Cyber, #MeToo Liability Drive Insurance Demands

YOUNGSTOWN, Ohio – The $1.75 million theft at Boardman Molded Products at the beginning of this year illustrates one of the new areas of liability that companies must address.

A hacker gained access to one of the owners’ email accounts and sent bogus invoices to the company’s accounts payable department addressed from companies in Hong Kong and Cambodia, where the money was wired to.

This method, known as social engineering, sends an email seemingly from a boss or supervisor requesting an employee send some kind of payment or information. The crime is one companies must insure themselves against, cautions Tom Costello, president of James & Sons, Boardman.

Other must-have business coverage includes cyber liability insurance and employment-practices liability, particularly in the wake of the #MeToo movement, along with traditional lines, area insurance carriers report.

“One of the biggest trends right now is cyber liability,” Costello says.

Among the issues he sees is companies that are vulnerable to thieves who manage to load a specific type of malware onto their systems. “Somebody can literally go in and block or take your software and hold it for ransom,” he says.

Often, Costello talks to clients who cite assurances from their information technology personnel about the state of their security. He responds by identifying several large companies including Anthem and Target that have been hacked in recent years.

To the clients who say they are too small to be targets of hacking, Costello points to a company worth less than $1 million whose data was held ransom for three days before paying in Bitcoin to regain access to the software.

Paige & Byrnes Insurance, which has offices in Poland and Howland, is quoting cyber coverage more frequently and people are buying it more often, confirms owner and agent Shelly Taylor Odille.

“It’s a very broad type of policy,” Taylor Odille says. “I tell [clients] you have to think of cyber coverage like fire coverage, or slips and falls.”

Policies cover anything from defending third-party claims related to security breaches or dissemination of information that might be libelous or infringe on copyrights and trademarks, to addressing costs associated with data breaches.

Cyber liability has been a big issue for Cailor Fleming Insurance, Boardman, which specializes in malpractice insurance for health-care companies.

This year, however, Don Foley, principal and program specialist at Cailor, says the top priority is employment-practices liability, which provides coverage for harassment – sexual or otherwise – discrimination or wrongful termination.

“In the #MeToo age, this is a real hot-button issue,” Foley says. “Most people don’t have this insurance. Most think they do.”

Employment-practices liability coverage became popular around the time of the confirmation hearings for U.S. Supreme Court Justice Clarence Thomas, he says. Although it “never really took off,” he says, he is beginning to see a “definite increase” of interest in the coverage.

Some people don’t like the coverage because they want the harasser to suffer the consequences and not have the insurance pay any damages. The reason for the coverage is not to protect the abuser, Foley says: “You want to protect the company.”

A company might not see a need for such coverage because of its size. Some smaller firms operate under the assumption that their employees are like family and they “have a good handle on this,” Foley says.

“One thing to remember with employment practices liability is it’s not whether you’ve done something wrong. It’s the defense. It’s to pay the attorneys’ bills,” Paige & Byrnes’ Taylor Odille says. In the insurance industry, employment practices claims are increasing in frequency, she says.

“That’s something we recommend everyone has on their policies,” says Ellie Platt, owner of Platt Insurance Group. Such policies will provide coverage not only for sexual harassment but also bullying and any type of discrimination, and the coverage is fairly inexpensive, she says. “Insurance is important because whether its actual or alleged, you still have to defend against it.”

Platt, who has offices in downtown Youngstown, Sebring, Howland and Hubbard, deals mostly with small- and medium-sized businesses. Because she has an office downtown, she sees a lot of entrepreneurs and startups, which often have difficulty getting insurance.

“The foundation of any business policy is a general liability policy,” Platt says. Many times, entrepreneurs will assume that their homeowner insurance or auto policy will cover business use. And it doesn’t, she says.

Another issue that Ohioans don’t always think about is stop-gap coverage, which applies to workers’ compensation. Many employers assume workers’ comp is covered by the state policy they have, but workers’ comp won’t always provide coverage if the employer is found liable, Platt says.

Auto coverage for business is big as well because many personal lines carriers exclude business use, she says. If a florist, contractor or even a teenager pulling a lawnmower in a trailer gets in an accident while doing business, that driver isn’t covered.

There is a similar situation with homeowners’ insurance, she adds. “We have a lot of photographers working out of their home,” she says. Sometimes homeowner policies will cover a “small amount of property damage. But it’s limited,” she says.

Rates also are on the rise for commercial auto fleets, James & Sons’ Costello reports. A client with a clean record is still going to see rates rise by 3% to 5%, and one that has filed claims will see rates rising in the double digits.

The reason for rising rates is twofold, he says. First is the increased number of distracted drivers.

“The other reason is that cars have gotten so expensive to repair,” he adds. He just had a client who was in a seemingly minor accident, but because the accident damaged a sensor in the front bumper, the repair cost $3,200.

While equipment may be insured, clients don’t always realize they need policies to cover business interruptions to keep paying employees, maintaining operations and covering other expenses when a plant or office is sidelined because of fire or similar disaster.

Clients are also taking out liability insurance while working with other vendors, including what is called “risk transfer,” Taylor Odille says.

Such a policy will cover a company should a poorly made piece of equipment malfunction or injure an employee. It can also cover a company should a landlord be unwilling to assume liability for people walking in and out of a tenant’s space.

“Every business wants as little risk as possible. So they would rather the other business assume the risk instead of them,” Taylor Odille says.

Many companies that have subcontractors are requiring them to carry higher amounts of liability insurance, as much as $5 million versus $1 million in previous years, she adds. Businesses that are buying a building or have a line of credit on certain pieces of equipment might also need to insure them as a condition of the loan.

Copyright 2024 The Business Journal, Youngstown, Ohio.