January 2019 – CALSAGA

The Californian 2019 Q1 – EDUCATING YOUR CLIENTS ON THE PERILS OF REST PERIOD VIOLATIONS

EDUCATING YOUR CLIENTS ON THE PERILS OF REST PERIOD VIOLATIONS

Annette M. Barber, Esq., Bradley & Gmelich, CALSAGA Network Partner

How many times have you attempted to discuss rest periods and the need for relief with your clients? How did that go? Did you receive a glazed look that showed lack of interest, or did you receive a hostile response such as “Those are your employees – they are not my responsibility!” If you are like a lot of account managers, you might have decided not to pursue the issue further and silently vowed to yourself that you would handle this. Did I summarize this scenario accurately? If yes, you are not alone.

Unless you have been living in a cave for the past two years, you know that the ruling in Augustus v. ABM Security Industries, Inc., significantly changed the way security professionals operate their businesses. It doesn’t matter any longer if you have one lone guard at a site: he or she must receive two paid ten minute breaks each day, free from all duties, or you must pay the employee an additional hour of pay for each day. End of story.

Some businesses may decide to pay the extra hour due to no other reasonable options. But some of you may decide to partner with your clients to try to develop options to stay legally compliant without incurring additional costs. That requires you to educate your clients and to also be creative.

Educating your clients shouldn’t be so difficult, right? But your client’s “What’s in it for me?” response when you approach the topic is not for the faint of heart. Here is an approach that might work.

Start with the positives – we value your business, we want to ensure the coverage you want and need, we want to limit your liability and prevent co-employment issues.
The ruling in Augustus was unexpected and impractical, but is now the law and we need to comply.
We will be charged one hour of pay for every violation if we cannot give our employees rest periods free from all duties.
And unfortunately, California Labor Code section 2810.3 now makes clients of staffing companies (which guard companies fall under) share in the liability for wage and hour violations of the staffing company, which can include penalties and interest. You could be named in a wage and hour class action lawsuit, which are on the rise.
So we would like to partner with you on reaching some solutions to allow both of us to stay compliant.

At this point, you should offer a few solutions, preferably those that will not cost the client more money, but the reality is that both you and the client should share in any extra costs.

It may be that it is so important to the client that a lone guard not receive an off duty rest period and the client is willing to pay an additional hour of pay (doubtful). Or maybe the client will agree to let the officer put up a sign that says “Back in 10 minutes.” Maybe the client has a receptionist that could fill in for an officer twice a day. In the grand scheme of things, specifically an 8-hour shift, two 10-minute breaks shouldn’t be a deal breaker.

This issue will need to be readdressed as service issues arise, service needs change, staffing changes, etc. If you are having concerns about a client and/or staying compliant with this requirement, don’t hesitate to reach out to counsel experienced with the security industry. Wage and hour lawsuits are the most commonly filed lawsuit in the state of California. Don’t let your company be another statistic.

Annette M. Barber is Special Counsel on Bradley & Gmelich LLP’s Employment Team. She represents clients providing employment advice and counsel in all aspects of hiring, performance management, training, compensation, and termination. Ms. Barber spent the past 17 years working with a global security company of 100,000 U.S. employees as an employment law attorney and then as Corporate Vice President directing HR Compliance nationwide for all 50 states, Puerto Rico and Guam.

Annette drafts and revises policies, handbooks, and extensive training materials for the firm’s clients. She is a member of the Association of Workplace Investigators, numerous bar associations and employment law sections. abarber@bglawyers.com / 818-243-5200

January 31, 2019/by Kate

The Californian 2019 Q1 – AN INSURANCE GUIDE: THE MINDSET OF AN UNDERWRITER IN THE PRIVATE SECURITY INDUSTRY

Human Resources

AN INSURANCE GUIDE: THE MINDSET OF AN UNDERWRITER IN THE PRIVATE SECURITY INDUSTRY

Blair Brownyard, Brownyard Programs

To the business world, insurance is a necessary evil. However, with insurance costs increasing each year, many security companies would go naked, if their clients didn’t insist that they carry insurance. No doubt after your latest renewal increase, this seems like a reasonable proposition. To minimize your next rate increase, here is the mindset of an insurance underwriter who is asked to underwrite and price the liability insurance of a private security company.

With most products, you know what the cost is when they are sold. Not so with insurance products; an insurance company doesn’t know how much their product costs until 5-10 years after they have sold it. And that’s why the pricing of liability insurance is so unpredictable. To give themselves an edge in predicting how much they pay in claims versus how much they received in premiums, insurance companies develop underwriting guidelines/criteria/signposts, which are supposed to help them determine the probability of losses with a specific type of insured to help them make a profit. The four basics of underwriting guidelines are:

Prior Loss/Claim Experience
Type of Operations
Company Management and Sophistication
Contract Language

Prior Loss/Claim Experience

This is one of the most critical elements in underwriting a company. Review your current claims through your insurance broker and be aware of your current claim expenses and reserves annually. A poor claim history has a big impact on your premium costs. A poor claim history is due to a number of factors, some of which can be avoided based on the factors below.

Types of Operations

Different clients will bring different risk to your company because many types of operations have historically brought more likelihood of claims. Your large contract with a fast food chain could be enticing for the money but may result in adverse loss experience and a higher insurance premium. Conversely, a gated community client may help reduce your underwriting factors to the carrier, thus decreasing your premiums. Here is a general list of high risk operations that create higher than average premiums. The locations of these operations are also a big factor – the higher the crime in the area, the higher the risk:

Anywhere alcohol is served or sold
Crowd control at stadiums, events, or concerts
Low-income housing
Fast food chains
Schools
Movie Theaters or Malls

Company Management and Sophistication

Underwriting will typically look at a number of factors relating to how well the company is run from a management perspective. Here are three items that help decide how well the company operates.

Screening, Training, and Supervision

Insurance companies look to the business practice of a company in their requirements for education, training, and supervision of employees. This varies across states and the industry as a whole. The 2018 28-member ASIS standards and guidelines commission has decided there would only be guidelines suggested within the industry and not a set industry standard for all to achieve. With regard to underwriting, underwriters will still look for the highest required guidelines in the industry and rate the company to those suggested guidelines.

Pay Scale and Benefits Given to Employees

Offering higher pay attracts higher qualified, better trained applicants. This translates to smarter, more qualified employees who perform better. And if the company provides health, life, or pension/profit sharing plans, this makes for a more satisfied and healthier employee who is less likely to act negligently or file frivolous workers comp or employee practices claims.

What is the Education/Background of the Principals

Experience in private security, law enforcement, or military, etc. as well as involvement in security management training through organizations like ASIS International or other business programs are positive impacts on the operations of the company and show underwriters an ability of management to overcome obstacles.

Contract Language

Insurance companies may look at your contracts to see how you are protecting yourself in the event of a claim. Unfortunately, your Clients, the Public, and sometimes even the courts think guard companies are deep pockets to cover losses in the event of personal injury. This is attempted by clients in two ways:

Indemnification Agreements
Additional Insured language

INDEMNIFICATION AGREEMENTS

In construction or service contracts, a hold-harmless or indemnity agreement will be included in the general contractor’s contract to the subcontractor. In order for your security company to limit claim expense and payments, the clause should not include the liability and mistakes of anyone except your own employees. The larger property managers/owners force many broad form indemnity agreements on the security companies for a deep pocket in the event of any accidents on premises. The good news in California is that an indemnity clause for your client’s sole or willful acts is void by public policy. However, be aware, many will still try to pass it through in their contracts.

Additional Insured LANGUAGE

Closely related to indemnity agreements discussed above, additional insured endorsements are used to increase the obligation of your company to defend and indemnify the owner. This indemnity is usually confirmed to them by a certificate of insurance. Your underwriter will be asked to approve additional insured endorsements for many companies by contract. But as parties requested have less and less relation to the contract, the underwriter will likely question the need for such an endorsement. Any additional insured and indemnity requests need to be scrutinized here to limit the exposure for claims. Like all contracts and RFPs, it is advised to have counsel review these clauses to ensure your client is not trying to shift a disproportionate amount of risk to your company.

All factors discussed above are the basics for all underwriting in the security industry. Many might dive deeper into data on location of operations or screening processes. And many might try to look at seemingly unrelated issues. This is all part of the investigative process to ensure the risk is being adequately evaluated for claim potential. This is not an exact science, maybe someday we will have exact predictions of claims, but we are not there yet. It is important to note that security risks are high-severity risks and not high-frequency; e.g. many companies can go decades without one liability claim and then get hit with a monster claim. That is the nature of a security risk; a very unpredictable nature. For now, the underwriting process is a moving target for all carriers, and security companies will be best served by building a trusting, open relationship with a reliable carrier who truly understands their industry.

Blair Brownyard has been the VP of Brownyard Programs, Ltd. and has worked exclusively with the security industry for the past 8 years. He has a J.D. from Touro Law in Central Islip, NY. Brownyard Programs, Ltd. has underwritten the security industry for the past 25 years and was purchased by Crum & Forster Insurance in 2015 to join forces with the other oldest name in security insurance, CoverX Specialty. Together, Brownyard Programs and the experienced team rebranded as Crum & Forster Specialty, have a suite of innovative products and services to grow with the security industry into the next generation.

This information contained herein is provided for information purposes only and is not intended to be a representation of coverage that may exist in any particular situation under a policy issued by one of the companies within Crum & Forster. All conditions of coverage, terms, and limitations are defined and provided for in the policy. This information is intended for use as a guideline and is not intended as, nor does it constitute, legal or professional advice. In no event will Crum & Forster or any of its affiliates be liable in any manner to anyone who has access to or uses this information.

January 31, 2019/by Kate

The Californian 2019 Q1 – INSURANCE, TERRORISM & THE TERRORISM RISK INSURANCE ACT (TRIA)

Insurance, The Californian

INSURANCE, TERRORISM & THE TERRORISM RISK INSURANCE ACT (TRIA)

Nick Langer, Turner Surety & Insurance Brokerage, Inc.

First passed into law in 2002, the Terrorism Risk Insurance Act (TRIA) requires commercial insurers to make terrorism insurance coverage available. Since then TRIA has established a federal backstop program, providing the necessary stability to the private terrorism risk insurance market by guaranteeing both the availability and affordability of terrorism insurance coverage for U.S. commercial properties and businesses.

The initial intent of TRIA was to provide a temporary federal backstop program that would allow the economy to recover following the 9/11 attacks. While the reinsurance industry has become increasingly willing to cover terrorism risks over the years, the private market still cannot assume all the risk alone.

On January 12, 2015, President Obama signed H.R. 26, the Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA 2015) into law, which extends the federal backstop program for an additional six years through December 31, 2020. As was the case with the prior reauthorization in 2007, TRIPRA 2015 calls for new structural changes to be implemented, which reduces the federal role in the program.

Similar to the TRIPRA 2007 program, TRIPRA 2015 requires certain criteria to have been met before federal coverage under the program begins. First, Property & Casualty insurance losses resulting from a terrorism-linked attack must meet the minimum damage certification level of USD 5 million. If losses are expected to meet this minimum threshold, then the event must also be officially certified as an “act of terrorism.” This certification is determined by the U.S. Secretary of the Treasury in concurrence with the Attorney General of the United States and—new under TRIPRA 2015—the U.S. Secretary of Homeland Security. As an example, insured losses resulting from the Boston Marathon bombing were not expected to meet this minimum threshold, and the event has not been certified as an act of terrorism—even though President Obama referred to it as an act of terrorism during a speech he gave soon afterward. The certification requirement can be frustrating for policyholders, who are left wondering when or if their claims will be covered.

If an act of terrorism has been officially certified, then compensation under the program will still not begin until aggregate insured losses in a calendar year reach the “program trigger.” Under TRIPRA 2015, the program trigger will gradually be raised each year from USD 100 million in 2015 to USD 200 million by 2020. The increase to the program trigger is considered to be one of the most substantial changes to the program and aims to transfer more of the risk to the private insurance market. Some argue that this may negatively impact the solvency of small, insufficiently diversified insurers who are not well positioned to absorb losses up to this level.

Once all the initial criteria for federal coverage have been met, an insurer who incurs losses resulting from a certified act of terrorism is required to first cover a portion of the losses—the insurer deductible. The amount of each individual insurer’s deductible is calculated as 20% of the insurer’s direct earned premiums in TRIPRA-eligible lines of business for the previous calendar year. For losses in excess of the insurer deductible, each insurer is also required to cover a pro-rata share of the losses, or copayment, with the federal government providing compensation for the remaining losses. Under TRIPRA 2015, the insurer copay will gradually increase each year from 15% ultimately to 20%.

The annual cap on liability also still applies under TRIPRA 2015, which means that no federal or private insurer payments are compensated for any portion of aggregate industry insured losses exceeding USD 100 billion. TRIPRA 2015 also increases the industry annual aggregate retention from USD 29.5 billion to USD 37.5 billion in 2019, the fifth and penultimate year of the program. In 2020, the final year of TRIPRA 2015, the retention will rise to an amount equal to the average of all participating insurers’ deductibles over the previous three program years. The Congressional Budget Office (CBO) has estimated that this amount could be as much as USD 50 billion.

If you have been involved in the process of securing insurance for your business, then you have received some version of a TRIA Disclosure giving you the option to “Accept” or “Reject” coverage for acts of terrorism. To better understand this coverage, it is important to understand the difference between “Certified Acts of Terrorism” and “Noncertified Acts of Terrorism.”

A Certified Act of Terrorism is eligible for coverage under TRIA. Insurance carriers paying claims in response to a certified act of terrorism will be reimbursed by the federal government. An act of terrorism is certified by the Secretary of Treasury and must meet the following criteria:

Be a violent act or an act that is dangerous to human life, property, or infrastructure;
Cause damage within the United States or other area of U.S. sovereignty
Be committed 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 U.S. government by coercion; and
Produce property-casualty insurance losses in excess of $5 million.

A Non Certified Act of Terrorism is simply that… an act of terror that is not certified by the Secretary of Treasury and therefore does not trigger the federal reimbursement provisions of the Terrorism Risk Insurance Act (TRIA). As discussed earlier, TRIA mandates that commercial insurers offer coverage for “certified acts of terrorism,” however they are free to exclude (or cover) “noncertified acts of terrorism.”

As you can see there are many moving parts of TRIA and thus far the claims process remains untested. Since TRIA is a backstop, in essence a federal reinsurance program for Insurance carriers, it is likely that carriers will be measurably slower in the adjusting of claims should an act of terrorism occur. Couple that with the fact that the act itself expires December 31, 2020, and the federal government looks to diminish their role as reinsurer to the carriers there simply are no guarantees as to the future.

Nick Langer is a Senior Risk Advisor at TSIB with more than 15 years of property & casualty broker experience. He specializes in the Construction, Energy and Security Industries. Nick enjoys the challenge of finding solutions to his client’s unique needs and is committed to learning the intricacies of each client’s business operations.

Prior to joining TSIB Nick had his own insurance agency that specialized in both personal and commercial lines of insurance. After 7 successful years of growing his property and casualty agency he joined Tolman & Wiker Insurance Services, LLC.

Nick regularly presents at trade associations on risk management topics including: Workers’ Compensation, Claims Management, Risk Management, Contractual Risk Transfer and Employment Practices Liability.

Nick is committed to improving the lives and success of his clients for the benefit of the community through his various roles and leadership positions. He has served as the Insurance Advisor to the Board of Directors of The California Association of Licensed Security Agencies, Guards and Associates (CALSAGA). He is President of The Bakersfield Young Professionals in Energy (YPE), a member of the Associated Builders & Contractors (ABC), and the former Government Affairs Committee Chair for the Central California chapter. Nick is a member of the Associated General Contractors (AGC) and the American Society of Safety Engineers (ASSE).

Nick has Bachelor of Science in Business Economics from University of California, Santa Barbara. Nick and his wife have three children and three rescue dogs. In his spare time, Nick is an avid fisherman and enjoys golfing, hiking and fitness training.

January 31, 2019/by Kate