Commercial Insurance Blog

Independent contractors and the IRS, insurance companies, and MA DoR

Posted by Geoffrey Gordon on Wed, Sep 24, 2014 @ 05:25 PM

Independent contractors, or subcontractors, are treated differently by insurance companies, the IRS and by the Massachusetts Department of Revenue.  The purpose of this blog will be to highlight the differences and to outline why the Massachusetts definitions are so important to so many businesses.

Independent contractors (ICs)perform a variety of functions, often which are not part of the core work of the hiring company.  The determination as to whether a worker should be classified as independent versus an employee comes down to several factors.  Every business wants to know how subs and insurance interact, but how governmental agencies view these relationships is important as well.  Consider the spectrum below to get a sense of where different authorities fall:  To the left side, a company has an owner and no employees: all work is done by independent contractors.  To the right, all workers performing work are employees.   Massachusetts has the broadest definition to classify workers as employees; the IRS is somewhat further down the spectrum.  Insurance rules and regulations fall somewhere between these two, depending upon the industry, the kind of insurance and the way insurance costs - particularly general liability adnworkers comp - are quantified.

spectrum_of_IC_classification

In the past, it was simple: if someone was an employee they got a W-2, and ICs use the reporting form 1099.  Employers are responsible for collecting payroll taxes and income taxes from W-2 employees, but subcontractors are on their own to report their income and pay taxes.  Employee employer collection of taxes is more predictable, effective and enforceable, so tax collectors prefer workers to be classified as W-2 employees.

As more employers began using subs to manage labor costs and reduce insurance costs, the incidence of insurance fraud, below market wages, unfair competition, and tax compliance grew, and State officials worked to change that.

In 2004 Massachusetts passed a law intended to classify more independent subs as employees. This law established a three part definition: "...an individual performing any servce shall be an employee unless:

  • The worker must be free from control and direction in performance of service; and
  • The work performed is outside the usual course of business of the employer, and 
  • The individual is customarily engaged in an independently established trade. occupation, profession or business of the same nature as that involves in the service performed.
Failure to comply can result in taxes, simple fines, and criminal offenses.  Principles of corporations or members of LLCs (the people who are the employers) can be held personally liable for violations. 

Because of the large fines and potential for triple damages and huge legal fees, this wage act has been characterized by some as the new ‘tobacco’ for prosecuting attorneys.   Businesses beware.

Insurance companies want to collect premiums wherever a risk of loss exists.  The basis for developing an insurance cost can be broken down by payroll to employees and expenses paid to subs.  If the subcontractors have their own insurance (see certificates) the charge is a fraction of the charge for direct labor.  But when subcontractors do not have their own insurance, the employer pays the same wage as they would for their own direct labor.  This is why collecting insurance certificates, and being named as additional insureds, can be such an important cost consideration for businesses that use independent contractors.

Real Estate agents as independent contractors have long been an exception to the broad categorization of contractors as direct (W-2) workers.  A specific law (G.L. c. 112.§87 RR) protects this carve-out classification, but that law was recently challenged by a group of real estate agents who argued they should be classifies as employees.   A Superior Court judge ruled last year that the real estate law still holds, but attorneys we’ve consulted believe this decision will be challenged in the Appeals Court, and will probably end up in the Supreme Judicial Court.

As experts in risk we recommend careful collection of certificates of insurance to keep your own risk and insurance costs low.  The wage law can be a greater threat for which no insurance is available: consult with other professionals including legal and accounting counsel for more detail on how the 2004 Massachusetts wage law affects your business specifically.

This blog was inspired by a seminar developed by Thomas Marks, an attorney in Mansfield specializing in business law, contracts, civil litigation and estate planning. Visit http://thomasjmarks.com/ for more.

Tags: insependent contractors, Subcontractors and IRS<, subcontractors

What is a BOP? (aka business owners policy)

Posted by Geoffrey Gordon on Thu, Jul 31, 2014 @ 10:59 AM

Learn about your bop and get commercial insurance from andrew g gordon incWhat is a BOP?

A BOP stands for a business owner’s policy, an insurance policy providing several coverages in a single package that can be customized for many types of small businesses.  BOPs are popular because they jam in a lot of coverage for a low price; extensive customization is generally not needed.   BOPs are most common in retail, office, building or condo ownership, and service businesses, but some companies offer a BOP in contracting, restaurant, light manufacturing, and garage based operations.   (Call us for eligibility).

There are three important parts to a BOP (business owner’s policy):

  1. The first is property coverage for your business property, including office furnishings, IT infrastructure, stock and inventory.  It can also include buildings if the building ownership is the essentially the same as the business owner.  The cost is affected by amount of coverage purchased (a small professional office may have $10,000 of furniture and computers, whereas a restaurant may have expensive kitchen equipment, and so forth).  Other rating variables are the building’s construction (wood frame is more expensive than sprinklered steel and concrete), security, location and age of the building.
  2. Next is time element coverage: this protects the income statement by replacing profits lost due to the inability to operate if the physical plant can't open while repairs are made.   A simple example would be if a fire kept a retail or service business from operating until all the repairs were completed and the businessre-opens.  Business income coverage allows the business to continue to pay the employees so they do not need to go look for work elsewhere.  After all, the greatest asset for most businesses is the workforce: this lets the business pay to keep them.  Naturally other fixed obligations including rent or mortgage, and other expenses can be paid as well.
  3. The third leg to the three-legged stool is liability coverage.   Typically provided for $1 million, this provides defense and judgments against slip and fall liability situations, products the business sells, and other kinds of legal liability.  Be careful with professional liability and employment practices liability, however, as these are not customarily included in a business owner’s policy; these usually need to be purchased separately.

Insure your office retail building with a bop from Andrew G Gordon inc insuranceIn addition to these three primary areas, most business owner policies provide additional coverages for a wide variety of business.   Some examples include fine art, property in transit, property of others, software, money and securities, and leased or borrowed equipment.  Others extend even furhter providing protection for Employment Practices Liability, Cyber liability and employee dishonesty.  

More useful are industry-specific coverage add-ons which normally would be purchased separately.  For example, liquor liability coverage for restaurants, dependent property coverage for some manufacturing operations, jobsite tools or installation floaters for contractors.  In short, BOPs can be designed to fit well within certain specific industry classes. 

Insurance companies like BOPs because they can provide a broad variety of extra coverages, with the knowledge that many of the coverages are important to targeted classes of businesses, while others are not applicable, meaning there is no risk, and no cost.  This allows great pricing for all kinds of contingencies while minimizing the laborious process of customizing that is required for larger operations.  

The minimum premium for most BOPs today is $500, a low cost starting point for start-up or small business that need to protect an initial investment or satisfy lease terms (for liability coverage and additional insured status to landlord).  For this low cost a small business can have about $20,000 of property coverage including furniture, inventory, computers and so forth, plus the liability, business income, and other coverages outlined above.

Many established medium sized businesses use a BOP as well, as the most efficient purchase of a broad variety of protection for an attractive price.   Always work with a broker like Gordon who can assess the greatest risks to your business and help design an affordable insurance package within your budget.

 

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Tags: commercial, company, BOP, insurance, Business, office, business owner policy, retail, service

The Health and Wellness Revolution - A Personal Testimonial

Posted by Geoffrey Gordon on Thu, Mar 20, 2014 @ 05:34 PM

I still recall vividly the events unfolding in Cairo's Tahrir Square a couple years ago as Hosni Mubarak was counting his final days in power.  I remember these events because I was at home on the couch paralyzed with back pain, stuck flipping between CNN, ABC, and Fox.   Going to work was out of the question - a rarity for me.  It took about a half an hour to get from the couch to the car and another half hour to get from the parked car to the doctor’s office, every step in excruciating pain (I should have called 911).  I was in my mid 50’s and felt like an old man.  My body was broken.

Fast-forward three years.   I am pain free, never miss work, sleep better, have an incredible energy level, and am a better skier, snowboarder, tennis player, and surfer than I was five, ten, even twenty years ago: (full disclosure, I only recently took up surfing). What's my secret? Actually no secret; the solution is well-known: diet and exercise.  But there’s more to this than the same chorus you've heard before. 

Stay healthy with personal life insurance and exercise with andrew gordon incMy personal epiphany came in a book entitled Younger Next Year.  The subtitle got my attention: “A guide to living like 50 until you're 80 and beyond”.   The book encourages people in their 50’s to get plenty of exercise, watch what they eat, and stay focused and committed in the mind.  At this same time a couple friends invited me to a morning “Boot Camp” training regimen that sounded like a fun, social way to rebuild my broken body.  I figured I could give it a try until I healed myself.  So while I was getting stronger at Boot Camp, I also began watching my food intake, for better performance.  Today I wouldn't dream of stopping my regular exercise routine.  There's too much on the line.

Be healthy with exercise nutrition and personal life insurance from andrew gordon incMy story is not unique.  Developments in the sciences of the body, including our genetic makeup and technology, have converged to make measurable progress in energy and fitness a reality for millions. We understand better for example how muscle deteriorates at roughly 1% per year (10% per decade) after about age 40. Our grandparents may have known this subconsciously, but didn't know it quantitatively.  Today we can measure exactly how our bodies are performing.

Another development is better training.  Trainers today have tremendous resources at their disposal for getting the most out of people.  Research starts at the high end; when any professional athlete is hurt, a lot of money is at risk, so research on getting them healthy and in top performance as efficiently as possible is well funded.  That expertise filters down to the rest of the training community, and is available through providers such as Trainer MD (full disclosure, Trainer MD is also a customer).  A good trainer, whether individually or with a group (I prefer the latter for its social benefits), is part motivator, part coach, part friend.   

One important caveat: talk to your doctor before embarking on a fitness program.   What we don't know we don't know can really hurt us.  With our health, always talk to an expert first.

Live healthy with nutrition exercise and personal life insurance from andrew gordon incIn business, we track a lot of numbers to help us make a variety of decisions.  Technology, such as the Garmin watch which monitors blood pressure and heart speed, has made tracking your physical progress much easier.  But if this becomes a task, ditch it.  (Personally I don’t use these, but most high performers quanfity a lot of fitness indicators carefully).

A few observations and my personal testimonial on the food we eat.  We understand better today how the consumption of processed foods that taste so good going down can be so harmful to us.  The average American consumes approximately 110 pounds of processed sugar (mostly high fructose corn syrup) per year; our grandparents consumed less than 10% of that amount including cane sugar.   While soda pop consumption is declining, sports drinks are mostly just sugar water.   Being just a little disciplined with our eating habits can make a world of difference.

Stay in shape and healthy with exercise nutrition and personal life insurance from andrew gordon incReasonable people can argue whether genetically modified foods have contributed to the spike in allergies to peanuts, milk (lactose), and wheat (gluten) in so many of our children, and other new maladies, but if the skeptics are right, doesn't it make sense to err on the side of caution?   Eating as our forebears did, consuming more unprocessed (real) food, rather than food that has been processed for taste and marketability.  Want proof?  Google a list of 10 successful diet programs, and notice the most common theme:  the absence of processed foods, substituting instead real fruit and vegetables, real meat or other protein, and a small dose of complex carbohydrates.

More good news is that our healthcare system is beginning to focus more on wellness than just fixing people who are already broken.  A development in the health-insurance industry is that many medical providers are now compensated for keeping people out of their offices, rather than billing them only when they come in.  Many employer sponsored insurance plans now pay for joining Weight Watchers, health clubs or other wellness organizations too. No secret here: weight loss and regular exercise mean fewer health problems.

The authors of Younger Next Year cite that some 70% of diseases today are lifestyle related, and that 50% of the maladies associated with old age can be eliminated altogether through diet and exercise.  Lifestyle (diet and exercise) have a direct impact on the cost of healthcare, and now there’s money – lots of it - in keeping people fit.   So this won't be the last you'll hear of this health evolution.

Here's the best news of all.  I still indulge myself: I love steak, I love pizza, I enjoy having a beer with friends.  But too much of any of these makes me feel less than fit, so it's easier to self-regulate than to be motivated by guilt.   For me, staying fit means staying with skiers 30 years younger, getting to a ball that nobody expects me to reach; it means showing up at work with energy and purpose, and it also means creating active memories with my family in fun and interesting places.  It means not being stuck on the couch watching Egypt on TV in paralyzing pain.  It means… life is good.  

Geoff

Tags: health, fitness, nutrition, exercise, wellness, in, your, 50s, stay, shape

Massachusetts Commercial Vehicle Inspection Program

Posted by Bill Cordaro on Thu, Feb 13, 2014 @ 11:11 AM

Every so often, we receive inquiries from our commercial auto clients regarding Massachusetts commercial vehicle inspection requirements, procedures and Department of Transportation (D.O.T.) requirements. Recently, I brought my personal auto to a commercial inspection station, DelCorp Mass State Inspection, Whitman, MA (they also inspect private passenger vehicles). They gave me some very useful information and provided the following website, Massvehiclecheck.com. http://massvehiclecheck.state.ma.us. This website provides useful Massachusetts information for all vehicle types. For commercial information, refer to their section: Commercial Inspection Program.

Massachusetts Vehicle Check is a joint program of the Department of Environmental Protection (MassDEP) and the Registry of Motor Vehicles (RMV).

The website states that “All commercial vehicles, trailers and converter dollies are subject to the Massachusetts Commercial Vehicle Inspection. The Federal Motor Carrier Safety Administration (FMCSA) approved the Massachusetts Commercial Vehicle Inspection as equivalent to the annual FMCSA or "DOT" inspection. If your commercial vehicle/trailer receives a state safety inspection, you are not required to obtain a separate FMCSA or "DOT" inspection”. The website also advises that “The Vehicle Inspection Report (VIR) issued by the Commonwealth of Massachusetts that is signed by the licensed vehicle inspector is proof of compliance with FMCSA inspection requirements, not the windshield sticker on the vehicle. RMV recommends that the VIR is maintained inside the vehicle at all times”.

Learn about the MA commercial vehicle inspection program and get auto business insurance from andrew gordon incThis website provides a state listing of Massachusetts commercial inspection stations, as well as information regarding Federal DOT Regulations.

“Effective on October 22, 2008, the Federal Motor Carrier Safety Administration (FMCSA), added the Commonwealth of Massachusetts’ annual safety inspection program for commercial motor vehicles to their list of Programs which have been determined to be comparable to, or as effective as, the Federal Periodic Inspection requirements contained in the Federal Motor Carrier Safety Regulations (FMCSRs). Click here to download the Federal Register notice.”

(All information provided is from Massvehiclecheck.com)

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Tags: commercial, inspection, massdot, auto, insurance, Business, massachusetts, Vehicle

Workforce Training Fund Program – Improving Employee Productivity

Posted by Geoffrey Gordon on Mon, Feb 03, 2014 @ 10:34 AM


If you haven't heard of the Work Force Training Fund, you're not alone.  This is one of the best kept open secrets in Massachusetts.  Part of the unemployment compensation tax every employer in Massachusetts pays goes directly into the Workforce Training Fund programs (with the unfortunate acronym: the WTF Program).  The money in this trust fund - averaging about $21 million per year - is not available to legislators for other civic uses, and often runs a surplus.  The program provides matching money to employers for employee training.  If your business is committed to continuing education and workplace skills development, this fund will reimburse you for half your expenses.  It's a great way to enhance employee productivity, and about as close to free money for Massachusetts employers as you'll see anywhere.

Improve employee productivity in your business with commerical from andrew gordon inc insurance

There are several versions, but if you're reading about this for the first time, consider the easiest program, called the Express Program.   This is for employers with less than 100 employees; there are over 2000 training programs to choose from.  The overview page is linked here.  To see if you qualify in general, click the qualifications page located here.   Most small business employers will qualify.  Next, select a course that's appropriate for your business needs.   All courses listed have been approved by the state, so must meet certain minimum requirements.  Naturally checking references and performing other due diligence on the trainer is just as important as with any other vendor selection, but the state has vetted this list already.   The training course search allows you to search according to location, industry, cost, and other useful criteria.  This search function is helpful in narrowing down what might be useful in your business from the over 2000 courses available.

The Express program took us about a month of fairly tedious forms submission and follow ups, but well worth the effort.  For example, one step asks for your DUA number as though it's your Social Security number or Federal Tax ID number.  (It's your unemployment insurance number - on your unemployment insurance notices).  The second time around goes more smoothly because you know what to expect.  This blog should help you understand the program and save you some time exploring its use for your business.

Once you select a training course, apply for official acceptance: the fun part referenced above.  You will schedule and pay for the program in full per the terms of the training sponsor selected; the WTF program will reimburse you its half upon completion of the course.  This ensures that you have some skin in the game and are committed to the course’s completion.   In our office, we have enrolled more than half our total staff, including five customer service reps and our manager, in a client development training program: this program focuses on listening skills, understanding personality styles, and other skills useful for any front line service staff.  Dedicated sales people are continuing with a follow-up program which focuses on the latter stages of the sales process.  We are committed to engaging more staff in additional programs later in the year.  The returns in productivity and customer satisfaction from the first program, at this writing only half completed, are already noticeable.

Increase employee productivity with commerical business insurance from andrew gordon inc

Other employers we network or do business with have successfully taken courses in time management, customer service, team building, and other courses where small businesses generally don’t have the resources to create, plan and execute  internally.  Consider it outsourcing non-core, but useful business skills....with your unemployment tax paying for half.  It's a pretty good deal.

The General Program is for the big dogs, larger companies which can dedicate resources to complete the more lengthy and complicated grant approval process, and who are looking for much larger payoffs.  While the general program provides full reimbursement for the training costs, companies must demonstrate that they are kicking in 50% of the overall cost, which may include labor, fringe benefits and other expenses borne by the employer.

Improve productivity in your business with commercial insurance from andrew gordon inc

The staff at the Department of Workforce Development tells you that this process takes about 60 days, but given the complexity of what's required, plan for more time, or engage a professional.  The General Program requires that you calculate and show the return on investment, and document how the company's own resources match the grant amount.   You may include wages of all participants plus 20% for fringe benefits while participating in training, the time cost writing the grant, and so forth.  But even though it is not as easy as the program folks may tell you, many companies are awarded high 5- and 6-figure grants.  If the training program is a good match for your company's needs, showing a return on investment, of other people’s money, should be attractive.

Finally there is a Hiring Incentive grant: hire someone who was unemployed, and receive up to $5000.   We have not used this program yet, so will not comment further here.

Overall, this is state assistance, paid for already through your unemployment taxes, with a broad range of training propgrams to enhance your company's human capital.  After all, Human Capital is often the greatest asset of a businesses.  Reduce the risk to your human capital (such as turnover or stagnation) by investing it its improvement.   Why would you NOT take advantage of developing it for shared employer - employee success?

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Tags: commercial, employee, productivity, training, unemployment, subsidized, express, program, insurance, Business, ma

Will Workers Compensation Rates Increase in 2014?

Posted by Geoffrey Gordon on Fri, Jan 24, 2014 @ 01:26 PM

Workers Compensation rates might be going up in Massachusetts, news that’s just about as popular as taxes going up.  Business owners know workers comp costs affect the bottom line directly.

If approved, rates will increase on average across the state by 7.7 percent.  A hearing is was held January 30th, and more hearings are scheduled for March and into the spring.

Update: April 2, 2014: The 7.7% overall rate increase was rejected by the Division of Insurance.  While rates within a specific class, or grouping of employees, may change from year to year, the overall rates will not change in 2014.

Rates are recommended by a state approved rating board known as the Workers’ Compensation Rating and Inspection Bureau of Massachusetts (WCRIB), and changed only after approval by the Division of Insurance with input from a variety of other governmental offices and consumer and business groups.  It’s a political process as much as an economic process.

In December, WCRIBMA submitted a rate filing with the Division requesting an average increase of 7.7 percent in the rates for industrial classes statewide.  The proposed effective date was January 1, 2014.

While an increase in any element of labor costs is never good news, it may be better for companies in the long run due to the nature of the market today.   The existing workers compensation market is unhealthy and uncompetitive.  This would be the first rate hike in Massachusetts workers copensation rates in over 10 years.  Because rates have been suppressed for so long, more and more companies are declining business.  When no insurance companies want to insure an employer, the employer buys coverage through the “pool”.  Market health can be accurately gauged by the number of accounts that ends up in the assigned risk pool.  Today roughly one in four accounts is in the pool, one of the highest rates of 'pool' market share in the country. 

Holding rates can’t go on much longer, no matter the political will.  Consider the trends of workers compensation rates against health insurance rates over the past decade.   Economic forces are pushing hard for higher pricing. 

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The firms providing the workers compensation services have little incentive to put service resources toward their accounts in assigned risk pools.   Assume an insurance company has a 10% market share; they will be assigned 10% of the market.  But for every dollar they invest toward worker safety programs, careful claims management, support for back-to-work programs and other cost saving initiatives, they’ll only reap 10% (their market share) of the returns.    As with any private company, investments are made with an eye on the returns to the company, not to its competitors.  Claims management, innovation and overall service suffer.

Service for pooled accounts is indistinguishable; carriers are allowed a specific fee to administer claims, and the lowest common denominator for service standards rules.     A modest increase today would bring more choice and competition back to the market, providing important incentives to carriers to continue to invest in loss control and claims management that ultimately lowers costs, making for lower premiums in the long term.

In the meantime, employers stuck in the pool can influence their future rates by taking step to minimize the chance of workers compensation losses.   Workers compensation is highly experience sensitive, though there is a long lag time for converting claims expenses to rates costs.  Here’s what you can do in your business to control what you can control:

  • Keep a safe workplace; enforce your industry’s safety best practices.   Healthy employees are not only good for business, but also good for morale and productivity.
  • Offer a light duty back to work program for employees who are injured (subject to doctors’ limitations of course).
  • Pre-screen new employees carefully to avoid becoming a piggy bank for scam artists.
  • Review your claims history each year to spot trends or threats within your own organization. 

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Tags: commercial, comp, cost, workers, compensation, trends, rate, increase, 2014, insurance, Business

The Terrorism Risk Insurance Act

Posted by Bill Cordaro on Mon, Jun 03, 2013 @ 11:27 AM

Cover your business in case of terrorism or tragedy with commercial from andrew gordon incAs a result of 9/11, the Terrorism Risk Insurance Act, also known as TRIA, was created for certain types of business policies. The purpose of this program is to spread the risk of catastrophic losses from certain acts of terrorism between insurance companies and the federal government. Business policies are excluded from terrorism acts. However, this act requires insurance companies to offer coverage for any loss that occurs within the United States. Coverage is available for an additional premium. Prior to 2007, TRIA coverage only covered acts a result from foreign terrorism. Since 2007, coverage now includes terrorism from domestic acts. Coverage is only for “certified acts of terrorism”.

What constitutes a certified act of terrorism?  Any terrorist act that is certified by the Secretary of the Treasury, in conjunction with the Secretary of State and the Attorney General of the United States. The act states that “It must be a violent act that is dangerous to human life, property or infrastructure. It must be committed by an individual or individuals as part of an effort to coerce the civilian population of the United States or to influence the policy or affect the conduct of the United Sates Government by coercion”.

I am told at the time of this writing that the Boston Marathon bombings have not been declared a terrorist act. That means the building damage, for example, would be paid under the peril of explosion on one’s business policy.

When applying for business coverage, you must either accept or reject TRIA coverage and sign an acceptance or rejection form. Premiums vary between insurance companies and policy types. The additional premium usually ranges from 3-5% of the base premium, with a minimum premium of $100 for this coverage.

If you have other questions, feel free to contact us.

    

 Bill Cordaro

Tags: america, risk, insurance, protection, United States, terrorism, tria, usa, secretary of the treasury, act

Condo Master Policy Insurance

Posted by Geoffrey Gordon on Tue, Apr 23, 2013 @ 08:01 AM

Get a condo master policy with andrew gordon inc insurance

Condominium insurance is a unique kind of insurance that integrates the interests of a condominium association with the interests of the individual unit owners. Even though each unit owner has a proportional interest in the Association, unit owners do have distinct and separate interests of their own.

The structure of the insurance policy is important, and this structure is normally defined in the Master Deed. One of the most important initial details is where association vs. unit ownership begins and ends… because insurance usually follows ownership.  Ownership is defined in the Master Deed. (When buying a condo unit, always get a copy of the Master Deed, as well as association by-laws).

All-in

The condominium structure commonly known as "All-in" includes everything right to the interior coat of paint inside the condominium units.  This “All-in” approach typically will include additions or alterations that a unit owner makes, such as adding new cabinets, alarm system, chandelier, and so forth, provided the unit owner alerts the association to these additional values. The association is then responsible for providing insurance for everything that is permanently attached within the condominium structure. A simple way of visualizing this concept is to imagine turning the building upside down and shaking it; everything that falls out, such as furniture and other personal property, is the responsibility of the unit owner. Everything else that stays attached to the structure is insured by the association policy. 

Bare walls 

The “bare walls” approach means the bare walls of the building, and leaves a greater responsibility on individual unit owners to insure their owned portion of the “structure”, building, or “real property”. In the Master Deed, the “bare walls” approach uses wording such as “on the plane of the interior studs”, or “the plane of the lower side of the roof rafters”, or ”the top surface of the sub-flooring”.  All these means is that the unit owner owns all the drywall, wallpaper, paint, flooring, etc. and is therefore responsible for insuring these items personally.   Even bathtubs, toilets, sinks, kitchen cabinets and counter-tops would not be covered.  Remember, insurance usually follows ownership.  The condominium association insures only the shell structure plus common mechanicals such as heating systems, common plumbing, and common electrical; the rest is the unit owner’s responsibility.

Master deeds aren't always written on a 100% "All-in" vs 100% "Bare-walls" basis. Often there are shades of gray. Some master deeds with an All-in basis exclude betterments & improvements (e.g., upgraded lighting fixtures or cabinetry would not be covered).

Biggest Possible Problems where the association policy intersects with personal policies:

The biggest condominium insurance problems occur when there is a master deed and insurance program that calls for "bare walls" insurance, but unit owners do not know that it is their responsibility to ensure their portion of the building individually. When this happens and there is damage to interior walls, such as water damage from storms or plumbing problems in upper floors, there is no insurance in either policy for the interior walls. Depending upon the size and build within individual units, this can be significant value that unit owners self-insure by default, and without even knowing.

The second big problem can occur if a condominium association insures its building based on a “bare walls” replacement estimate, but the deed calls for “All-in” coverage; the result is a severely under insured property.  Valuations for “bare walls” condominium buildings typically run 30 to 40% less than valuations for similar sized all in policies because of the cost of finish work and interior walls. Imagine if you were handed the keys to your newly rebuilt unit, only to find rough plywood floors, studs for walls, and only joists for a ceiling. Lesson: review your master deed for ownership specifics. (Or work with a broker like Gordon who understands these things.)
 

The management of a condominium association can directly affect the cost of insurance, as attention to general conditions and safety concerns affects potential losses.  Because every association is managed uniquely, and because attention to these details does affect losses over the long run, insurance underwriters pay close attention to loss history with condominiums.  There is also the natural tendency for unit owners to prefer to have an association assume condominium losses, rather than file their own claims.  So, even though insurance generally follows ownership, it is understandable that there is pressure to have associations assume losses where possible. However, this is a shortsighted strategy for the association.

 

Because of these issues, we usually recommend associations use high deductibles, and self-insure smaller losses to avoid these losses from affecting insurance claims experience. When associations have more skin in the game, attention to loss prevention is heightened, lowering the long term cost of risk.  With condo associations greater than four units, insurance companies usually will want to review condominium association financials to ensure the ability to pay for these smaller claims.  

 

Even when claims experience is good, insurance company initial inspection is rigorous. Talk to us about conditions honestly.  The most attractive pricing is reserved for the best-maintained (perfect) places.

 

See our other blogs and whiteboard videos for more on how individual unit owners can address their interests as they may deviate from association interests and association management’s lack of understanding of some of these nuances.

If you have any further questions, contact us by clicking the buttons below.

Geoff Gordon

Tags: commercial, policy, insurance, Business, condo, homeowners, master, deed

Insurance for Multiple Rental Properties

Posted by Val Feeney on Thu, Apr 11, 2013 @ 08:00 AM

How to cover multiple rental properties with commercial business insurance from andrew gordon incIf you are an owner of several rental properties, keeping your insurance program organized is very important. If you are like many owners, as you acquired each new multi-family property you purchased an individual policy just ahead of the closing to have protection for the building and liability associated with that property. Now, you may have several different insurance policies in place all with different renewal dates, different payment dates, with different companies, and possibly different liability limits.

There is a better way. You can simplify the insurance for all of the properties by placing them all on one policy, with one payment, and with one renewal date. Equally important, the policy’s liability coverage will extend over all of the properties. This will consolidate your coverage, eliminate duplicate coverage, and simplify the management of the properties. 

Cover multiple rental properties with commercial business from andrew gordon inc insuranceLet us look at a common structure: You own several rental properties, and the current insurance program looks like:

  • Building #1- $560,000 in building coverage, $500,000 in liability, rental loss coverage, with a $500 deductible. Policy renewal on June 25th.  Billed monthly.
  • Building #2- $720,000 in building coverage, $1M in liability, no rental loss coverage, with a $2,500 deductible. Policy Renewal on April 11th.  Billed quarterly.
  • Building #3- $330,000 in building coverage, $500,000 in liability, rental loss coverage, with a $5,000 deductible. Policy renewal on August 13th.  Paid in full. 
  • Building #4- $910,000 in building coverage, $2M in liability, rental loss coverage, with a $10,000 deductible. Policy renewal on November 2nd.  Billed monthly. 

Placing these four properties, and their insurance programs, under one policy would simplify the billing, standardize the coverage for all of the properties, and eliminate the hassle of separate renewals each year. 

The new insurance policy would look like:                                                   

  • Buildings #1-4 Scheduled with their total building coverage of $2,520,000. Using a “blanket limit” provides a rating discount, typically 10%. Rental loss coverage for every building. Plenty of liability coverage spanning all buildings: $1M - $20M. One set deductible for any claims on the policy.  Special form coverage for all of the buildings. One renewal date. One monthly bill. One insurance company. One claims department. One agent: Andrew G Gordon, Inc.

The insurance program you have in place for your properties is extremely important. Each building is a sizable financial asset. Each building also represents a potential liability exposure. It is essential to have the proper insurance program in place in order to sleep easy at night, knowing the buildings and your liability is efficiently well-protected.

If you want to investigate this option even further, simply contact us.

Val Feeney

Tags: company, building, property, insurance, multi-rental, rental, multiple, properties, multi-family, homes, multifamily

Appalachian Trail Trip Reflections

Posted by Geoffrey Gordon on Sun, Apr 07, 2013 @ 06:29 PM

Learn how to improve your business from travels and with commercial from andrew gordon incMy son is hiking the Appalachian Trail this spring, so I decided to join him for a week while I’m old enough to appreciate it, but still young enough to keep up. While the mountains of western North Carolina and eastern Tennessee are a different world from the business environment where I spend most weekdays, there are similarities that span all these places where we spend our lives. This blog will list a few.

Preparation

When preparing for a week in the woods, great deliberation helps to minimize weight and maximize comfort. All people, and all organisms, strive to maximize return on minimal effort. When I left home, my pack, which included a sleeping bag, tent, clothes for all possible weather and other necessities weighed about 24 pounds. 2 Liters of water (daily minimum consumption), and a week of food brought my pack weight into the low 30s. 15 to 20 years ago weights for the same trip would be in the low to mid 40s; less today due to advances in clothing technology.  Similarly business tools including PowerPoint, iPads, and other technological progress make presentations more efficient today. Preparation, however, still means the difference at the margins. The success of any business presentation is always greatly affected by the level of preparation by the presenter. One day, I met a hiker who was carrying a 50 lb pack, and quickly advanced out in front of him in spite of his 30 year younger legs. Similarly, a good business presentation with deliberate and diligent preparation will outpace a poorly prepared message any day.

Preparation

Balance

The old expression "All work and no play makes Johnny a dull boy" is as true on the trail as it is at work. My business coach reminds me to be sure that my work, personal, and spiritual lives are in balance. Similarly, on the trail, our bodies need a break every once in a while. One afternoon, after hiking the highest mountain along our trip, we decided to continue with a night hike to double our mileage for a 21+ day. The next day we took a "Near-0", (some “take a Zero”), hiking just five and half miles out to Erwin Tennessee. We so enjoyed that brief interlude of camping, instead of hiking, that morning with time for a campfire and a hot cup of coffee after all the hikers left for the trail. And my feet healed a little.

Similarly, in business, a day of rest makes sense to recharge ourselves from time to time, especially following a difficult or especially lengthy day.

Challenges

In business we know that setting SMART goals which challenge us sets an important path to success. Challenges on the trail are equally important. Fellow hikers (substitute “workers”) may push us to accept challenges that we rise up to meet. But it is equally important to reject those challenges where you are bound to fail. Failure on the trail can be life threatening so especially when the risk of failure is severe, pay heed. On the other hand, the ability to rise up and meet those challenges that must be met fosters perseverance, fortitude and discipline. These make us better at whatever we do.

Give and Take

Stephen Covey wrote that win-win situations should be pursued in business as well as in life. On the trail the level of generosity is tempered by shared resource limitations (there's only so much food in reserve). But the happiest hikers seemed to be those willing to help others. The evening of our first day of hiking, G surprised us by breaking out a six-pack of PBR Talls. This gesture of generosity added approximately 20% to the weight she carried that day, but the satisfaction of presenting these to her friends was worth the hurt. Mentors in business find deep satisfaction in helping others. Give to receive.

One big difference – hospitality vs. generosity

As a child I was taught about self-reliance, and never been comfortable accepting charity; but am always pleased to accept hospitality. But when you are tired and cold and thirsty and weak after a difficult day’s hike, accepting Gatorade, a slot in the shelter (we routinely exceeded stated capacity), and other forms of charity are accepted without hesitation. Thus, I offer a message to those who are kind enough to donate or offer charity in their lives: the recipients of your largesse may feel better about your generosity if it is offered in the spirit of hospitality, not just out of charity. They may also be too desperate to make the distinction.

RiskRisk: frequency and severity

When climbing on ice covered rocks in a steep incline, a misstep can be disastrous and even life threatening. Whenever I return to towns lined with sidewalks and curb cuts and warning signs saying to "watch your step," I am amazed by how safe public ways are. It’s good that we can walk around without fear of falling into a ravine. Safe walkways prevent injuries, and allow us to focus on other matters. But a sterile environment also dulls our senses. I believe that it is healthy for all of us to step away from the sterile and predictable environment we work in, to experience the high sensitivity required by unpredictable (risky) terrain, if only to feel the rush of focus and fear. Taking a measure of risk in our lives and then dealing with it appropriately keeps us alert and makes us better.

Final Thoughts

Final thoughts

This hike was one of the hardest things I've ever done, but wouldn't trade the experience for anything. Stepping out of our comfort zone into unpredictable new areas forces us to be better, to grow, and if we’re lucky, to forge new relationships. While living in great discomfort for a week is not for everyone, I urge anyone to step into an environment where sensitivities are sharpest and life explodes before us.

As you can see, business is a lot like hiking. To keep up with what's going on with the insurance of the business world, feel free to check out the rest of our commerical blog. For a free quote on your business, simply click the button below.

Geoff Gordon

 

Tags: Hiking, Trail, mountain, commercial, risk, life, preparation, Business, challenges, Appalachian, wisdom, lesson

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