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    Why Your Company May Need Product Liability Insurance

    If your company manufactures any kind of product, from lemonade to engines, computers to clothing, it could easily find itself on the wrong side of a lawsuit by a plaintiff claiming your product(s) caused some kind of injury or damage. In today's litigious society, it is not even necessary for you to be the manufacturer of the product. Sellers are often sued alongside the manufacturers.

    It's only natural that people want to be safe from injury and property damage whether from food poisoning, getting into an auto accident due to tire failure, or having the foundation of their home crack, but how do protect your company from liability? The answer may be with product liability insurance.

    Most liability claims are covered as part of your company's commercial general liability (CGL) policy. However, products that are particularly likely to lead to liability may be handled separately. As part of a sound risk management program, you should know well in advance how your current coverage would respond to such claims.

    The CGL policy covers any bodily injury and property damage occurring away from your business premises that happens as a result of your product or completed work. If a product is consumed on the same premises, such as food served in a restaurant, the policy provides coverage once the insured has relinquished possession of the product whether the injury or damage occurs on or away from the premises.

    The standard policy excludes damage to the product when the damage was caused by some part of the product itself or faulty workmanship in its manufacturing. For example, one small part in a complex, expensive piece of equipment may fail and cause tremendous damage to that equipment. If the part that fails was purchased from an independent subcontractor, the insurer of the manufacturer of that part would cover damage to the equipment. By contrast, if the manufacturer of the expensive equipment itself produced the piece that failed, the damage is not insured under the CGL policy.

    Product liability exposure lasts as long as the product is in use. Someone may be injured or damage may result from use of the product years after it was manufactured and the product may no longer be in production. Product liability insurance should be kept in force as long as the products are being used and could cause injury or damage. Partnerships and sole proprietorships are especially vulnerable. These business owners cannot evade personal liability exposure by taking cover behind a corporate shield; thus, they need to take particular care to keep product liability coverage continuously in force. Because of the continued liability exposure, insurers require insured's to provide detailed information about discontinued products.

    The CGL provides coverage for product liability that may arise when products are sold internationally, but only if liability is determined by a lawsuit in the United States, Puerto Rico, or Canada. Since product liability lawsuits are often filed in the country where the alleged injury or damage occurred, any business whose products are sold overseas will need a foreign coverage endorsement added to its CGL policy.

    Another type of coverage not provided by the CGL policy is the expense of a product recall, though this can be expensive and severely damaging to a company's reputation. Separate product withdrawal expense insurance may be available depending on the particulars of your business and its product.

    The basic premise of most product liability lawsuits is that the product manufacturer or vendor failed to take appropriate steps to insure the product was safe and sound. It is impossible to eliminate all hazards in connection with many products. No matter what you do, someone could fall off a ladder or burn themselves with a hair dryer, and so forth. To show that you did everything possible to prevent such injuries, it is critically important to communicate with buyers and users of the product about such hazards. The thing to remember is that if there is a lawsuit, your best defense is to prove you took all reasonable measures to assure no one would be injured.


    Insuring Success in Your Home-Based Business 

    These days, many employees are becoming home-based contractors for their former employer, or even striking completely out on their own.  You may be among them.

    If you are, remember this: once you are on your own, you will not be covered by your employers' insurance packages.   Because you are busy thinking of all you need to do to start up a new venture-whether you'll be using familiar job skills or new ones entirely- insurance may be the last thing on your mind.

    Think again.  If you forget an essential part of a computer program you are contracted to write and your client loses business because of it, the client may sue.  If your new personal shopping service supplies an item that injures a client...lawsuit!  In each case, an Errors and Omissions policy could have saved the day.

    And then there is the possibility of fire, flood, theft...in short, all the usual risks of living, and then some.  As the owner of a small business, there are three ways you might cover those risks

    1. Homeowner's insurance endorsements: suitable for a small home business with minimal equipment and no business visitors or business deliveries. Beware: the Independent Insurance Agents of America (IIAA) advises against this minimal coverage.  Your personal agent might, too.

    2. Home office policy/in-home business policy:  this offers business liability and lost income replacement, as well as other usual risk coverages.

    3. Business owner's policy:  This provides the most comprehensive safeguards similar to those found in commercial policies, but with prices designed for the home-office market.

    If you are like most new home-business owners, you may think your homeowner or renter's coverage will be enough.  That is too bad, because in many instances, your current homeowner's policy won't be enough.  It may even exclude business use of your home entirely.  Even if it does cover business use, it is likely to be for very small amounts, $2,500 on premises, and as little as $250 for losses off-site, such as a stolen laptop.

    Plus there is the vital issue of business data.  Suppose a scenic stream runs across the back of your property...and it floods in a hurricane and floats the books, files, and software needed to run your business, bill your clients, and collect fees.  Unless those things are covered under a home office or business owner's business policy, it is unlikely the loss will be covered at anywhere near what it will cost you to reconstruct all that information.

    If someone slips and falls on the muddy walkway, trying to visit you the day after the flood for business purposes, your homeowner's policy probably will not cover that, either. 

    And then there is the issue of business slipups like those mentioned above.  No matter how good you are at what you do, no one is perfect.  You will want to consider coverage so mistakes do not put you out of business.

    Before you begin your consulting arrangement or new business, sit down and discuss with your insurance agent all the risk factors you could be facing.  You may not be able to afford to cover every risk right away, so ask for your agent's help to prioritize the risks.  If, for example, customers will not be visiting your office for a while, leave that liability coverage out for now.  But if you will visit customers and bring equipment along, cover this risk; you need that equipment to do business, after all, and your business will suffer it if is lost or damaged.

    Remember to consider your vehicle use, too; will you use public transportation to visit clients, or your personal car?  Will your personal policy work, or would commercial insurance better provide the best protection?  If you are buying a van or truck especially for business needs, there is ample reason to consider commercial vehicle insurance.

    Finally, consider the possibilities if you becoming ill or are injured and cannot work.  By going out on your own, you have lost the safety net of the disability insurance your former employer most likely carried.  If you have a working spouse, you may be able to delay obtaining disability insurance for a time, but it is one of the coverages most people feel a lot more comfortable having, working spouse or not.

    Once you have prioritized and decided upon your initial insurance package, remember to speak with your agent periodically and to add those coverages that you put off for cash flow reasons, or simply did not need at the time.


    Getting to the Heart of the Matter

    Use questions like these to determine the nature of your new work arrangement or business and to help prioritize your insurance purchases:

    ·        What type of equipment do you have and how much did it cost?  How much to replace?

    ·        Is the equipment dangerous?

    ·        Does your business own any property?

    ·        Where do you conduct business--home or client offices or your own premises?

    ·        Do you need a vehicle for business?

    ·        Do you have or plan on having employees?

    ·        If you make an error, can a customer sue you?

    ·        If building damage happens, from fire to flood, will it shut down your business?

    ·        Do clients visit your home to transact business?

    ·        Do you take expensive equipment to client sites?

    ·        If you are injured and can't work, where will you derive an income?


    Workers' Comp Claims for Mental Illness May Be Difficult to Diagnose, But Are Real in Today's Workplace

    When one thinks of workers' compensation, images of workplace accidents and occupational diseases come to mind. Though the vast majority of workers' compensation cases do involve claims for physical injuries and conditions, a small-but potentially growing-portion of workers' compensation cases are based on mental or psychological claims, particularly related to stress experienced on the job.

    Mental workers' compensation cases fall into one of three categories: physical/mental, mental/physical, or mental/mental. A physical/mental claim involves a workplace physical injury that has progressed to a mental condition or disability; an example would be a back injury that lingers, and that results in the worker lapsing into clinical depression. A mental/physical claim involves a psychological condition arising out of the worker's employment that has caused a physical illness; an example would be workplace-induced stress that causes ulcers. A mental/mental claim involves a psychological occurrence in the course of employment, which leads to a psychological injury or condition; an example would be an employee who witnesses a horrific workplace accident involving a co-worker, and who later develops a fear of operating the same equipment on which the co-worker was injured.

    As with workers' compensation claims that have only physical components, in order to be compensable, the claimed injury or condition must arise out of or occur during the course of employment. Some types of mental injuries are difficult to prove under this standard. For example, symptoms of physical ailments caused by stress (e.g., ulcers, heart attacks) may appear only after working in a stressful workplace for a long period of time. Furthermore, unlike claims based on a workplace accident, mental claims may not be linked to one particular incident, but rather to months or years of stressful working conditions.

    Another example of the complexity of the cause-effect link in mental workers' compensation claims is seen in claims based on post-traumatic stress disorder (PTSD). PTSD is a delayed psychological response to experiencing an extreme situation that overwhelms one's usual ability to cope. Most commonly thought of in connection with soldiers and wartime, discussions of PTSD arose after the September 11 terrorist attacks. Though few would doubt the psychological impact of witnessing the devastation in New York or Washington first-hand, by definition, symptoms of PTSD do not appear for months or years after the event, making their connection to the workplace event difficult to assess.

    Mental workers' compensation claims represent a tiny percentage of all claims; estimates put claims with a mental component at about 1% of claims overall, although this figure varies by state. For a period of time in the 1980s and early 1990s, the incidence of claims with a mental component rose in some states, but stricter requirements imposed by state lawmakers, workers' compensation boards, and courts stemmed this trend. In particular, mental/mental claims are least recognized.

    Though workers' compensation claims with a mental component represent only a small minority of claims today, the reality of the modern workplace should motivate all employers to be alert to their existence. White collar workers-who are most likely to claim an injury with a mental component-make up an ever-growing portion of the U.S. work force. Furthermore, today's workplace puts great pressure on employees to be productive and cost-efficient. Many workers live with fear of job loss, as businesses continue to seek optimum competitiveness through "right-sizing." All of these factors can breed stress.

    All employers can take some basic steps to deal with increased stress levels in the workplace-

    • Be alert to signs of stress among employees, and solicit input from employees and managers on this issue. Be aware that certain events, such as layoffs, may trigger stress levels in employees beyond what is to be expected on a day-to-day basis.

    • Make employee assistance program (EAP) services available so that workers have ready access to help with dealing with stress.

    • In the event of a severe workplace trauma, arrange for on-site intervention and counseling services.

    Though these steps will not make a business immune from the possibility of a workers' compensation claim with a mental component, they will, at the least, help make stress recognition and prevention part of the workplace ethic.

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