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New Pay Data Due to EEOC by Sept. 30

Employers with more than 100 workers have to meet a Sept. 30, 2019 deadline to report detailed information on how they compensate workers – broken down by gender, race, and ethnicities – to the Equal Employment Opportunity Commission.  

The data is part of the EEO-1 form that employers have been required to file for years. There are now two components to the form: 

Component 1 – This information includes the number of employees who work in a business, broken down by category, race, sex, and ethnicity. The deadline for submitting this information was May 31. This is the same information employers have been filing for years. 

Component 2 – This newly required information includes hours worked and pay data from employees’ W-2 forms, broken down by race, ethnicity, and sex. This is due by Sept. 30. 

The second component, initiated by the Obama administration, was supposed to have taken effect in 2017, but after President Trump took office, he halted the roll-out of the rule, on the grounds that reporting such detailed salary information was a burden on companies.  

Several worker-advocacy groups filed suit, challenging the hold on the pay-data collection provisions. On March 4, 2019, a federal judge lifted the stay and ordered the EEOC to start collecting the data.  

Why does EEOC want the information? 

The EEOC says the detailed information on salaries will help its investigators determine which of the discrimination complaints that it receives merit further processing.  

The EEOC uses information about the number of women and minorities that companies employ to support civil rights enforcement and analyze employment patterns, according to the agency. 

The basics of EEO-1 

Businesses with at least 100 employees, and federal contractors with at least 50 employees and a contract of $50,000 or more with the federal government must file the EEO-1 form.  

To accommodate the new rules, the EEOC has revised the form, which will require employers to report wage information from box 1 of the W-2 form and total hours worked for all employees by race, ethnicity and sex within 12 proposed pay bands (example: $24,440-$30,679 is one band) and 10 occupation bands (like professionals, technicians or salespeople). 

Component 2 data 

Here’s what you will need to include in the component 2 data: 

  • Pay data 
    Employers must identify the number of employees (based on a combination of race and sex) that fall within each of 12 compensation bands for each EEO-1 job category. Employers will not be required to submit names or Social Security numbers for any employee.  
    To identify the compensation band in which to count an employee, employers must use Box 1 of Form W-2. Employers may not use gross annual earnings instead of Form W-2’s Box 1 earnings. 
  • Hours-worked data 
    Employers must list the total number of hours worked by employees (based on a combination of race and sex) within the same compensation band and job category. 

What to do 

The EEOC has created a web-based portal for filing the EEO-1 form along with instructions and fact sheets, all of which you can find here

The portal will remain open until the Sept. 30 filing deadline. If you have not already received login information, you can do so on the portal page. 


Small Employers Can Reimburse for Medicare Part B, D Premiums

As the workforce ages and many employers want to keep on baby-boomer staff who have the experience and institutional knowledge that is irreplaceable, one issue that always comes up is how to handle health insurance.

Once your older workers reach the age of eligibility for Medicare, under current law you can help them pay for Part B and D premiums with a Medicare Premium Reimbursement Arrangement. These types of arrangements became legal after legislation was signed into law in 2013 to help employers provide benefits to their Medicare-eligible staff.

But the issue surfaced again recently when the Trump administration came out with new guidance for health reimbursement arrangements that paves the way for employers to set up HRAs to reimburse staff for health premiums in their personal (not company group) health plans.

Anybody who is about to turn 65 has a six-month period to sign up for basic Medicare, but if they want additional coverage they can pay for Medicare supplemental coverage such as Parts B and D.

Part B covers two types of services:

Medically necessary services: Services or supplies that are needed to diagnose or treat your medical condition and that meet accepted standards of medical practice.

Preventive services: Health care to prevent illness (like the flu) or detect it at an early stage, when treatment is most likely to work best.

Part D, meanwhile, covers prescription drug costs.

The dilemma for employers has often been whether to keep the Medicare-eligible employee on the company health plan or cut them free on Medicare.

Smaller employers – those with 20 full-time-equivalent employees – have the option to open a Medicare Premium Reimbursement Arrangement for those employees if they are coming off a group health plan and into Medicare.

For small employers, it’s legal to set up an arrangement like that, as long as doing so is at the employee’s discretion. Employers are not allowed to push an employee into a Medicare Premium Reimbursement Arrangement in order to get them off the company’s health plan.

The good news for employers is that they often can reimburse their employees in full for Part B and D, as well as Medicare Supplement, and still pay less than they would pay in group employee premiums alone. 

On top of that, the employee gets a lower deductible and overall out-of-pocket experience with less, if any, premium contribution.  

What you need to know

Here’s what you should know if you’re considering one of these arrangements:

A Medicare reimbursement arrangement is one where the employer reimburses some or all of Medicare part B or D premiums for employees, as long as the employer’s payment plan is integrated with the group’s health plan.

To be integrated with the group health plan:

  • The employer must offer a minimum-value group health plan,
  • The employee must be enrolled in Medicare Parts A and B,
  • The plan must only available to employees enrolled in Medicare Parts A and B, or D, and
  • The reimbursement is limited to Medicare Parts B or D, including Medigap premiums.

Note: Certain employers are subject to Medicare Secondary Payer rules that prohibit incentives to the Medicare-eligible population.


Protect Your Firm from Hacking by Disgruntled Former Employees

While hacking by outsiders is posing a larger and more significant threat to companies of all sizes, the threat of insider jobs – particularly by disgruntled former employees – is often an even bigger one.

These attacks, carried out with malicious intent to hamstring a company’s operations, can cause serious problems. Take, for example, the following recent events:

  • A former employee of Spellman High Voltage Electronics Corp. is facing charges after strange things started happening to the company’s systems after he resigned, due to allegedly being passed over for a promotion.

Shortly after he left, employees at Spellman began reporting that they were unable to process routine transactions and were receiving error messages. An applicant for his old position received an e-mail from an anonymous address, warning him, “Don’t accept any position.” And the company’s business calendar was changed by a month, throwing production and finance operations into disorder.

The mayhem cost his former employer more than $90,000, and he was arrested. “The defendant engaged in a 21st-century campaign of cyber-vandalism and high-tech revenge,” said Loretta Lynch, the United States attorney for the Eastern District.

  • A former employee of McLane Advanced Technologies was sentenced to 27 months in prison and ordered to pay $35,816 in restitution after pleading guilty to hacking into McLane’s systems and deleting payroll files to the point that staff could not clock in and the company could not issue payroll checks.

He was upset after the company had fired him and then refused to help him obtain unemployment benefits.

  • A network engineer, who was fired by the American branch of Gucci, stands accused of breaking into the computer systems of the Italian luxury goods organization, shutting down servers and deleting data.

The New York County District Attorney’s office accuses the former employee of using an account that he had secretly created while employed by Gucci to access the network after his employment was terminated.

He has been charged with computer tampering, identity theft, falsifying business records, computer trespass, criminal possession of computer-related material, unlawful duplication of computer-related material, and unauthorized use of a computer. The intrusion is said to have cost the company some $200,000.

What you can do

With these cases in mind, there are internal steps you can take to avoid this sort of thing happening at your company.

Route all offsite access through a VPN – This can typically prevent someone from entering your system altogether. But, once you have such a system in place, all outside connections need to be logged and monitored for suspicious activity.

Test your disaster recovery plan – You need to have a disaster recovery plan in place that includes backing up data every day, just in case someone deletes it from your servers. That way, if data is deleted you can immediately switch to a back-up IT environment.

A lot of times, organizations do disaster recovery, but unless they practice the actual recovery, they don’t know if it will work, and it doesn’t matter whether they have a physical or a virtual environment. So, don’t forget to test any plans you have.

Block unapproved software – Sometimes your employee hackers will install extra software that makes it easier for them to root through your system and create havoc. You should have systems in place that do not allow anybody to install unapproved software.

Disable ex-employee accounts and passwords – Whenever an employee or contractor ceases to work at your business – or in the case of layoffs, beforehand – you must disable their network access, accounts and passwords. You should regularly review which users have access to your systems, and know that changing passwords and resetting access rights is essential when a member of your staff leaves your employment.

Think like a malicious insider – IT managers must think like an inside attacker, and identify the weak points of their infrastructure that they themselves would exploit were they so inclined. As a senior manager, you should ask your IT managers just what they are doing to thwart any possible insider attacks.

Make suspect behavior cause for concern – Watch for human-behavior warning signs, such as complaining to others about the company and a more than usual amount of time spent accessing company data on your network. Develop a response plan for when such signs get spotted.

Beware resignations, terminations – Most insider attacks occur within a narrow window. Most people who steal intellectual property or destroy systems do so within 30 days of resignation. Accordingly, keep a close eye on departing or departed employees, and what they viewed.

If someone resigns who has had access to your most sensitive company information, including trade secrets, you need to pay special attention to ensure it’s not compromised.

Marshal forces – Businesses that prepare for attacks in advance tend to better manage the aftermath. When it comes to combating cases of suspected insider threat, include human resources, management, upper management, security, legal and software engineering.


IRS Eases Access to Chronic Disease Treatment

New guidance from the IRS will help people enrolled in high-deductible health plans get coverage for pharmaceuticals to treat a number of chronic conditions.

Under the guidance, medicinal coverage for patients with HDHPs that have certain chronic conditions – like asthma, heart disease, diabetes, hypertension and more – will be classified as preventative health services, which must be covered free with no cost-sharing under the Affordable Care Act.

The background

The guidance, which takes effect immediately, is the result of a June 24 executive order issued by President Trump directing the IRS to find ways to expand the use of health savings accounts and their attached HDHPs to pay for medical care that helps maintain health status for individuals with chronic conditions.

The executive order was in response to a number of reports that have shown that people with HDHPs will often skip getting the medications they need or take less than they should because they cannot afford to foot the full cost of the medication even before they meet their deductible.

This can lead to worse issues like heart attacks and strokes, which then require more and even costlier care, according to the guidance.

The latest move is a significant step that should greatly reduce the cost burden on individuals with chronic conditions, as many of the medications they need to treat their diseases can be extremely expensive.

The IRS, the Treasury Department and the Department of Health and Human Services have listed 13 services that can now be covered without a deductible, and have promised to review add or subtract services from the list on a periodic basis, according to the guidance.

Here is the full list of the treatments, and the conditions they are for:

Angiotensin-converting enzyme (ACE) inhibitors – Congestive heart failure, diabetes, and/or coronary artery disease.

Anti-resorptive therapy – Osteoporosis and/or osteopenia.

Beta-blockers – Congestive heart failure and/or coronary artery disease.

Blood pressure monitor – Hypertension.

Inhaled corticosteroids – Asthma.

Insulin- and other glucose-lowering agents – Diabetes.

Retinopathy screening – Diabetes.

Peak-flow meter – Asthma.

Glucometer – Diabetes.

Hemoglobin A1c testing – Diabetes.

International Normalized Ratio testing – Liver disease and/or bleeding disorders.

Low-density lipoprotein testing – Heart disease.

Selective serotonin reuptake inhibitors – Depression.

Statins – Heart disease and/or diabetes.

The items above were chosen because they are low-cost, proven methods for preventing chronic conditions from worsening or preventing the patient from developing secondary conditions that require further and more expensive treatment.


Is Your Workplace Prepared for Legal Marijuana?

Christina Barbuto has Crohn’s disease, a debilitating gastrointestinal disorder. Her physician prescribed medical marijuana to treat the symptoms, as allowed by Massachusetts state law.

When she interviewed for a job that required a drug test, she informed her would-be supervisor of her condition and prescription. The supervisor assured her that this would not be a problem, and she got the job.

But, after her first day of work, a representative of her employer’s human resources department called her at home and fired her for failing the drug test.

She sued the company for discrimination, and in July 2017 the Massachusetts Supreme Judicial Court agreed, holding that a lower court was mistaken when it threw out her complaint.

For decades, employers have tried to keep their workplaces drug-free, relying on federal laws against possession of marijuana. However, in recent years more than half the states have legalized the drug for medical purposes, and several have legalized its recreational use.

This split between federal and state laws has left many employers in a quandary: How to balance their interests against those of employees who wish to use a product that is legal under state law.

Employers have responsibilities to maintain safe workplaces, and many state laws recognize that fact.

Massachusetts law specifically exempts employers from having to permit or accommodate marijuana consumption in the workplace, and it affirms their rights to restrict its use in workplaces.

Employers in all states still have the right to test their employees for drug use and take disciplinary action they feel is warranted.

However, where medical marijuana is legal and an employee has a valid prescription for it, disciplinary action against the individual could result in a claim of discrimination or wrongful termination.

State courts have been inconsistent on these claims. The employee won the above-mentioned case, while a 2008 California Supreme Court decision reached the opposite conclusion.

Some states, such as New York, protect medical marijuana users from discrimination. Employers with operations in multiple states should verify what protections, if any, those states require. They should also make an effort to stay current on changes to the law and court decisions.

Policy changes employers can make
Some employers, particularly in those states where recreational use is legal, may choose to take a more flexible attitude toward the drug. Here are some changes you may want to consider making to your policy:

  • Define the specific terms in the policy, such as “work hours,” “cannabis use” and “under the influence.” Marijuana can be eaten in baked goods as well as smoked, so the meaning of “use” should be clear.
  • Specifically explain your procedures for investigating and the penalties for using the drug.
  • Require employees who want protection under the Americans with Disabilities Act to self-disclose their use, and protect them from reprisal.
  • Differentiate tests for other drugs, such as cocaine, from tests for marijuana.
  • Have a program to refer employees with drug abuse problems for medical treatment.
  • Educate employees on the health issues of marijuana use and the effect it can have on work performance.

Whatever policy an employer decides to implement, it should be communicated clearly to all new and current employees during orientation and staff meetings. The policy should be enforced consistently and impartially to avoid allegations of favoritism or discrimination.

The legal landscape around marijuana use is changing rapidly. With thoughtful and well-communicated policies, employers should be able to keep their workplaces safe and sober while adapting to the changes.


The Costliest Claims for Catastrophic Conditions and the Drugs Used to Treat Them

A new report by Sun Life Insurance Co. highlights the top high-cost claim conditions that plague the U.S. health care system and account for more than half of all catastrophic or unpredictable claims costs.

The top 10 costliest claim conditions comprised over half (51.8%) of the $3 billion that Sun Life reimbursed to stop-loss policyholders from 2014 to 2017.

Stop-loss insurance (also known as excess insurance) is a product that provides protection against high-cost claims. It is purchased by employers that self-fund their own health plans, but do not want to assume 100% of the liability for losses arising from the plans.

The “2018 Stop-Loss Research Report,” which Sun Life has been publishing annually for the past six years, provides a glimpse into the kinds of claims that can have an outsized effect on both insured and self-insured employers’ health plans, and can drive overall expenditures.

Here are some of the other main highlights from the study:

  • Cancer treatment costs comprised 27% of all stop-loss claim reimbursements between 2014 and 2017.
  • The number of health plan enrollees that had claims costing more than $1 million increased by 87% during the four-year study period. In 2017, this group comprised 2.1% of claims but accounted for 20% of all stop-loss claims reimbursements.
  • The aggregate costs of injectable drugs that were part of claims that cost more than $1 million grew 80% from 2014 to 2017.

The most expensive catastrophic claims and the amounts Sun Life paid out in the aggregate between 2014 and 2017 are as follows:

  • Malignant neoplasm (cancer) – Total paid out: $564 million (a portion of total catastrophic claims: 19%)
  • Leukemia, lymphoma, and/or multiple myeloma (cancers) – $235 million (8%)
  • Chronic/end-stage renal disease (kidneys) – $153 million (5%)
  • Congenital anomalies (conditions present at birth) – $115 million (4%)
  • Transplant – $103 million (3.5%)
  • Septicemia (infection) – $88.5 million (3%)
  • Complications of surgical and medical care – $78 million (2.5%)
  • Disorders relating to short gestation and low birth weight (premature birth) – $74 million (2.5%)
  • Liveborn (short gestation/low birth rate, and congenital anomalies) – $69 million (2%)
  • Hemophilia/bleeding disorder – $68 million (2%)

Injectable drug costs

Injectable drugs (which include those delivered by IV or that are self-administered injectable medications) accounted for 8.5% of the total paid out for high-cost claims.

But that’s just the average for the four-year period. Injectable drugs are accounting for a greater share of overall catastrophic claims costs, reaching 9.3% in 2017.

In 2017 alone, 418 drugs contributed to the total $186.3 million that was spent on injectable medications for high-cost claims. But, 62% (or $114.7 million) of the cost was attributed to the top 20. The top five medications accounted for nearly 30%.

Please note that the injectable drugs on the high-cost list are there for different reasons. Some are on the list because of the frequency (how often they are used and how many patients are given the drugs) that they are administered, and others are there because their cost is extremely high.

As an example, the report points to the two top injectable treatments – cancer drugs Yervoy and Neulasta.

Neulasta (used to reduce the chance of infection in patients undergoing chemotherapy) was administered to 354 patients and cost on average $33,800 per dose.

On the other hand, Yervoy, used to treat melanoma that has spread or cannot be removed by surgery, was administered to just 43 patients, but the cost per dose was $323,000.


Off-the-clock Work Ban Can Save You from Legal Troubles

Wage and hour lawsuits are on the rise, usually with non-exempt employees claiming they weren’t paid either for overtime or for work they may have performed before or after their shift.

But, if you have ironclad policies in place, you can greatly minimize both the chances of being sued and also losing the case.

One California case illustrates how one employer, thanks to its policies on prohibiting work off the clock, was able to avoid a trial and payment of damages after an appeals court threw out a potential class-action suit by employees claiming they hadn’t been paid for overtime work for which their employer lacked knowledge.

The California Appellate Court dismissed the case, Jong vs. Kaiser Foundation Health Plan, finding that Kaiser could not be held liable for overtime pay because:

  • The company explicitly prohibited off-the-clock work;
  • The employee worked off-the-clock contrary to this policy; and
  • The employer had no actual or constructive notice of the employee’s unapproved off-the-clock work and, thus, could not be liable.

This case illustrates the importance of putting your off-the-clock policy in writing and following through with consistent enforcement.

The case

In 2009, Kaiser reclassified its outpatient pharmacy manager (OPMs) as non-exempt as part of a settlement of an earlier lawsuit in which it had been accused of improperly classifying OPMs as exempt.

After Kaiser had reclassified its OPMs, three OPMs filed suit, alleging that Kaiser refused to pay overtime and that it had not adjusted the responsibilities of OPMs so that they could perform their jobs in 40 hours a week.

OPMs were also required to hit budget targets and Kaiser had disciplined one of the OPMs for going over budget, partly due to overtime that he reported and was paid for. In the lawsuit, the OPM asserted that Kaiser knew or should have known about the off-the-clock hours that he worked and therefore should have paid the unreported overtime.

In dismissing the lawsuit, the court cited the plaintiff’s deposition that he was aware of Kaiser’s overtime rules, including that it would pay for overtime work even if it had not been pre-approved. The OPM had also signed an affirmation acknowledging that off-the-clock work was prohibited.

During his deposition, the OPM also said that he wasn’t sure if any of his managers knew he was working off the clock. He also had not recorded his off-the-clock work and didn’t know how many hours he’d worked off the clock.

The takeaway

This case illustrates the importance of having strong and well-documented policies, including procedures for requesting approval for overtime as well as a prohibition on off-the-clock work.

Kaiser was granted case dismissal thanks to its explicit policies on off-the-clock work and that it had required its employees to sign an acknowledgment that they would not work off the clock.

You may want to consider instituting policies and procedures that are similar to Kaiser’s if you want to avoid any off-the-clock work complaints. Its policies were:

  • All non-exempt employees will be paid overtime for all overtime hours recorded.
  • All non-exempt employees should be clocked in whenever they are working.
  • All non-exempt employees must request approval to work overtime.
  • All non-exempt employees are required to sign an attestation form acknowledging that they will not work off the clock.

You should review your wage and hour policies with an employment attorney and implement policies and procedures that can keep your firm from being sued by employees for overtime, meal break, and off-the-clock violations.

Your last line of defense should be an employment practices liability policy. For more information on such coverage, call us.


Make Sure Your Safety Equipment Fits Women on Your Team

Perhaps you remember the embarrassing scenario for NASA in early 2019, when the space agency was forced to cancel its first-ever all-woman spacewalk because they didn’t have two suits on the International Space Station that fit them. While most people were shocked, women in professions that require them to wear personal protective equipment (PPE) know the challenges they face in getting equipment that fits properly. The problem has really come to the fore as more and more women enter professions that have traditionally been jobs that men gravitate towards. For example, nearly 10% of construction jobs in the U.S. are now held by women. It’s not uncommon for women in those types of work to have to use equipment that is made for men, forcing them to don overalls, gloves, vests, footwear and more that are too large,If you have jobs that require specialized protective equipment, now is the time to also make sure that you have items in smaller sizes if you have women on your team. It may not always be easy to find everything in smaller sizes. It’s usually not too difficult to find protective shoes in women’s sizes, but coveralls and tools for smaller hands are rare. Getting the right fit for your workers is imperative because loose-fitting items can lead to accidents that cause injuries or worse, especially if loose coveralls get caught in machinery. Items that you should consider having in smaller sizes include:

  • Safety glasses
  • Hard hats
  • Protective shoes
  • Coveralls
  • Safety harnesses
  • Safety gloves
  • Ear plugs

You should also not ask your female workers to take shortcuts, like rolling up sleeves or pantlegs that are too long. If they are rolled up, they’re not providing protection to parts of the arms and legs, experts say. And it’s not just women who are small. Clearly, many men are also smaller than average, and they often have the same issues with ill-fitting protective equipment as women do. The problem is that most employers that buy protective equipment for workers order it in bulk, and they will usually opt for large or extra-large sizes.

Apply standards uniformly

If you have women in your workforce, you should apply the same standards to their PPE as you do for men. To make sure that you have equipment that fits all of your workers:

  • First, talk to your employees and ask them to give honest assessments of how the PPE they have been issued fits.
  • Don’t ask women to wear equipment that is too large. It can create a safety hazard and may not protect them properly.
  • Don’t alter equipment yourself. Safety equipment is manufactured to provide safety if it fits properly. Altering the equipment can make it unsafe and noncompliant with safety standards.
  • Don’t criticize, ignore or retaliate against employees who report ill-fitting PPE.
  • When selecting safety equipment, consult with your employees to make sure you order items that will fit them.
  • Provide the same range of sizes for women as for men and ensure that suppliers have properly assessed the appropriateness of their equipment to women and men.
  • Require your workers to try on different sizes of equipment before choosing the ones that fit best.

New Health Savings Account, HDHP limits for 2020

The IRS has announced new health savings account contribution maximums for the 2020 health insurance plan year.

Employees who have an HSA linked to a high-deductible health plan (HDHP) will be able to contribute to their HSA up to a certain level to help pay for health care and pharmaceutical expenses.

Funds going into your employees’ HSA accounts are deducted before taxes during each paycheck and the balance can carried over from year to year.

Many HSAs also allow employees to invest the funds like they would with a 401(k). Because of this, HSAs have become a savings vehicle of sorts for people who are saving for health care expenses they are expecting in retirement.

HSAs can only be offered with an attached HDHP.

If you as an employer also contribute or partially match your employees’ contributions, they benefit even more, especially when compounding investment returns build up in the long term.

The IRS adjusts contribution limits for HSAs yearly based on inflation. For 2020, those limits will be:

  • $3,550 for individual coverage under an attached HDHP (up $50 from 2019).
  • $7,100 for family coverage (up $100 from 2019).

Also, remember that individuals who are 55 or older can make an additional $1,000 in catch-up contributions.

Besides the contribution maximum increasing, the deductible requirement for an attached HDHP will also climb for 2020:

  • For individual HDHPs, the deductible amount must be between $1,400 and $6,900. That’s compared with $1,350 and $6,750 in 2019.
  • For families, the range is $2,800 to $13,800. That’s up from $2,700 and $13,600 in 2019.

Long-term benefits

One of the best benefits from an HSA is the long-term advantage of being able to carry over balances year after year and let it build up for medical expenses in retirement. But, one of the key points that your employees should know is that if they use the funds in their HSAs for purposes other than qualified medical expenses, they have to pay a 20% penalty.

The website Investopedia recommends that your employees:

  • Max out their HSA contribution each year. If they do so, the amount they can save over the long term only grows through compounding.
  • Hold off on spending contributions now, and try to not use HSA funds for current medical expenses.
  • Make sure they only use the money for qualified medical expenses, so they don’t have to pay penalties of 20% plus regular income tax on their withdrawals.
  • Invest contributions for the long run. For example, if you’re currently invested in a mix of 80% stocks and 20% bonds, you should probably invest your HSA that way, too.
  • Use the account once they’re 65 or older. An added benefit to waiting until you’re at least 65 to spend your HSA balance is that the 20% penalty for withdrawing funds for purposes other than qualified medical expenses doesn’t apply. But, you will have to pay income tax if you don’t use the funds for qualified medical expenses.

Lawsuits Grow for Incidents from Providing Professional Services

People often think of professional liability insurance as something only doctors and lawyers need. The truth is that anyone in any profession can be sued for making bad decisions.

Standard business general liability insurance policies do not cover liability for professional mistakes. They will not cover errors that cost someone else money without causing bodily injury to them or destroying their property.

Occupations that may not at first blush be considered “professions” may still be at risk of lawsuits for acts they have or have not committed. Here are some examples:

  • An ebook publisher issues a collection of short stories. The editor is unaware that one of the stories had been previously published in an online magazine, which still holds the rights to it. The magazine publisher sues the ebook publisher for copyright infringement.
  • A developer of customer relationship management software customizes a system for a large client. The system includes several plug-ins, one of which contains a few lines of code that exploit vulnerabilities in the client’s network. The network is hacked, resulting in substantial costs for notifying customers, credit monitoring, and penalties. The client sues the developer.
  • Prior to granting a mortgage on commercial development, a lender asks a property appraiser to determine its value. The purchaser of the property goes bankrupt a year later, and the lender forecloses. The lender learns that the property’s value is well below the figure the appraiser determined; selling the property will not recoup the amount of the mortgage. The lender sues the appraiser for the error.
  • A website publishes several photos of a prominent politician in intimate embraces with a person who is not that politician’s spouse. The politician’s friend sues the website for invasion of privacy.
  • An interior designer, planning a new wing for a hospital, orders more than $100,000 worth of workstations, chairs, tables and other furniture. The person placing the order makes a typo when entering the tables’ product number. The tables that arrive do not fit the space. The designer must order new ones, resulting in extra expense, a delayed opening for the wing – and a lawsuit.
  • Owners hire a contractor to renovate an old building that they plan to use for a new microbrewery. The project’s cost initially stays under the contractor’s estimate. But, the owners find that the capacity of the water filtration system is less than the contractor promised. The system has to be upgraded at an additional cost of $30,000. The owners sue the contractor.
  • A loan broker makes several commercial equipment loans on behalf of one finance company. The company finds out that half of the loans did not meet its lending guidelines. Some of them become non-performing, and the lender seeks $300,000 from the broker for the unpaid amounts.

The takeaway

All kinds of businesses can be sued for their mistakes. Even if they acted appropriately, they still must hire lawyers to defend themselves. For these reasons, professional liability insurance, more commonly known as errors and omissions (E&O insurance), can be vital to the survival of their operations.

E&O insurance can cover the cost of defending your company in a civil lawsuit and certain damages awarded, even if the legal action turns out to be groundless.

E&O insurance is required by law in some areas for certain kinds of professional practices, especially medical and legal, where it is more commonly called malpractice insurance. This type of protection is not part of your general liability insurance or homeowner’s insurance.


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