3 Top Litigation Trends Impacting Your Business

Legal firm Norton Rose Fulbright recently released the results of its 2015 Litigation Trends Annual Survey. The survey involved companies in 26 countries and over 800 corporate legal representatives. These results indicate the areas business owners may want to examine closely as part of a review of their current insurance coverage.

Of the U.S.-based businesses surveyed, 55% reported facing more than five lawsuits in the past year, while only 18% reported zero lawsuits. All surveyed were asked to choose the top three types of litigation their companies faced in the past year. Out of the 20-plus categories listed, these were contracts, labor/employment, and regulatory/investigations.

What does this mean for business owners? In addition to general liability insurance, which is a must, you may want to consider obtaining coverage that targets these high-litigation areas.

Depending on the specific needs of your business, some types of coverage may be more relevant than others. But here are some policies you may want to focus on in light of the top areas identified in the survey.


Contract Litigation Insurance (CLI) offers an important type of protection: Are you aware that generally the losing party in a contract dispute is forced to pay the winning party’s attorney fees? These fees can range from thousands to millions of dollars, depending on the case. General Liability, Errors and Omissions, and other types of policies may cover your own legal costs but typically do not offer protection from paying the other side’s legal costs. CLI offers this coverage.


Workers’ Compensation Insurance is required for any business owner with employees. It must provide strong coverage and reflect the needs of your business. But if your company is particularly concerned with the area of labor relations, you may also want to consider Employment Practices Liability Insurance, which will extend your protection to cover suits involving sexual harassment, hostile workplace claims, unfair employment practices, and discrimination. In addition, ensure that your company is following regulations for Unemployment Insurance and adhering to any specific regulations applicable to your type of workforce.


Leaders of a company facing litigation can themselves be charged for breaches such as failure to follow regulations, mismanagement, and operational failures. Other policies in place may cover the business, but individuals may not be protected from a lawsuit. If your business has concerns about regulatory/investigations litigation, Directors and Officers (D&O) Insurance may be a good safeguard. This offers coverage for individuals against claims made while they served as an officer or on the board.

In addition to these specialized policies, it is often necessary to simply increase your general coverage. A high-payout lawsuit could require funds beyond the limits of your general liability insurance. To protect yourself in these cases, you can add an umbrella policy. This business liability “umbrella” insurance will kick in when your general liability insurance limits are reached.

By remaining aware of trends in your industry, you can protect your business by having the proper policies in place for your commercial needs.

High, Moderate or Low Flood Risk, You Still Need Coverage

It’s hurricane season, but the next tropical storm is not the only water threat to your business. Flooding is frequently caused by snowmelt, rainstorms, inadequate drainage systems, and broken levees or dams. In fact, FEMA’s National Flood Insurance Program (NFIP) works on the assumption that everyone lives in a flood zone. The only question is whether it’s a low-, moderate-, or high-risk area. In fact, you’re not protected even if your building is built on a hill; although your company may be located in a low-risk area such as this, you still need flood insurance.

Depending on your mortgage program, many lenders require flood insurance. However, even if they don’t, insurance is still recommended and advisable to protect your business; roughly 20% of NFIP claims and 33% of disaster assistance for flooding involve areas considered at low or moderate risk.

So for the most part, you do need flood insurance. The good news is that low-risk-area businesses will pay less for coverage.

Flood insurance coverage is purchased through an insurance agent, and most insurance companies can obtain coverage through the NFIP, a federal program that offers set rates. The rate for your particular business will depend on factors such as the date of construction, building design, amount of coverage requested, and the area’s risk level.

Twenty-five percent of businesses that close after a flood event never reopen. Be one of the 75% that do. And don’t delay. A 30-day waiting period from the day of purchase is standard.

Deciding between Replacement Cost and ACV

When choosing an insurance policy, it’s essential to understand the difference between replacement cost and actual cash value coverage.

If you ever need to file a claim, it will make a significant difference in your out-of-pocket expenses when you replace your damaged possessions.

The options

With a replacement cost policy, you’ll receive what it will cost to buy the equivalent item today. But with actual cash value coverage, you’ll receive the replacement cost less the decrease in value as the item ages (depreciation).

For example: Your dining set is destroyed in a fire. If you have replacement cost coverage, you will receive what it would cost to go to the furniture store today and buy a dining room set that is comparable in quality to the original. With actual cash value coverage, the insurer will consider the wear and tear of the dining room set and only pay you the depreciated amount. Because it was several years old, depreciation is taken into account. Although it may cost you more to purchase now than what it cost you originally, you’ll receive only the amount the old set was worth if you had sold it on the open market before it was destroyed.

The amount of depreciation is established by the insurance company based on a number of factors including what the item is, its original cost and its age, as well as the wear and tear experienced over the years as assessed by the insurer’s appraiser.

The cost benefit

While replacement cost policies on average cost 10%-15% more, in most cases they will be well worth the difference. The principle behind replacement cost is to allow you to avoid the costs of depreciation. Often replacement cost policies will offer higher limits for coverage. And if all of your belongings need to be replaced, this difference in reimbursement will quickly add up.

Do You Need a Policy to Insure Your Special ‘Floater’?

Are you a musician? Do you collect art? Is your jewelry of the diamond and pearl variety? If so, you might consider a floater policy to protect your prized electric guitar or great-grandmother’s earrings.

Often there are limits to your homeowners insurance policy that will make the coverage insufficient for these types of items. They are considered at high risk of theft or loss because they are easy to move or “float.” The solution is a floater policy or a rider added to your current coverage.

A floater policy or rider usually covers one specific item. Therefore, if you own several high-value items, you’ll need to add multiple riders so that you have sufficient coverage for all your valuables. The coverage is broader than the typical coverage provided by regular homeowners policies and includes accidental losses, accidental damage, and theft.

Of course, you will pay extra in premiums, but if you own something that falls into this floating category, you may be happy you spent those extra dollars. For example, if your musical instrument travels with you, the risk of damage or loss can be fairly high. Carrying a floater policy or rider will ensure protection of this prized possession.

You will most likely be required to have your item professionally appraised to obtain this coverage. Depending on the item, the appraisal cost can range from 20 dollars to several hundred.

With more than one item, this could get pricey, but if your rings slip off on your beach vacation, it could be well worth it.

HMO, PPO and POS: What’s the Difference?

Whether you’re in the process of purchasing private health insurance or opting into an employer-sponsored plan, it’s important to understand your options in order to avoid committing to a plan that doesn’t fit your needs. There are three basic forms of health insurance:

HMO (Health Maintenance Organization): If cost is your major concern, an HMO plan may be your best option, but it comes with restrictions. Doctor’s visits are covered only if you choose a primary care physician within the insurance company’s network. This doctor will be responsible for all of your medical care, including specialist referrals. While this plan is affordable, predictable, and involves little paperwork, it might not be right for you if it’s important that you be able to select your own primary care physician.

PPO (Preferred Provider Organization): This insurance plan operates on a network model similar to that of the HMO but allows patients to venture out of the network. While you will still save money by visiting in-network providers, a PPO plan provides a percentage of coverage for out-of-network providers as well. The trade-offs are that your premiums may be slightly higher and you are responsible for filing an insurance claim if you’ve seen a physician who operates outside of the network.

POS (Point of Service): If you take the basic principles of the HMO plan and PPO plan and combine them, you have POS health insurance. With this plan, you’re required to choose a primary care physician but still have the freedom to visit out-of-network specialist doctors if you choose. If you choose to see an outside specialist without a referral from your primary care doctor, you may end up having to pay full cost. If you have a referral, your visit will likely be covered.

If you’re still having difficulty deciding which health insurance plan works best for your family, contact your insurance agent for personalized assistance.

Disability Stats Are on the Rise: You May Need LTD Coverage

The need for long-term disability coverage has never been greater in the U.S.

According to the Council for Disability Awareness, more than one in four of today’s 20-year-olds will become unable to work before they reach retirement. Of course, many factors increase the risk of disability, including chronic diseases like hypertension and diabetes. However, any 35-year-old has a greater than 20% chance of becoming disabled for three months or longer – with or without a contributing factor.

What to do? Chances are your employer doesn’t offer long-term disability (LTD) coverage. And if you believe you can rely on speedy disability payments from the Social Security Administration, you may be surprised; the average wait time for a hearing decision after a denial can range from seven to 22 months.

Therefore, you may want to consider purchasing a separate disability insurance policy. This can help ease the burden of unemployment resulting from illness or accident. You pay a monthly premium based on your current age and health, and the policy guarantees a set amount of your average pre-illness salary should you suffer a disability.

Amounts vary by insurer, but many policies pay 60% of your pre-illness earnings. So once you’ve exhausted your leave benefits, this payment can help you with your mortgage and other living expenses.

To prevent a worst-case scenario – an illness or accident that leaves you unable to pay your living expenses – ask your insurance advisor to design a plan specifically tailored to your needs and those of your family.

Your Insurance Payout Can Keep on Giving

You’ve been through the questions and opted to purchase life insurance for the most basic – and important – of purposes: you want to cover the expenses your loved ones will face on your death.

But many people would also like to leave something more long lasting to their survivors, feeling that this will give them not just peace of mind but true satisfaction. With this something extra, for example, a spouse can feel secure in the family home, knowing that there’s money coming in to maintain it.

Did you know that your heirs can transform the lump sum that is paid out on your death into an income stream that can last for their lifetime – a pension of sorts?

How it works

There are several ways to do this: for example, your heirs could use the life insurance payout to make some basic investments in bonds via a so-called bond ladder. This is a portfolio of bonds with different maturities. So, for example, with $100,000 to invest in bonds, you might purchase 10 bonds with a face value of $10,000 each, or 20 with a face value of $5,000 each. All these bonds would have different maturities.

One might mature in a year, another in two years, another in three years, and so on. The portfolio would look like a ladder. One benefit of this is that you can purchase bonds with different coupon dates, guaranteeing a monthly income.

Another way to convert life insurance into an income stream is to use it to purchase an annuity, which is a contract between you and a life insurance company. You give the insurance company your life insurance payout, and you’ll receive a guaranteed income stream for life.

The bottom line: life insurance can be a way to maximize your heirs’ income after your death. When you’re next reviewing your retirement plan, it’s something to consider.