Presentation on theme: "Insurance Review of Independent Contractors Risk and Insurance Management Presented by: Peter J. Elliott, CPCU, President & CEO Telcom Insurance Group."— Presentation transcript:
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
Topics Covered What is an Independent Contractor Insurance for ICs 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. 1099s 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 ICs. 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 ICs. 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 1 st 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 ICs 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 Coverage- Simply 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 Coverage- There 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 firms 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 ICs may cause BI/PD while engaged on a job to a third party. The hiring firms insurer expects that it may pick up the exposure from underinsured ICs but normally does not anticipate taking the exposure of an uninsured IC. Many insurers will even attempt to rate for under- insured risk when computing premiums.
Insurance Coverage Commercial General Liability (Direct/Indirect)- Direct- In addition to the hiring firms 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. ICs 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 Others- Special certifications and knowledge that the general public does not have creates an exposure. Well written policy forms will cover the exposure of ICs 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 ICs to secure a quote from us that meets the requirements of the contract. By having your independent contractors contact us via our 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.
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