An economic downturn can be a turbulent time for businesses in every sector worldwide. Sinking revenues and economic uncertainty can exacerbate our already litigious society, and even companies that successfully weather economic downturns relatively unscathed can still face long-term uninsured risks. For this reason, Reith & Associates Insurance and Financial Services Limited has compiled these tips to effectively manage your company’s exposures as it adapts to the current business climate and moves into the next economic cycle.
Supply Chain Dependency
It’s no secret that in times of economic downturn, cutting costs is a necessity. However, it is important to remember that the financial security of your business can hinge on that of your partners, vendors and suppliers.
In a tough economic climate, do not rely on the insurance coverage of your business partners to protect your assets or prevent third-party liability claims. Any member of the supply chain can be held responsible for its counterparts’ torts. A distributor, for example, may be liable for a claim filed against its manufacturer when it goes out of business.
Therefore, in order to protect your company, it is a wise long-term investment to expand your coverage limits. While it may be tempting to cut costs by limiting coverage, this decision could expose you to severe liabilities due to your supplier’s shortcomings. If you currently deal with foreign manufacturers or if you’re considering outsourcing for the first time, talk to Reith & Associates Insurance and Financial Services Limited about covering the associated risks.
Rely on Solid Contracts
In times of economic change, it is more important than ever to ensure your protection with thorough, seamless contracts. They should clearly outline both parties’ obligations and discuss dispute resolution policies to avoid messy and expensive disagreements. An indemnity term can be included in contracts with foreign suppliers in which the supplier consents to the jurisdiction of Canadian courts and indemnifies its sellers here in the event of a claim involving one of its products. Remember, however, that this contractual indemnity is only as valuable as the manufacturer’s ability to pay.
It is never a good business decision to sign a contract hastily, so be sure to explore all the risks and legal ramifications, especially in difficult economic times. Small companies who partner with larger companies are often strong-armed into making decisions with which they are not completely comfortable.
Changing to Survive
For many businesses, change is an intelligent way of reacting to an economic crisis. It allows you to explore new customer bases and offer additional products or services. While expanding in either of these ways can revolutionize your business and keep you afloat in tough times, it could also expose you to additional liability you have not dealt with before.
When you begin to step into new lines of products or services, you will inevitably face a learning curve, which puts you at a larger risk of facing product liability claims. You may want to consider purchasing additional lines of coverage to protect yourself, as your surplus lines insurance policy may only cover claims arising from one particular product.
Shifting or expanding your customer base may also open you up to class action lawsuits. New markets may react differently to product failure. Thus, it is vital to be covered for potential liabilities resulting from a change in your business. Contact Reith & Associates Insurance and Financial Services Limited today to assess exposures that could be associated with your business plan.
Reith & Associates Insurance and Financial Services Limited
Social engineering fraud (SEF) is a type of fraud that’s become increasingly common over the last several years. However, even though many instances of this fraud transpire over email communications, it’s a company’s crime policy—not a cyber policy—that would often provide coverage in the event of an SEF loss.
That’s why it’s especially important to understand your crime policy, how it might cover SEF, why it might not, and what endorsements you might want to obtain to make sure SEF doesn’t leave your company exposed.
How Social Engineering Fraud Works
There are a number of variations on the theme, but most instances of SEF involve the following elements:
A targeted approach. Criminals will research their targets, purchase authentic-looking domains, manufacture email chains and even resort to making phone calls, all in an effort to make their requests seem authentic.
A request. The preparation is in service of obtaining something from the target, either money (usually in the form of a wire transfer) or information (such as a list of vendors, routing numbers, etc.).
The application of social pressure. In order to bypass in-house safeguards and redundancies, the criminals apply pressure by imposing a time constraint, demanding secrecy or simply flattering the ego of the target by including him or her “in” on an important business transaction.
The disappearance of the hacker. Once the criminals obtain what they want, they disappear with the information or money—things that the company won’t miss until it’s too late.
Cyber Policy vs. Crime Policy
It may seem counterintuitive, but SEF is usually not covered by a cyber policy. Even though this fraud often involves emails and wire transfers, cyber policies are not designed to cover them:
Cyber policies cover losses that result from unauthorized data breaches or system failures. SEF actually depends on these systems working correctly in order to communicate with an organization’s employees and transfer information or funds.
Crime policies cover losses that result from theft, fraud or deception. Because the underlying cause of a loss in SEF is fraud, a company would claim a loss under its crime policy rather than its cyber policy.
Areas of Cover
A standard crime or fidelity policy contains a few provisions under which an SEF claim might be filed:
Computer fraud. This refers to losses stemming from the unlawful theft of money due to a “computer violation”—that is, the unauthorized entry into or deletion of data from a computer system by a third party.
Funds transfer fraud. This refers to losses stemming from fraudulent instructions to transfer funds made without the insured’s knowledge or consent.
Depending upon the specific language and definitions laid out in the crime or fidelity policy, the insurer might argue that SEF is excluded from coverage for a number of reasons:
There was no “computer violation.” Often, SEF doesn’t involve compromising network security in order to steal data. Instead, criminals “hack” human vulnerabilities in order to gain access. Because the system functioned as it was supposed to, and the criminal gained access due to human failure, an insurer might try to deny the claim.
The insured knew about and consented to the transfer. Again, it depends on the specific language of the policy, but an insurer might argue that SEF isn’t covered under “funds transfer fraud.” That’s because, in most social engineering scenarios, some agent of the insured willingly and knowingly authorized the transfer of funds to the intended account. Again, in SEF, the systems in place to transfer funds worked as intended; it was human failure that resulted in the loss.
The voluntary parting exclusion. Most crime policies have a voluntary parting exclusion that excludes coverage for losses that result from anyone acting on the insured’s authority to part with title to or possession of property. In other words, because the employee knowingly and willingly authorized the transfer, it wouldn’t be covered.
Social Engineering Fraud Endorsements
Because of this potential gap in coverage, some carriers have started offering SEF endorsements to their crime and fidelity policies. The insurance agreements might go by different names, but they’re all intended to make limits and liabilities explicit for both the insured and the policy issuer.
These endorsements are only offered by a handful of carriers, but with the increasing prevalence of SEF, more are likely to follow. To learn more about SEF, we have resources available for you. Ask about our “Risk Insights: The Fake President Fraud.”
To discuss your coverage options and learn what options are available to you, contact your insurance provider today!
Reith & Associates Insurance and Financial Services Limited
Construction projects, regardless of their size, can present complex insurance issues. Are you confused about your exposures and policy options? If so, it’s no surprise — there are no standard builder’s risk policy forms covering these types of risks. To help you limit your exposure, here are some helpful builder’s risk policy basics.
Builder’s Risk coverage is a type of property insurance specifically designed to cover property during the course of construction, including renovation and repair. Why do you need it? There are additional risks and responsibilities inherent in this type of work that a typical property policy is not designed to cover. For example, if someone steals contractors’ equipment from the job site or if construction materials are damaged, you could be liable for the loss if you do not have builder’s risk coverage.
Typically the coverage is purchased by either the property owner or the contractor.
Regardless who purchases the coverage, all parties that have property involved in the project should be named in the policy. This may include the owner, contractor, subcontractors, the financial institution funding the project and, in some cases, the architects and engineers. Once the project is completed and/or accepted by the owner, your regular property policy kicks in.
When purchasing builder’s risk coverage, one of the issues often overlooked is the policy period – it may not be clear when the coverage begins and ends. As a result, keep the following in mind:
Commencement of Coverage: Builder’s Risk policies provide coverage for property in the course of construction, renovation or repair. But at what point does construction renovation or repair begin?
Typically, contracts require that insurance be provided for the duration of the contract period. This means that the policy inception date would be the date the contracts are signed.
The lender may also specify the inception date.
However, be sure to review insurance policy provisions to determine whether there are restrictions on when coverage begins. Policies may contain clauses that state coverage begins when construction commences or that the insurance company will pay for losses at the time you become legally responsible for the covered property, either on or after the effective date. Prior to any site preparation, demolition or delivery of materials or equipment, review the policy to ensure there are no restrictions on coverage inception.
Coverage Expiration: Determining when coverage terminates can be equally problematic. Builder’s Risk policies can contain provisions that terminate coverage prior to policy expiration. The provisions typically state that coverage will end at the earliest of the following:
The policy expires or is cancelled;
The property is accepted by the purchaser;
Your interest in the property ceases;
You abandon the construction with no intention of completing it;
Unless specified otherwise in writing:
90 days after construction is complete, or
60 days after construction is complete and building described in the declaration is:
occupied in whole or in part, or
put to its intended use.
Problems and Solutions
There is no coverage under the policy if the building is occupied to any extent, for over 60 days, without written consent of the insurance company.
The policy only provides coverage for up to 90 days after the completion of construction. In the case where the building is completed only two days before policy expiration, there are only two days of coverage available. There are 90 days of coverage available after completion only if there are at least 90 days remaining in the policy period.
Coverage issues can arise at the end of a project, after construction is complete and the structure is occupied, but a “punch list” and final completion work remains.
Understand the insurance coverage obligations of the project documents and contracts to ensure the policy period, at a minimum, fulfills the requirements.
Understand the terms and conditions of the policy and what triggers the coverage to commence and cease.
When coverage ends make sure permanent coverage is in place so no gaps in coverage exist.
Careful planning is the foundation for a smooth construction project. Many businesses choose to transfer or accept risk through contracts, purchase orders and lease agreements. However, not all contracts or endorsements are created equal. A broker who understands your business can knowledgeably help you with builder’s risk policy language to meet your individual needs. Contact Reith & Associates Insurance and Financial Services Limited today to learn more about contractual risk transfer and its place in your overall risk management program.
Reith & Associates Insurance and Financial Services Limited
Airbnb offers individuals a unique opportunity to efficiently rent out their homes, spare bedrooms or other accommodations.
For travellers, Airbnb is a convenient platform that provides affordable and flexible alternatives to hotels. For property owners and tenants, the service easily connects various rental units with prospective occupants and makes collecting payments simple and secure. For the average homeowner, properties or spare rooms that are otherwise vacant can easily be transformed into a source of income.
Despite its convenience and the potential for profit, Airbnb is not without its risks.
Potential Insurance Gaps
If you are considering renting your property through Airbnb, your first step is to contact your insurance broker to review your current homeowners or renters insurance policy. Relying strictly on such policies while hosting guests through Airbnb can lead to significant gaps in coverage and leave you financially vulnerable.
While your homeowners or renters policy may allow you to rent your property to a guest, it is important to keep in mind that each insurer has its own restrictions and requirements. For example, some insurers may require advanced notice of any short-term rental, whereas others might insist that you purchase an endorsement to broaden your coverage.
Standard homeowners and renters insurance policies are designed for personal risks, not commercial use. If you plan to rent out your residence on a regular basis, many insurance companies will consider this commercial use. In many cases, regular Airbnb hosts will need to obtain a commercial insurance policy in order to be properly insured. It should be noted that a growing number of insurance companies now offer home-sharing liability insurance policies that can be purchased on a month-to-month basis.
Issues with Airbnb-provided Protection
To its credit, Airbnb does offer its hosts two forms of protection through its Host Guarantee and Host Protection Insurance. While hosts may be inclined to rely exclusively on these programs to manage their risks, there are significant gaps related to these offerings.
Airbnb backs every one of its bookings with its Host Guarantee coverage at no cost. Airbnb claims that this coverage will reimburse eligible hosts for damages up to $1 million. However, Airbnb readily admits that its Host Guarantee is not insurance and should not be considered a replacement or stand-in for homeowners or renters insurance.
Moreover, payments through the Host Guarantee are subject to a lengthy list of terms, conditions and exclusions. Therefore, hosts should be aware of the following issues related to Airbnb’s Host Guarantee:
Hosts must attempt to resolve any issues with the guests involved prior to receiving any compensation. This also means that a host would have to make a claim on his or her own insurance policy before Airbnb would intervene.
Any sum collected from a standard policy or a security deposit would be deducted from the Host Guarantee.
The guarantee will only repair or replace covered property that is damaged during the time frame of an online booking.
This guarantee does not cover certain items, including, but not limited to, cash, collectibles, jewellery, pets, watercraft or any damage to property that is not considered a covered accommodation.
Host Protection Insurance
In addition to its Host Guarantee, Airbnb offers coverage to patrons through its Host Protection Insurance. Airbnb indicates that the program provides primary liability coverage for up to $1 million per occurrence in the event of third-party claims of bodily injury or property damage. Despite Airbnb’s claims, hosts should be wary of relying solely on this insurance program for a number of reasons:
Intentional acts that aren’t the result of an accident are not covered under this policy. In addition, Airbnb’s Home Protection Insurance does not cover what it refers to as property issues, which can include things like mould, asbestos and bedbugs.
Neither Airbnb’s Home Protection Insurance nor its fine print is readily available for review. What’s more, the policy is subject to limitations, conditions and exclusions. Together, this means that specifics around coverages are vague, and Airbnb hosts may not know what’s protected.
The personal property of any guest is generally not covered. Additionally, any theft or damage caused by a guest may not be covered either.
With Airbnb’s Host Protection Insurance, it’s best to assume that you aren’t equipped with the proper coverage. For full protection, it is likely that you will need to speak with an insurance professional to better understand the policy adjustments you will need in order to be fully covered.
Considerations for Condo Owners and Renters
While Airbnb opens its services to condo owners and renters, multi-unit buildings often have restrictive bylaws, homeowner association rules or lease terms that could impact one’s ability to host guests through Airbnb.
In many instances, commercial activities like renting out accommodations—even for a short period of time—are forbidden by lease or condo board policies. In some cases, hosts will need to contact their landlord or condo board before subletting or renting any accommodations out. Failure to do this can result in eviction or other forms of legal action.
Even if you are allowed to rent out your condo or apartment through Airbnb, hosts should be aware that doing so can cause tension with neighbours. There’s the potential that your guests may be disrespectful to property in common areas, act inappropriately or noisily, or make other tenants feel uncomfortable.
Local and Provincial Laws Considerations
In response to the rising popularity of Airbnb, many provinces, cities and towns are moving to regulate short-term property rentals through their municipal codes or zoning regulations. In some cases, home rental services like Airbnb could be prohibited altogether.
If you break these local regulations, purposely or otherwise, you could face thousands of dollars in fines. What’s more, Airbnb says alignment with laws and regulations is the responsibility of those renting out accommodations. Accordingly, it is imperative to review local laws and regulations before you commit to using Airbnb to rent out accommodations.
Income from all sources is taxable in Canada, including internet-sourced rental income. Consequently, any income derived from Airbnb rentals must be reported to the Canadian Revenue Agency (CRA).
Depending on the number and nature of the services provided to guests, the CRA will consider money earned through Airbnb as either rental or business income. Furthermore, if the income you make from Airbnb exceeds $30,000 per year, you will most likely have to register for a harmonized sales tax (HST)/goods and services tax (GST) account through the CRA and will be subject to the applicable taxes. Provincial sales taxes (PST) will vary from province to province.
For those who have already earned unfiled income through Airbnb, coming forward through Canada’s Voluntary Disclosures Program (VDP) is recommended. Through the VDP, penalties for unfiled back taxes will be forgiven.
For more information on the tax implications of Airbnb and to ensure compliance, hosts are encouraged to contact a tax professional or the CRA.
The Bottom Line
While Airbnb offers a unique and potentially profitable service to users, it’s not without its faults. Before you decide to try it for yourself, be sure to consider all of the risks.
Again, you’ll want to minimize potential financial fallout by purchasing the appropriate insurance coverage. To discuss your options further, contact Reith & Associates Insurance and Financial Services Limited today.
Reith & Associates Insurance and Financial Services Limited
When renting a car for a family vacation, road trip or other personal use, the last thing you want to worry about is your insurance coverage. Regardless, before renting a car, you will have to decide whether to purchase additional rental insurance or not. In most cases, the coverage and deductibles you have on your personal automobile insurance policy apply to a rental car, provided it is being used for pleasure and not business.
However, if you do not have a comprehensive policy, physical damage or a loss to the rental vehicle may not be covered. In this instance, you may have to pay for a claim yourself, which could end up costing you thousands.
In the event of an accident, the only way to protect yourself from a major loss is with the right insurance policy. As such, it’s important to understand all of your insurance options when renting a car, which include the following:
Purchase a rental car endorsement through your insurance provider. Adding a rental car coverage endorsement to your current auto policy allows you to transfer your car insurance coverage from your own vehicle to a rental car. This can typically be done at a low cost, but you’ll want to have a solid understanding of what is and isn’t covered under your policy. Be certain to review with your provider in advance.
Purchase coverage through the rental car agency. Car rental agencies themselves provide coverage—coverage that often has added perks like roadside assistance. While purchasing protection through a rental car agency is convenient, there are a number of considerations to keep in mind. For one, insurance purchased through a rental car agency can be expensive. Second, insurance from rental car agencies often carries a number of restrictions and may not include protection from lawsuits and may not cover the cost of lost income to the rental agency while the rental is off the road for repairs caused by you. This cost could be out-of-pocket and cost you thousands. As such, if you purchase coverage from a rental agency, it’s important to know what you’re getting.
Use the coverage on your credit card. Many credit cards provide some form of rental car insurance, so long as you use the card to rent the car. In most cases, insurance of this kind provides basic protection for damage and theft. This type of coverage is typically only available if a person denies the insurance offered by the car rental company. Again limitations and exclusions may apply, so do your research before going this route. Notably, this coverage should not be used as a replacement for insurance, as protection is typically limited to only a few thousand dollars.
Properly structured, the best coverage, and most cost effective, for a rental car is through the rental car endorsement added to your own auto insurance policy.
Depending on your insurance policy, you may need additional coverage in order to be fully protected. For instance, the type of vehicle you rent (e.g., moving vans, trailers, luxury cars and recreational vehicles) may have insufficient coverage under your policy.
These considerations can make the process of securing adequate coverage for your rental vehicle difficult. To ease the process, keep the following tips in mind the next time you plan to rent a car:
Check with your insurance broker whether your existing policy extends to rental vehicles.
Ensure the amount you’re covered for is equal to or greater than the value of the car you’re renting.
Check that your insurance coverage is comprehensive and includes protection for third-party liability, collisions, theft and vandalism.
Compare rental car insurance prices online. Keep an eye out for discounts and deals.
Check with your insurance broker about how an accident in a rental car would affect your auto insurance rates if you make a rental car claim.
Above all, to save you time and the headache of navigating your options, it’s important to speak with a qualified insurance broker. Your broker can explain your different options and ensure that you are protected in the event of an accident. To learn more, contact Reith & Associates Insurance and Financial Services Limited today!
Reith & Associates Insurance and Financial Services Limited
Insuring all of the risks associated with large-scale constructions projects can be a daunting task for the parties involved. The traditional insurance approach requires each party to procure and maintain separate coverage. Generally, the contractor and subcontractor then include the cost of insurance, plus a mark-up, in their project bids.
Typically, risk is then pushed downstream—from owners to general contractors, and from general contractors to subcontractors—through contractual indemnifications, contractually mandated minimum insurance requirements and additional insured provisions.
While this approach may be customary for the parties involved, it is not without complications. Due to the number of policies and insurers involved, the traditional approach creates the potential for unforeseen liability gaps to emerge. Some parties may have inadequate limits, gaps in coverage or no insurance at all. Furthermore, because there are various insurance companies covering one project, each claim has the potential to cause costly and time-consuming cross litigation.
As an alternative to having each party obtain separate liability policies, project owners and general contractors can turn to a wrap-up insurance programs to manage their risks.
What is Wrap-up Liability Insurance?
Sometimes referred to as controlled insurance programs (CIP), wrap-up insurance programs are centralized insurance and loss control programs intended to protect the project owner, general contractor and subcontractors under a single insurance policy or set of policies for the construction project.
Insurers typically offer two types of wrap-up programs based on the party sponsoring the program:
Owner Controlled Insurance Program (OCIP): Under an OCIP, the project owner sponsors and controls the program. Accordingly, the project owner is the first named insured, and the general contractor, subcontractors and other participants are named insureds.
Contractor Controlled Insurance Program (CCIP): Under a CCIP, the general contractor sponsors and controls the program. The general contractor is the first named insured, and the subcontractors and other participants are named insureds. Depending on the program, the project owner is either an additional insured or named insured.
While wrap-up programs are most frequently used for large, single-site projects, a rolling wrap-up can be used to insure multiple projects under one program.
Wrap-up programs are designed to reduce the overall cost of insurance by providing what amounts to volume discounts for the entire project.
What Types of Coverage Do Wrap-up Programs Provide?
Although each wrap-up program is designed to meet the needs of the specific project, most programs insure employer’s liability, general liability and excess liability exposures for claims arising from the construction project at the construction site during the policy period.
In many instances, builder’s risk, environmental liability, contractor default and other types of insurance can be included under a wrap-up program. Professional liability coverage can also be added to insure architects, engineers and other design professionals working on the project.
Liability occurring away from the project site is generally excluded under wrap-up programs. Accordingly, subcontractors, suppliers and vendors conducting off-site manufacturing or the assembling of building components may be excluded from the program. Claims arising from goods or materials in transit are often also excluded, preventing haulers and truck drivers from being covered under the program.
Wrap-up programs typically do not insure specific operations such as blasting, demolition or other high-risk operations. However, each program is different, and it is critical for program sponsors to be familiar with exactly what is and is not covered.
Benefits of Wrap-up Programs
Wrap-up programs can provide a number of benefits, including the following:
Potential cost savings: Wrap-up programs are designed to reduce the overall cost of insurance by providing what amounts to volume discounts for the entire project.
Consolidated coverage: Under the traditional approach, by which parties procure their own insurance, the project owner and general contractor can set minimum insurance requirements for downstream participants. However, it can be difficult to determine whether contractors and subcontractors have obtained the correct limits and types of coverage. By contrast, under wrap-up programs, the controlling entity exerts greater control over the types, scope and limits of coverage.
Higher limits: Most wrap-up programs have very high limits. If a major disaster occurs at a project and is not covered by a wrap-up program, the responsible contractors may not have adequate limits to cover the claim. Thus, the owner or general contractor may be on the line for the difference. However, if the project is covered by a wrap-up program, the limit should be sufficient to cover the incident.
Centralized safety and risk management: Program sponsors, working in conjunction with their brokers, the insurer and safety professionals, can maintain centralized safety and risk management services. Doing so can reduce the frequency and severity of injury and property damage claims, thereby reducing insurance costs for the project.
Efficient claims processing: Because a single insurer is the control point for managing claims, the process tends to be more efficient under wrap-up programs.
Reduced disputes among insured parties: By covering all of the parties on a project under one policy, wrap-up programs reduce coverage disputes and subrogation issues between insureds and insurance carriers for covered claims that occur on the job site.
Access to projects: For contractors and subcontractors, wrap-up programs can provide them with access to projects that they may not have otherwise been able to properly insure.
Because wrap-up programs often offer a broad range of coverage for many entities, they can be expensive to obtain. However, program sponsors are typically able to reduce costs by selecting higher deductibles or by distributing premium costs to all parties covered under the policy.
Since wrap-up programs tend to encompass several types of coverage for a number of different organizations, program sponsors generally inherit administrative tasks. Beyond purchasing the wrap-up program, sponsors may be required to review and approve program documents, meet with underwriters and review claims. To address these issues, plan sponsors can designate or hire individuals to help administrate the programs, which can add to overall costs.
While wrap-up programs often result in cost savings, like any insurance policy, they are subject to market fluctuations. Accordingly, potential cost savings should be carefully considered.
Reith & Associates Insurance and Financial Services Limited understands that implementing a wrap-up program can be a complicated process. There is no “one size fits all” model, and each program needs to be properly analyzed and tailored to meet a project’s specific needs.
If you are interested in insuring your next construction project with a wrap-up program, contact Reith & Associates Insurance and Financial Services Limited today and we will take the time to walk you through your coverage options.
Reith & Associates Insurance and Financial Services Limited