Risky Business

COBRA's New Look: The American Recovery and Reinvestment Act's Premium Reduction Provisions

By Martin Salcedo, Esq.
The Human Equation, Inc.

How does the American Recovery and Reinvestment Act of 2009 (ARRA) change the way an organization deals with the Consolidated Omnibus Budget Reconciliation Act (COBRA)?

COBRA is the federal law that gives workers who lose their jobs, and thus their health benefits, the right to continue group health coverage under their former employer’s health plan. As originally enacted, employees electing COBRA continuation benefits are required to pay the entire premium for their health insurance. Although the cost was ordinarily higher than what the employee paid while employed (because the employer was no longer contributing to the premium), it was typically cheaper than the cost of individually obtaining private health insurance coverage.

Unfortunately, the increasing number of people losing their jobs during the current financial crisis has left larger numbers of people without employer-provided health insurance, thereby resulting in increased reliance on COBRA. However, since individuals insured under COBRA are, for the most part, unemployed, maintaining their health insurance, despite the lower price, has become cost prohibitive. Thus, more and more people are left uninsured.

In response to this trend, Congress passed the American Recovery and Reinvestment Act of 2009 to, in part, preserve and improve affordable health care. Signed by President Obama on February 17, 2009, the ARRA effectively reduces an individual’s cost of maintaining health care under COBRA.

Under the ARRA, “assistance eligible individuals” are required to pay only 35 percent of their COBRA premiums—the remaining 65 percent of the premium is subsidized by the government. The subsidy comes in the form of a credit taken against the employer’s employment taxes, and is claimed by the employer who paid the 65 percent share of the COBRA premium by filing the January 2009 revision of the IRS Form 941 (Employer’s Quarterly Federal Tax Return). If the payroll tax credit amount is greater than the taxes due, the Secretary of the Treasury will directly reimburse the employer. Under this scheme, assistance eligible individuals will not receive any payments.

The premium reduction provisions of the ARRA apply only to assistance eligible individuals, which are defined as employees or members of their families, who:

• are eligible for COBRA continuation coverage at any time between September 1, 2008 and December 31, 2009;

• elect COBRA coverage; and
• are eligible for COBRA as a result of the employee’s involuntary termination between September 1, 2008 and December 31, 2009.

Those qualifying as assistance eligible individuals are entitled to the premium reduction beginning on or after February 17, 2009.

Given the timing and applicability of the ARRA (it retroactively applies to individuals involuntarily terminated as of September 1, 2008, but it was not enacted until February 17, 2009), many individuals did not elect COBRA benefits at the time of their involuntary termination because they did not become aware of the ARRA’s premium reduction provisions until after their opportunity to elect COBRA benefits had expired. Such individuals would not be considered assistance eligible individuals because they did not elect COBRA coverage. To remedy this situation, the ARRA includes a provision providing assistance eligible individuals with a new opportunity to elect COBRA benefits.

Under this provision, individuals involuntarily terminated from September 1, 2008 through February 16, 2009, who did not elect COBRA when it was first offered or who did elect COBRA but are no longer enrolled (for example because they were unable to continue paying the premium) have a new election opportunity. This new election period begins on February 17, 2009 and ends 60 days after the COBRA benefits plan provides the required notice to such employees.

The premium reduction for an individual can last up to nine months. However, it will end earlier if the individual becomes eligible for Medicare or another group health plan (such as a plan sponsored by a new employer or a spouse’s employer), or if the individual reaches the end of the maximum COBRA coverage period. Individuals receiving the premium reduction must notify their plans if they become eligible for coverage under another group health plan or Medicare.

The ARRA’s premium reduction provisions are subject to income limits. If an individual’s modified adjusted gross income for the tax year in which the premium assistance is received exceeds $145,000 (or $290,000 for joint filers), then the amount of the premium reduction received during the tax year must be repaid. For taxpayers with adjusted gross income between $125,000 and $145,000 (or $250,000 and $290,000 for joint filers) the amount of the premium reduction that must be repaid is reduced proportionately.

Plan administrators must provide notice about the premium reduction to individuals who have a COBRA qualifying event during the period from September 1, 2008 through December 31, 2009. The notice(s) must include the following information:

• the forms necessary for establishing eligibility for the premium reduction;
• contact information for the plan administrator or other person maintaining relevant information in connection with the premium reduction;
• a description of the second election period (if applicable to the individual);
• a description of the requirement that the assistance eligible individual notify the plan when he or she becomes eligible for coverage under another group health plan or Medicare, and the penalty for failing to do so;
• a description of the right to receive the premium reduction and the conditions for entitlement; and
• if offered by the employer, a description of the option to enroll in a different coverage option available under the plan.

Individuals who are denied eligibility for the premium reduction (whether by their plan, employer, or insurer) may request an expedited review of the denial by the U.S. Department of Labor. Under the ARRA, the Department of Labor must make a determination within 15 business days of receipt of a completed request for review.

As with any new law, the precise impact of the legislation may not be felt for some time. Moreover, given the lack of history to learn from, there are bound to be some issues in the manner in which the ARRA’s provisions are implemented and maintained.

Absent further legislation, COBRA will presumably return to its pre-ARRA state once individuals are no longer entitled to premium reductions (i.e., nine months after December 31, 2009). However, a considerable amount of time remains between now and then. Thus, employers must become comfortable with the ARRA’s amendments to COBRA, and must tap all the necessary resources to ensure compliance.

To learn more about COBRA, as well as the ARRA’s changes to COBRA, click here to purchase The Human Equation’s Complying with COBRA Online Training course. 

 

May I Install Hurricane Shutters? A Loaded Question for Condominium Association Boards

By Martin Salcedo, Esq.
Setnor Byer Insurance & Risk

In the State of Florida, what right does a condominium board have to prohibit a unit owner from installing hurricane shutters?

When determining a condominium board’s right to limit or otherwise restrict a unit owner from undertaking a specific activity, the usual starting place is the condominium’s documents, such as the declaration or the bylaws. This is because condominium associations are generally left to their own devices when it comes to directing the manner in which they govern themselves. However, in the context of installing hurricane shutters, the Florida legislature believed legislative intervention was necessary.

By virtue of their location, condominium communities may be susceptible to various risks that may not exist in other geographic areas. In Florida, it is the risk of hurricanes that ordinarily take center stage.

Florida’s expansive coastline is reason enough to place hurricane damage at the top of the list of risk exposures. The extensive, and ever increasing, residential development along the coast serves to increase the concern. Moreover, the reluctance of an already diminished pool of insurance companies to sell affordable wind insurance policies to coastal residents without hurricane shutters, as well as the increasing difficulty experienced by many unit owners seeking board approval to install hurricane shutters, underscored the need for legislation.

Thus, in the context of hurricane shutter installation, Florida’s Condominium Act (the body of statutes governing Florida condominiums), rather than a condominium’s documents, controls the process.

Specifically, the Condominium Act requires each condominium board to adopt hurricane shutter specifications for each building, which shall include “color, style, and other factors deemed relevant by the board.” Moreover, the Act provides that notwithstanding any provisions to the contrary in a condominium’s documents, “if approval is required by the documents, a board shall not refuse to approve the installation of hurricane shutters by a unit owner conforming to the specifications adopted by the board.”

By implementing an express policy, and requiring adherence thereto, condominium boards are unable to rely on arbitrary, inconsistent, or unknown standards when considering a request to install hurricane shutters, thereby removing unreasonable obstacles often encountered by unit owners seeking to protect their property from potentially devastating hurricane losses.

In addition to protecting a unit owner’s right to install hurricane shutters, the Condominium Act also protects unit owners from being double-billed in the event they choose to protect their unit from hurricane damage. Thus, if a condominium association decides to install hurricane shutters for the entire community, the cost of which is to be borne by the entire community via an assessment, then those who have previously installed their own hurricane protection shall receive a credit equal to the pro rata portion of the assessed installation cost assigned to each unit. Without such a credit, unit owners would essentially be charged twice for electing to install hurricane shutters on their own.

Clearly, the State of Florida has a vested interest in reducing the risk of damage caused by hurricanes. Protecting the rights of unit owners to install their own hurricane shutters, and eliminating the potential financial penalties that such owners were previously susceptible to, ensures the State’s interests are protected in this regard.

And, since the legislature made protecting these rights a priority, prudence demands that condominium boards do the same. Any board decision denying a unit owner’s request to install hurricane shutters should be viewed cautiously. Otherwise, the board may find itself on the wrong side of a lawsuit.

To learn more about unit owners' rights and condominium boards' obligations, check out our catalog of State of Florida approved Condominium Management courses.

Here We Go Again: U.S. Citizenship and Immigration Services Revises Form I-9

By: Martin Salcedo, Esq.
Setnor Byer Insurance & Risk

NOTE: This article was previously published on January 28,2009. However,since the original posting date, the USCIS delayed the implementation of the revised Form I-9. The new date when employers must begin using the Form I-9 is April 3, 2009.

Now that employers across the country have finally become proficient in using the Employment Eligibility Verification Form—Form I-9—after its last revision in December 2007, the U.S. Citizenship and Immigration Service (USCIS) determined that Form I-9 was due for yet another revision.  As of April 3, 2009, the version of the Form I-9 dated 06/05/2007 will no longer be valid, and all employers will be required to use the newly revised version of Form I-9 dated 02/02/09.

The purpose of Form I-9 is to document that a newly hired employee (whether a citizen or non-citizen) is authorized to work in the United States.  The Form I-9 process requires employers to collect information from all new employees to verify such authorization.  Authority for the collection of such information comes from the Immigration Reform and Control Act of 1986 (IRCA), which makes it unlawful to hire, or continue to employ, an individual whom the employer knows is not authorized to work in the United States.

The Form I-9 process requires newly-hired employees to present, and employers to inspect, acceptable documentation that establishes an employee’s right to work in the United States.  The acceptable documents fall into three categories:

• documents that establish both identity and employment authorization (List A);
• documents that establish identity (List B); and
• documents that establish employment authorization (List C).

To establish identity and employment authorization, an employee may present either one original document from List A, or a combination of original documents from List B and C.  Despite the revisions to Form I-9, this process remains unchanged.  However, the list of acceptable documentation has changed.

The most significant change to Form I-9 is that all documents presented during the verification process must be unexpired.  The USCIS made this change because unexpired documents may not portray a valid status, and because they are prone to tampering and fraudulent use.

In addition to banning the use of expired documents, the revised Form I-9 includes changes to List A of acceptable documents.  Two documents have been added to List A:

• a foreign passport that contains a temporary I-551 printed notation on a machine-readable immigrant visa, which is in addition to a foreign passport with a temporary I-551 stamp; and
• a passport from the Federated States of Micronesia (FSM) or the Republic of the Marshall Islands (RMI) with Form I-94 or Form I-94A indicating nonimmigrant admission under the Compact of Free Association Between the United States and the FSM or RMI.

Moreover, the revised Form I-9 removed three documents from List A:

• Form I-688, Temporary Resident Card;
• Form I-688A, Employment Authorization Card; and
• Form I-688B, Employment Authorization Card.

Since the USCIS no longer issues these cards, and all that were in circulation have expired, these forms are no longer considered acceptable documents and, accordingly, can no longer be used when completing the Form I-9.

The revised Form I-9 includes some other minor changes, such as providing employees with the option of attesting to being either a citizen or noncitizen national of the United States.  However, despite these changes, other aspects of the authorization process have not changed, including the following:

• Employers must still examine evidence of identity and employment authorization (using acceptable documents only) within three business days of the date employment begins.
• Employers must retain completed Form I-9’s for three years after the date of hire or one year after the date employment ends, whichever is later.
• Employers must keep the completed Form I-9’s and must not file them with the USCIS.
• Completed Form I-9’s must, upon request, be made available for inspection by officials of the U.S. Immigration and Customs Enforcement, the Department of Labor, and the Office of Special Counsel for Immigration Related Unfair Employment Practices.
• Employers cannot specify which document(s) they will accept from an employee.
• Employers cannot discriminate against employees during the Form I-9 process.

According to the USCIS, the revised Form I-9 will streamline and improve the security of the employment authorization verification process.  Nevertheless, the prospect of change always creates the potential for confusion.  Unintentional violations of the authorization process are violations nonetheless.  Thus, employers must ensure they are properly using the updated version of Form I-9 as of February 2, 2009 to avoid the consequences of noncompliance.

Please click here to visit our Human Resources catalog. Please click here to get more information about purchasing employment practices liability insurance.

 

Would you like to see our Wine List?: Liability Stemming from the Sale of Alcoholic Beverages

By: Martin Salcedo, Esq.
Setnor Byer Insurance & Risk

In addition to serving meals, many food service establishments have become their community’s local watering hole. This can be welcome news because offering wine with dinner or serving a few cocktails during the ‘big game’ may serve to boost the bottom line. And, during these difficult economic times, the additional revenue often created by the sale of alcoholic beverages has helped keep many food service establishments financially afloat.

However, while a food service establishment’s decision to provide alcoholic beverages to its patrons may bring with it much needed revenue, the cost of doing such business is often measured in terms of increased liability exposure. Consider that according to the National Highway Traffic Safety Administration, in 2007, an estimated 13,000 people died in traffic crashes involving a driver with an illegal blood alcohol concentration. These deaths made up approximately one-third of all traffic fatalities in 2007. Needless to say, the number of traffic crashes that did not result in a fatality is significantly higher.

It is possible, if not probable, that many of those intoxicated individuals involved in traffic crashes had ‘a few drinks’ at a restaurant or bar shortly before the incident. Thus, when it comes time for the injured party’s attorney to make a list of potential defendants in the inevitable lawsuit, the establishment that served the drinks often makes the cut. And, since the establishment typically has the biggest pockets, their cut is the deepest. Court files across the country contain evidence of multi-million dollar verdicts and settlements involving establishments that served alcohol to an intoxicated individual who thereafter injured a third-party.

To understand, and ultimately reduce, the liability associated with selling alcoholic beverages to patrons, it is necessary to understand its source. Many states have enacted laws that impose liability upon the person or establishment that sells or furnishes alcoholic beverages. These statutes are commonly known as dram shop laws, and they come in many different forms.

For example, in Florida, a person “who knowingly serves a person habitually addicted to the use of any or all alcoholic beverages may become liable for injury or damaged caused by or resulting from the intoxication of such…person.” In Georgia, a person “who knowingly sells, furnishes, or serves alcoholic beverages to a person who is in a state of noticeable intoxication, knowing that such person will be driving a motor vehicle, may become liable for injury or damage caused by or resulting from the intoxication of such…person when the sale, furnishing, or serving is the proximate cause of such injury or damage.”

It is important to note that states’ dram shop laws may vary significantly, and that some states have not enacted dram shop laws. However, this does not necessarily mean that an establishment cannot be held liable for serving alcoholic beverages. Regardless of whether a state has a dram shop law, those persons injured by an intoxicated individual may be able to sue the establishment under a traditional, common-law negligence theory, which requires an establishment to use reasonable care in the provision of alcohol to patrons.

Establishments must also understand that an injury to a third-party does not necessarily have to be suffered in an automobile crash to create liability. For example, although Georgia’s statute references the likelihood of the intoxicated individual driving a motor vehicle, Florida’s does not. Thus, a third-party assaulted by an intoxicated individual may also be entitled to seek damages from the establishment that sold the alcohol to such individual.

Although an establishment’s liability in this context may come from various sources, the risk often remains the same: financial liability for damage or injury to a third-party caused by an intoxicated individual who was served alcohol within the establishment. Understanding the risk is the most effective way to reduce the risk, and, as is most often the case, understanding comes from training.

All individuals working for the establishment, from managers to employees, must be made aware of their jurisdiction’s legal requirements and must be required to abide by them at all times. It is generally advised that employees be trained how to identify the signs of intoxication in patrons and how to implement effective procedures for cutting off alcohol service when necessary; the effects of alcohol on individual behavior as well as on the ability to operate a motor vehicle safely; the methods for recognizing and dealing with underage individuals and checking ID; and the procedures for maintaining records of incidents involving underage individuals and intoxicated patrons. Employees should also be familiar with local ordinances that regulate hospitality establishments as they relate to hours of operation, alcohol service, etc.

Although the consumption of alcohol by adults is a legal activity that, when done responsibly, does not invariably lead to societal degradation, statistics do show that alcohol routinely plays a role in unfortunate, sometime tragic, instances.  In today’s society, physical damage or injury suffered by one person is often converted into financial damage suffered by another. In the context of food service establishments selling alcoholic beverages to their patrons, this may mean liability for the acts committed by an intoxicated patron.

Regardless of one’s perspective on the breadth of such liability, there are ways to limit the exposure. By implementing a policy of training and vigilance, a food service establishment may go a long way toward ensuring the continued arrival of many ‘Happy Hours’ to come.

For more information about reducing the risk of liability associated with the sale of alcohol, check out our online course entitled Alcoholic Beverage Liability: Serving Alcohol Responsibly.

Forty (Not Three) Is the Magic Number

By: Susan Nickerson
Setnor Byer Insurance & Risk, Director of Human Resources

The Equal Employment Opportunity Commission (EEOC) recently provided the nation’s employers with yet another piece of disturbing news: workplace discrimination charge filings with the EEOC soared to an unprecedented level during fiscal year 2008, which ended on September 30th. Needless to say, this is not the news many have been hoping for during these difficult economic times. In fact, it is possible that these difficult economic times may actually be responsible for these new highs (or, perhaps more accurately, new lows).

During fiscal year 2008, 95,402 charges of discrimination were filed with the EEOC. As the perspective provided by the following statistics reveals, this number is actually larger than it seems.

• Since 1996, the number of charge filings has not exceeded 85,000.

• The last time the total number of charges exceeded 90,000 was in 1994.
• The 2008 figure represents a 15% increase from 2007.
• The sheer number of charge filings in 2008 has never before been seen.

While these statistics provide insight into the current state of affairs, the reasoning behind the increase is not so easily identified. Some suggest the poor economy compels otherwise non-litigious individuals to sue their employer to survive financially. Others believe cutbacks in human resources and employee training budgets have increased the incidents of discrimination in the workplace because managers are no longer taught about the laws they must follow and HR personnel (if they remain) no longer have the resources to teach, implement, and police unlawful employment practices.

Nevertheless, at the end of the day, the reason may simply be a consequence of percentages: more people are being laid off, so more “adversaries” (i.e., former employees) are being created every day. Regardless of reason, employers must be aware of their legal obligations and their employees’ legal rights.

According to the EEOC, allegations based on race, sex, and retaliation continued as the most frequently filed charges. However, though lower in frequency, charges based on age exhibited nearly the largest annual increase of all filings. Given the consequences of an age discrimination lawsuit, this increase merits special attention to the law underlying age-based charges: the Age Discrimination in Employment Act (ADEA).

The ADEA, which generally applies to employers having twenty or more employees, makes it unlawful for an employer to:

• fail or refuse to hire, or to discharge, any individual, or otherwise discriminate against any individual with respect to the individual’s compensation, terms, conditions, or privileges of employment, because of such individual’s age;

• limit, segregate, or classify employees in any way which would or tend to deprive any individual of employment opportunities, or otherwise adversely affect the individual’s status as an employee, because of such individual’s age; or
• reduce the wage of any employee to comply with the ADEA.

At what age does an individual become entitled to these protections? Many people are surprised to discover that the protections afforded by the ADEA are limited to individuals who are at least 40 years of age. So even though 40 may be the new 30 in terms of lifestyle, in the context of the ADEA, turning 40 constitutes coming of age.

Since claims under the ADEA are on the rise, employers should be familiar with the elements of an age discrimination claim. Essentially, an aggrieved employee must establish that he or she:

• belonged to a protected age class (e.g., over 40);

• suffered an adverse employment action, such as being laid off;
• was qualified for his or her position; and
• was replaced by a younger individual.

If an employee successfully establishes these elements, then the employer must establish a legitimate, non-discriminatory reason for the adverse employment action. If successful, the burden then falls on the employee to prove that the employer’s articulated reason for the adverse action is only pretext for intentional discrimination. If necessary, these issues will be left for a jury to resolve.

Needless to say, relying on a jury to limit the consequences of an adverse judgment is not necessarily the most effective risk management technique. Employers must fight the impulse to forego human resources training to reduce expenses. The true cost of such a decision may very well dwarf any potential savings. Moreover, the current litigation frenzy provides yet another reason to maintain employment practices liability insurance.

The 2008 EEOC charge statistics paint a frightening picture for employers across the country. The consequences of facing a discrimination charge could be devastating to an already struggling business. Employers must make every effort to recognize potential ‘danger zones’ when dealing with their workforce, especially if lay-offs are expected. Employers choosing to disregard the current environment, as well as their legal obligations under the several anti-discrimination laws may soon discover that for every one of those 95,402 petitioners who filed a charge with the EEOC, there was a respondent.

Please click here to learn more about preventing a discrimination lawsuit or click here to get more information about purchasing employment practices liability insurance.

 

Condominium Boards Going Red Over Unit Owners Going Green

By: Martin Salcedo, Esq.
Setnor Byer Insurance & Risk

Did you know that the earth receives more energy from the sun in one hour than the world uses in an entire year? In the past, such a fact was considered trivial. Today, however, it is fueling (pardon the pun) the Going Green movement that has found prominence in local and national political debates and news productions. The need to decrease our dependence on oil and increase our use of renewable energy resources is highlighted by concerns over global warming, turmoil in oil-producing regions, and the recent memory of paying more than $4 per gallon of gasoline.

Although polling suggests that the green movement is increasing in popularity and that many are doing what they can to reduce their carbon footprint, those trying to harness the power of the sun in their condominium communities have been encountering significant resistance from their condominium association boards. This is reflected by the increasing number of disputes involving unit owners attempting to install solar energy devices. Given the popularity of going green, those who are perceived as obstacles to the movement are achieving unwanted notoriety.

Ordinarily, condominium boards opposing the installation of solar collectors or other energy devices based on renewable energy resources are enforcing restrictions found in the condominium documents (e.g., bylaws, declarations, etc.) that prohibit such installation. Others are ostensibly protecting the appearance or theme of the condominium community by preventing the installation of unattractive or obtrusive devices, regardless of their benefit. However, notwithstanding motivation, legislative mandates are significantly restricting a condominium board’s ability to prohibit the installation of solar collectors or other renewable energy devices.

In Florida, for example, a deed restriction, covenant, declaration, or similar binding agreement may not prohibit solar collectors or other energy devices based on renewable resources from being installed on buildings. In Arizona, an association cannot prohibit the installation or use of a solar energy device regardless of what the community documents provide. Maryland prohibits unreasonable limitations on the installation of solar collectors.

These laws represent a trend toward the protection of a landowner’s right, including a condominium unit owner’s right, to install solar collectors or other energy saving devices on their property. Their rights, however, are not absolute in that these laws typically allow for some restrictions on the installation of such devices.

Thus, while a Florida unit owner may not be denied permission to install solar collectors or other energy devices within the boundaries of a condominium unit, the board may determine the specific location where solar collectors may be installed on the roof. Similarly, in Arizona, an association may adopt reasonable rules regarding the placement of the solar device.

However, it is important to note that these laws typically provide that any such restrictions cannot impair the effectiveness of the device. In practice, this means that a board may not force a unit owner to place the device in a shady area, have the device face the wrong direction, or paint the device to match the community’s appearance, because these efforts may reduce the device’s effectiveness.

Needless to say, handling a request for permission to install a solar collector, or some other device based on a renewable resource, can be perilous. The stakes are significantly increased by the fact that laws protecting the right to install such devices typically allow the prevailing party to recover attorney’s fees in the event litigation arises.

The likelihood of encountering a request for permission to install a solar collector or some other renewable energy device is increasing with every government rebate and tax credit available for those electing to go green. Since improperly handling such a request can have damaging consequences, a board should seek professional advice before taking any action on the request, regardless of what the condominium documents provide. If a request is illegally denied, the board will be left red in the face while the unit owner goes green.

If you would like to learn more about your obligations as a condominium board member, check out our condominium training which has been approved by the State of Florida.

Oh No, I've Been Served!

By: Anita Setnor Byer, President
Setnor Byer Insurance & Risk

The day was progressing like any other—putting out fires, monitoring production, cultivating new business—until the receptionist announced the presence of an unexpected visitor. The hand you held out for an introductory shake was met with a bundle of paperwork. The confusion created by the unanticipated delivery was momentarily clarified when the visitor mumbled a few parting words: “You’ve been served.”

A brief scan of the documents revealed that a former employee filed a lawsuit in federal court alleging unlawful discrimination. The expected stream of emotions soon follows: bewilderment, denial, fear, anger, and finally pragmatism. Something needs to be done, and since an answer to the complaint must be filed within 20 days, contacting an attorney must be near the top of the list.

Unfortunately, defense attorneys do not typically handle cases on a contingency-fee basis.  Rather, they bill their time hourly, and while many attorneys provide a complimentary phone call, the meter typically starts running shortly thereafter. Clients are ordinarily expected to cut a substantial retainer check before any steps are taken to mount a defense.

Needless to say, defending against an employment practices lawsuit, such as one alleging discrimination or harassment, is a costly proposition. Even if the employer wins the lawsuit, the outcome of the experience will invariably be viewed as a loss. The bill for attorneys’ fees alone will invariably cause financial harm to an organization. For those already struggling through difficult economic times, the harm may be irreversible.

The employer in this hypothetical situation has no choice but to deal with the imminent present since nothing can be done to change the past. However, for those cringing at the thought of personally experiencing this situation in the future, there is one thing that can be done to alter the experience—obtain employment practices liability insurance (EPLI).

EPLI protects employers in the event of such workplace claims as discrimination, wrongful termination, and sexual harassment, as well as other civil wrongdoings, such as wrongful demotion, failure to promote and discrimination by third parties (i.e., clients). Generally, a policy covers eligible losses stemming from such causes of action, as well as associated litigation costs, including attorneys’ fees. And the insurance company will provide the services of attorneys who specialize in defending against such claims, thereby significantly increasing the likelihood that employers will prevail in the event litigation does occur.

Yet, despite these obvious and valuable benefits, many organizations choose to forego purchasing EPLI. Those responsible for protecting their organization from the risk of loss have plenty of reasons for deciding not to purchase EPLI. However, upon closer examination, it is clear that the security afforded by these reasons is illusory. Let’s take a look at a few.

None of my employees would ever sue me. Let’s assume that this is true (although we know it isn’t). Did you know that several equal employment opportunity laws, such as Title VII and the Americans with Disabilities Act, also protect applicants? While some organizations may take comfort in the belief that their employees would never sue, such a perception does not address, much less protect against, the possibility of an employment practices lawsuit being filed by an applicant. Needless to say, those relying on the charity of strangers for security have a significant hole in their risk management umbrella.

Our organization complies with all employment laws. There is little doubt that most organizations have every intention of complying with applicable employment laws, and that they, in fact, make a good faith effort to do so. Unfortunately, this reasoning incorrectly assumes that lawsuits are only filed by those who were actually victims of an unlawful employment practice. In reality, many employers are ultimately found to have not violated the law, yet they were still required to defend their actions in court. Undertaking a defense is expensive, and from a purely economic standpoint, vindication through the judicial system is often not worth the price of admission.

It can’t happen to me. Clearly, this age-old rationalization is as wrong in this context as it is in everyday life. According to the Equal Employment Opportunity Commission, the number of employment related claims is on the rise. Hence, it is not only happening, but it is happening in greater numbers. While this increase in claims may be attributed to several factors, including a struggling economy or corporate cutbacks in HR training and monitoring, there is good reason to believe that the increase will continue well into the future.

Consider that the ADA Amendments Act broadened the scope and applicability of the Americans with Disabilities Act. Since more people qualify as disabled under the amended law, more people will be entitled to the ADA’s protection. In practice, this signals the existence of a new and significant risk exposure—an ADA lawsuit—that may not have previously existed. Therefore, the likelihood of falling victim to an employment practices lawsuit is greater now than it was then.

We are a small operation so we don’t have to worry about employee lawsuits.  While employee lawsuits brought against large companies make the headlines, smaller operations should be equally concerned about being sued for an unlawful employment practice. Compared to large corporations, many smaller organizations operate casually and informally. While a collegial atmosphere can make for a more relaxed workplace, it may increase the likelihood that behaviors are not properly monitored or that policies are non-existent or loosely applied. Moreover, smaller organizations often do not have the budget or infrastructure to ensure the proper handling of human resources. Since these factors almost invariably lead to lawsuits, smaller organizations are prime candidates for EPLI.

We have an excellent HR department that ensures compliance with all equal employment opportunity laws. While placing an emphasis on human resources can go a long way toward reducing the risk of being sued for an unlawful employment practice, it is by no means a guarantee. Two things merit discussion on this point. First, unlawful employment practices occur despite top-notch HR departments. Consider that a well-known, publicly traded clothing retailer paid approximately $50 million to settle a class-action discrimination lawsuit despite what was surely a well-qualified HR department. Furthermore, it is important to acknowledge that efforts of the HR department do not always filter down to the entire workforce.

Second, in some situations, the risk of violating an equal employment opportunity law cannot be reduced by the HR department. The recent amendments to the Family & Medical Leave Act’s regulations provide a good example. Until the precise scope and applicability of the regulations are determined by the courts, employers are operating with their best guess as to what the regulations actually require. Unfortunately, this means that some employers, regardless of the quality of their HR department, must defend their actions in court, often at great expense. This reality underscores the importance of EPLI.

There is no room in the budget for EPLI. Certainly, budgetary constraints are always a valid consideration. While many view the premium for EPLI as the budgetary figure worthy of consideration, the real figure is the amount that will have to be paid out in the event a lawsuit is filed. How do the attorney’s fees and the plaintiff’s judgment fit into the budget? A realistic approach to the budget should consider the potential cost of not obtaining EPLI rather than the cost of the premium. When such a calculation is undertaken, purchasing EPLI is almost invariably considered a smart investment.

Although there are many reasons for not purchasing EPLI, once a lawsuit is filed, all of those reasons lose whatever merit they may have had to begin with. There is a world of difference between personally dealing with (and paying for) the defense of an employment practices lawsuit versus forwarding the papers to the insurance company. One option is not only cheaper, but it provides a peace-of-mind that allows the organization’s focus to remain on the continued successful operation of the business. Needless to say, the alternative is much, much worse.

If you would like more information about EPLI, please contact us.

 

Uninsured Motorists: Their Cars May Be Stacked Against You

By: Tiffany Luongo, Esq.
Risk Management Group, Setnor Byer Insurance & Risk

Did you know that by 2010, approximately one in six drivers across the United States may be driving without insurance?  According to a recent study from the Insurance Research Council, the current recession is expected to trigger a sharp rise in the rate of uninsured motorists.  Currently in Florida, 23 percent of all drivers are uninsured, ranking Florida among the top five states with the highest percentage of uninsured motorists, along with New Mexico, Mississippi, Alabama, and Oklahoma. 

An additional concern in Florida is that drivers are not required to carry Bodily Injury liability coverage, which would pay for personal injuries, including medical bills, lost wages, and pain and suffering costs, caused to others in an automobile accident. If the injuries sustained in an accident are minor, it is possible that Personal Injury Protection (PIP) benefits will provide adequate coverage. However, many drivers sustain injuries that far exceed PIP benefit limits. That’s where Uninsured and Underinsured Motorist (collectively referred to as UM) coverage comes in—it protects a policyholder and other eligible persons from personal injury damages suffered as a result of the negligence of another motorist who either has no Bodily Injury insurance coverage or coverage that is insufficient to compensate injured persons for their damages. UM coverage also applies when injuries are caused by drivers who “hit and run” and remain unidentified. 

UM insurance can be either “stacked” or “non-stacked.” When you purchase UM coverage, you are entitled to “stack” or add together the combined UM coverages of all the automobiles covered by your policy to determine the total amount available. For example, if a policy covers three automobiles, each with $25,000 per person/$50,000 per accident UM limits, the policyholder will have $75,000 per person/$150,000 per accident available in the event of an accident. By contrast, if that same policyholder has non-stacked coverage, then the UM coverage limits of   only the vehicle involved in the accident apply.

It is definitely a wise decision, then, especially in Florida where Bodily Injury liability coverage is not required by law, to also obtain UM coverage. It is generally inexpensive but can prove quite valuable, especially after an experience as traumatic as an automobile accident. To learn more about UM coverage or to inquire about your current limits, please contact us.

Dangerous Shallows: Using Credit Insurance to Protect Your Assets

By: Tiffany Luongo, Esq.
Risk Management Group, Setnor Byer Insurance & Risk

John F. Kennedy once said that “a rising tide lifts all boats” to illustrate the idea that everyone benefits from a strong economy.  Although the accuracy of this macroeconomic view may be challenged, its optimism cannot.  However, if this premise is correct, then the opposite must also hold true—a falling tide lowers all boats.  Unfortunately, since the economy appears to be in the midst of the lowest tide in distant memory, this could prove disastrous for many businesses.

During difficult economic times—low tides, if you will—many consumers shift into survival mode by cutting costs to the absolute minimum and stretching dollars to the absolute maximum.  Despite their best efforts, however, many are left insolvent and unable to pay their bills.  If one of these commercial consumer's bills happens to be one of your accounts receivable, then you may find your boat sinking along with the rest; a victim of the falling tide.

The importance of protecting commercial accounts receivable during a struggling economy cannot be overstated.  An account receivable is money owed by a customer for products or services that were provided on credit.  It represents dollars a company does not have at its disposal to pay its obligations, reinvest in inventory, or finance growth.  And, since accounts receivable are treated as a current asset on a balance sheet, the loss of receivables can jeopardize a company’s financial stability on multiple levels, from making payroll to obtaining financing.

The most effective method of protecting accounts receivable is to only do business with financially strong commercial customers.  Unfortunately, the increasing difficulty of locating such customers has left many businesses considering the option of eliminating the practice of providing goods or services on credit, thereby foregoing the maintenance of accounts receivable altogether.  However, the extent to which sales on credit are embedded as an ordinary business-to-business practice in many industries renders this option unrealistic.

Yet, there is another way businesses can protect their accounts receivable—credit insurance.  Credit insurance, sometimes called accounts receivable insurance, provides protection against the commercial risk created by customers who fail to pay, or delay in paying, their open accounts.  For instance, credit insurance can protect against the loss created by a customer with an open account who files bankruptcy, struggles with cash flow issues, or lacks sufficient insurance to withstand an adverse liability judgment.

Credit insurance is not new (it has generally been available in some form for over 100 years), but the ever-increasing number of customers defaulting on their open accounts has recently brought more attention to this risk management product.  Hence, more and more businesses are considering whether credit insurance is for them.

Other than the obvious benefit of satisfying a defaulting customer’s open account, credit insurance may offer other benefits as well, including the reduction of collection costs, the reduction of bad-debt reserves, and an overall strengthening of the balance sheet.  Moreover, credit insurance may serve to enhance a company’s financing relationships since insured accounts receivable are considered stronger collateral than non-insured or mature receivables.  Lending institutions may consider the insured receivables when calculating a business’s borrowing base, thereby allowing the business to achieve more favorable financing to fund growth.  By strengthening the balance sheet, credit insurance may also serve to increase the value of the business in the eyes of prospective purchasers.

Although credit insurance may not be necessary for every business, those sharing certain characteristics may want to consider giving the prospect of purchasing such coverage a closer look.  If the following statements represent your business, then you may be a good candidate for credit insurance:

• Does your company provide commercial goods or services on credit?
• Would the non-payment of one or more of your large commercial accounts jeopardize your company's ability to continue as a going concern?
• Does a small percentage of your commercial customer base make up a significant portion of your accounts receivable?

There is an additional factor that should be considered—sales in foreign markets.  Several credit insurance products also protect against foreign political risks that may prevent or delay payment, such as a war in the customer’s country, cancellation of a contract by the government of the customer’s country, or adverse regulations imposed by the government of customer’s country which prevent or restrict consummation of the transaction.

During any time, but especially during difficult economic times, risk-free ventures are virtually impossible to come by.  However, as with any insurance product, the goal is to reduce the risk to a manageable level so the focus can optimistically remain on the upside potential of a business venture rather than the debilitating downside. 

So, if one or more of these conditions apply to your business, raising the option of obtaining credit insurance may not be a bad idea.  Let us knowif you would like to discuss your risk management options.

 

Congress Returns Serve: The Lilly Ledbetter Fair Pay Act of 2009

By:  Martin Salcedo, Esq.
Setnor Byer Insurance & Risk

Once upon a time, Lilly Ledbetter was a multi-millionaire.  Unlike a typical fairytale, however, Ms. Ledbetter was not left to live happily-ever-after with her newfound wealth.  Despite convincing a jury that her employer violated Title VII of the Civil Rights Act of 1964 by paying Ms. Ledbetter less than her male counterparts, the U.S. Supreme Court affirmed the dismissal of Ms. Ledbetter’s case against her employer.

In Ledbetter v. Goodyear Tire & Rubber Company, the Supreme Court essentially held that since Ms. Ledbetter waited too long to file her complaint with the Equal Employment Opportunity Commission (EEOC), her claims were barred.  The majority opinion suggests that the Court was bound by the text of Title VII to reject Ms. Ledbetter’s claims, stating that, “we must ‘give effect to the statute as enacted’” by the legislature.

Without conceding the majority’s position, the dissenting justices responded by stating that “the ball is in Congress’ court…to correct this Court’s parsimonious reading of Title VII.”  Wasting little time, Congress did precisely that.

Passing the House by a vote of 247-171, and the Senate by a vote of 61-36, the Lilly Ledbetter Fair Pay Act of 2009 (the “Act”) was signed by President Barack Obama on January 29, 2009.  And, any doubt that this law was not aimed squarely at the Court’s decision in Ms. Ledbetter’s case (other than the name of the law itself, of course) was immediately settled in the Act’s first Congressional finding, which provides:

The Supreme Court in Ledbetter significantly impairs statutory protections against discrimination in compensation that Congress established and that have been bedrock principles of American law for decades.  The Ledbetter decision undermines those statutory protections by unduly restricting the time period in which victims of discrimination can challenge and recover for discriminatory compensation decisions or other practices, contrary to the intent of Congress.

The passage of the Act was precipitated by the manner in which the Supreme Court ruled on Ms. Ledbetter’s Title VII pay discrimination claim.  Ms. Ledbetter, a long-time employee of Goodyear, discovered that discrepancies in annual pay raises resulted in a large pay disparity between her compensation and that of her male coworkers; a discrepancy that Ms. Ledbetter did not discover until the time of her retirement.  Upon discovering the discrepancy, Ms. Ledbetter filed a charge with the EEOC alleging discrimination in compensation under Title VII.

Under Title VII, an individual wishing to challenge an employment practice must first file a charge with the EEOC within either 180 or 300 days (depending on the state) after the alleged unlawful employment practice occurred—the charging period.  If an individual fails to do so, the individual may not thereafter pursue his or her claim in court.

This proved problematic for Ms. Ledbetter because she did not assert that Goodyear acted with discriminatory intent during the charging period.  Rather, she argued that her paychecks were unlawful because they would have been larger if she had been treated fairly prior to the charging period.  In essence, she suggested that each paycheck that paid her less than a man because of her sex is a separate violation of Title VII with its own charging period, regardless of whether the paychecks simply implement a prior discriminatory decision made outside the charging period.

On this point, the Supreme Court disagreed.  The Court held that the EEOC charging period is triggered when a discrete unlawful practice takes place—in this case, the discriminatory decision to pay Ms. Ledbetter less than her male counterparts that allegedly occurred well before the charging period.  According to the Court, a new violation does not occur, and a new charging period does not commence, upon the occurrence of a subsequent nondiscriminatory act (each paycheck) that causes adverse effects resulting from the past discrimination.

The Court succinctly stated that “current effects alone cannot breathe life into prior, uncharged discrimination,” and that Ms. Ledbetter “should have filed an EEOC charge within 180 after each allegedly discriminatory pay decision was made and communicated to her.”  The four dissenting Justices disagreed with this advice.

The dissent noted that pay disparities often occur in small increments, and that unlike discrete adverse actions, such as termination, it is only when a pay disparity becomes apparent and sizeable that an employee “is likely to comprehend her plight and, therefore, to complain.”  The dissent’s skepticism that compensation discrimination will typically manifest within Title VII’s relatively short charging period was echoed in the Act by Congress’s finding that “the limitation imposed by the Court on the filing of discriminatory compensation claims ignores the reality of wage discrimination.”  Hence, the passage of the Act.

The Act provides that, with respect to unlawful discrimination in compensation, an unlawful employment practice occurs:

• when a discriminatory compensation decision or other practice is adopted;
• when an individual is subjected to a discriminatory compensation decision or other practice; or
• when an individual is affected by application of a discriminatory compensation decision or other practice, including each time wages, benefits, or other compensation is paid, resulting in whole or in part from such a decision or other practice.

Thus, the Act expressly rejected the Supreme Court’s holding in Ms. Ledbetter’s case, and essentially restarts the charging period each time an employee receives a paycheck based, in whole or in part, on discrimination.  The Act also clarifies that an aggrieved employee may be entitled to receive back pay for up to two years preceding the filing of the charge with the EEOC.

Although Ms. Ledbetter’s claim was filed under Title VII, the Act itself applies to claims brought under Title VII, the Age Discrimination in Employment Act, title I of the Americans with Disabilities Act, and sections of the Rehabilitation Act.  Moreover, employers should not expect a grace period to come to terms with the Act’s requirements because the Act takes effect as if it was enacted on May 28, 2007 (the day before the Supreme Court issued its decision in Ms. Ledbetter’s case), and it applies to all cases that are pending on or after that date.

Despite the Act’s language clarifying the resetting of the charging period after each discriminatory paycheck, it is unclear what impact it will have in practice.  While many believe the Act will open the floodgates to discriminatory compensation claims, as pointed out by the dissent in Ms. Ledbetter’s case, the reality is that federal appellate courts overwhelmingly consider each discriminatory paycheck to constitute a cognizable harm.  The EEOC has maintained a similar view as well for some time.  Thus, some believe that the primary impact of the Act was to overturn Ledbetter and preserve the status quo.  Only time will tell.

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