Although most business owners are aware of the threat of lawsuits brought by business associates as well as general consumers of their products, they are less aware of the threat by their own employees.
The current legal hot item is suits brought by employees against their own employer or even between a potential employee against potential employers. Employment Practices Liability is a coverage that has quickly become the legal community focal point. It includes discrimination against current employees as well as potential new hires, wrongful hiring and wrongful firing, defamation, invasion of privacy, failure to promote, and negligent evaluation. Many of these issues are subjective and very difficult to prove or disprove.
Things to Look for When Shopping for Employment Practices Liability:
Limits of coverage - Although lower limits of coverage are available, in many programs, if limits below $250,000 are purchased, the policy comes with a “Shrinking Limits” provision which means your coverage limit is decreased by payments for legal expenses unlike most other liability policies.
Third-Party Coverage (Insuring Agreement B) - Many policies do not include this coverage automatically. This coverage will provide defense coverage for claims of discrimination and harassment: the two actions most often alleged in claims brought by third parties. Third Parties claims can be presented by non-employees. Typically customers, clients, or even venders bringing claims against employees would fall into this category.
HR Hot Line - As a preventive measurement, some insurance carriers have set up hot lines where employers can call for assistance when they feel a potential employment practices claim might present itself and get advice on the best way to handle or how an employer might implement a policy to avoid a claim in the future.
Most Employment Practices Liability policies come with a deductible starting at $2,500, $5,000, or higher per claim. Although the carrier will immediately engage legal representation, the deductible must be satisfied prior to coverage being triggered.
The procedure for an employment liability claims is as follows: a complainant or their attorney file an action with the Equal Employment opportunity Commission who reviews the complaint and reaches out to the employer to provide answers to the charges brought against them. It is important that the employer seek legal representation with an attorney who is familiar with the EEOC and able to respond to the charges. The insurance carriers will provide this legal counsel, and the business owner will be free to conduct their business.
A second area of Liability insurance which many business owners have heard on the news but continue to feel it only applies to the larger corporations is Cyber Insurance. What is cyber insurance, and how does it affect the average business owner?
The General answer to this question is Cyber Insurance is protection for a business owner from both first party damages (monitory damages suffered due to breach of businesses own stored information) and third-party claims brought by customers due to a data breach of compromised personal information such as Social Security or credit card numbers.
5 Major Types of First-Party Theft of Property
- Data Asset Coverage
- Cyber-Extortion Coverage
- Computer Fraud Coverage
- Funds Transfer Fraud Coverage
- Social Engineering / Fraudulent Instruction Coverage
Data Asset Coverage
This coverage provides funds to offset costs to restore and recover data lost from a breach by a hacker. One important limitation is that the policy will only provide coverage for the expense incurred by the insured for the electronic recovery method.
Cyber Extortion Coverage
This is a threat to 1) commit an intentional computer attack, 2) damage or shut down a computer system, 3) disclose confidential information, or 4) block access, or 5) introduce a virus into the insured’s system - unless the insured pays a specific sum of money to the extortionist.
Coverage should include:
- Coverage for cyber-extortion demands- this coverage provides actual moneys needed to pay ransom demand
- Coverage to prevent further extortion- this coverage will provide funds to hire an expert to provide an assessment of the insured’s system aimed at preventing future extortion attempts.
- Coverage for expenses required in dealing with Cyber Extortionist-This coverage would provide funds for hiring the expert needed to negotiate with a cyber-extortionist.
Funds Transfer Fraud
Coverage for losses sustained when funds are fraudulently transferred from one financial institution to another.
Social Engineering / Fraudulent Instruction Coverage
Coverage is provided for losses resulting from attempts to have insured transfer monies based on instructions to transfer funds from one financial institution to another.
Cyber Liability Coverage
Coverage under this policy should include privacy notification and crisis management expense coverages which will help to minimize the effects of the breach on the consumer and this should include:
- Hiring a Computer Forensics expert to provide ways to A) secure the insured’s information B) Determine the cause of the breach C) offer advise on how to prevent future breaches
- Public Relations & Crisis Management Assistance help insured engage a public relations firm to guide the insured on communicating with impacted customers
- Setting up a Call Center to provide details on the breach and how the customer may be affected
- Assistance with Notification of impacted customers
- Credit Monitoring of impacted customers’ credit (usually for 1 year)
- Identity Monitoring is a more comprehensive monitoring of the impacted customers’ personal information to detect possible fraudulent uses such as taking out loans in their name
- Bank Notifications to assist impacted customer in notifying banks and credit card companies that their information has been compromised.
Having the right liability insurance coverage is necessary for business owners that want to be protected from the most relevant threats to their company. As with all insurance policies, it is important that you review and understand all coverage limitations and exclusions.
At Action Unlimited Resources we are not experts in liability insurance. Instead, we work with experts to ensure we have the necessary coverage for our organization. We hope the information we have provided is as beneficial to you as it has been to us.
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