October 2, 2013

3 insurance triggers startups should be aware of.

Startups have to worry about a lot of things when they are getting going. Quite a few items i’m sure we all wish they could sidestep, insurance is one of them. Unfortunately, insurance is one of those things that is going to creep up occasionally and in some cases inevitably. Below are 3 instances where you just plain have to bite your lip and take care of business.

1)      Vendor contracts

As startups begin to pick up business, vendor contracts may come into play. Vendor contracts may require that the firm entering into an arrangement with a client company secure certain levels insurance coverage. This may extend to specific coverages such as professional liability (errors & omissions), commercial auto and umbrella coverages as well as general liability, especially in the case of services firms.

A common vendor contract will require that at a minimum general liability and professional liability coverage is put into place. Starting points for amounts of coverage will be $1 million per occurrence and increase from there dependent on the nature and scale of the work.

2)      Moving into commercial space

Some startups will make this move quickly, others when revenues can support it. Bottom line is most startups won’t stay in their basement forever. Moving into commercial space, even virtual or shared office space will likely entail a lease or some form of agreement. These agreements may include an insurance clause stating that the startup needs to go secure a certain level of General Liability coverage and name the property owner on the policy.

Property Owners will likely require that they be named on such policies as additional insureds and require that a valid certificate of insurance be provided to the management office before handing over the keys. It’s good to be conscious of such requirements to make such a move seamless. The cost associated with coverage that will satisfy property manager typically aren’t too expensive, relatively speaking. You can usually take care if things for less than 1k/year.

3)      Getting Workers Comp

You will need to secure Workers Compensation with your first hire, be it full or part time.  But one question that crops up quite often is ‘do I need to get it for myself?’ This will depend on how your company is set up. If you are an officer of an S or C-Corporation then the company may need a Workers Compensation policy that includes those officers. Any corporate officer who owns at least a 25% interest in the corporation may be able to exempt themselves from the provisions of the Workers’ Compensation Act. If the company is a sole proprietorship, LLC or LLP, owners can hold themselves exempt from the requirement.

In Massachusetts, penalties for not having Workers Compensation coverage can add up quickly. Per the MA Dept. of Industrial Accidents, employers operating without Workers’ Compensation insurance will be issued a STOP WORK ORDER by the DIA Office of Investigations and shall be assessed a minimum fine of $100 per day commencing  on the date of the issuance. Fines accrue each day until insurance coverage becomes effective, and the  fine must be paid in full to release the STOP WORK ORDER, as authorized under M.G.L. c. 152, Sec. 25C. These orders can be appealed, but fines accrue at $250 per day when appealed, and STOP WORK ORDERS remain in effect until insurance becomes effective and the fine is paid.

In addition, an employer may be subject to criminal sanctions, including not more than one-year imprisonment and/or up to a $1500 fine upon conviction. Uninsured employers are also subject to debarment from public contracts for a period of three years.

Needless to say, it’s better to get the coverage in place.

For more information on the topic or guidance, use the form below or reach out directly to Nathan Therrien at 978-400-7014 or at [email protected]



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