Director’s and Officer’s Insurance Coverage – The Basics

Lawsuits against corporate officers and those who serve on the boards of corporations – both for profit and tax-exempt – are rising sharply. According to a 2011 study by Towers Watson, nearly 7 out of 10 publicly traded companies had a shareholder suit against the Board of Directors in the last ten years. Private companies weren’t exempt either: More than one privately-held corporation in five reported a lawsuit against the board over the last 10 years.

These lawsuits can come from any direction: From shareholders themselves, from executives or former executives, from disgruntled middle managers and employees, both current and former, and from public interest groups.

Anyone who serves on the Board of Directors is a possible target for a variety of lawsuits and complaints about their conduct – particularly if the public or if plaintiff’s attorneys perceive them to have “deep pockets.”

This can lead to devastating consequences for board members and directors who are unprepared: While corporations typically protect stockholders against personal liability arising from claims against the corporation, board members can be and are held personally liable for the consequences of their behavior as directors, both intended and unintended. Examples of common claims against directors include, but are not limited to:

 

  • Violations of fiduciary duty to stockholders
  • Failure to provide services
  • Failure to disclose conflicts of interest
  • Discrimination claims
  • Mismanagement of company or organization assets

… and much more.

Even where claims are unfounded, directors often find the costs of mounting a defense to be a significant burden on their personal finances, running to hundreds of thousands of dollars in some cases. On average, these lawsuits cost defendants over $308,000 each.[1] Most board members don’t even know where to find the best attorneys for their own defense.

History of Directors and Officers Insurance

D&O insurance was first sold by Lloyd’s in the 1960s, though it didn’t become popular until the 1980s, when plaintiff’s lawyers made a cottage industry of targeting board members involved in a slew of mergers and acquisitions that had been occurring over the previous decade.

Basic Structures

Today, the there are three basic kinds of D&O coverage on the market. The variety you want depends on the structure of your organization, your role in it, and the management and other liability coverages already in place.

 

  • Side-A.  This kind of policy covers directors and officers who are not indemnified by the corporation. Essentially, this is individual coverage.

 

  • Side B. This coverage protects a corporation when it indemnifies directors and board members. Under this structure, the company agrees to take on the risk normally borne by individuals on the board, and then protects itself against that risk by purchasing Side B. coverage.

 

  • Side C. This kind of policy covers claims brought specifically under securities laws. It would be appropriate only for publicly-traded companies and some very large privately held companies. Smaller companies may wish to purchase “entity coverage” which provides somewhat broader protections.

 

Individual board members can also purchase a Broad Form Side A DIC (Difference in Conditions) policy, to supplement any Side A coverage in place, and to fill the gaps in coverage already in place between Side A and B.

If you own or are on the Board of a corporation, D&O insurance is a must. Just finding the right attorney can be a daunting challenge to those who aren’t experts in director liability litigation. With D&O insurance in place, you can limit your liability and risk with just a small premium.

D&O Carriers are experienced at managing and limiting claims – frequently protecting your professional reputation at the same time.

Application

In the United States, D&O insurance is generally purchased by the corporation to protect both itself and its directors and officers, rather than as an individual purchase by the directors themselves. Corporations do this in order to ensure that they are attracting the most qualified people to serve in these crucial positions. Many top professionals in most industries would not agree to serve on a Board of Directors or as a corporate officer unless the corporation agreed to put this protection in place.

Claims-Made vs. Occurrence Provisions

One of the central provisions that differentiate policies is whether the policy will provide protection for claims made for actions or omissions that began before coverage was in place. For example, a board member commits a tort, allegedly, in 2013. In 2014 the company switches D&O coverage or initiates coverage. In 2015 the tort is discovered and someone sues the director or directors, or the officers or both. A claims-made policy provides protection if the lawsuit is filed while coverage is in place. An occurrence policy pays benefits based on when the accident or omission leading to the lawsuit took place. The kind of policy that is best for you depends on the structure and type of coverage that was in place before.

Additionally, you may want to purchase an extended reporting period, or ERP, to keep coverage in place after a policy is cancelled. This provides coverage for events that may have already taken place, but for which no lawsuit has yet been filed.

The transition from one type of carrier to another is often tricky, and some important coverage decisions need to be made. Your agent should be able to walk you through how to coordinate current and prior coverages to avoid gaps in protection.

Exclusion of Criminal Acts

D&O insurance is very closely related to errors and omissions insurance, which is often purchased by professionals such as attorneys, financial advisors, accountants and other white collar, licensed individuals. As such, it does not cover intentional criminal acts, such as embezzling or fraud. Generally, however, policies do cover other acts considered “wrongful” including misstatements or omissions made while working on behalf of the organization. Look carefully at covered acts and exclusions while shopping for policies: The best deal isn’t always the one with the lowest premiums.  To learn more about this important coverage and be sure you are adequately protected, call the experienced team of professionals at ACBI at 203-259-7580 or visit our website.

The Deadliest Driving Distractions Every Driver Should Avoid

Passengers, pedestrians and other motorists are endangered by distracted drivers. Statistics show that drivers who are holding electronic devices while driving are four times more likely to experience a serious accident. Teen drivers are more likely than any other age groups to be in fatal crashes resulting from distractions. There are several dangerous distractions that every driver should avoid.

Smoking
Recent research shows that about 10 percent of people who are in fatal crashes are distracted. Only about one percent of crashes result from smoking. However, drivers who are trying to light cigarettes or dispose of ashes are in greater danger of causing an accident.

Moving Objects
Moving pets, children or various objects are the culprits of some crashes. Only about one percent of accidents occur due to moving objects. Drivers should make sure children remain in their seats and have their safety belts securely fastened. Pets should be kept in carriers or in seat restraints.

Adjusting Controls
About one percent of crashes occur as a result of drivers adjusting buttons or other controls in the vehicle. It is important to ensure these controls are set before driving. Some features may not be possible to set ahead of time. For example, setting the cruise control or using the windshield wipers while driving may be necessary. When this is the case, drivers should be aware of their surroundings.

Eating And Drinking
Approximately two percent of distracted drivers were eating or drinking at the time they crashed. Drivers should stop if they need to eat or drink. Even when stopping for coffee, it is important to either wait until arriving at a destination to drink it or drink the beverage before pulling out of the parking lot.

Searching For Lost Items
People who were searching for maps, electronic devices or other items while driving accounted for about two percent of fatal crashes. Drivers should pull over to a safe area and stop before searching for any items in the vehicle.

Friends
Drivers who were distracted by or talking to their passenger friends while on the road accounted for about five percent of fatal crashes. Although it may be tempting to converse with friends while driving, it is important to stay focused on the road and surroundings at all times.

Outside Event
Almost every person has seen a distracting billboard, crash or other event outside. Many people crane their necks or slow down to look. These are dangerous habits, and about seven percent of accidents were caused by such behaviors. Drivers should always avoid slowing down for outside distractions.

Cell Phones
Talking, texting or reading cell phones while driving are all common ways people cause accidents. In several states, it is illegal to use a handheld mobile phone while driving. Texting while driving is illegal in almost 40 states, and about 12 percent of fatal crashes happen as a result of this practice. A person who is texting and driving is more likely to cause an accident than an intoxicated driver. In addition to this, more than 11 teen deaths per day and 1.5 million accidents per year are caused by drivers who are texting. To avoid the temptation, consider installing special software to disable the phone while the vehicles is moving.

Lost In Thought
There are an endless things a person could possibly be thinking about while driving. Whether a driver is looking for an address, trying to listen to the radio or daydreaming, accidents caused by general distractions account for more than 60 percent of all fatal crashes. It is important to stay mentally focused at all times.

Avoiding harmful practices is a good way to not only stay alive on the road but also to keep insurance rates lower. To enjoy the lowest possible rate, drivers need to consistently maintain a record that is free of negligent accidents. It is also important to stay vigilant and watch for distracted drivers in other vehicles on the road. To learn more, call ACBI at 203-259-7580 or visit our website

Understanding the Basics of Employee Benefits Liability (EBL) Coverage

A good employee is a valuable asset, and every company must be concerned about retaining and attracting the best possible workers. To do this, a firm may offer special benefits packages that include items such as vision, dental and health care. These benefits are helpful for companies competing for qualified workers, but they have to be administered correctly. If there are errors in administration, this can lead to lawsuits against the firm, workers or both.

Not Covered By General Liability Policies
Even the smallest clerical error can have serious repercussions. For example, if a new employee tries to enroll in a health plan but an office worker fails to complete the paperwork for that individual, that person could have serious problems if he or she is hospitalized months later without coverage. In such a case, the person who discovers there was negligence in registration is now stuck with a huge medical bill and could sue the company. Since administrative errors are not considered occurrences, they are not covered under CGL policies. Firms may purchase employee benefits liability insurance for this purpose. EBL coverage is usually offered as an endorsement for general liability insurance.

Claims Made
Typically, EBL endorsements cover any damages the insured party is required by law to pay due to errors, acts and omissions committed during employee benefit administration procedures. This type of coverage usually applies on a claims-made basis, but there are insurers offering occurrence-based coverage as well.

Covered Acts
The definition of administration is usually what determines the types of errors covered by a certain EBL endorsement. As a rule, it applies to errors, omissions or acts in the following:

– Keeping paper and electronic records and files related to benefits. For example, a benefits worker may accidentally delete the file of an employee or lose a paper file.

– Explaining the eligibility rules and benefits plan to workers, beneficiaries and eligible family members. For example, a manager may mistakenly tell a worker that her boyfriend is eligible for benefits simply because they live together.

– Enrolling, terminating and maintaining plans for family members and beneficiaries. For example, a benefits worker may forget to add a beneficiary to an employee’s plan.

Covered Benefits
Many people wonder how employee benefits are defined. The term usually applies to life, dental, medical and accident insurance. It also applies to other types of coverage such as profit sharing, pension plans, savings accounts, stock ownership and additional plans. For benefits, this includes workers’ compensation, Social Security, unemployment, disability, maternity leave and tuition assistance.

Exclusions
Claims resulting from bad financial predictions or advice are usually excluded. For example, a benefits worker may tell an employee that the 401(k) plan will yield a return rate of 400 percent in one year. If the predictions are not true and the worker sues the company, the claim would not be covered. Breach of contract, fraud, property damage, bodily injury, insufficient funds and employment-related practices are some other exclusions. There may be more depending on the specific insurer. Some of the employment-related practices include wrongful termination, sexual harassment and discrimination.

Limits
There are usually two different limits with EBL coverage. The most the insurer will pay for any employee or his or her family members is the Each Employee limit, and the Aggregate limit is the amount the insurer will pay for all errors, omissions and acts. There may be a deductible with some EBL endorsements. This is usually the employer’s maximum out-of-pocket expense for each employee filing a claim.

EBL Needs
The need for this type of coverage will vary from one company to another based on the number of offered benefits and the number of employees. This coverage offers protection for employers by providing a buffer against large claims any disgruntled workers or their families might make. It should not be a substitute for a good risk management plan. While it is important for large businesses, small companies with only a few workers will likely not need it. To learn more about this type of insurance and whether it is right for business needs, call the experienced team of professionals at ACBI at 203-259-7580 or visit our website. 

What Party Hosts Should Know about Serving Alcohol

A person’s role as a responsible party host can keep friends and family protected. Social responsibility is a term that includes everything from planning to overseeing the party.

What Hosts Should Understand
Do not rely on coffee to help the guests sober up. Only time can make a person sober, and hard liquor will intoxicate people as much as beer or wine will. A 12-ounce can of beer, a five-ounce glass of wine, a 12-ounce wine cooler and one and one-half ounces of liquor each contain the same amount of alcohol.

Do not rely on appearance and actions to determine if a guest has had too much to drink.
Mixers will not help dilute alcoholic beverages, and carbonated beverages such as club soda or tonic water promote quicker absorption of alcohol into a person’s bloodstream. Fruit juice and other sugary mixers mask the taste of alcohol in a beverage and may cause a person to drink more.

Office Parties
Arrange for discounted or complimentary rooms when a party is held at a hotel so employees will not drive home drunk. Consider chartering a shuttle or limousine service to provide transport for those who have been drinking. Promote the non-drinking designated driver idea when sending out party invitations. Do not push drinks on people. When offering an open bar, be certain the bartender has had server training to prevent guests’ over-consumption, and be sure the bartender knows how to avoid serving alcohol to guests who may be under the legal drinking age. To encourage party participants to drink less alcohol, consider having a contest for workers to think of creative non-alcoholic drink recipes.

Planning A Party
A host has to be prepared to dodge some curve balls and juggle the unforeseen when hosting a party and protecting guests. Hosts know that part of showing guests a good time is making sure they make it home safely. Dealing with driving safety is an important obligation, and there are several helpful tips to help hosts throw a successful party without sacrificing caution. These include the following:

– Plan activities such as sports, door prizes or amateur fortune-telling.
– Give each person a specific task to do to lessen their likelihood of drinking too much.
– As visitors RSVP, confirm that each carpooling group will bring a designated driver.
– Offer plenty of food to keep guests from consuming alcohol on an empty stomach.
– Avoid salty or empty-calorie snacks, which tend to make people parched and drink more.
– For non-drinking guests, offer mocktails or non-alcoholic beverages.
– When preparing an alcoholic beverage, use non-carbonated mixers such as like fruit juice.
– Be prepared by having the number of a cab service on hand for those who need a ride.
– Make sure there is a place for people who may pass out to sleep comfortably.

Throughout The Party
Never offer alcohol to someone under the lawful drinking age, and never ask young kids to assist in serving alcoholic beverages at parties. Do not let guests mix their own drinks. Hiring a dependable and experienced bartender will help hosts keep track of how many drinks each person consumes and prevent guests from becoming dangerously intoxicated. If a guest seems to be consuming a bit much, offer to refresh his or her drink with a non-alcoholic option. Consuming alcohol at a party is not necessary to have a good time. Have fun but not too much fun. To be a good party host, a person should stay within his or her personal bounds to ensure visitors stay within theirs.

It is helpful to close the bar 90 minutes before the party ends and start offering coffee and refreshments. However, keep in mind that only time sobers someone who has been consuming alcohol. If some visitors drink too much despite careful efforts, let them stay over, send them home in a cab or arrange for them to ride with another guest who hasn’t been consuming alcohol. Whether they are aware guests are drunk or not, hosts can be found liable for DUI accidents if their intoxicated guests drive home and cause an accident.  To discuss your coverage, and be sure you are adequately protected, call the experienced team of professionals at ACBI at 203-259-7580 or visit our website

Common Misconceptions about Employment Practices Liability Insurance and Lawsuits

Discrimination suits against businesses are becoming more common in courtrooms. In 2009, people filed more than 130,000 complaints with the Equal Employment Opportunity Commission. When it comes to the total cost of discrimination suits against businesses, there is no specific figure. However, a fair estimate is about $2 billion annually.

There is a type of insurance designed to protect businesses from lawsuits, which is called employment practices liability coverage. EPLI is offered by insurance companies as part of a business product line. It is important to note that there is a disparity, which is that many eligible companies do not buy this type of insurance. This is surprising to many industry experts due to America being a highly litigious society.

There are many myths tied to EPLI, so it is necessary to dispel them to better understand just how much businesses truly need to be protected from litigation. One common myth is that a business is immune to lawsuits due to a special company structure or other factor. Regardless of the type of company or what structure is used, every business is still susceptible to lawsuits. Some larger businesses may not have the HR practices or policies they need to keep a discrimination suit from proceeding. If a business does not have a structured setup, it is more vulnerable than the owners might think.

Another common misconception is that businesses can absorb the costs of lawsuits if they are filed. However, this is far from the truth. Any type of legal action will be costly, and the cost is not always just financial. Management staff and other workers will be asked to testify in most cases, so they will have less time to focus on their work priorities. Such an upsetting event will affect production quality or the bottom line. Experts say that it is common for businesses to file for bankruptcy due to lawsuits.

In addition to lost income, the specific costs related to discrimination lawsuits is very telling. In two cases that occurred in 2005, large corporations agreed to pay between $3 million and $5 million to settle their own lawsuits. Another large company was forced to pay upward of $36 million in 2004 to settle a discrimination case.

There is yet another myth that business owners think general coverage will protect them from discrimination lawsuits. However, it will not protect them. Workers’ compensation, business owner policies, professional liability policies and general liability policies sometimes exclude liability from lawsuits about discrimination.

Although business owners can take a variety of non-insurance precautions, EPLI is the only option for full protection against the costs of discrimination lawsuits. With an EPLI policy, business owners will be protected from lawsuits stemming from discrimination, sexual harassment, breach of employment contract, wrongful termination, failure to promote or employ, negligent evaluation, deprivation of career opportunity, wrongful discipline, mismanagement of employee benefits and wrongful infliction of emotional distress. To learn more about this type of insurance, call ACBI at 203-259-7580 or visit our website. 

When Second-To-Die Coverage is More Beneficial than Individual Life Insurance

For those planning to take out a survivorship or second-to-die life insurance policy, there are several benefits involved. The main benefit is that the policy insures both parties without the need of purchasing separate insurance. People who have businesses, real estate or other hard assets especially benefit from this type of coverage, because such assets can be very difficult to try to sell following the death of one of the parties. There are six important benefits to understand about these types of policies. Qualification is easier. In comparison with other individual types of life insurance qualification rules, it is easier to obtain second-to-die coverage. This is because insurers are less likely to make a decision based on one person’s health, and the risk is also spread. People who are older will find that it is easier to take out this type of policy. Also, business owners who have been denied individual coverage are more likely to be approved for this type of policy due to insurable interest and a second covered party. There is tax relief. Most people who purchase these policies are married couples, and they purchase this type of coverage to make sure the other receives enough payment to offset the estate tax liability. This coverage is best suited for people who have estates exceeding $2 million, and it is also useful to anyone with an estate consisting mostly of illiquid assets, real estate or business interests. Premiums are less expensive. If two people are insured under one policy, the insurer is able to spread the risk two two people. As a rule, premiums are about 50 percent less than an individual policy. In addition to this, the premiums are paid annually instead of monthly or quarterly. For those who are looking for policies to simply cover the cost of an estate, the policies are not expensive. An agent can provide a tax estimate based on individual details. There is a charitable trust option. These policies provide an effective way to set up trusts for heirs and charities in a cost-effective manner. It is best to choose a policy that suits a loved one’s needs as well as individual needs. For example, a person with a disabled child would be able to set up the policy so that the child would still receive the needed funds after the death of the policyholder. Policyholders have more control over their assets. With the right policy, a person could have the ability to control asset distribution and timing. For those who have concerns about family members’ spending habits, this is especially helpful. It provides liquidity to heirs. Without this type of policy in place, heirs could lose assets instead of keeping them. If a person has a second-to-die policy, it will ensure the assets are distributed to the intended heirs instead of being used to pay off the estate’s debts or final expenses. In a way, this type of policy can be considered a creditor-sheltered asset. There are other benefits associated with these policies. To learn more about second-to-die life insurance, call the experienced team of professionals at ACBI at 203-259-7580 or visit our website.

What Boat Owners Need to Know to Protect Themselves and Passengers

The most recent data from the Coast Guard showed that boating fatalities in 2012 totaled just over 650, which was the lowest recorded number in history. From the prior year, boating accidents had lowered from more than 750. Injuries from boating accidents decreased by nearly three percent.

For 2012, the fatality rate with boating accidents was about five deaths per 100,000 vessels. This showed a decrease of nearly 13 percent from the prior year’s data. Property damage related to boating accidents was less than $40 million. Experts said they were pleased to see the fatality rate decrease. They plan to continue stressing the importance of life vests and safety measures. Alcohol was cited as the main contributing factor in boating accidents that ended in fatalities. Inattentive operators, inexperienced operators, machine failure, improper lookout and high speeds ranked as the next most common contributing factors. About 70 percent of all accident victims who died by drowning, and nearly 85 percent of those deaths happened to people who were not wearing life vests.

These numbers should remind people that no boat or watercraft is completely safe, and it is important to review insurance coverage. People who own sailboats, canoes and engine-powered boats usually have coverage under their home insurance policy for physical damage. However, coverage is very limited. If they want liability insurance, this must be added separately as an endorsement. Adding physical damage coverage gives owners about 10 percent or less of a home’s value. When coverage limits from this type of policy will be insufficient, it is important to add boat insurance separately.

There is no coverage under a home policy for yachts, large boats, wave runners, jet skis and similar watercraft. This is why separate boat coverage is so valuable. The fittings, machinery, hull and furnishings are all included with physical damage coverage. They are covered up to a predetermined amount, and these added polices offer protection for the following:

– Damage to another person’s property.
– Injuries to other people.
– Injuries to boat passengers or the boat owner.
– Any legal expenses resulting from another person using the boat without permission.

Even if a person has good insurance coverage, there are several tips experts provide to assist people in avoiding the need to file claims:

– Let another person know that a boating trip is planned, and give an estimated return time.
– Check the weather before planning a boating trip and before heading out.
– Carry at least one fire extinguisher, and keep it handy and in good condition.
– Check the electrical system, steering, fuel, engine and exhaust before heading out.
– Do not overload the boat, and always make sure weight is evenly distributed.
– Make sure the vessel has a horn, bell, whistle and appropriate navigation lights.
– Do not operate a boat or allow anyone else to operate one under the influence of alcohol.
– Ensure all passengers wear life vests at all times.
– Do not shift weight or stand suddenly in a small boat.
– Do not allow people to ride on the gunwales, seat backs or on the bow.
– Make sure oars, fresh water, a tool kit, a first aid kit, flares, a radio and a flashlight are kept on the boat at all times.

To review an existing home insurance policy for a better understanding of coverage for a boat or to learn more about separate boat insurance, call ACBI at 203-259-7580 or visit our website. 

Can Your Business Survive a Lengthy Interruption?

If you had to close your doors or stop taking orders for two weeks or two months, what would happen? Would you be able to recover? Will you be able to meet your payroll? Would you be able to keep up with tax, insurance, lease, rental and mortgage payments for that long?

What about your employees? Would you lose key workers who would be very difficult or impossible to quickly replace in the event of a disaster or other event that would force a lengthy shutdown?

It’s not just a rhetorical question. Thousands of businesses face a similar crisis every year as a result of natural disaster, man-made disasters, civil unrest, and a variety of other factors.

Studies show that only a fraction of small businesses get back on their feet after surviving an interruption of only a few weeks. The costs to their owners and in some cases, employees, are enormous.

Insuring Against Business Interruption

Business interruption insurance compensates businesses for income lost as a result of a covered disruption in business operations, or damage to the business premise.

For example, if you are forced to cease operations for 90 days as a result of a fire or flood your fire or flood insurance policy will cover your material loss (over and above your deductible and subject to policy limitations). They will cover your building and its contents, for example. But only business interruption insurance will replace the income you lost while you were getting your business back on your feet.

Definition of Business Income

Generally, policies available define “business income” normal operating expenses such as rent, mortgages, insurance premiums, taxes and payroll, plus profits that the business normally would expect to incur had operations not been interrupted by a covered risk. It would not provide coverage during unprofitable periods. For example, benefits paid to a ski resort over the summer would be very different from benefits paid if the interruption were to occur during ski season!

Mitigation Provisions

In many cases, insurance carriers operating in this market will help you with costs you incur to mitigate income loss. For example, if you can reduce the amount of your lost income by leasing an alternate office space while you get your business back on its feet, your carrier may help you with that expense as well, if it means reducing your overall covered loss.

Loss Period Calculation

Most policies begin calculating benefits beginning 72 hours after the interruption begins, or the damage to the premises actually occurs. Benefits will end as of the date the business resumes normal operation, or as of the date the lost equipment and facilities should have reasonably been replaced or repaired to enable full resumption of business activity. If you decide to spend more or wait longer because you decide to make improvements to your facility that take longer to accomplish, that part is not normally covered in a business interruption policy. The policy is simply designed to protect you against the negative impact of a loss of income.

Insurance Fraud Schemes Every Individual Should Know About

According to statistics from the Federal Bureau of Investigation, there are more than 7,000 insurance companies collecting over $1 trillion every year through premium charges. The large size of the insurance industry is part of the reason why insurance fraud is such a big issue today. Insurance fraud costs more than $40 billion every year, which means the average family pays as little as $400 or as much as $700 per year due to premium increases. There are several common fraud schemes used.

Fee Churning
With this type of scheme, several intermediaries accept commissions by way of reinsurance agreements. Initial premiums are reduced until there is no more money for paying claims, and this is done using repeated commissions. Conspirators often set up companies and leave them to pay the claims. Every transaction by itself appears to be legitimate. However, the use of fraud is not apparent until after consideration of the cumulative effect.

Premium Diversion
This involves embezzling insurance premiums and it is the most common type of fraud used. With this scheme, the insurance agent does not send the premiums to the underwriter but keeps the money instead. In some cases, an individual may try to sell insurance without a license, collect premiums and avoid paying any claims.

Asset Diversion
This is the stealing of an insurance company’s assets, and it often happens during mergers or acquisitions of existing companies. It may include acquiring control of insurance companies using borrowed money. Following a purchase, subjects use the items they received to pay the debt. Any leftover assets are diverted to the subject.

Workers’ compensation fraud is another popular scheme where some people claim to provide benefits at lower costs and misappropriate premiums without providing insurance. When powerful storms hit, the fraudsters come out of the woodwork. During the famous Hurricane Katrina in 2005, over $100 billion in damages was sustained. There were well over 1.5 million insurance claims filed, which totaled a little less than $34.5 billion for insured losses. Insurance fraud costs consumed more than $5 billion of the $80 billion in government funds allowed for reconstruction. There several different forms of fraud schemes used after natural disasters. These include the following:

– Exaggerated or false claims filed by policyholders.
– Claims filed by people who do not live in the immediate area.
– Contractor bid rigging and falsification of the cost of repairs.
– Charity fraud scams that waste funds donated for disaster relief.
– Flood damages that are misclassified as fire, theft or wind damage.
– Contractors who require upfront payments for services they fail to perform.

Insurance fraud is something that all people and business owners should be aware of and familiar with. To learn more about this topic, call ACBI at 203-259-7580 or visit our website. 

Long-Term Disability Claims on the Rise

The Long-Term Disability Claims Review by the CDA (Council for Disability Awareness) analyzes new claims made during the current year in addition to any ongoing or preexisting claims that were approved during prior years. In 2012, there were more than 660,000 disabled people who received long-term disability coverage from companies approved by the CDA. This was a decrease of about two percent from the figures in 2011. Between 2008 and 2011, the number of long-term disability claims consistently decreased.

Researchers found that the total claim payments actually grew somewhat. Long-term disability insurance payments from the CDA companies increased to $9.4 billion, and 2012 was the fifth year in a row of claims cost growth. The increase in 2012 reflected the largest amount of claims in the report’s history. Researchers also found that less than five percent of the CDA companies handling claims reported work-related claims in all years between 2008 and 2012.

The number of claimants who were eligible for SSDI dropped slightly. About 70 percent of the individuals who received long-term disability insurance from group plans approved by the CDA in 2012 were eligible for SSDI. In 2012, there were nearly 155,000 new claimants approved for disability insurance, which showed a decrease of almost three percent from 2011. Between 2010 and 2011, the number of new claims approved increased by more than three percent. During 2012, the new long-term claims that were approved resulted in about $1.4 billion in payments.

Of the new claims that were approved in 2012, more than 40 percent were for people who were under the age of 50. More than 55 percent of the payments went to people who were over the age of 50. For those who fell in this age group, the majority of claims filed were by people who were over the age of 60. Researchers said that with this age group’s claims increasing the total significantly, it shows that there is a working aging population. Meanwhile, they also said that the number of people filing claims in their 40s has been decreasing steadily.

Causes Of Long-Term Disability Claims
Researchers examined why people filed these claims. About 30 percent of the new claims in 2012 resulted from musculoskeletal issues or connective tissue disorders. These topped the list once again for being the most common causes of claims. The number of disability claims resulting from childbirth or pregnancy grew by nearly 25 percent in 2012, which was followed by a smaller increase in 2011. These issues accounted for more than 12 percent of the disability claims in 2012, which was up from less than 10 percent in 2011.

Another cause contributing to significant increases in 2012 was cancer. It was the second leading cause of claims that year as well as the fourth leading cause for ongoing claims. Between 2011 and 2012, claims related to mental disorders decreased, and the same was true for disorders of the sensory organs and nervous system. To learn more about claims and long-term disability insurance options, call ACBI at 203-259-7580 or visit our website.