This is the sixth of an 8-part series dealing with insurance myths. We all know that insurance is one of the major risk management tools for any sport, fitness, or recreation business. For many of us, however, insurance is just a big mystery that we entrust to others. After this series, you will know many pitfalls and minefields to avoid. Thanks go to Daniel P. Hale for contributing this series to Sportwaiver.com. Segments 1-3 focused on property insurance, Segments 4-5 covered liability insurance, and this segment addresses two areas of insurance – workers compensation and automobile insurance.
1. I can self-insure workers’ compensation coverage for my employees. Although this is technically correct, very few companies are approved to self-insure workers’ compensation. Where they are approved, they must have a bond as well as excess insurance that will guarantee payment of workers’ compensation claims. In Michigan, the statute requires that anyone with one full time employee or three part time employees have workers’ compensation coverage. If you do not secure the coverage as required, there can be penalties imposed by the state as well as liability for injury to the employees that will not be covered under other insurance. Even if you are not required by law to have workers’ compensation insurance, if you have any employees you should provide the coverage in order to avail yourself of the protection under the law. 2. I do not need workers’ compensation coverage because I own my own corporation and I am the only employee. You own your own corporation; however, you are still presumably a full time employee which requires that the corporation purchase this insurance. It is possible to exclude yourself from the policy; however, in the event you do so there is no coverage by your health insurance carrier for employment related claims and this creates a serious gap in coverage. 3. I am changing insurance carriers and I assume that workers’ compensation liability audits will be handled in the same way as my prior carrier. This is not necessarily the case. Every insurance company has different auditors with different standards and different viewpoints. It is always best when changing insurance companies to have an up-front understanding about audit issues. 4. I can save a lot of money by excluding officers in workers’ compensation policies. While it is true in some cases, you can exclude shareholders and some officers from workers’ compensation policies, you will be doing yourself a disservice because in the event an officer is, for example, injured as a result of an on-the-job accident, the health insurance carrier is unlikely to pay the claim because it was employment related and should have been covered by workers’ compensation. As a general rule, no one should ever be excluded under a workers’ compensation policy because of the coverage gap that is created. The cost to cover officers that are primarily involved in administrative duties is typically in the area of $200 per year. 5. I have employees in Ohio. Because Ohio provides workers’ compensation insurance for these employees directly and not through an insurance company, I do not need any special coverage. First of all, the Ohio Workers’ Compensation Fund must be contacted and you must arrange for coverage. Second of all, the coverage that is provided does not include employers liability coverage. This needs to be secured through a separate company. This is called Ohio Stop Gap coverage. 6. Workers’ compensation insurance covers all states where I have employees. No. You must be very careful if you have employees that work on a regular basis in other states. The standard workers’ compensation policy allows a limited number of days after you begin operations in other states to add coverage to an existing Michigan policy. 7. The age of an employee is not important as respects workers’ compensation. Actually, it is a critical consideration if you hire minors under the age of 17 and they are injured and you have either employed that person without working papers or they are injured performing tasks outside the scope of the Youth Employment Law. The claim is automatically doubled under Michigan law and the employer has to pay 50% of the claim with the insurance carrier paying the other half.
8. All automobile policies always cover newly acquired vehicles. No. Automobile policies will cover newly acquired replacement vehicles for a short period of time but will not cover additional vehicles unless the policy is specifically coded to provide automatic pickup coverage. 9. If my employees should use their own personal vehicles and have an accident on company time, my policy will provide physical damage coverage to their cars or will cover their deductible. This is not true. Your insurance company has no responsibility for damage to an employee’s automobile. 10. My insurance company does not provide any underinsured motorist coverage. This should not be of concern to me. Actually, underinsured motorist coverage (especially for officers of the corporation) is critical and is purchased in conjunction with uninsured motorist coverage. In the event of a major claim in Michigan your insurance company is responsible for paying lifetime medical expenses but not pain and suffering. You will have to sue the other driver to collect those expenses and also excess wage loss benefits. If the other driver does not have insurance there will be a substantial coverage gap. If the other driver has some insurance but not enough, there also could be a coverage gap 11. I have hired car physical damage coverage under my commercial policy covering damage to rental cars. I don’t need to purchase the collision damage waiver from the rental car company. We suggest that you do purchase the collision damage waiver because in the event of a loss to the rental car, the rental car company will place the entire value of the loss on your personal credit card and often there is a dispute between insurance companies as to the amount of damages. In the event of a short-term rental situation it is probably better to purchase the collision damage waiver. 12. When I purchase the collision damage waiver I am always covered for loss to the rental car. Actually, this is not true. The rental car company will only cover you in the event the car is driven by an assigned driver and no coverage is provided for use by valets in restaurants, nor is there coverage for any use of the vehicle while the driver has had any type of alcoholic beverages or drugs (illegal or not) nor is there coverage for any off-road use of the vehicle. 13. In the event my new car is totaled, my lease will be paid off by my insurance company. This is not usually the case. The insurance company is obligated to pay the replacement cost of the vehicle up to the market value. If you purchase a new vehicle for $50,000 or you lease a vehicle that has a $50,000 cost new, the day you drive it out of the dealership it becomes a used vehicle and the insurance company has a maximum liability of the market value of that used vehicle whereas the loan or lease obligation may be more. Coverage should be secured to reimburse you in this type of situation. Occasionally the lease agreement may also provide this coverage at an additional expense. “This Article was submitted by Daniel P. Hale, J.D., CPCU, CRM, ARM, CIC, AAI, LIC, AIC, AIS, API, AU. Mr. Hale is vice president of Cambridge Property & Casualty and an attorney licensed to practice law in the State of Michigan. He can be contacted at 734-525-2429, [email protected] or via www.cambridge-pc.com” . Photo Credit: http://www.flickr.com/photos/httpoldmaisonblogspotcom/with/4315218578/