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Monthly Archives: May 2016

Pollution Liability Insurance

polluted riverPollution and environmental conditions are growing exposures for many businesses, exposures that are not covered under standard insurance policies. A steadily increasing focus on the environment paired with an expanding list of known pollution sources have led to many recent costly law suits that companies never saw coming. Due to the unknown nature of many environmental conditions, a pollution claim can arise at any time, for nearly any type of company, and the cost could prove devastating.

Luckily, pollution insurance is available as a separate policy to protect companies from the risk of environmental conditions and cover the many potential costs of those exposures.

History of Pollution Insurance

Environmental insurance products date back to the mid- to late-1980s, and have evolved since then to keep pace with changing trends, new exposures and greater coverage needs. The first policies, known as pollution legal liability insurance, covered third-party bodily injury, property damage and cleanup cost claims that resulted from the offsite release of environmental contaminants from the insured’s property. These policies, though better than nothing, had obvious shortcomings: they didn’t cover any claims resulting in on-site contamination, and they didn’t cover any first-party cleanup costs.

The early 1990s brought expansions to pollution policies as they began to cover claims for on-site contaminant releases and claims for first-party cleanup costs due to a newly discovered environmental condition. Most carriers did limit this first-party coverage to cleanup costs that the site owner was legally obligated to pay, such as staying in compliance with local, provincial or federal standards.

In addition, newer pollution policies cover site owners for the entire lifespan of a property—from “cradle to grave” (as long as the owner has coverage throughout this entire period). This lifespan begins when the property is acquired, lasts throughout its useful purpose and ends when the property is abandoned or sold—because the property owner could be liable for environmental exposures during any phase of the property’s lifespan.

Many of the recent pollution policies also include previously known exposures, such as asbestos, lead-based paint or specific contaminant levels that were previously below legal standards. Such known exposures used to be widely excluded.

Pollution Policies Today

Currently, there are several types of pollution coverage available, and most policies are customizable to fit a company’s unique risks and exposures. They often offer ancillary coverage options too, such as contamination during the transportation of goods.

Who is Covered?

Traditional pollution policies covered only the site owner, but today, many parties could be liable for environmental conditions. During the sale of a property, both the seller and purchaser could have potential liability. They could address this shared liability somehow in their contractual arrangements, but both could protect themselves with a type of pollution coverage.

Lenders whose loans are backed up by actual real estate also face a potential liability if they foreclose on a property and then an environmental condition is discovered. Not only will this make the value of the property plummet, but the lender would then be responsible for the costs of the pollution. Lender liability coverage was created to protect lenders from this unique environmental risk.

The tenant of a property, whether the owner or renter, also faces liability for pollution claims, particularly if their business operations or personnel caused the pollution.

Why Purchase Pollution Insurance?

The risk of pollution may seem obscure, but it is one that could arise at any time. New forms of pollution and contamination are frequently being discovered, often with the result of a large (and generally successful) lawsuit due to third-party bodily injury or property damage.

In addition, due to the widely variable and uncertain nature of environmental and pollution factors, this risk is an economically uncertain liability—but one that could be financially disastrous. Costs could exceed even the value of the property itself. Many risk managers feel more comfortable paying a fixed amount in premium than gambling with potentially catastrophic costs in the future.

Potential costs are so high because there are many aspects to pollution exposures. For instance, a third-party claim could include bodily injury, property damage and/or hefty cleanup costs, both for contaminants that travelled off-site or were released onsite. Plus, the company would be responsible for the court costs associated with defending itself. A first-party situation arises when a company experiences a spill or contamination situation that that requires cleanup, often due to a violation of local, provincial or federal environmental standards. In both of these instances, business interruption is also a consideration, as any cleanup could be time-consuming as well. Pollution insurance can cover all of those exposures.

In addition, pollution insurance can help a property transaction go quicker. If an environmental condition exists prior to or during the sale of a property, the process can be dragged out while the condition is cleaned up. Even if no known condition exists, environmental tests and investigations to find potential pollution sources can be lengthy. A pollution insurance policy can help the sale move because the buyer knows an existing environmental condition would be taken care of, without needing to hold off the sale until that point.

Pollution policies tend to be flexible, making it easier for businesses to tailor their coverage to fit their company’s particular exposures. The experts at ALIGNED Insurance Inc. can help you find the right policy for your company.

What Qualifies as a Pollution Source?

There are countless possible pollutants, environmental conditions and contaminants in any building or property, and more could be discovered at any time. Many claims that insurance companies classify as pollution-related are ones that you may think would be covered under your commercial general liability (CGL) policy. Due to the sweeping pollution exclusion on these standard policies, you may find yourself surprised when a claim is classified as pollution and not covered.

The following are just a sampling of possible pollution exposures that may affect your company:

  • Chinese drywall (defective drywall containing unsafe levels of sulphur that has been released into the air)
  • Toxic mould, fungus or other bacterial contamination
  • Silt runoff from construction sites into public water sources (liability for both contractor and property owner)
  • Certain green construction techniques that can cause unforeseen pollutants
  • Nanotechnology
  • Asbestos
  • Lead-based paint
  • Any contaminants or chemicals that could be released into the air or public water supply (this list could be endless, including solvents, degreasers, paints, cleaning products, fuels, pesticides, herbicides, etc.)
  • Aboveground or underground storage tanks
  • Improper waste disposal (including medical waste)
  • Building or car exhaust/fumes
  • Malfunctioning of HVAC or ventilation equipment
  • Malfunctioning, crumbling or leaking of older buildings and pipes, causing contamination

 

Conclusion

Pollution is an unpredictable, costly exposure that your business needs to consider as part of its risk management program. While a lot of pollution-related incidents can be prevented, there is always the possibility for an unexpected spill, contamination or environmental condition to occur or surface. That is why pollution insurance is absolutely vital to protect your company.

 

©  Zywave, Inc. All rights reserved.


The Fake President Fraud

CThe “fake president fraud” is a type of scam in which a criminal posing as a company executive convinces an employee to voluntarily transfer a large sum of money directly to the criminal’s account. It may be hard to imagine that any of your employees would authorize a wire transfer to an unknown account, but law enforcement officials have seen a marked rise in the occurrence of this scam over the past several years.

What’s especially dangerous about this particular type of fraud is that many companies—even those with both crime and cyber policies—might not be covered unless they have a social engineering fraud endorsement on their crime policy. Read on to better understand how the scam works and what you and your employees can do to mitigate the risks.

Understanding Social Engineering

The scam’s success relies on criminals using something called “social engineering.” Social engineering refers to tactics that exploit common psychological weaknesses and preconceived notions about authority and social relationships to make people engage in certain behaviours. Often, that means exploiting patterns of behaviour that are automatic and subconscious, so that victims might not even realize what they’ve done until after the fact.

Because social engineering relies on exploiting your employees’ assumptions and subconscious thought patterns, it can be hard to recognize unless someone points it out. That’s why the best way to defend your organization is to learn how a scam works and educate your employees about it.

How Does the Fake President Fraud Work?

The fake president fraud may vary in some of its details, but it always contains four major elements.

  1. The “president” makes contact. Someone posing as a high-level executive in the company—often the president, CEO or CFO—will reach out to the target employee. This contact often occurs via email, either from a domain that is deceptively similar to the company’s actual domain, or via a “personal account.”
  2. The “president” asks for a wire transfer. The “president” asks the employee to wire a large sum of money to a foreign bank account. The employee might be told that the money is for a host of seemingly legitimate purposes (recent acquisitions, paying off debts, paying vendors, etc.).
  3. The “president” pressures compliance. At this point, many employees may question the unusual request or the break in typical company protocol. That’s when the “president” deploys psychological pressure on the employee to accept the scenario as genuine and comply with the request. Those pressures can rely on a number of different factors, including the following:
    • Authority: The criminal will emphasize his or her rank to convince the employee. This offers the criminal many options, such as using that authority to intimidate the employee or preying upon the employee’s desires to impress a superior.
    • Time pressure: Criminals will often claim that the transfer is an urgent matter, forcing the employee to ignore typical protocol and eliminate the chance that he or she might disclose the transfer to another party or verify the information before making the transfer.
    • Secrecy: Often deployed in conjunction with time pressure, the “president” may emphasize that this deal must remain secret for strategic or legal reasons. Having the employee “in” on the secret can make him or her feel special and thereby increase the chance that the transfer will go through.
  4. The employee makes the transfer. The employee contacts the bank, and the bank then makes the transfer. Even if it is unusual, the bank will transfer the funds to the account if the employee making the request is authorized to do so.

Why This Scam is NOT Covered by a Cyber Policy

This scam bears similarities to certain cyber scams, like spear phishing. Insofar as both kinds of scams involve sending emails targeted to specific employees, the tactics are similar. However, there are some crucial differences.

Spear phishing targets an employee in order to convince him or her to open an email or click a link, which downloads malicious code onto the employee’s computer and allows the criminal to access the company’s network. With phishing scams, the crime is an unauthorized data breach, and, as such, the exposure would be addressed by a cyber policy.

By contrast, in the fake president fraud, the employee willingly authorizes a wire transfer to the criminal’s bank account. Even though the crime was initiated via email, the fundamental criminal act is fraud, not data breach, and will not be covered by a cyber policy.

Mitigating Risks

There are a number of things companies can do to reduce the risk of falling victim to such a scam. These include the following.

  • Educate Employees. It’s essential that all employees—especially those who are authorized to make wire transfers—are aware of the scam and how it works. Ultimately, this scam works by preying on a number of psychological blind spots, including ignorance. Combat that by making your employees aware of the risk and diligent about company procedure.
  • Demand Adherence to Protocols. Your company should have protocols for authorizing the transfer of funds. Reinforce the importance of adhering to these protocols.
  • Verify Identities. This can be especially important if employees have infrequent contact with C-suite executives or if requests are frequently made remotely. Establish guidelines for independent means of verification if requests fall outside of established protocols or if timelines must be accelerated.

Make Sure You’re Covered

Insurance solutions for the fake president fraud are available, but they often come in the form of a specific endorsement on a crime policy.

© Zywave, Inc. All rights reserved.


Common Exposures All Airbnb Hosts Should Consider

apartments_holiday_sunIn today’s technologically advanced world, individuals have a unique opportunity to efficiently rent out their home, spare bedroom or other accommodations through Airbnb, an online hospitality company.

For travellers, Airbnb is a convenient platform that provides affordable and flexible alternatives to hotels. For property owners and tenants, the service easily connects various rental units with perspective occupants and makes collecting payments simple and secure. For the average homeowner, properties or spare rooms that are otherwise vacant can easily be transformed into a source of income.

Despite its convenience and the potential for profit, Airbnb is not without its risks for those who decide to list accommodations.

Potential Insurance Gaps

If you are considering renting your property through Airbnb, your first step should be to contact your insurance broker to review your current homeowners or renters insurance policy. Relying strictly on such policies while hosting guests through Airbnb can lead to significant gaps in coverage and leave you financially vulnerable.

While your homeowners or renters policy may allow you to rent your property to a guest, it is important to keep in mind that each insurer has their own restrictions and requirements. For example, some insurers may require advanced notice of any short-term rental, whereas others might insist that you purchase an endorsement to broaden your coverage.

Standard homeowners and renters insurance policies are designed for personal risks, not commercial use. If you plan to rent out your residence on a regular basis, many insurance companies will consider this commercial use. In many cases, regular Airbnb hosts will need to obtain a commercial insurance policy to be properly insured. It should be noted that a growing number of insurance companies now offer home-sharing liability insurance policies that can be purchased on a month-to-month basis.

Even more alarming, your homeowners or renters policy most likely won’t consider damage to your property caused by guests a covered peril. This means you could be left to cover the cost of property damage caused by Airbnb guests.

Issues with Airbnb Provided Protection

To their credit, Airbnb does offer its hosts two forms of protection through their Host Guarantee and Host Protection Insurance. While hosts may be inclined to rely exclusively on these programs to manage their risks, there are significant gaps related to these offerings.

Host Guarantee

Airbnb backs every one of its bookings with its Host Guarantee program at no cost. Airbnb claims that this program will reimburse eligible hosts for damages up to $1,000,000. However, Airbnb readily admits that its Host Guarantee is not insurance and should not be considered a replacement or stand-in for homeowners or renters insurance.

Moreover, payments through the Host Guarantee are subject to a lengthy list of terms, conditions and exclusions. Therefore, hosts should be aware of the following issues related to Airbnb’s Host Guarantee:

  • Hosts must attempt to resolve any issues with the guests involved prior to receiving any compensation. This also means that a host would have to make a claim on their own insurance policy before Airbnb would intervene.
  • Any sum collected from a standard policy or a security deposit would be deducted from the Host Guarantee.
  • The guarantee will only repair or replace covered property that is damaged during the timeframe of an online booking.
  • This guarantee does not cover certain items including, but not limited to, cash, collectibles, jewellery, pets, watercraft or any damage to property that is not considered a covered accommodation.Host Protection Insurance
  • In addition to its Host Guarantee, Airbnb offers coverage to its patrons through its Host Protection Insurance. Airbnb indicates that the program provides primary liability coverage for up to $1,000,000 per occurrence in the event of third-party claims of bodily injury or property damage. Despite Airbnb’s claims, hosts should be wary of relying solely on this insurance program for a number of reasons:
  • For more information on specific elements of Airbnb’s Host Guarantee, hosts can review its terms and conditions in full here.

Host Protection Insurance

In addition to its Host Guarantee, Airbnb offers coverage to its patrons through its Host Protection Insurance. Airbnb indicates that the program provides primary liability coverage for up to $1,000,000 per occurrence in the event of third-party claims of bodily injury or property damage. Despite Airbnb’s claims, hosts should be wary of relying solely on this insurance program for a number of reasons:

  • Intentional acts that aren’t the result of an accident are not covered under this policy. In addition, Airbnb’s Home Protection Insurance does not cover what they refer to as property issues, which can include things like mould, asbestos and bedbugs.
  • Neither Airbnb’s Home Protection Insurance nor its fine print is readily available for review. What’s more, the policy is subject to limitations, conditions and exclusions. Together, this means that specifics around coverages are vague, and Airbnb hosts may not know what’s protected.
  • The personal property of any guest is generally not covered. Additionally, any theft or damage caused by a guest may not be covered either.
  • With Airbnb’s Host Protection Insurance, it’s best to assume that you aren’t equipped with the proper coverage. For full protection, it is likely that you will need to speak with an insurance professional to better understand the policy adjustments you will need in order to be fully covered.

Considerations for Condo Owners and Renters

While Airbnb opens its services to condo owners and renters, multi-unit buildings often have restrictive bylaws, homeowner association rules or lease terms that could impact one’s ability to host guests through Airbnb.

In many instances, commercial activities like renting out accommodations—even for short period of time—are forbidden by lease or condo board policies. In some cases, hosts will need to contact their landlord or condo board before subletting or renting any accommodations out. Failure to do this can result in eviction or other forms of legal action.

Even if you are allowed to rent out your condo or apartment through Airbnb, hosts should be aware that doing so can cause tension with neighbours. There’s the potential that your guests may not be respectful to property in common areas, act inappropriately or noisily, or make other tenants feel uncomfortable.

Local and Provincial Laws Considerations

In response to the rising popularity of Airbnb, many provinces, cities and towns are moving to regulate short-term property rentals through their municipal codes or zoning regulations. In some cases, home rental services like Airbnb could be prohibited altogether.

If you break these local regulations, purposely or otherwise, you could face thousands of dollars in fines. What’s more, Airbnb says alignment with laws and regulations is the responsibility of those renting out accommodations. Accordingly, it is imperative to review local laws and regulations before you commit to using Airbnb to rent out accommodations.

Tax Considerations

Income from all sources is taxable in Canada, including internet-sourced rental income. Consequently, any income derived from Airbnb rentals must be reported to the Canadian Revenue Agency (CRA).

Depending on number and nature of the services provided to guests, the CRA will consider money earned through Airbnb either rental or business income. Furthermore, if the income you make from Airbnb exceeds $30,000 per year, you will most likely have to register for a harmonized sales tax (HST)/goods and services tax (GST) account through the CRA and will be subject to the applicable taxes. Provincial sales taxes (PST) will vary from province to province.

For those who have already earned unfiled income through Airbnb, coming forward through Canada’s Voluntary Disclosures Program (VDP) is recommended. Through the VDP, penalties for unfiled back taxes will be forgiven.

For more information on the tax implications of Airbnb and to ensure compliance, hosts are encouraged to contact a tax professional or the CRA.

The Bottom Line

While Airbnb offers a unique and potentially profitable service to users, it’s not without its faults. Before you decide to try it for yourself, be sure to consider all of the risks.

Again, you’ll want to minimize potential financial fallout by purchasing the appropriate insurance coverage. To discuss your options further, have your insurance broker contact ABEX today.

© Zywave, Inc. All rights reserved.


Why You Need a Business Continuity Plan

three_business_men_186774For businesses, disaster can strike at any time and can be caused by a variety of sources. Each year, companies face the potential of natural disasters, accidents, sabotage, power failure, cyber attacks and a variety of other major disruptions—all of which can cost both time and money. That’s why business continuity planning is important for companies both large and small.

Business continuity planning is the process of creating a response plan so that you will be able to recover the most vulnerable parts of your company after a business interruption occurs. Businesses with strong continuity programs are more resilient in the face of emergencies and disasters.

Despite growing evidence that preparation is key to surviving a business emergency, only about 60 per cent of large businesses and 43 per cent of small business have a business continuity plan in place.

A business continuity plan, if implemented and maintained, can be the difference between successfully recovering from a business interruption and going out of business.

To create a plan, you must first assemble a team of leaders and senior management who can help lead the planning efforts. From there, it’s critical that you follow the four major steps below to create a continuity plan:

    1. Identify threats or risks. To properly prepare for disruptions, it’s important that you first recognize the most common threats to your business. Most often, threats include natural disasters like tornadoes and earthquakes, malicious attacks and system failures.
    2. Conduct an impact analysis. Following a disruption, knowing which people, vendors and programs are vital to your everyday operations is important for continuity planning. Your plan should identify these items and prioritize them. That way, following a disruption, you can quickly react and restore your most critical functions immediately.
    3. Adopt mitigation controls. After you understand the major risks facing your business, you can put systems in place to protect yourself. Your continuity plan should account for this by including emergency response, public relations, resource management and employee communications planning.
    4. Improve your plan. Continuity plans should evolve with the risk landscape. As your company grows and new threats emerge, you will need to consider tweaking your continuity plan to meet your needs. If possible, test your plan at least annually to ensure that there are no major gaps.

 

© 2016 Zywave, Inc. All rights reserved.


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