Does Business Interruption Insurance Cover Partial Shutdown?

What happens if your business suffers property damage or a supply chain disruption and is forced to stop operations either fully or partially? Will your insurance cover the work stoppage or slowdown?

It is important to understand how your insurance can protect you from the resulting financial loss. In addition to potential recovery for property damage from your property/casualty policy, you may be able to recover lost revenue from your business interruption coverage. If your operations are disrupted – completely or partially – the language of your policy will determine if, and for how long, your insurance company will cover the loss.

In the best scenario, your insurance should cover income loss not only when operations are completely shuttered, but also when your business is partially suspended.

Historically, many business interruption provisions required a “necessary suspension” of operations. The problem is that these older policies and forms did not define “suspension” or state whether a complete shutdown was necessary. Courts have wrestled with this issue, and have often come down on the side of a “complete shutdown.”

The precedent in California is the case of <i>Buxbaum vs. AETNA Life &amp; Cas. Co. </i>, which held that a “necessary suspension” of operations “connotes a temporary, but complete, cessation of activity.”

In this case, the court said that business interruption coverage for a law firm was not triggered because there was no complete cessation of operations when evidence showed that its attorneys continued to bill hours following a water damage incident in its offices.

The key here is that if “suspension” is not defined in a policy, the policyholder will likely not recover lost income due to a partial cessation or slowdown of business.

The catch-22 in this type of interpretation is that the business interruption policy will usually include a clause obligating the policyholder to mitigate losses.

Slowdown coverage in new forms

In light of other states’ court decisions that were similar to the California case, the industry has developed new forms that also cover slowdowns.

One such form is the Insurance Service Office-approved “Business Income (and Extra Expense) Coverage Form.” It was updated to define “suspension” as “[t]he slowdown or cessation of your business activities.”

Fortunately, most insurance companies use forms that affirmatively state the policy “shall cover the loss resulting from complete or partial interruption of business.”

If you are renewing your business interruption policy or purchasing a new policy, ask us if the form the insurer uses includes the above language. If not, we can find an insurer that includes such wording.

That specific language can ensure that you get paid for any lost business income due to a partial shutdown of your operations.

Saving Your Business from the Threat of Occupational Violence

Over the past 15 years, workplace violence has been among the top four causes of death in the work environment, according to federal statistics.

The Occupational Safety and Health Administration says almost 2 million American workers report incidents of workplace violence each year, and “many more” cases go unreported.

Workplace violence is defined by OSHA as any act or threat of physical violence, harassment, intimidation or other threatening disruptive behavior that occurs in the workplace.

To stem this dangerous trend, the federal agency has issued new directives to inspect workplaces that have a “high risk” of violence – primarily health care, social services and late-night retail outlets.

If you operate businesses in any of these high-risk industries, you should be aware that your workplaces now have a greater chance of being inspected by the feds. If your workplace is found to be unsafe because you’ve failed to eliminate or reduce recognized hazards, you can be written up with a citation possibly involving civil and criminal penalties.

To avoid that, be prepared if you get an OSHA inspection and they are looking at violence-prevention measures. Inspectors will want evidence of what you’re doing to help keep violent acts at bay, such as:

• Training employees on preventing workplace violence.

• Developing a workplace violence-prevention program.

• Maintaining working alarm systems and other security devices, such as panic buttons and private channel radios.

• Reporting and logging any threats and violent incidents.

OSHA inspections can be spurred by a complaint, fatality or violent incident at the workplace. But they can also be a routine scheduled inspection unrelated to any complaint or incident. Inspectors will want to see if you have workplace violence-prevention policies in place.

Weighing ‘known risk factors’

OSHA’s new directive says the agency weighs “known risk factors” in deciding whether to conduct an inspection related to workplace violence. They include whether the jobsite employees:

• Work with the public, or “volatile, unstable people.”

• Work alone or in isolated areas.

• Handle money and valuables.

• Provide services and care.

• Are in areas where alcohol is served.

• Work late at night in high-crime areas.

OSHA will take an initial assessment of businesses in high-risk industries to determine whether an inspection appears to be needed. For instance, if late-night retail outlets such as gas stations, convenience stores and liquor stores seem to have poor interior and parking-lot lighting – something that can attract violence – OSHA may cite the store.

But not all incidents of workplace violence may trigger an OSHA inspection.

For example, if a patient in a psychiatric ward assaults a nurse in a hospital, it will prompt an inspection. The reasoning is that the patient is a known risk factor for a violent outburst, and the employer should take abatement steps such as having two or more employees around unstable clients.

But, in a case in which a disgruntled lover stabs a bookstore employee at work, OSHA may not conduct an inspection if there are no known risk factors, such as if:

• The bookstore was not in a high-crime area,

• The incident occurred at 2p.m., and

• There were five employees present at the time.

OSHA notes that there are “no known prevention measures” for random violent acts in a low-risk setting, like an office, the aforementioned bookstore, a print shop, and more.

The agency website www.osha.gov/SLTC/workplaceviolence/ has recommendations for violence-prevention programs and the latest enforcement procedures for investigating workplace incidents.

Marijuana Laws Require New Workplace Policies

As states continue to liberalize marijuana use, employers are left in a bind in terms of enforcing no-drug policies, respecting their employees’ right to privacy and keeping a safe workplace.

While a majority of states have medical marijuana laws on their books, only a handful of states require employers to accommodate (to a degree) staff who use medical marijuana. And many states, including California, have established case law stating that employers do not have to accommodate someone who has a medical marijuana prescription.

Complicating matters for employers, more states are legalizing recreational marijuana.

Since employers have to balance their legal obligations to their employees, they also have to be able to ensure they have a safe workplace that is free of drugs. Here’s a guide to the main issues facing employers:

ADA compliance

The Americans with Disabilities Act prohibits employers from discriminating against employees on the basis of a disability, and the law requires employers to provide a reasonable accommodation to them if needed. The word “reasonable” is there to ensure that the accommodation does not impose any undue hardship on the employer.

Often, medical marijuana is prescribed to people with disabilities who are considered protected individuals under the ADA. In many cases, the use of marijuana can be vital in allowing a disabled worker to do their job and also perform major life activities.

While the ADA bars discrimination against individuals with disabilities for employment purposes, courts in many states have ruled that medical marijuana use is not a reasonable accommodation.

But, in 2008, the California Supreme Court ruled that employers have a right to drug-test and fire patients who test positive for marijuana, regardless of their medical use.

It based its decision on the fact that because the state’s Fair Employment and Housing Act does not require employers to accommodate illegal use, an employer can lawfully terminate an employee who uses medical marijuana.

More recently, in 2012, the Ninth Circuit similarly held that the ADA does not offer job protection for medical marijuana users because marijuana is an illegal substance under federal law.

That said, as medical marijuana becomes more accepted, companies may want to consider revising their policies to include accommodations for use.

One way to do this is to create policies that bar marijuana use in the workplace, particularly smoking or vaping, but be more forgiving with use outside of work hours. If you also drug-test, you’ll need to make exceptions as employees can show positive for drug use at work even though they may have used marijuana the day before at home.

Your policies should take into account that you have a legitimate interest in ensuring that any medications the employee takes are used in a responsible manner and will not affect job performance. Your company policy could state that a prescription for medical marijuana does not entitle an employee:

• To be impaired at work.

• To compromise his or her safety, or the safety of others.

• To smoke in the workplace.

• To unexcused absences or late arrivals.

Recreational-use states

If you have a business in one of the handful of states that has legalized recreational use of marijuana, you should consider revising your company’s drug policies.

While you cannot legally bar employees from using cannabis outside the workplace, you can regulate them using it on the job or showing up intoxicated at work.

One good solution is to model your recreational marijuana policy after your current policies on alcohol.

To cover your operation, you should probably prohibit employees from smoking marijuana at the office or to come to the workplace under the influence of any psychoactive substance. The policy should outline the specific consequences for breaking the rule.

Some employers may consider prohibiting marijuana use in a recreational-use state and continue drug-testing of workers. But this approach could run into legal challenges and would be difficult to enforce if the employees are not using on the job.

The exception should be for workers that operate heavy machinery, or work in construction, transportation or other dangerous occupations. In these jobs, working under the influence of marijuana should be strictly prohibited, just as on-the-job alcohol use is. Companies can also alter drug-screening guidelines to exclude cannabis during routine drug tests.

Since the effects of marijuana can last many hours, you will also specifically need to spell out the rules for lunch breaks. Employees should be able to return from their breaks and be ready to start work again without being under the influence.

The takeaway

Overall, while it seems daunting, these issues will get ironed out over time. For now, you should try to set policies that will ensure that you can keep a safe workplace, while respecting employee privacy.

Over time, the policies that will be recommended for employers are likely to be similar to those for alcohol use and intoxication in the workplace.

Cal/OSHA Issues Emergency Rules for Posting Injury Forms Electronically

Cal/OSHA is implementing emergency regulations that require California employers with 250 or more employees to submit their 2017 Form 300A summaries electronically by the end of this year. That’s the form that you signed and posted in your workplace from Feb. 1 to April 30.

Form 300A contains only the summary of injuries and is not the actual log, which contains the names of the employees who were injured.

For the electronic filing, you will simply take the same information on the form you posted earlier this year and enter it into an electronic database.

The short ramp-up period will require employers to quickly act to comply with the emergency regulations, which were approved by the state’s Office of Administrative Law in early November. The new regulations were implemented on an emergency basis to put California’s regulations on par with those of Federal OSHA.

Who do the new rules apply to?

The new regs apply to the following employers:

• Those with 250 or more employees, unless specifically exempted by section 14300.2 of Title 8 of the California Code of Regulations.

• Certain employers with 20 to 249 employees in specific industries that are listed in Appendix H of the emergency regulations.

Among the industries in the latter category are:

• Agriculture

• Construction

• Manufacturing

• A number of retail businesses

• Transportation

• Warehousing

• Health care

You can find a full list of the above industries on pages 8-10 in Cal/OSHA’s emergency regulations: www.dir.ca.gov/dosh/doshreg/Recording-and-Reporting/Text-of-Amended-Regulation-Revised.pdf

Employers that do not have to fill out OSHA logs include:

• Those that had 10 or fewer employees during the entire year; and

• Those that have 20-249 employees, but their industry does not fall within the list of “high-risk industries,” as above.

After this catch-up period at the end of the year, all applicable employers will be required to submit their Form 300A electronically every year going forward.

Until Cal/OSHA promulgates new regulations to make that a permanent rule, the agency advises all applicable employers to follow the instructions on Fed-OSHA’s “Injury Tracking Application” webpage: www.osha.gov/injuryreporting/index.html

Cal/OSHA will be implementing its own online tool and when it does, we will notify you.

Reducing Workplace Stress Is Vital for Safety, Retention, Production

During our economic recovery one element that has been persistent is that employers are trying to get more out of their workers than ever before.

And while most managers and owners try to ensure that their workers are provided a safe workplace and put a premium on reducing the chances of accidents, one often overlooked area is employee stress.

Heaping too much stress or too many responsibilities on a single employee can greatly increase their chances of not only burnout, but also making costly mistakes. A worse-case scenario is that if they are engaged in more labor-intensive occupations, too much stress can lead to accidents.

Think your employees aren’t stressed? A recent study by Mental Health America, “Mind the Workplace,” found that:

• 81% of employees think that job stress affects their relationships with family and friends, at least sometimes.

• 63% think that their workplace is unhelpful or hostile such that they want to work alone.

• 66% don’t trust their co-workers or team to support their work activities.

• 17% believe that their company appropriately deals with employees who don’t do their job.

There are a number of consequences for an overly stressful work environment:

• Drug and alcohol abuse

• Other medical issues

• Depression

• Worsened productivity

• Trouble concentrating

• Making mistakes

• Causing accidents

• Absenteeism and presenteeism.

What you can do

All of the above can have a detrimental effect on your workplace and worker health, as stress can lead to a myriad of health issues.

Employers have to wrestle with a fine balancing act of requiring employees to meet quotas and complete all of their tasks, and pushing them too hard. Here are a few tips to help reduce stress among your workforce:

• Recognize your workers for a job well done.

• Be supportive of workers experiencing hard times, like paid time off and assistance with their workload.

• Make sure that management treats everyone fairly and does not show favoritism.

• Set realistic, clear goals and expectations of your staff.

• Management should lead by example, meaning that they should display the same work ethic that they expect of their staff.

• Promote a safe work environment and have supervisors and management reinforce your commitment to safety.

• Hold everyone accountable for their work.

• Encourage mindfulness in your team.

• Offer flexible work schedules.

• Encourage your employees to get up and move regularly.

• Provide an employee assistance plan as part of your benefits package.

The New Landscape of Risk That Every Business Should Prepare For

Businesses are facing larger and larger liability claims throughout the country, driven by a number of legal trends that are resulting in bigger lawsuit awards and new risks that many companies are unprepared for.

A recent study by Liberty Mutual Insurance found that the U.S. insurance industry’s liability-related payouts have been growing steadily due a number of factors, including:

• Higher average claims costs

• Increased number of claims

• Higher legal costs and settlements

• Higher medical costs for injured parties (in terms of hospital, rehab and pharmaceutical costs).

There are a number of trends that business managers and owners should be aware of so that they can take the necessary precautions to protect their organizations to the best extent possible. If you run a business, you should be aware of these trends, some of which could seriously financially damage your organization.

Legal trends

The report first looked at some trends that are not only increasing the amount of litigation businesses must contend with, but also higher awards.

Litigation funding – Outside investors are fronting legal fees to pursue lawsuits on behalf of aggrieved or damaged parties in exchange for a percentage of any ultimate settlements or judgments. In these scenarios, the claimants are more likely to want to take the case to trial and refuse settlement offers.

They may also push for unnecessary medical treatments. Attorneys may also present complex legal arguments that draw out the case and increase legal costs.

Traumatic brain injuries – More plaintiffs are claiming that they suffered traumatic brain injuries even for non-serious incidents. Claiming brain injuries requires additional medical treatment, more frequent doctor’s visits – and even settlements that would pay the person for a lifetime of care.

Higher jury awards – Juries seem more inclined to award higher and higher awards for breach of contract, intellectual property, product liability and wrongful death lawsuits. This is likely due to a growing sympathy from the public – and hence jurors – for injured parties (in their eyes, victims). In 2016 alone, four verdict awards amounted to $1 billion or more.

Medical costs increasing

In many liability lawsuits there is a claim of physical harm that necessitates medical treatment, and costs are on the rise for several reasons:

Medical inflation – Overall medical costs are on the rise. And general liability claims are costly because they can sometimes require years of treatment and rehabilitation for the injured party. Hospital services are increasing, as are drug costs.

Medical management challenges – Insurance carriers have little control over the medical treatment choices and costs of general liability claims. Because of this, it’s easier for the plaintiff’s lawyer to direct medical treatment to favored clinics or doctors. This has driven up medical costs for liability claims exponentially.

Other costly trends

More violence – As active-shooter incidents increase, you should know that more than 50% of them occur in places of business, government buildings or educational institutions.

Technology – Technology is advancing at a rapid clip and with an increasing number of data-driven companies, the use of the Internet of Things, 3D printing, social media and more, there is a whole new area of liability for companies.

Sharing economy – The sharing economy, while good in many ways, has created a lack of clarity about when coverages begin and end. This is forcing the insurance industry to devise customized insurance products.

The takeaway

Each industry has its own unique set of risks and you should work with us to tailor your insurance policies to meet your potential liabilities.

You should also discuss with us how to best put together a strong risk management policy for your organization, focusing on the largest risks that your company faces.

In terms of insurance, you may need specialized policies beyond your general liability policy.

And you may want to consider an umbrella or excess liability policy, so you have the additional protection you may need in case of one large claim.

Vacant Buildings Pose Risks, Insurance Challenges

According to the website Statista.com, the average vacancy rate for offices nationwide in the second quarter of 2018 was 12.2%, while 12.1% of retail spaces and 7.8% of industrial spaces were vacant. 

Unfortunately, when buildings stand vacant they become susceptible to a variety of problems.

There are roughly 31,000 fires in vacant buildings annually, resulting in dozens of deaths, hundreds of firefighter injuries, and an average $642 million in property damage.

Vacant buildings receive little or no maintenance, attention or security. This can lead to problems such as:

·     With no security on the premises, the building becomes a target for vandals. Vacant buildings frequently wind up with broken windows and graffiti-covered walls.

·     Fixtures and materials inside the building, such as copper piping, may attract thieves.

·     Vacant buildings can become convenient hang-outs for young people or shelters for the homeless; they also can become centers of criminal activity, such as drug-dealing.

·     Trespassers smoking on the premises, decayed wiring, arson, and production of illegal drugs like methamphetamines may cause fires in vacant buildings. In addition, automatic sprinkler systems may be shut off, allowing fires to spread, and lack of security prevents early detection.

·     Toxic substances remaining on the premises may leak and contaminate soil and groundwater.

Owners of vacant properties can take many steps to prevent these problems or make them less likely. 

·     Visit the property at least weekly, or hire a property management company to do so.

·     Clear the exterior of the building of scrap wood, paper, cardboard and brush.

·     Remove any toxic substances that could contaminate the area or harm police or firefighters.

·     Maintain sidewalks and parking areas in good condition, and clear them of snow and ice.

·     Erect obstacles to keep vehicles and pedestrians out of parking areas.

·     Hire security guards to watch the building at night, and have exterior lighting turned on.

·     Maintain heat or drain the plumbing system to keep pipes from bursting, but keep at least a minimum temperature in areas protected by automatic sprinkler systems.

·     Maintain electricity supply to emergency lighting and exit signs.

·     Shut off utilities, except where necessary to power desired lighting and alarm systems.

·     Maintain fire detection systems and link them to a central station monitoring service.

Insurance implications

Buildings that are more than 70% vacant for more than 60 days also lose some important insurance coverage. 

If the building is largely vacant, the standard commercial property insurance policy reduces loss payments by 15% for most causes of loss and does not cover others at all, including vandalism, water damage, glass breakage, and theft. 

For an additional premium, the building owner may be able to purchase vacancy permit coverage, which reinstates some or all of this coverage for a specific period of time. An alternative – vacancy changes coverage – can reduce the minimum occupancy that the building must have before the insurance company will consider it vacant from the standard 31%. We can work with you to get the coverage you need. 

A vacant building is never a good situation, but with the proper precautions, the owner can maintain its value and keep it secure until new tenants move in.