I know it’s not pleasant to think about, and it’s easy to dismiss, but bad things do happen in life, even to attorneys. Consider this. Over the years some of our insureds have indeed passed away prematurely from climbing accidents, heart attacks, and cancer. Other insureds have had to deal with such things as a stroke, employee theft, an office break-in, a car accident, vandalism, lost or stolen computers, a sexual harassment claim, a complete and permanent loss of network data, even a client fall. Firms have also reported weathering fires, floods, hurricanes, and explosions (honestly!). In short, bad things happen. Not having insurance, or not having enough insurance, will make the fallout worse than it need be if, and when, bad things happen to you or at your firm.
No one can prevent death. In fact the ability to even accurately predict death has also proved to be most elusive. The only real option with so many of the above listed events is to try and manage the risk of their occurring by obtaining appropriate insurance coverage. Now please don’t view this as a sales pitch. ALPS doesn’t even sell the products that would address these exposures. My point is that the failure to address these kinds of risks is in reality a risk management decision. Inaction is at its very core a default decision to self-insure. I don’t believe that this is what many of us intend to do, but it is what far too many of us end up doing at least for certain types of exposure. I have no problem making a conscious decision to insure or not insure any given risk; just have it be a conscious decision so that when bad things happen there aren’t unexpected consequences. This is about encouraging each of us to develop an understanding of what some of the significant non malpractice risks are so that informed risk management decisions can be made. That’s it. Toward this end, I have put together the following list of risks and considerations for your review.
What happens if you die next month? Can the firm continue on? Will the firm be able to buy out your financial interest in the firm? Will your spouse be able to keep the house? Will the kids still be able to go to college? If you have significant wealth, will your beneficiaries have sufficient resources to pay the estate taxes? If the answer to these kinds of questions is no, consider obtaining life insurance. There are a number of options available in the market, but the important thing is to cover both the personal side and the business side of the equation. By way of example, “Key Man Life Insurance” is designed to help a firm carry-on in the event of a partner’s death. You might couple this coverage with a fixed-premium Term Insurance policy in order to address your personal insurance needs.
How long could you cover your partner’s share of the office overhead were she to become disabled? What if you were permanently injured in an accident? If your partner became permanently disabled and wanted to sell you her share of the business, could you afford to buy her out? Illness and injury can both lead to partial or total permanent disability that can effectively end an attorney’s career. When disabling events occur, financial disaster can follow if the risk was not properly managed. ALPS insured attorneys and thus their families and partners have dealt with the likes of cancer, back injuries, stroke, and depression. Periods of disability have run the gamut from several months to lifelong.
Disability insurance is the appropriate way to mange this risk and remember the following rule of thumb when purchasing this type of insurance. If you pay the disability premium with after-tax dollars, the benefits will normally be tax-free. If you use pre-tax dollars or if your employer pays the premium, the benefits will be taxable.
Disability policies also have elimination periods which, after becoming disabled, define the time the insured must wait before the benefits start. Elimination periods can range from 30 to 360 days. Given this, the proper way to manage the risk is to couple a disability policy with sufficient cash reserves to cover living expenses at least through the selected elimination period. Also, look for a guaranteed renewable policy so that should your individual circumstances change such that you become a greater risk, the insurance company can’t cancel the policy on that basis. Finally, consider coupling your own individual disability insurance policy with a group disability insurance policy, obtained by the firm, to be able to insure a larger portion of your income stream.
Turning to the business side of this risk, disability buy-out insurance is the way to fund the purchase price of a buy-out driven by a disability. A business overhead program enables the firm or an attorney to recover the costs of ongoing overhead expenses through reimbursement to include malpractice premiums under some policies.
What if you are at fault in a serious accident or a guest in your home is seriously injured? Accidents happen and the resulting loss can easily exceed the liability limits of your auto or homeowners policy. Any attorney with an established civil practice can share just how common it is to find that damages far surpass the money available to make an injured party whole. In short, your personal assets are at significant risk in the absence of a personal liability umbrella which typically provides additional coverage over the underlying limits of both your auto and homeowners policy. While many attorneys would not consider practicing law without having a professional liability policy in place, attorneys are less diligent about obtaining a personal liability umbrella. Again, accidents happen. Don’t get caught unprepared.
What if your office burns down, an employee is at fault in an accident while working, or you’re sued for wrongful termination? What if a fire starts in your office which is rental space? What if an elderly client falls and breaks a hip while walking out the front door? Year after year we hear the stories, lightning hit a building, an employee running an errand ran a red light, an employee filed a hostile work environment claim, or an office was burglarized. The list goes on and on.
In my experience as a risk manager, I have found that most insureds have purchased a general commercial property insurance policy of some sort. The problem, if there was one, was that certain exposures were overlooked. As a brief aside, a serious concern that comes up every once in a while is the attorney who is renting space without any commercial property insurance coverage at all. If this is the case for you, look at your lease. Most leases contain clauses that require the tenant to hold harmless, indemnify and, in some cases, add the landlord to the applicable policy. Should a fire start in your space and destroy other parts of the building, you have a serious problem. Commercial property insurance packages are available to renters and should be purchased to cover the obligations that can arise under your lease.
If you have a commercial property policy already in place, you might review your policy to see if any of the following coverage options are there. If not, these options are worth serious consideration. Note that several of these options may be available as an endorsement to a commercial package or sold as a separate and distinct policy.
Business Interruption - Also called an “Extra Expense Policy,” this coverage will compensate you for lost income if your firm has to move to temporary quarters due to disaster-related damage that is covered under your office insurance policy, such as a flood or fire. Business interruption insurance not only covers the profits you would have earned had the disaster not occurred, but also covers operating expenses, like electricity, that continue even though business activities may have come to a temporary halt.
Employment Practices Liability - This coverage protects the firm by covering legal defense expenses and damages resulting from wrongful employment practices including discrimination, sexual harassment, wrongful termination and other related workplace issues.
Employee Dishonesty - This coverage protects the firm from financial loss due to the fraudulent activities of an employee. The loss can be the result of the employee’s theft of money, securities or other property of the employer. Make certain that the coverage extends to the theft of client funds as not all policies do.
Accounts Receivable Coverage - This coverage indemnifies the firm for amounts that are uncollectable as a result of the destruction of accounting records. It also covers the costs of rebuilding these records.
Non-Owned Auto - This coverage protects the firm by covering injuries or damages that your employees are responsible for if they are at fault in an auto accident involving their own vehicle while on firm business.
This discussion of insurance is not intended to be an exhaustive analysis of insurance products or a primer on how to buy any specific type of insurance policy. Talk to the appropriate insurance professional. Again, the goal here is to create awareness and to encourage the proactive management of risk. The alternative, which is typically facing the fallout from a bad event uninsured, is not a position most of us ever want to find ourselves in. If, as a result of reading this article, you now see an insurance gap of some sort. Take the step to address the concern and manage the risk. Bad things do happen. Don’t get caught unprepared.