Monthly Archives: December 2008

Product Liability Insurance Premium Audits – What You Need To Know

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In all my years in the insurance business, there is nothing that seems to push a business owner of the edge more than the end of the year premium audit.

I am not completely sure, but I have a pretty good idea why business owners hate insurance premium audits so much. It has to do with a combination of feeling they are being taxed for their success, imposition on valuable time and privacy being invaded. 

But be warned, if you are a business owner reading this blog, not cooperating with an insurance auditor rarely works in your favor.

The first thing every business owner or officer should realize is, the auditor assigned to conduct the audit for the insurance carrier is typically paid by the job and not by the hour. So the longer you put off the auditor, the more likely the auditor will simply declare your account “uncollectible or uncooperative”. Once this happens, your frustion level is now guaranteed go up by about 1000% and the following four things are likely to happen:

  1. If you are lucky and can convince the auditor to come back out to perform the audit, you may find an auditor with little patience and unwillingness to hash out the small details that could save you money.
  2. The insurance company performing the audit may multiply your previously projected sales by two and send you a bill for the additional premium.
  3. If you renewed your insurance with the same insurance carrier that tried to unsuccessfully audit your business, the insurance carrier may elect to cancel your existing insurance policy.
  4. The insurance carrier will turn he the debt over to a collections agency.

If you are thinking – “I will just get my insurance from another insurance company”, be aware that most insurance carriers will not want to work with a business that has been non-renewed because of a year end audit. This is a ‘red flag” that you are a problem client and will likely have the same problems with them, since sales audits are standard operating procedure in the product liability industry.

Broken Bats In Major League Baseball Pose Product Liability Risk

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There were 2,243 incidences of broken bats in a three month time period last season resulting in injury risk to participants and spectators. Maple bats were three times as likely to break in multiple pieces as ash bats. Starting in 2009, all bats must be certified by MLB and the manufacturers will be held to higher standards.
 
The bat fractures are caused by certain grain slope patterns in the wood.
 
All bat manufacturers will be required to pay an administrative fee of $10,000 to conduct further research and they will also be required in increase their Product Liability limits from $5,000,000 to $10,000,000.

Insuring Nanotechnology Still Up In The Air

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There can be no doubt that full potential of nanotechnology is being suppressed by the lack of insurance carriers willing to insure the innovative products that can be created by using this technology.

A while back, we received a call from a company that had developed a spray on insulation using nanotechnology.  The company claimed it could dramatically reduce a company’s energy cost by using this spray on insulation. I cannot remember the exact statistics, but it was something dramatic, like one-eighth inch of nano insulation would replace twelve inches of normal insulation.

We took the application to the insurance marketplace and found no insurance carriers willing to provide a product liability policy.  We couldn’t understood because we reassured the product liability underwriters that the workers spraying the insulation on the pipes, etc. would be fully clothed in space suits that would not allow any nano particles to be inhaled by the workers. 

It was only after reading “Nanotechnology – Small matter, many unknowns” written by Swiss Re did I understand that the concern was not only for the workers, but that the nano particles could potentially be so small that they could attach to dust and later be inhaled by the public.  The insurance carriers are concerned that nano could be the next asbestos with regards to insurance claims.

Since there were obvious concerns by consumer advocates, insurance companies and others about the potential risks from nano materials the National Nanotechnology Initiative was set up to coordinate safety research.  However, based on the latest report from the National Research Council the NNI plan does not include research goals to help ensure that nanotechnologies are developed and used as safely as possible and fails to provide a clear understanding of nano risks and where it should be in 10 years.

The National Research Council has called for a new plan going beyond federal research to include universities, industry, consumer and environment research groups.

The potential for nanotechnology seems unlimited; however, until entrepreneurs and investors can be fully insured and know that their hard earned assets are protected, the business of nanotechnology will have no choice but to creep at a snale’s pace.  And until the product liability insurance carriers have reliable research data concerning the safety of nanotechnology, they will remain wary and cautious.

4 Ways You Can Assume The Liabilities of The Company You Are Purchasing

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While in most cases the company that purchases the assets of another company does not inherit the seller’s liability, there are four exceptions every buyer should be aware of that might transfer liability to buyer or purchasing company.

  1. Examine the purchase agreement carefully.  It may require the buyer to assume the predecessor’s liabilities.
  2. The transaction might be viewed as a merger.  In a merger, the selling company or predecessor’s rights and liabilities transfer to the buyer or surviving entity.
  3. If the company buying the other company is a similar business to the company they are buying, it may be viewed as a continuation of the seller’s operation.
  4. If it is determined that the transaction was fraudulent or for the purpose of the seller to avoid liability, liability could be transferred to the company that purchased the assets.

If any of the above possibilities exist, I recommend that you not only carry a product liability policy with higher than average liability limits, but that you also carry a product recall policy for added protection of you assets.

Buying The Assets of A Similiar Business? – You May Also Be Buying The Liabilities!

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When one corporation buys the assets of another similiar corporation, they may also being buying the liabilities of that corporation.  In most cases, the buyer of a firm or corporation’s assets does not inherit the seller’s liabilities.  However, there is an exception when the acquiring corporation is similiar and possibly viewed as a continuation of seller’s operation.  In an instance like this, the buyer may be strictly liable for injuries caused by defects, even if the product was previously manufactured and distributed by the selling corporation.   

A perfect example of this is SFCA, Inc’ purchase of Simplicity, Inc.  SFCA, Inc., an affiliate of Blackstreet Capital Partners, LLC purchased the debt and then purchased the assets through a Foreclosure sale of Simplicity, Inc.   Simplicity, Inc. was a leading juvenile and baby furniture designer, importer and distributor.  SFCA, Inc designs, distributes and imports cribs, changing tables, toddler beds, bassinets, etc. so there is a definite similiarity between SFCA and Simplicity.

Currently, the Attorney General Lisa Madigan of Illinois, has brought a lawsuit against SFCA, Inc. because SFCA acquired the inventory of Simplicity in March of 2008 and continued to sell design-flawed bassinets to retailers, despite knowing the bassinet design was responsible for, at least, one infant death.  Apparently, SFCA refused to participate in the recall because it claimed it was not responsible for the design flaws, since it did not design the defective bassinets.

The million dollar question in my mind is – did SFCA act on the advice of their legal counsel or was this an executive decision by one or more of the officers of the company not to fully participate in the recall of these defective bassinets?   Surely, SFCA’s legal counsel would have made them aware of this legal precedent.  Regardless of who was responsible for this curious decision, I am guessing if SFCA only spends a million dollars to resolve this mess, they will consider themselves fortunate.  Hopefully, SFCA, Inc. carried both product liability and product recall insurance.

Additional Insured On A Chinese Product Liability Insurance Policy? – Whoop Tee Doo!

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If you are an importer of Chinese products and have been told by the Chinese manufacturer or distributor that you are covered by their product liability insurance policy, I recommend you read Linda Stamato’s article below.  After reading this article, you will have a better understanding of why your U.S. insurance carrier does not provide discounted rates on your U.S. product liability policy when you can provide proof you are Additional Insured on the Chinese manufactures or distributitors insurance policy.  Simply put, nobody with any experience in the product liability field has any confidence that any type of restitution be found in the Chinese courts, even if the case is an obvious slam dunk of manufacturing defect or design defect.

As reported by Linda Stamato of NJ.com: In the United States, we have no end of attacks on product liability litigation, consumer protection laws and class action lawsuits. (A visit to Americans for Tort Reform provides information and perspective on these efforts.) As this group and others question the “excesses” of lawsuits in compensating the injured and doubt their efficacy in bolstering product quality, consider what is taking place in China……  Read the Full Story on Toxic milk and poisoned babies: Product liability limits in China

Confidence in Chinese products is so low that I predict that more retailers and U.S manufactures that use Chinese parts in their finished products are going to start requiring the U.S. Importers and Distributors of these products to start carrying Product Recall Insurance with a third party endorsement that will cover the expenses of any third party (retailer) for the recall of any product that incorporates your product including the cost to repair or replace such product.

How Accidents and Your Independent Subcontractors Can Bring Your Business Down

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Do you assume that because you are using independent subcontractors that you are insulated for most, if not all, of the wrong doings of the independent subcontractors you hire?

 

You may find that your independent subs are not as independent as you think in the eyes of the courts and that your independent subcontractor is, in fact, an employee.

 

It is extremely important for businesses to understand that when there is a catastrophic accident, large medical expenses and lawsuits are almost a given in today’s litigious environment and the search for deep pockets by attorneys of injured parties are sure to follow. If, after an accident, your independent sub contractor is found to be an employee, you could be responsible have to pay out of pocket for Worker Compensation benefits such as lost pay and medical expenses and incur lawsuit expenses such as defense cost, settlements and judgments.

 

This is why it is so important to understand if you independent subcontractor could be classified as an employee and take the proper risk management steps to protect your business.

 

To better determine if your subcontractors could be classified as an employee, I recommend that you read Cary Christian’s article “Employee vs. Subcontractor Issues” by going to http://www.peakconsultinginc.com/Articles/employee_vs_independent_contract.htm.   

 

Under most state laws, when there is liability for an auto accident the order of responsibility to pay is as follows:

 

  1. The owner of the vehicle (possibly uninsured or underinsured). 
  2. The driver of the vehicle (possibly uninsured or underinsured). 
  3. The organization or business that was responsible for the driver or owner of the vehicle being on the road at the time of the accident.

 

Two risk management tools I recommend is to 1) have all your subcontractors carry at least $1,000,000 minimum limits of liability on their auto policy so there is enough money to satisfy the judgment in the event of a lawsuit and have the sub provide you a Certificate of Insurance as proof of coverage and 2) always carry Hired & Non-Owned Auto Liability with a minimum $1,000,000 limits on your General Liability or Business Auto policy.  Hired & Non-Owned Auto Liability will provide the needed liability coverage to help your business survive; in the event your independent subcontractor is classified as an employee.