Transcript Insure IT Or Manage IT But Never Ignore IT

Insurance Review of Independent Contractors
Risk and Insurance Management
Presented by:
Peter J. Elliott, CPCU, President & CEO
Telcom Insurance Group
Owned by Those we Serve
800.222.4664
Topics Covered

What is an Independent Contractor

Insurance for IC’s

A Simple Solution to the Issue
Independent Contractor Defined
Independent Contractors (IC) -A person or business
which performs services for another person or entity
often under a contract between them, with the terms
spelled out such as; duties, pay, the amount and type
of work and other matters. 1099’s and Corporation to
Corporation relationships are valid IC examples.
Economic reason for use of an IC? When an
independent contractor is hired, a business saves itself
the cost of Social Security Tax, Medicare Tax, Income
Tax, Employee Benefits and Workers Compensation
cost.
Independent Contractor Defined
Employee versus IC- An independent contractor is
distinguished from an employee, who works regularly
for an employer.
IC- People who run their own business, you cannot
tell them how to do their job, you hire for an amount
of money to complete a job to the terms of plans and
specifications in a certain time frame, and they have
the possibility of profiting or losing money based on
efficiency and effectiveness of their work. They must
be able to work for others and provide their own
equipment. These, among other factors, which are
indicative of true independence.
Employee Defined
Employee versus IC-An independent contractor is
distinguished from an employee, who works regularly
for an employer.
Employee- Control exists as they can be told how to
do their job and details can also be managed like work
hours, break time, and acceptable environment.
Regulation
Who Cares?
Public agencies, particularly the Internal Revenue
Service, look hard at independent contractor
agreements when it appears the contractor is much
like an employee. Recently, 16 states passed laws to
distinguish ICs. So, the concern is dripping down to
lower levels.
Why They Care? Because businesses pay no income
tax, unemployment, or social security tax on IC’s. The
government feels they are being robbed of revenue;
and as a secondary reason, they believe that compliant
businesses are at a disadvantage because they have
higher expenses, which is unfair.
Regulation
How Much Do They Care?
• Consider in 2009 the Labor Department ordered
employers to pay $2.6 billion in back wages to 2,190
workers who were improperly classified as IC’s. In
2010 the numbers were $6.5 billion to 5,261
employees.
• As far back as 2001, a small company known as
Microsoft got caught in this spider web and they
settled for $100 million.
• A recently passed PA law holds not only the 1st
employer, but a secondary employer responsible if
they were aware of the first violation.
Avoiding Reclassification Risk
IC Challenges-
Questions to Ask…
Is the engagement for a specific term (project specific
or date sensitive) and not open ended?
Will the IC bear some financial risk if payment for
services is not made?
Does the IC have their own insurance?
Only acceptable answer- YES to all!
Insurance Risk of IC’s
IC Challenges-
Businesses can insure themselves from the wrongful
actions of an independent contractor, BUT it generally
cannot voluntarily insure the independent contractor
within its own insurance portfolio or purchase
insurance on behalf the independent contractor
without increasing its exposure to reclassification
liability (the risk a taxing authority may reclassify the
independent contractor as an employee).
While the risk of reclassification is ever-present, the
failure to ensure an independent contractor carries
appropriate insurance coverage also carries
considerable risk for a business and their clients.
Insurance Coverage
Workers Compensation CoverageSimply defined, workers' compensation recompenses,
gives something to a worker, one who performs labor for
another, for services rendered or for injuries. This simple
definition is taken in part from Webster's Ninth New
Collegiate Dictionary and in studying this subject closely,
we find this definition extremely accurate. Workers'
compensation is not "insurance", rather, it is social
insurance, much the same as unemployment
compensation and social security. It is, however, the
oldest form of social insurance.
Insurance Coverage
Workers Compensation Coverage• By law, businesses are generally required to provide
workers compensation when they have employees
other than the officers or owners of the company.
• It is normally not possible to voluntarily insure the
risks of the IC on the hiring businesses policy.
• If the IC is not covered for WC based upon the
“exclusive remedy” doctrine a court of law could
hold the business responsible for the statutory
benefits of the IC and could award even greater
benefits.
Insurance Coverage
Workers Compensation CoverageThere are two coverage parts to the policy;
Part One- Wage and Injury Indemnification
Part Two EL- Pays damages an insured becomes
legally obligated to pay because of bodily injury to
an employee and the resulting reactions. Triggered
by a work accident or developed disease. Claims can
come from the employee, a spouse or survivor or a
third party. In the event that the third party is making
a claim due to a contractual breach then the CGL will
respond.
Insurance Coverage
Workers Compensation Cost (Direct/Indirect)Direct- In addition to the hiring firm’s insurance to
providing benefits in the event of a claim, the chances
are extremely high, with or without a loss, that the
insurer, upon audit, retroactively charges the insured
for the coverage afforded the IC.
Indirect- Whether a business qualifies for an
experience modification factor or not, losses could
have an impact discretionary on the credits an
underwriter applies and, if they qualify, losses are part
of the modification pricing factor.
Insurance Coverage
Commercial General Liability
The main coverage part…
Bodily Injury Broad and Narrow Definition
(Coverage A) Property Damage (Coverage B)
The insurance company has the right to defend any
suit against the insured seeking damages on account
of such bodily injury or property damage, even if any
of the allegations of suit are groundless, false or
fraudulent, and to make such investigation and
settlement of any claim or suit as it deems expedient.
Coverage is also provided for personal, advertising,
and tenant liability as defined in the coverage form.
Insurance Coverage
Commercial General Liability
IC’s may cause BI/PD while engaged on a job to a
third party. The hiring firm’s insurer expects
that it may pick up the exposure from underinsured
IC’s but normally does not anticipate taking the
exposure of an uninsured IC.
Many insurers will even attempt to rate for underinsured risk when computing premiums.
Insurance Coverage
Commercial General Liability (Direct/Indirect)Direct- In addition to the hiring firm’s insurance
providing benefits in the event of a claim, the chances
are that the insurer upon audit retroactively charges
the insured for the coverage afforded the under and
un-insured IC.
Indirect- Whether a business has rates based on loss
sensitivity or not, losses could have an impact on the
discretionary credits an underwriter applies and, if
they qualify, losses are part of the modification pricing
factor.
Insurance Coverage
Employee Dishonesty (Theft)
Employee dishonesty insurance protects the employer
from financial loss due to the fraudulent activities of an
employee or group of employees. For a loss to be
covered, the employer must suffer financial loss and the
employee must either obtain financial benefit from the act
or direct financial benefit to another person or
organization. The loss can be the result of the employee's
theft of money, securities, or other property of the insured.
Most employee dishonesty insurance policies are written
on a blanket basis, so that all employees are covered.
Insurance Coverage
Employee Dishonesty (Theft)
Coverage is available for the exposure that exists when an
employee enters a home or business and steals from them.
This is third party employee dishonesty coverage.
The policy does not require notification of the police or
that the employee is convicted. The act must be unlawful,
but does not require criminal conviction.
The policy automatically excludes coverage for
employees with past record of dishonest acts and allows
the insurer to cancel any additional employees with 30
day notice.
Insurance Coverage
Employee Dishonesty (Theft)
There are some restrictions to the coverage that are
important to know. The definition of employee, in most
policies, is limited to persons in the employer's service
that are compensated directly by salary or commissions
and who the employer has the right to direct and control
while performing their duties. This does not include
people such as independent contractors. A special request
for coverage for this type of worker would have to be
made and the policy endorsed accordingly.
Insurance Coverage
Commercial Automobile Coverage
Liability Symbol 1 Coverage: If symbol 1 is denoted on
the policy, the insured has liability for any automobile
exposure and any means any. A common phrase is that
fleet coverage applies.
Liability covers the user and the vehicle. The concept of a
permissible user comes into play in liability coverage;
whereas physical damage protection covers the auto
basically regardless of who is driving.
Insurance Coverage
Commercial Automobile Coverage
Non-Owned Liability
This in a basic policy covers, on an excess basis, the
exposure your entity faces if a person on your company
business is in an accident while using a vehicle at your
request. The drivers insurance is the primary means of
coverage.
There is no physical damage protection.
Insurance Coverage
Commercial Automobile Coverage
Hired Car Liability
This coverage is for short term (30 days or
less) rental exposure. The protection is primary
and excess limits would apply in the event of a
bad accident.
IC’s via permission, business practices, or contract could
pass along liability to your business. Requiring they have
coverage and having your own proper insurance is your
protection.
Insurance Coverage
Umbrella Liability Policy
A coverage basically affording high limit coverage in
excess of the limits of the primary policies as well as
additional liability coverages. These additional coverages
are usually subject to a substantial self-insured retention.
The term "umbrella" is derived from the fact that it is a
separate policy over and above any other basic Liability
policies the insured may have.
Insurance Coverage
Employment Practices Liability
Employment Practices Liability is an exposure to legal
liability caused by an employee, past employee or
potential employee claiming their rights have been
violated. This is called first party protection.
It is also feasible that an outsider could claim that your
employee, or a party representing you like an IC, violated
their rights. Policies do not automatically cover this but a
third party endorsement is readily available with an
extension for ICs, but you have to tell us if you need it.
Insurance Coverage
Errors and Omissions Insurance
A form of insurance that indemnifies the insured for any
loss sustained because of an error or oversight on their part.
Specific types of E&O
• Insurance Agents
• Medical Malpractice
• Architects and Engineers
• Lawyers and Accountant Malpractice
• Software Developers
How does this apply to telecommunications companies?
Insurance Coverage
Errors and Omissions Insurance in Telecommunications
Advice v. Professional Assistance
Computer Services
Network Design
OthersSpecial certifications and knowledge that the
general public does not have creates an exposure.
Well written policy forms will cover the exposure of IC’s
automatically, but requiring them to have their own
insurance is advisable.
Simple Solution
IC Management
Telcom has developed a quick and easy solution. We will,
with your permission, manage the independent contractor
exposure of your project. This will entail multiple tasks, but
the two major ones will be contractual review and
certificate management. We will review all contracts that
you have prepared or received to ensure that the insurance
portion is adequate. We will, also, make sure upon
execution of the contract, that these companies are
adequately insured and that we have collected and stored in
a safe place, the Certificates of Insurance (proof that they
have insurance). We will spot check the certificates
periodically to make sure coverage remains in force
continuously for the length of the contract.
Simple Solution
IC Insurance
With regard to independent contractors you may hire for
parts or an entire project, we have partnered with a
respected and well recognized national insurance company
to develop a proprietary program that will allow your IC’s
to secure a quote from us that meets the requirements of the
contract. By having your independent contractors contact
us via our 800-222-4664 number, we can take the “guess
work” out of wondering if the contractor has adequate
insurance. In 30 minutes or less, the contractor can receive a
competitive bid from us that will meet the required
coverage terms.
Thank You
6301 Ivy Lane Suite 506, Greenbelt, MD 20770
Phone: 800.222.4664
Fax: 301.474.6196
[email protected] www.telcominsgrp.com