pretty hard task even if you look at from an IRS standpoint is – am I legitimately a 1099 so I’m not withholding or anything for them. The IRS, there is more and more grey with the IRS as to how much control you’re exercising, who tells them what they can do duty-wise, who provides what you’re providing for them? All of those things create a condition when you have someone who has been injured whose a 1099, their attorney is going to claim that they were in effect an employee so you should have provided comp. But there is also cases out there where even if you have a 1099 that this is a subcontractor, they may not sue you for comp because you’ve been able to put that wall up and you’ve done a great job that way, but they get injured on your premises so they come back around and make a general liability claim for unsafe workplace or whatever else. So you’ve got a coming and going. Those exposures are there so you want to make sure that you have that protection.
PC: So I’m sure that this sort of insurance comes in a basic, out-of-the-box, and you can add bells and whistles. So just ballpark, what are we looking at? $100/year? $300/month and up?
RB: For a small business, you’re probably looking at-
PC: I guess it depends on the number of employees.
RB: Yeah. It’s the payroll because it’s going to be based on the payroll and the classification, but anywhere from $500 and up is where you’re going to be looking at.
PC: A year? A month? A week?
RB: That’s a year. And you can break that down into payments as well, so it’s not oh my gosh I have to write this $500 check. You may have to write a $100 check and then you’re writing $30 checks for a few months.
JS: One of the other things to think about is also whether you cover yourself or not because as an executive officer, as an owner, you can always elect not to take out the compensation on yourself. You cover your employees and not cover yourself. Some of the largest comp claims I have are from owners who were out on business and were either in a terrible auto accident or whatever, and the comp covered them. When you’re talking an executive, you’re talking the type of classification that the counselors have that’s going to be more clerical, office-related so the rate’s 25 cents per $100 of payroll and it’s capped for an owner, so an owner it may cost $200 for you to buy comp coverage on yourself. And that’s pretty cheap insurance because if you were in an accident and God forbid something terrible happens to you – you’re laid up, paralyzed or anything like that – the medical bills are just incredible, and once again for want of $200 that’s cheap insurance.
PC: Well if you’re ever in an accident, nothing good ever happens to you, does it?
PC: Why would an owner opt out to not cover themselves?
JS: Because it’s an option they have and they can save the $200 and-
PC: That’s pretty much it – a way to cheapen things up.
PC: Great. Rick: floods, fires, earthquakes, movements of small mountains seem to be a big thing with you. I had a flood at my place. Am I covered in a basic policy?
KM: (Laughs.) Year, surely I’m covered. It wasn’t my fault. I just showed up in the morning and there it was.
RB: So all the standard smaller policies that I’ve seen exclude flood specifically. It’s written in there as a complete exclusion.
KM: But I didn’t do it.
RB: Yeah, you didn’t. But it’s still going to not be included.
PC: What’s a flood?
RB: A flood could be a few different things. But I want to say the definition is if it’s three acres of water-
KM: Oh my gosh, here we go.
RB: -could be considered a flood. So if you have a main breakout in-
PC: He’s reliving his camping trip from last summer, isn’t he?
RB: I am.
KM: He’s recalling the definitions page of the policy.
RB: I am. What was my CIC class? And essentially if it floods three, I think it’s three acres, instead of being water damage, they could say, “No, that’s not water damage. That was a flood.” And all of a sudden it’s excluded. So you kind of have to look. There’s specific flood zones out there and everything, and if you’re in one kind of like Houston, a lot of those businesses that didn’t have specific flood coverage – they don’t have flood coverage for all the damage they did down there. We had one in Houston a couple years ago. The last time it did it down there – and we had specific flood on it, so he was able to recoup the majority of his loss and everything – and he actually moved from downtown to The Woodlands where there’s less possibility of the flood. He still carries it even though he’s not in a specific flood zone, but once you go through something like that then you’re always going to carry it.
JS: As Noah proved, any place given the right amount of rain will flood. So if it rains for 40 days and 40 nights, I don’t care how high up you’re going to be, you’re going to have flood. So you need to at least consider it. It is based on what flood area you’re in so the less likely you are of flooding, the cheaper your insurance premium is going to be. So that’s one thing to think about.
PC: What about the inside of my property? My sink and my employee break room overflows all night long. Is that a flood?
RB: No. If the sink pops or whatever you want to call it, and you’ve got specific water damage, that’s all going to be covered by the policy because it’s water damage. As far as fixing the pipe and everything like that, that’s not going to be included. That’s going to be an out-of-pocket expense for you to fix the problem. But every piece of damage that it causes – that’s going to be repaired. But let’s take for instance the toilet back up-
PC: Yeah, we need a good toilet story here.
RB: Yeah. If that backs up, that’s excluded on a lot of policies for sewer and backup. You could get yourself in a pickle per se-
PC: Gotta be a joke in there somewhere.
RB: I know! (Laughs.)
PC: That happened to my parents actually at their house. The city sewer backed up. It wasn’t anything they did. The city sewer backed up into their house and their lower floor was an inch or two deep in stuff. And they wanted me to come over and help them clean it.
KM: Of course!
PC: What were they thinking?
KM: You did, didn’t you?
PC: Yeah, I did. That was nasty.
KM: You good son, you.
JS: Put on your Hazmat suit.
KM: There you go.
RB: It happens so frequently now.
PC: What are these people eating anyway?
RB: Right. It happens so frequently now that actually policies have taken it – it used to be automatic coverage, but now they’ve taken it off where you actually have to buy it back onto your policy. That’s how frequently it does happen. So for me, I always include it. I even have an underwriter and she caught one that I didn’t put it on and she’s like, “Hey, you always put back up of sewers on there. You didn’t on this one.” I said, “That’s a mistake. Go ahead and include that on there” because that’s one of my checklists to make sure that it’s on every one of my clients’. I’ve gone through a claim with a client with that and thank goodness we did have it. It was great to have it so I saw where the coverage comes into place. But one of my partners went through one of the claims and they didn’t have it and I’ve also seen that side of it so for my small businesses, you’re talking about it could be a $20,000 claim and a lot of small businesses don’t have $20,000 sitting in the bank that they’re going to be able to pay for that.
PC: We had to push all that stuff outside. The bright side is the grass grows really well out there now.
KM: Yeah, I’m sure the plants are happy.
PC: You got to look at the bright side here. Is the toilet half full or is it half empty? I could go forever! But I’m not because we’re almost out of time so let’s go to replacement costs. We only have two items left of the list here. Replacing what?
RB: Your property. It can be considered either replacement cost coverage, or an actual cash value coverage. Replacement cost coverage replaces the item for what it costs. Let’s say you have an insured desk for $1,000 and it burns. It’s replacement cost – you’re going to get $1,000 for it. Let’s say you have actual cash value on this desk: What that means is yeah it cost $1,000 but now we’re going to take out the depreciation of it. All of a sudden your desk is worth $250. That’s what you’re going to get paid on the claim, even though you paid the insurance for $1,000 of it, you’re only going to get $250 for it. So that’s something you need to look at when you’re going through your policies as well.
KM: I think the thing that helped us during the fire is that we have replacement cost. That was so nice.
JS: If you happen to own your own building then it becomes even more important because to buy a desk is a small thing potentially, unless you have a lot of desks. But if you have the building, then to rebuild your building. And if it’s 20 years old it’s going to be depreciated at 50%. That makes a huge difference. You also want to look and make sure that the roof is covered for replacement cost, because particularly around here, with the insurance companies’ attitude towards hail, if they don’t want to replace it so they don’t have to. So they may put a restriction on the policy that says, “We’re going to give you replacement cost unless your roof is over 15 years, then we’ll pay you actual cash value.” So there’s all kinds of limitations. But without a doubt, we always push that you have to have replacement cost on everything you’re doing.
PC: Alright. You mentioned earlier, Rick, HIPAA coverage, which is near and dear to Kathleen’s heart, policies and procedures and what not. But how does that work, Kathleen? How does one end up on the wrong end of a HIPAA claim, so to speak?
KM: If the Office of Civil Rights comes knocking on your door?
PC: That’s the one.
KM: Yeah that one. Well, you still have to go through it but you do have to have demonstrable progress – demonstrate demonstrable progress that you are doing your HIPAA policies and procedures. And if you don’t have those actual pieces of paper that demonstrate your compliance, your dealings with the Office of Civil Rights will not go very well. But if you show them that you have demonstrable progress, it’s a little bit easier to go through. It’s still not fun.
PC: How did the OCR end up at my front door in the first place?
KM: Just anybody can make a complaint online for breach, whether there was or not. Again you still have to go through it and the Office of Civil Rights just gives you a nice little call. They don’t have to tell you- they don’t have a badge number so you just have to trust them that they say who they are and answer all of the questions.
PC: And all of a sudden you have a problem.
PC: And does this problem cost money, and how?
KM: Well, it can if they deem there has been a sufficient breach and there is substantial financial penalties for the infraction.
PC: And how’s Rick going to help you with that?
KM: How’s Rick going to help me with that? Rick, how are you going to help me with that?
RB: We’re going to come in with our data breach coverage that’s going to come in there.
KM: Yes, the data breach.
PC: Okay, that’s where the HIPAA stuff falls in. Data breach. Alright.
KM: Yes, and I think in this day in time we’re all in the technology now with the electronic health records. You don’t want to put all your eggs in one basket with that health records system having data breach protection because it’s not just them, it’s where your stuff is, too. And it’s the travel time between your… so that’s important now.
JS: Not to rail against the government, but they really are heavy handed towards small business in this regard, whether it’s cyber of HIPAA or many of the other things they do. The main exposure you have is Rick went through the steps of the claim before – that’s all government based. The government says you have to notify everyone in the event of the breach. The government says you have buy the credit protection and insurance. The government is the one that sets up the fines, and they are tremendous, and it’s per day per client. It’s oppressive.
KM: It’s astronomical.
JS: It really is. And once again I come back to the fact of – they can’t protect their own servers but they expect a small business to go ahead and not only prevent those breaches, but in the event of the breach that the government would not have been able to stop, they have all these fines and expenses that they have to incur.
PC: So what you’re saying is don’t shoot me, I’m just the insurance guy?
JS: Right. Well actually, we’re the lone ranger riding in on the white horse saying we have a solution and the bugles all blow and everything and the white aura surrounds me and we have the solution for you.
PC: You know what that means, Rick? You’re Tonto. You get to be Tonto.
RB: I know. That’s okay.
KM: (Laughing) That’s okay, man.
PC: Okay. Last thought? Any additional last thoughts to throw in?
RB: No, just on data breach.
PC: Feel free to rail against the government if you choose.
RB: Yeah, well… okay, a little bit. So it used to be when you take credit cards, everybody uses a credit card merchant that they run their credit cards through and it used to be that in their contracts they would be responsible for any data breach. Well, I think it was January or last January, that’s all changed now. That’s back on the small business owner. So you can be held accountable for a breach that didn’t even happen to your system now. You may be responsible for informing the customers that you took credit cards from and taking that expense now. So the cyber insurance is becoming a big, big area out there that people really need to start looking at.
PC: Well, you sir, are just a ray of sunshine. So if somebody wants to call you and commiserate or find a little bit more about avoiding some of these lovely outcomes, where might they find you, Rick Brewster?
RB: They would find me at 972-490-2238.
PC: Great. Do you have a website?
RB: I do. You can go to www.coverica.com.
PC: Alright. What about you, sir? Where can we find you? If somebody wants to talk to John Sutter?
JS: Same place, same website, but the telephone number is 972-490-2226.
PC: Good. And what Kathleen and I are going to do is put together a checklist based on this conversation and some other notes that these two fine gentlemen have looked over and approved and include and append the appropriate legal disclaimers, and make that available to you the listener for free on our website. So by the time you hear this, it will probably be up there.
KM: And the website is what, sir?
KM: And what’s your number?
PC: BR549. 214-264-5297. And for you under the age of 45, that was a Hee Haw reference. Don’t get upset. No cards and letters accepted.
KM: Well, for the next generation of mental health professionals, they don’t understand that joke! (Laughs.) It’s alright. It’s alright, buddy. It’s early in the morning.
PC: The Dukes of Hazzard. That’s still too far back for them, isn’t it?
KM: Sorry, it’s not working. Just be quiet. John – thank you so much. Rick – it’s a pleasure to meet you. I hope you guys will come back.
PC: She says that like we usually run people off, but it doesn’t happen that way. We’ll be talking again and line some things up. It’s been fun. I appreciate it. Thanks for listening. Kathleen, say goodbye.
KM: Goodbye. Thank you.
PC: Alright, see you next week.
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