Archives

4 types of insurance your startup is going to need.

Workers Compensation Insurance. Ok, this one is easy. The state pretty much mandates that you have this type of insurance coverage in place once you hire your first employee. It is going to be fairly inexpensive if you consider that you would only be paying for coverage on one employee or perhaps the owners of a company based on how the company is set up to start with.

General Liability. Most people will think of this as the ‘slip and fall’ insurance. It’s true, it is slip and fall insurance, but there is quite a bit more in there which is why general liability would be better described as your ’bread and butter’ insurance. This kind of coverage represents the foundation of protection for your company.

Aspects of this type of coverage include advertising and personal injury. This will cover you if you screw up some of your advertising at someone’s expense. You may slander someone or violate intellectual property such as trademarks or copyrights. Products and Completed Operations coverage is also part of General Liability. If you sell an actual product, this is where your coverage lies if that product were to fail, or if it injured someone. There is of course the ‘slip and fall’ scenario where someone walks in your office and takes a spill because someone dropped a coffee on the floor.

Most of the time, the trigger for this type of coverage for a startup will be a move into a commercial space or the need to settle up with a vendor contract.

Professional Liability. This is where you get a little more specialized. If you work in some kind of services arena or in a technical space, you will likely need this. Professional Liability coverage covers a firm if there was any sort of claim that stemmed from the normal operations of one’s business. Pretty much this is the coverage that would protect your company from damages that stem from a mistake made by you for work done for another party. If an insurance brokers screws up someone’s insurance, that is a mistake that stems from the normal day to day operation of the broker. The act was done within the confines of his or her profession.

This type of coverage extends to all aspects of services, doctors, lawyers, on and on. Technology has its own subset called Tech E&O which specializes coverage around that industry and its specific needs such a cyber and breach protections.

General Liability goes hand in hand with professional. If you only have one, you may have a big gap in your exposure.

Directors and Officers. This is a bit next level, but in this day and age it is becoming more and more of a requirement rather than an ancillary coverage. Directors and Officers coverage covers officers of a firm for damages that stem from actions taken as a matter of management of that firm. A good example is stakeholders of a company taking issue with a strategic direction. If the CEO does X instead of Y and a stakeholder is caused damage, that stakeholder can sue the company officer. Not the company mind you, the officer. That can leave a big personal exposure of you are not protected.

An important component that goes hand in hand with D&O coverage is EPLI (Employment Practices Liability Insurance). It’s become more and more common that lawsuits against company officers don’t come from the outside, they come internally from employees, or more to the point, former employees. Claims such as harassment, discrimination and retaliation are common causes of employment claims where an employee will file suit naming not only a company but also officers.

D&O coverage has become more and more necessary to insulate yourself as an officer of a company. Some feel they don’t need it or it will never happen to them or just don’t see the risk….they would be wrong. It’s a litigious word we live in. Don’t get hung out to dry.

If your a company that has reached any of these points and can use some guidance, feel free to reach out to us, we’re here to help. You can use the form below or contact Nathan Therrien directly at 978-400-7014 or by e-mail at [email protected]

[coll_contact]

Avoid the horror show, get a buy-sell arrangement done (part one)

Small business owners have enough on their mind, but some things just need to get taken care of. If you are an owner of a company with at least one partner, a buy-sell arrangement is one of those things. Buy-sell arrangements are the legally binding framework and roadmap to the divesting on an owners stake in a business depending on a variety of factors. For the purposes of this blog post we will be focusing primarily on the death of an owner.

One of the most important reasons to get a buy-sell arrangement done is to protect owners against a worst case scenario, the untimely death of a partner. It’s a tragic consequence when this occurs, and something that becomes a life altering event when it happens on a lot of levels. When it includes an ownership stake in a company with other partners, that consequence involves that many more people. It is unfortunate that such an event can trigger the dissolution of a company unless steps and a process are in place.

When such an occurrence takes place there is going to be an issue with the estate and heirs of the deceased owner. What comes next without a plan in place can be ugly, especially if the company does not have a set valuation process and means to fund a buyout. Without an arrangement, the owner’s stake is going to pass to the owners heirs or estate. Without an arrangement in place, surviving owners have a couple of options, neither good nor practical.

On one hand, the surviving owners can establish their own means of funding in order to buyout the deceased owner’s heirs. There are two problems here, first is whether the surviving owners can line up that kind of financing. Surviving owners will likely need to approach a bank in order to set up the kind of financing needed to accomplish such a buyout, this may not be easy in and of itself, but what if the owners have a certain value in mind and a deceased owners heirs disagree. Maybe the heirs think the company is worth more than surviving owner say, maybe the heirs think they are being taken for a ride. It’ll be an emotional time and no place to start throwing large numbers around.

Which brings us to the second impractical option, say hello to your new partners. Now maybe the heirs of an owner are knowledgeable, reasonable people who simply want to keep the stake intact and retain ownership passed onto them as a silent partner, best of a bad situation. Worse than that is a new owner who wants to come in a turn things upside down. The husband or wife who wants to start making all the decisions or the idiot know-it-all son or daughter. This is where things go from bad to worse and makes for an untenable situation.

Either one can lead to a forced liquidation of the company in time.

Avoid it…. avoid it all. A simple buy/sell arrangement can set in stone a means to value the company, and the means to finance it. Find a good attorney with experience in drafting such a document to see to it that all the issues are covered and that any unique circumstances related to your company will be attended to. From there, purchase life insurance policies to finance a buyout in the case the death of an owner. Such an occurrence will trigger the buyout based on an agreed upon valuation in the arrangement and insurance proceeds will be used to pay for a surviving heirs company stake. The share of the deceased owner will come back into the company and distributed amongst the surviving owner per the agreement.

It doesn’t cost much to get things done and it beats having to deal with the alternative. It becomes more important the more stakeholders there are because face it… things happen, the unexpected occurs and companies need to be prepared.

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]

[coll_contact]

Common question: How do deductibles, co-insurance and out-of-pocket maximums work on my insurance plan?

These are three common items associated with most company insurance health plans. They are very important because these are the primary aspects that will determine the bulk of the cost employees and their families will incur when they go to their doctors and hospitals. Let’s take them one at a time.

Medical Deductible: This is the amount that a medical plan enrollee will have to pay for certain services first before the insurance begins to kick in. Usually a medical deductible will be a set amount between $500 and $2,000 per policy year for an individual. For families, the deductible will typically double. If a deductible is $500 for an individual, it will be $1,000 for a family and so on as deductibles increase. One thing companies ought to be wary of is what the deductible applies too. Some services will be subject to the medical deductible, others may not. Most often, medical deductibles will be associated with hospitalizations and surgeries. In some plans, the deductible may be extended to emergency room visits and doctors appointments.

Co-insurance: This is the thing that I always advise companies and individuals to look out for. This is the aspect of enrollee cost that can really ramp up those costs quickly. Co-insurance is a cost that will come into play after the medical deductible is satisfied. It is a percentage split that an enrollee will be responsible for after the medical deductible. Common co-insurance amounts on a plan will run at 10 or 20 percent, in some cases higher. In a nutshell, if a company has a $500 medical deductible and a 10% co-insurance model, the enrollee would first satisfy the medical deductible. From there, whatever is left on a medical bill after the first $500, the enrollee will be responsible for 10% of that number up to an out-of-pocket maximum.

Out Of Pocket Maximum: This will represent the most an enrollee will pay for any given policy year. As with the medical deductible, the out of pocket maximum will have one number for an individual out of pocket maximum and will typically double for a family. For example, a plan with a $2,000 out of pocket maximum for an individual will have a $4,000 out of pocket maximum for a family. Co-insurance features are the things that can bring the out-of-pocket maximums into play, when you have a percentage on a large medical bill, these limits have a habit of being reached.

My experience has taught me to advise avoiding plans with co-insurance when possible. With that said, different vendors in different states will have different plans. Sometimes cost simply won’t allow for a plan that doesn’t have it.

Make sure as both employers and employees, that everyone is aware of these three factors. These will determine the true costs of your plans in terms of monthly premiums and usage costs. The one thing no one likes is a surprise that hits them in the wallet.

Red Bull does not give us wings….so they’ll give us 13 million dollars. Can your company afford 13 mil?

In another example of litigation run amok, I give you the court recent settlement by Red Bull. Recently, the company settled a class-action lawsuit claiming false advertising. Apparently the fact that Red Bull doesn’t ‘give you wings’, or enhance your physical or mental well being, aside from a caffeine rush and a case of the shakes, didn’t sit well with some of its customers.

Red Bull has set aside 13 million dollars in funds for those that purchased the product between 2002 and 2013 in order to settle the false advertising action. $10 for each person who bought the product until the funds are exhausted. But really, did anyone with half a brain think that the product was going to live up to the advertising? I wouldn’t expect to be able to climb a mountain after a can of Red Bull and neither would ant other reasonable person.

In my humble opinion, what we have here is another example of litigious America going after a quick money grab with another frivolous lawsuit. But here’s my point, this time it happened to Red Bull, don’t think it can’t happen to your company.

When I talk to companies about insurance, sometimes a company just doesn’t see a whole lot of risk in what they do. Sometimes I think they’re right…and I’m the insurance guy. But the thing is that in this day and age, someone out there may try to take you for a ride. Sometimes the best thing insurance can do for you is cover costs to defend against a frivolous claim.

Business owners will tell me quite often that they don’t see the risks and that insurance isn’t necessary. To that, I say that if someone sued you, who’s paying your legal bill even if you know it’s BS. You’re going to need to defend lawsuits, frivolous or otherwise. If you think you’re immune, it’s the same as defending yourself in court. You have a fool for a client.

As frivolous as a case may seem, sometimes things just don’t go your way in court, or in a case like this, a settlement makes more financial sense. Make sure you have your bases covered. If you think you aren’t, feel free to contact BIBSMA and be sure.

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]

[coll_contact]

Do you have Intellectual Property and Copyright coverage taken care of? If not, don’t mess with the Beastie Boys.

Copyright and Trademark infringement may be a couple of things that don’t pop up on a business owners radar screen that often. For the most part smaller companies usually aren’t going to go out and seek such materials for the purposes of advertising, that’s for big companies with the budget to go out and do that kind of thing right? Just make sure that if you do wind up using material that could be in the gray area, you cover your bases.

As an example of what can happen when a company doesn’t have permission to use certain media in advertisements, I give you the Beastie Boys versus Monster Beverage (makers of Monster energy drinks). In this case, Monster was accused of copyright infringement when they used a remix of some Beastie Boys music for a promotional video. Monster had used the footage of a live DJ set perofrmed at a Monster sponsored festival.

Apparently a Monster employee misinterpreted the meaning of the word ‘dope’ in an e-mail exchange with the DJ who created the mix, interpreting this as authorization to use said media in promotional material. Needless to say, it didn’t go over well in court. You wouldn’t think the interpretation of the word ‘dope’ would be too costly, until the verdict came down. Monster Beverage was hit with a $1.7 million dollar judgment that was handed down in June.

Monster new they were caught dead to rights and had tried to negotiate the damages down. That didn’t go any better than arguing the nuances of the word ‘dope’. While the judgment will certainly be appealed and a company the size of Monster has the coverage and legal resources to fight such a decision, it serves as a cautionary tale for other companies. Make sure that your employees aren’t clearing intellectual property on your behalf, and make sure your insurances are in place to protect your company against these types of mistakes.

Oh yeah, and don’t mess with the Beasties.

Need to make sure that your company’s coverage can handle such an incidents? Leave a comment, visit our website or drop a line. If I were cooler I would end this post with a ‘Sabotage’ reference, but…..

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]

[coll_contact]

How do I know if my company needs D&O Insurance in Massachusetts?

Directors and Officers coverage insures against claims stemming from alleged wrongful conduct of a company directors and officers. These types of claims typically won’t be covered by other insurances such as professional or general liability coverage as some may think. Management liability coverage, which includes D&O, is its own animal and without it a business’s directors and officers may find themselves exposed in the event of a lawsuit where they can be personally named as well as their companies.

Quite often company owners figure that they will need Director and Officers coverage if they are in control of a publicly held company, or if there are stakeholders such as venture capital funding. This is true, these are situations a company may come across that would act as a trigger for management to determine a need for D&O coverage. What some fail to recognize is that just because there may not be internal or external shareholders involved in a company, it would not shield management from risks involving creditors, customers, competitors, even its own employees.

One common source of claims will stem from a company’s employees, more specifically, ex-employees. Discrimination, harassment, wrongful termination and retaliation are all claims that can be made against an employer and by extension, the directors of a company. Employment Practices Liability Insurance or EPLI, is commonly part and parcel of a broad based policy and would provide coverage against such claims.

Clients or competitors may allege misconduct on the part of directors and officers, wasting of corporate assets, allegations of theft of intellectual property, false advertising claims, antitrust… these are all aspects that can be the basis for a claim against a company’s directors and officers. There are always cases of fraud, misrepresentation and breach of fiduciary duty that are most often associated with a D&O claim. Then there is of course issues that stem from having stakeholders in your company. Should such stakeholders take issue with the decisions of management in a private or public company, litigation may ensue.

The point in all this is that there are many instances for a small company where directors and officers would need the protections of a D&O policy.

Directors are increasingly being held personally responsible for a company’s management decisions.  Claims brought against individuals can threaten both the personal wealth of such individual directors & officers and the financial viability a company.

In some cases, companies are obligated to indemnify directors and officers in such events. Many companies’ articles of association stipulate that the directors and officers will be indemnified in certain situations. This does not necessarily provide directors and officers with complete protection, as their company may not be able to indemnify them, perhaps because it has insufficient funds. Many claims made against directors are from investors and creditors and arise when the company is insolvent, or it may not be permitted by its articles of association to do so in certain situations.

Looking for more information or have any questions as this may relate to your company?

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]

[coll_contact]

No penalty for employers who don’t comply with state section 125 plan requirements

The Health Connector issued guidance this week in the form of Administrative Bulletin 03-13, providing that employers would not be subject to penalties for failing to comply with specific state based section 125 plan requirements. Section 125 plans allow employees who are not eligible for benefits to purchase health insurance on a pre-tax basis. State law currently requires employers with 11 or more full-time employees to offer a section 125 plan or face a penalty in the form of a Free Rider Surcharge. Proof of compliance with the section 125 plan requirement is through a report called the Health Insurance Responsibility Disclosure Form.

Recent federal guidance from the Department of Labor and the Internal Revenue Service prohibits the use of pre-tax dollars from section 125 plans to purchase non-group health insurance inside or outside the Health Connector. While earlier versions of this prohibition applied only to the purchase of non-group plans from the Exchange (in MA, the Exchange is the Health Connector), the final rule applies to section 125 facilitation of non-group plans both inside and outside the Exchange, starting in 2014.

As a result of the federal guidance, the Patrick administration will pursue a repeal of the section 125 plan requirement. The legislature will need to take action before anything is actually undone (e.g., the section 125 requirement, the Free Rider Surcharge, or the employer Health Insurance Responsibility Disclosure), but the Health Connector is pursuing a path of “non-enforcement” with respect to the Free Rider Surcharge, which is the mechanism to enforce the section 125 requirement. While the legislative process takes place, no employers will be subject to penalties for failing to comply with the section 125 requirement.

Existing section 125 plans may continue until the expiration of the employee’s plan in 2014.

If employers have any questions about their specific 125 plans or benefit plans, they should contact their attorneys or tax advisors.

What are the best ways for a startup to provide health insurance for the founding team and early hires?

I’m going to make an assumption here and say that early hires means hires that were brought on board very soon after the founders started the company and have the same blank slate. Most people in this niche will likely have coverage through some other means, parents, spouse, individual plan, something. If not (especially if a founder doesn’t) something has to give and timelines move up.

First thing is find a broker, someone the company already knows, or perhaps a trusted referral. You can go looking for coverage yourself, but with the different companies, plans and now regulatory changes with the Affordable Care Act, let someone else do the homework and distill things down for you.

Second, get ahead of things by answering a few questions. Do we need to accommodate out-of-state employees now or with future hires? What percentage of my employees live or work in the state my company is domiciled in? How rich of a plan do I want to get, and how much of a percentage am I looking to contribute to my employees plan (this last question will require some quotes, but employers should have an idea of what they would like to do in a perfect world)? These are some key points that will determine how things play out.

How is the ACA (Affordable Care Act, aka ObamaCare) going to affect my company?

If you are a startup, the assumption is you are starting with only a few employees. With that in mind, the regulatory impact of the ACA on startups is minimal. The ACA’s primary impact will be on companies with more than 50 employees nationally. How insurance rates will be affected by the new laws will play out over time. Changes to plans in order to become ACA compliant will be rolling out in 2014. That said, most of the changes to become compliant are already baked into most plans that companies in MA would choose to implement already.

Do I have to offer health insurance?

Short answer is no, by and large, small companies are not forced by law to offer health insurance.  In MA, there was a state provision mandating that if a company had 11 or more full time equivalent employees, and a company did not offer coverage, then a ‘free rider’ surcharge would be imposed. This provision was lifted by Governor Patrick in the most recent MA budget in July ’13 in order to avoid overlap with the new federal laws.

You can follow Business Insurance & Benefits Services on Linkedin at http://linkd.in/17gITep

Nathan Therrien
Founder
Business Insurance & Benefit Services of MA
978-400-7014 p
978-400-7015 f
[email protected]
www.bibsma.com

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]

[coll_contact]

For all the buzz about coworking spaces, incubators, accelerators and whatever other buzz words you want to use when it comes to supporting young businesses, all the talk seems to have centered around Boston….until now.

Barb Finer, founder of QuiTivity, is starting a new venture slated for 2013 to bring those types of resources to Metrowest. TechSandbox’s mission will be to accelerate the success of science and technology entrepreneurs based in the 30+ cities and towns located near the 495/90/rt9 Metrowest corridor. While details will be finalized on the project in the coming weeks and months, it’s good to see that business communities west of Boston are staring to get in on the action. Learn more at http://techsandbox.org

The call has been put out to the Metrowest  community at large. Check out the mass-connect calendar, there are several events scheduled to pull together volunteers to help nurture this project. There are 5 events scheduled through December and January, an open call for volunteers including the formation of steering committees that will work the details of programs to be offered.

If you want to get in on the action, the events will be Thursday nights on Dec 20th and Jan 10th and Friday mornings the 14th, 21st and 28th of December, all to be held at Tatnuck, 18 Lyman St., Westboro, MA. Get on board before the train leaves the station and support the emerging entrepreneurial effort in Metrowest.