pixelcadabra: The Insurance You Should Have Bought Yesterday

My good friend Roy Filipe from McCabe Insurance graciously agreed to write up a short introduction to business insurance, aimed at those of us in the production world. There's a ton of great information here, written in Roy's inimitable style.- Dave

You pull into the parking lot and the building you work in is a smoking hole in the ground. As the firefighters roll up the hoses and the Action News 11 Kewpie Doll (Live, Local and Latebreaking BTW) does a sound check, you stand there with your mouth open and your head spinning. What insurance should you have bought yesterday?

Assuming you don’t own the building, which would take a few pages all by itself, what insurance did you need? Business Personal Property coverage, also known as contents, to the full replacement cost value of everything you own. This isn’t like car insurance. There is no depreciation. It is also cheap. Buy enough. Increase it every year.

Also included in contents is buildout. If you added cabinets, special flooring, artwork, workstations, counters, they belong to you. The landlord owns the building. You own your improvements so you have to insure them. Your landlord may love you and want to replace your stuff, but his insurance company isn’t so enamored and they won’t pay you a dime.

In this case, you also need Business Income protection. If your business gets interrupted, you can insure the income that you lost. There are an awful lot of specifics about this, but make it point to see what your limits are. Some policies do not have a limit, but you do have to produce proof of what you lost, like bank statements and financial reports. Some events have a 72 hour waiting period. There’s more. I told you this was complicated.

Active risk management for your business is more than just buying insurance. It requires you to identify, assess, control, finance and monitor risk. Risk is anything that can damage your business. Let’s take a look at some other common, and not so common, scenarios.

You are on a shoot. You are distracted by the pizza delivery guy. (For whatever reason. Myself, I never found them too interesting.) Anyway, you get back to work and your Eyesight 20/20 camera is missing. Someone stole it. What insurance should you have bought yesterday?

If you have equipment that leaves your office, you need a “floater”. This is coverage for cameras, scaffolding, sound equipment, laptops and so on. Once it is 100 feet outside your door, it needs to be covered on a floater. It is expensive and there will be a deductible, but it really isn’t a question of "if" with stolen tools and equipment. It is when. And the when is usually just before deadline.

This coverage varies from company to company, but it should be scheduled (listed by name, serial number and value). Take pictures of it. Keep invoices. Do not keep them on your laptop. They took that too.

You are growing. You have just leased a Transmogrifyer 1000B. (The 1000A is outdated. It is for losers.) Displaying the physical skills that earned you All Intramural honors in high school, you drop it down the stairs. Where it lands on your receptionist. What insurance should you have bought yesterday?

OK, the Trans (as those in the know call it), should be protected under your contents coverage. Do not buy the lease company insurance if you don’t have to. It is expensive.

If you lease or rent mobile equipment such as cameras, the rental company will require proof of insurance. Your agent probably produces a couple of dozen of these certificates every day. Give them the details and they should be able to have it for you in a day if not immediately.

If you do buy the rental company’s insurance, check to see if theft is included. No one is going to set fire to the camera. It will not be struck by lightning. It will not be carried away by harpies. (Unless you are doing work in Emerald City and have pissed off the Wicked Witch of the West.) It will get stolen. Make sure you are covered.

This type of coverage isn’t particularly cheap if you buy it yourself and is probably going to be even more expensive from the rental company. If you are doing this sort of thing more than once, check out your own insurance. Watch the deductible. If you rent a $2,500 piece of equipment with a $1,000 deductible you are essentially self-insured because the insurance company isn’t going to pay the “brand new” cost. It’ll be depreciated like a 20 year old Yugo. This is different than the aforementioned contents coverage, which, if you are retaining any of this information; you remember is “brand new out of the box” replacement cost..

As for the unfortunate employee buried in the rubble, you need Workers Compensation. If you have only ONE employee and she works only ONE hour a week, you need workers comp. It is unlawful, irresponsible, and just stupid not to have it. It protects your business as much as it protects your employees. In this line of work it is also cheap, unless you paint bridges and you are reading this by mistake.

Bonus Tax and Legal Implication Discussion: You can call the people who work for you independent subcontractors all you want. But, if they work only for you, if they do not have their own insurance, if you supervise their work directly, if they do something that is the specific nature of your business and not some unusual specialty, THEY ARE EMPLOYEES.

The IRS, your state Workers Comp Commission, and your insurance company have no sense of humor about this issue. Remember this: When one of these entities starts asking you questions, you are already screwed because the difference between an employee and sub is real clear to them and they wouldn’t be asking questions if they didn’t already know the answer. Don’t mess with this. Ask your accountant or lawyer. If you get a “don’t worry about it” answer, find a new one.

You are reading a trade publication. The idea that you have been working on for three years is featured as the brainchild of the slug that you fired the day before Christmas.
What insurance should you have bought yesterday?

There is no insurance that I know of that’ll protect your loss of potential income, your sanity, or your canteen tab at the prison you’ll be in after you are convicted of murder. But there is Copyright Infringement and Defense Insurance. It gives you money to fight the legal battle. It may not be enough, but you at least you won’t be out the legal fees. By the way, a basic general liability policy specifically excludes this. If you call them looking for coverage, the only thing they’ll do is tell you “No”.

This leads to Professional Liability or Errors and Omissions (E&O). Think of it as malpractice insurance. This can be for pain, suffering and humiliation for shooting a wedding and forgetting to roll tape. Or a company hires you to produce a product launch and you screw it up so bad it drives them out of business.

These are very specialized policies and quite expensive. Thousands, not hundreds of dollars like the other stuff we have talked about. Which, when it comes to insurance, means you need it. Insurance that is expensive means that it happens a lot and the insurance company has to pay out frequently. It’s not that they don’t want to, but they are in it for the money. You want free, ask for volunteers.

You are in your office busily disabling the filter that keeps you from looking at certain websites. (Stop it!)Your intercom buzzes, "Mike Wallace and a cameraman are here to see you." You don't remember booking a shoot for his biography. He has his own photographer too? This can't be good. What insurance should you have bought yesterday?

Actually, there isn't an insurance solution for this pickle. This is the difference between insurance and risk management. Risk management practice will suggest that lacking a back door to your office, you should have a designated spokesperson. It should not be the CEO. Why? If the CEO blurts something out, you can't correct, retract, backtrack, dissemble or spin. If a spokesperson says something that causes even more damage, then someone else can cover your very exposed butt.

I am not promoting obfuscation or its more common cousin, outright lying. What I am suggesting is that you think through situations that may arise and have a plan before it happens. Everything from fire drills and bad weather to kidnap/ransom if you work around the world.

Tripwires to be ready for: firing anybody (Even the sweet, even-tempered receptionist that “caught” your Trans 1000B. Her husband might be a survivalist with impulse control issues.), writing a passionate letter to the editor about your belief that parrots should be able to hold public office, anything involving alcohol after midnight in a small town, volunteering to help a friend with his blog....

Here's a risk management scenario that does not involve Wiley Coyote and Acme Products. A simple car accident. Do you have your current insurance information in the car? 24 hour phone number? Your lawyer's number? (See above: alcohol and after midnight.) Do you have contact and medical information in your wallet? (If you are unconscious, that's where the EMT will look.) Have the first number in your cellphone contacts listed as ICE (in case of emergency) and program in someone's number. (At best, you should know them.) Make sure you tell them that you did this.

If you are not injured badly and are talking to the other person involved, DO NOT discuss who is at fault. DO NOT make promises for a third party. This is always good advice, but especially important here: You are a policyholder. You are not an insurance company representative. Don't even suggest what they will pay for or not. Not your call.

People who seem fine at the accident will sit home and watch commercials for personal injury lawyers all day. Call the police for an accident report and get witness contact information.

If you drive your personal auto for business, make sure you have non-owned and hired coverage on your business policy. This will protect your business when your personal liability limits run out.

If you are like most people, you have $300,000 in liability coverage. If you hit a surgeon's Maybach and he hurts his wrist, a $300,000 limit is going to leave everything else you own at risk. (Yes I know he has his own disability insurance. After they pay him, they'll come looking for you to pay them back. It's called subrogation. Happens every day and insurance companies are very, very good at it.)
Transfer this type of thinking and level of preparedness back to your business.

One last OMG: In this society, a small incident can become a major catastrophe in a hurry. That cup of McDonald’s coffee the woman spilled in her lap was a small event (I know, not to her.) From that little accident we get multiple millions paid out in lawsuits and a warning printed on coffee cups that coffee is hot....only in America. This is known as a Loss Cascade. Cascades are pretty in nature. Insurance, not so much.

With that in mind, if you have enough money for a computer and the internet service to read this, you have enough money for an umbrella policy. Your business should have at least $2 million in total protection. You should have at least $1.5 million for yourself. They are separate. You can’t use one to cover the other. (Oh, he doesn’t know what he’s talking about. My neighbor told me you can. Fine, call him when the insurance company is laughing so hard they can’t get the “NO!” out.) Nobody sues anybody for $10,000. They start at $1 million and go UP. Buy an umbrella policy.

Most everyone's insurance concern is about "who's gonna pay for my stuff?" That isn't really anywhere near the real risk you face everyday. Your real risk is liability or "who's gonna pay for the other guys stuff and/or pain?" I'll use a couple of personal examples to illustrate. (Relax, they didn't really happen.)

A tree falls on my house. I had let the insurance lapse. I have to pay to get it fixed. It was bad. Let's say $100,000. I have to take out a loan or cash in some investments. Painful, but I still have a place to live. That same day I am mowing the lawn and the mower throws a rock and hits my annoying neighbor in the head. Unfortunately, he is not killed; but permanently disabled. He and his wife will now sue me for all sorts of damages. He is 25 and makes over $100,000 a year (He hardly works in his father's company. One of the many reasons I don't like him.) Over the next 40 years, he stood to make at least $4,000,000. Now, if I had liability insurance and an umbrella, my insurance company would give them a check for $2,000,000 and hopefully they would be able to live off that. Without insurance though, they are selling my house and garnishing my wages. I will be living in a Sears Kenmore refrigerator box under the bridge. Down by the river, next to Chris Farley's van. (SNL reference, sorry.)

See the difference? You can replace stuff. Liability is the real boogeyman. Unless you are a trust fund baby, millions of dollars are hard to come by. Without liability insurance, you will never recover.

Risk management preparedness doesn't apply to just bad things, but they are more fun to write about. Good things that will require risk management communication and PR readiness: moving, product roll out, expanding, name change, etc. You have dreamed of what will improve. Time to think of what could go wrong.

Insurance is for “catastrophic financial loss.” It is not for small things that happen all the time. If you lose something, kick yourself and go buy a new one. Save your insurance for when you lose everything.

Insurance people are nice folks but insurance companies are in business. To make money. They are your partners and will do everything they can to help you. Paying claims is part of their business model. They expect it. But if you become a burden with multiple small claims, they know a big one is coming and you may be costing them more than you are worth. It is known as “severity follows frequency.” It isn’t a theory. It is an actuarial fact. Lots of little claims will become one huge calamity.

This was all good fun, but it does bring up some serious stuff that may cause you to lose sleep. When discussing the limits of umbrella coverage with clients, I refer to it as "sleep at night" protection. All of the above should be "sleep at night" considerations. Identify risks to your business, assess and analyze, and then plan for ways to minimize those risks. If nothing else, be on the lookout for coyotes behind rocks and avoid flying anvils. And the harpies. Always beware of the harpies.

Roy Felipe
CIC, Certified Insurance Counselor
BS Edu, SUNY Cortland
ADD, Attention Deficit Disorder
CRS, Can't Remember S#@%

I am now into my second decade as a commercial insurance agent. Previous to being a risk management maven, I was a YMCA Director (Yes, I know the song. You can stop now.), a resort Activities Director (think Dirty Dancing) and an Environmental Education Instructor. (My then girlfriend would introduce me by saying "This is my boyfriend Roy. He takes little kids into the woods...") I played rugby until it took longer than the off season to heal enough to play again. I have a retired racing greyhound who terrorizes the neighbor's cats for sport. Playing golf, on a good day and with creative scoring, I can shoot in the mid-90's. I have a long suffering wife of 30 years and two adult children who thankfully take after their mother....looks, smarts and work ethic. They are concerned about dementia as I age because, as they put it, "How will we know?" When I am not drinking beer with friends, I am wishing that I was.