Cyber Security – The New Frontier for Thieves

In today’s cyber society, thieves have found a new cash generator – secure data. Every day, breaches are in the news. Most everyone has heard that Sony was breached for millions of records through PlayStation. What we are now learning is that the fastest growth area of data theft is from small business. A recent Wall Street Journal article cited the fact that in 2010, the U.S. Secret Service and Verizon Communications Inc.’s forensic analysis unit responded to over 750 breaches. More startling is that over 60% of them were at companies with less than 100 employees. The unfortunate truth is that a data security breach carries with it substantial costs in addition to any liability damages that may be assessed against your firm. No business seems safe. Documented breaches, of every magnitude, are occurring in virtually all types of business, including financial institutions, merchants/restaurants, schools/universities and municipalities. Based on a survey conducted by NetDiligence , the average cost of legal defense was $500,000, cost of forensics and related services was $200,000 and the average legal settlement was $1 million.
In additional to liability damages, three of the key areas of financial impact from a security breach include:

1. Crisis Services which can include forensics (problem diagnosis and repair), notification, credit monitoring, and legal counsel. To get an illustration of the potential impact on your firm, copy this link and go to this address: http://databreachcalculator.com.sapin.arvixe.com/
2. Business interruption costs
3. Public Relations costs to mitigate adverse media attention and related expenses to preserve favorable relationships with customers.
Another unfortunate truth is that a great burden is placed on business for compliance through a myriad of regulations. Based on the Health and Human Services website , there are roughly 46 laws and/or regulations regarding Confidentiality, Privacy and Data Security. While the leading acts are HIPAA, GLBA 501b (Graham-Leach- Bliley), HITECH (Health Information Technology for Economic and Clinical Health) and ERISA, there are many other federal regulations that can trigger fines or penalties. In addition, any business processing credit card transactions is also subject to Payment Card Industry (PCI) standards. Individual payment brands (e.g. Master Card, Visa) can and do impose fines and operational consequences on their retailers.
Don’t wait. Contact Early, Cassidy & Schilling, Inc. and let us help you asses the potential impact to your business. We will help you minimize your cyber risk by identifying control methodologies and transferring risk through insurance.

Written by Michael Fragola, VP Business Development, Early, Cassidy & Schilling, Inc.

HOW DO INCREASED PERFORMANCE AND PAYMENT BOND THRESHOLDS IMPACT YOU??

On April 6, 2011, Virginia Governor McConnell signed into law H.B. 1951 Public Procurement Act which increases the bond threshold from $100,000 for non-transportation related construction contracts to $500,000. Transportation related contracts remain at the current $250,000 level. This is the highest threshold in the country and as you know the Federal Government’s threshold is $150,000.The Governor believes this new law will help small contractors obtain work within the Commonwealth, however, the change also produces some unintended consequences of which you should be aware.

No Payment Protection

Since a mechanics lien cannot be placed on public contracts, the use of payment bonds has been the standard protection for subcontractors and suppliers. With the new regulation, you as a subcontractor do not have any payment protection on a public non- transportation contract of $500,000 or less.

Prequalification Changes

The regulation suggests a new prequalification process in lieu of a bid bond for contracts in excess of $100,000 and under $500,000. When you, as a sub, take a job that is bonded, a third party is offering assurances to the owner and all parties involved that the general contractor is capable of prosecuting the contract. This is because the surety has performed a rigorous prequalification process from both the financial and operational perspectives. In addition, sureties maintain long-term relationships with a contractor which affords them an understanding of their client’s performance capabilities over a period of time on both public and private work. The new regulation imposes the prequalification process on to the public contracting authority.

This impacts you in at least two ways. First, will the new publicly managed process be as effective as the corporate surety regimen? Is the general contractor truly qualified to perform the work and pay the bills? Second, if you bid as a prime subcontractor, be prepared to participate in the state’s prequalification process which will probably include providing financial statements to them.

Taxpayer’s Risk

Historically, bid, performance and payment bonds have been the utilized for over eighty years by governmental bodies to transfer the risk of non performance from the taxpayer to the surety. Without the surety, the risk of default falls back to you, as a taxpayer, if your business or you reside in Virginia.

During the 2011 legislative session, the Senate reviewed S.B. 1126 which suggested increasing the threshold on transportation contracts from its current $250,000 level. This bill created a panel of interested parties to study the performance and payment requirements and report its findings to the Senate in December of this year.

Please watch for further developments.

Written by: Lynne W. Cook, Senior Vice President

Joint Venture Liability Insurance

written by: Jim Smith

Many construction companies form joint ventures with another contractor for the purpose of performing a major project. In order for the JV to be covered on the existing construction company’s General Liability policy (CGL), the JV must be added as a named insured. Some contractors prefer to purchase a separate CGL policy specifically for the JV entity.

Unfortunately many times clients forget or do not realize they need to notify their insurance agent about the new entity. EC&S has a solution: add a blanket joint venture coverage endorsement to the existing CGL policy. This will also eliminate the need for a second policy and assure NO GAPS in coverage will occur.

In case the exposure of completed operations is on your mind, there may be an endorsement available that will include liability coverage for the joint venture following completion of the project.

Members of the EC&S Construction Team are prepared to draft manuscript endorsements and request coverage from your CGL insurer.

OSHA Injury & Illness Reporting

Written by: Pat Evinger

As 2011 fast approaches, it will soon be time to close out your OSHA Injury & Illness logs for 2010.  Just a reminder that the Form 300A must be certified by a company executive and posted by February 1 and remain posted until April 30 each year.  Similar to the Department of Labor posters, the Form 300A should be posted in a location where notices are customarily posted for all of your employees.

Captives

Written by: Jim Smith

Small and mid-size companies seeking an alternative method of risk transfer but lacking the financial capacity to form their own captive and unwilling to pool their premiums and losses with others in a group captive might consider a third option – “rent a captive”.  This increasingly popular vehicle allows firms to realize the benefits of a captive insurance arrangement without participating in the ownership or management of the facility.  It has become the ideal first step for those entering the alternative market.

Big Change Regarding Over the Counter Drug Reimbursements for 2011

Written by: Chris Douma

Effective 1/1/11 if you have a flexible spending account, or plan to sign up for one, over the counter medications are no longer reimbursable expenses, unless they are prescribed by a doctor.    A OTC prescription  is defined as a “written or electronic order for a medicine or drug that meets the legal requirements of a prescription in the state in which a medical expense is incurred and that is issued by an individual who is legally authorized to issue a prescription in that state.” This new rule was implemented due to the health care reform act.  In notice 2010-59, Guidance on Changes to Rules for Reimbursement of Over-the counter drug expenses.

COBRA Continuation Versus State Small Group Continuation

Written by: Rush Dixon

There has been much confusion regarding an employee’s ability to continue their coverage after termination of employment.  COBRA is a Federal law that applies to groups of 20 or more full and/or part time employees (part timers are counted on a fractional basis, depending on the hours worked; 2 half-timers counting as one full-timer for instance).  Employees and their dependents may qualify for 18-36 months of coverage depending on the qualifying event that makes them eligible (except for termination for cause).  Simple termination of an employee is 18 months.   Divorce or death of a spouse, or a child reaching maximum age under the plan is 36 months.  The employer may charge up to 102% of premium for continuation.  Groups under 20 employees follow State law to determine continuation of health benefits.  In Maryland, employees qualify for 18 months, DC is 3 months, Virginia is 3 months for HMO and 12months for PPO plans.