New Worry – ADA Suits Against Websites

Traditional businesses have worried about American with Disabilities Act (ADA) violations for years, with great effort to make sure physical spaces are wheelchair accessible and employment decisions are carefully made to comply with the law. Those who found themselves at the wrong end of an allegation found the ordeal extremely expensive and time consuming. A standard general liability insurance policy will likely not cover an ADA violation as there is no bodily injury or property damage to trigger coverage. Depending on the exact allegations, there may be coverage under the personal injury section. An employment practices policy should cover allegations from employees and paying extra for third party coverage will provide explicit coverage for lawsuits from customers and other third parties.

A new threatened trend in litigation is suing website developers who do not provide accessible websites. The National Federation of the Blind has sued Target and Netflix has faced several suites (including one from the National Association of the Deaf). Peapod became a very public face of the actions in November when they signed an agreement with the Justice Department to make their smartphone applications more accessible.

It is likely that this litigation will continue and the push for accessible applications will continue. We expect framework builders to face stiff pressure to include these features natively and expect a tipping point in the coming years where all consumer sites are expected to comply. Good risk management calls for companies to embrace this movement sooner rather than later to protect themselves from the costs of litigation and emergency software upgrades.

Tech firms, especially start-ups with economical insurance programs, should look closely at their errors and omissions policies to ensure discrimination and regulatory proceedings are not excluded from coverage. Many E&O policies placed by generalist agents into standard insurance markets exclude coverage for these things. Working with an expert insurance broker dedicated to the tech and startup space will allow you to secure the broadest terms at the lowest price.

No company wants to be the target of a government complaint, the public relations and legal costs can be difficult to overcome. The best way to avoid ADA investigations is to stay ahead of industry standards and involve lawyers quickly when a complaint or request for information is received from the government. One of the best values of a properly constructed professional liability insurance program is the claims assistance in responding to an inquiry. Contact an expert broker today to discuss insurance for regulatory investigations.

How to Ensure Your Contractor isn’t Classified as an Employee

If you have hired an independent contractor to perform work for you, it is possible that the IRS will view the contractor as an employee. This classification could negatively impact your business. But, there are several ways in which you can make it clearer that your contractor is not an employee.

Employee v. Contractor

An employee is subject to the organization’s control regarding what work will be done and the manner in which it is completed. Alternatively, an organization only controls the result of the work performed by an independent contractor.

Determining Status

The IRS uses three categories in determining an individual’s status: behavioral control, financial control, and the type of relationship. Under behavioral control, the IRS examines the type and degree of the instructions given to the worker, as well as any training provided. The more involved you are in instructing or training a worker, the more likely it is that the person will be classified as an employee. A key question is whether the company can control what the worker does and how the worker accomplishes the job.

The critical factor under financial control is whether the worker can perform services for other organizations. If the worker is free to perform services elsewhere, it is likely the classification will be that the worker is a contractor. Additionally, the following factors are also considered:

1. whether the worker assumes the risk of profit or loss;
2. whether the worker is paid hourly or by the job; and
3. whether the worker is required to make a significant investment in tools or supplies.

For the type of relationship, the IRS considers the permanency of the relationship, whether the worker enjoys employee type benefits (such as vacation or a pension plan), and whether the services provided by the worker are part of the key activity of the organization.

Steps to Take

There is action you can take to help demonstrate that someone performing work for you is a contractor and not an employee. First, enter into a written agreement with your contractor. This agreement should expressly state that you are creating a contractor relationship and that it is not employment. Additionally, be sure to exclude the worker from any employee benefit plans.

It is important to not enter into an exclusive agreement with the contractor. If the contractor is free to perform work for other organizations and you are free to have other contractors perform work similar to what the contractor does, it makes it more apparent that the worker is a contractor and not an employee.

Allowing the contractor to make decisions regarding how the work is completed or when he or she works is also helpful. Further, establish when the work and/or relationship will end. A contractor is hired to complete a specific objective and when that objective is accomplished, the relationship should end.

Insurance Ramifications

In most states, including Illinois, once a single “employee” is hired workers compensation insurance must be purchased. Once workers compensation insurance is purchased your payroll is audited and you are required to pay for workers compensation on any uninsured contracted workers. Organizations should get in the habit of requesting proof of insurance (or the appropriate opt out firms for firms without non-owner employees) to have on file for an eventual audit.

Another risk is employment practices liability, one of the biggest risks for a growing business. Employees have expanded rights not available to contracts and can sue for discrimination, wrongful termination and any number of federal law violations. These allegations are increasingly expensive to defend and settle. Putting proper HR controls in place to monitor things like lunch breaks and retaining a solid employment attorney to advise on the hiring and firing process can reduce risk. Purchasing employment practices insurance can protect you and your board members from personal liability.

Contact a tech startup insurance broker today to discuss building an insurance program that will grow with and protect your company.

Issue and Risks Associated with Crowdfunding

Crowdfunding has become very popular for both entrepreneurs and people interested in helping. For entrepreneurs, it is an efficient and fast way to raise the money necessary to launch an idea. For people who donate, it is an opportunity to support an idea while simultaneously obtaining a benefit (the product promised, in addition to the perks offered by the entrepreneur). While it can be very beneficial, there are important risks that both entrepreneurs and people donating need to be aware of.

Intellectual Property

Crowdfunding may be utilized for a variety of purposes, from publishing a book to producing the next big “must-have” gadget. If you discuss patentable technology in a way that would allow another person to use that technology, you will have to file for a patent within one year or lose your right to a patent. It is entirely possible that you will disclose technology in this manner because of the way in which crowdfunding works.

Another issue related to patent is the first-to-file rule that the United States Patent and Trademark Office (USPTO) follows. If you discuss your idea on a crowdfunding site prior to applying for a patent, another person may take your idea and file a patent for it. It is possible to litigate to determine who has rightful ownership of the patent, but this can be costly and may not be successful.

Failing to Meet Obligations

It is common for entrepreneurs to promise two things: the production of the idea and certain benefits for those who donate. A failure to fulfill either of these could result in liability or, at the very least, make you the defendant in a lawsuit. Clearly, there will be significant issues if you meet your crowdfunding goal and then make no effort to accomplish your purpose. But, it is also possible that individuals, especially those who donated a large amount, will not be satisfied, even if you made a concerted effort to complete your idea.

To help protect yourself, you should avoid specifically stating that you will accomplish objectives. Instead, use language that indicates you hope to develop your idea into reality, even though there may be challenges along the way. This type of language makes it clear you are not promising anything.

Fraud

The ability to raise large sums of money quickly could lead to individuals committing fraud in an effort to steal money. This could be accomplished by using misleading statements about a project or the expected outcomes. Alternatively, the money raised may not be used appropriately.

As an individual starting a crowdfunding campaign, it is important to remember to use the money strictly in accordance with your stated objective. Any other use may result in a lawsuit being filed against you. Similarly, a person donating should be careful that the entrepreneur they give to follows through with their goal and doesn’t spend the money on other items.

Consult an Expert

Working with an expert insurance broker and attorney can help you craft proper customer and vendor agreements, while protecting your assets with appropriate insurance. Forming an LLC or Corporation will theoretically protect you from personal liability but many arrangements can open you up to personal liability as a fiduciary for the crowdfunded investment. Our top notch insurance brokers have the experience to negotiate cost effective insurance solutions to protect your personal and business assets.

Startups Targeted by Competitor Lawsuits

San Francisco based Hampton Creek has been stealing market share from Fortune 500 Unilever with it’s Just Mayo product. Unilever, willing to invest to protect it’s Hellmann’s mayonnaise brand, has filed suit against Hampton Creek claiming false advertising. The Just Mayo product contains no eggs, which Unilever claims is required in mayonnaise. Even if Hampton Creek is found to be in the right and does not face a judgement the legal costs are likely to be astronomical. This lawsuit strategy is increasingly used by large corporations to drown their start-up competitors in legal bills.

These lawsuits can come from all directions, with corporations coming up with novel allegations against less financially flush competitors. Insurance is potentially available in many circumstances. In this case of an allegation of false advertising – insurance would likely cost a few hundred dollars per million dollars of coverage. In addition, many policies provide unlimited legal defense cost reimbursement until a settlement is paid or judgement is rendered equal to the policy limits. A tech start-up could potentially have years of litigation costs covered for an allegation of false advertising for under $500 per year.

The first insurance policy a tech or traditional start-up purchases is a business owners policy (also called a “package policy” or abbreviated as a “BOP”). This policy includes general liability, which is generally required by landlords and covers slip and falls in a companies place of business. What is often overlooked, is that most general liability policies include “advertising injury” which cover false advertising claims as well as many lighter intellectual property allegations (often alleged violations of another’s slogan, trademark or trade dress). Broader coverage for copyright infringement and more involved intellectual property violations are covered under a professional liability or IP specific insurance product.

As your startup grows and begins to sign customers, vendors and investors – you are likely to upset an established competitors. An expert broker with strong industry and financial knowledge can help your firm scale insurance protection as you grow. Not all policies are created equal, partnering with an independent insurance intermediary can help you secure the most comprehensive coverage possible at a price you can afford. Contact an experienced insurance broker today.

 

Key Man Life Insurance for Startups

After the first major funding round key man life insurance is generally the most inexpensive insurance coverage investors want a company to purchase. Unfortunately, it’s also the most time consuming for founders. Jumping through a life insurer’s hoops can be draining for even the healthiest of insureds.

There are two main coverage concerns with key man life insurance – face value and term. The face value is the amount the policy will pay in the event of the death of the insured. The term is how long your premium is locked in for. If you purchase twenty year term and find cancer in year two, you have another eighteen years of coverage at the same premium guaranteed. Longer terms and higher face values are more expensive. Most tech startups purchase $1M on each key employee on a ten year term.

Young, healthy entrepreneurs can generally buy $1M in life insurance for under $300 a year. With prices this low insurance companies cannot afford to make mistakes – they want to ensure their policyholders are as healthy as they claim they are. The questions, exam and labs are frighteningly detail oriented.

The first step in securing key man life insurance is the phone interview. They will ask for basic information like your drivers license number to pull your record. A series of invasive questions about your health, that of your relatives and your lifestyle will follow. Providing truthful answers is important – a lie can invalidate the policy. If you have health conditions, a history of smoking or a bad driving record the price will be higher. However, a good broker can find an affordable carrier who is comfortable with your situation.

The second step is in person lab work. The insurer will ask for a good time to send a paramedic to your home or office. That person will show up with a backpack containing a scale, blood pressure cuff, tape measure, needles and collection jars. The exam will consist of verify your weight, height and blood pressure. They will draw a tube or two of blood and collect a urine sample – all in the comfort of your home or office.

The final step is the policy issuance. When you first apply for life insurance your broker will give you a rate based on what health class they think you will fall into. If the insurer finds concerns with your well being they will issue the policy in a higher premium class (very rarely will it work the other way). If the premium is acceptable the insured signs the policy and writes a check to the insurance company and coverage is in place.

The entire process can take months, especially if the insured has had health concerns and the insurer wants to see medical records. Working with a specialist tech insurance broker is key to creating a comprehensive insurance program that will grow with your company. All investors have demands and concerns based on past experience – a good insurance partner can help you negotiate reasonable coverage with your investors and advisors.

Care.com Sitter Sues Over Sex Offender Client

Online care giving service Care.com has been sued by a user who used the site to arrange a job with a client who was later revealed as a convicted sex offender. In 2012 Brianna Williams used the Care.com site to find and accept a babysitting job with the Fawley family in Dallas County Texas, later the next year Brian Lee Fawley (the father of the infant child being care for) is alleged to have exposed himself to Williams while the two were along with the child. Williams has brought suit against Care.com and the wife of the accused for negligence, citing that the wife did not disclose that her husband was a convicted sex offender and that the website she relied on did not run a background check.

Care.com has filed a motion to dismiss, which is available here. Their argument focuses on the Communications Decency Act of 1996 which protects against claims over the offline conduct of third parties resulting from digital services provided. Doe v. SexSearch.com, Beckman v. Match.com, Gibson v. Craigslist, and GoDaddy.com, LLC v. Toups are all cited as similar cases where a service provider was protected from liability.

Tech startups should feel confidence that they will be protected against damages from the offline actions of users. However, as the case list above shows, these protection will not stop users from suing when they suffer an injury. These cases are very complex and expensive to litigate, they also require an enormous amount of time to manage. Even if no settlement is made and a verdict is rendered in your favor at trial, it will be expensive. Purchasing Errors and Omissions insurance is one way of covering the legal costs associated with claims from users of your web service. The United States is a litigious country, the costs associated with a lawsuit and the public relations damage from the ensuing proceedings can be catastrophic. Contact an expert tech insurance broker today to discuss better protecting your company, your employees, users and investors.

Kleiner Perkins Hacked

Kleiner Perkins Caufield & Byers has disclosed that several laptops were stolen from their office. The disclosure was posted on the New Hampshire Secretary of State’s website and can be viewed here. The physical theft of unencrypted laptops is on of the most common and easy preventable claims scenarios facing startups and their funders. A simple Windows/Mac/iOS/Linux/Droid password does not prevent files from physically being removed from a device, the disc itself must be encrypted.

The NH letter demonstrates the knowledge required to respond to a theft of personally identifiable data. In most states employees, vendors or consumers  must be notified with birthdays, social security numbers or credit card data could have been compromised. Generally, compromised includes the possibility of someone viewing the data – which includes losing an unencrypted device.

The bigger threat, which is often ignored, is the potential liability from losing confidential business information for a portfolio company or former applicant. If the law considers the potential viewing of personally identifiable information as a breach the same standard will likely be held in cases involving trade secrets. If a pre-launch startup were able to prove it’s confidential business plan had been lost the damages could be catastrophic.

InsuranceForStartups.com is helping startup tech companies and their VC investors protect themselves in the face of increasing regulations and liability, contact an expert broker today to discuss ways to better protect your organization.

3 Things Every Start-Up Must Have to Reduce Risk

So you’re a start-up?  Congrats.

You’ve officially gone from being a dreamer to doer.  Now the hard part starts!  If you are at the stage of your company lifecycle that you are beginning to bring in clients, customers and revenue, you will probably begin thinking about office space, employees, and meeting goals.  It is time to produce something with your business and at the same time protect the business you love.

There are three things that every start-up must have in place to protect themselves from risk.  Before we jump into the list, it is important to establish WHY it is important to protect your company at all.  We tell all our clients that a start-up must take certain steps at certain stages of their growth.  A brand new firm with nothing more than a business plan will not have much risk to protect against.  A company that has officially opened for business does.  Your entire future can be hampered by an unexpected and sudden event – whether that is a fire in the office, a customer injuring themselves on your product or the theft of all your company funds by a disgruntled employee.

Risks that go unprotected and ignored can stop your business before it even has a chance to start.  This is why every owner and manager of a new venture must care about the risks they face.  Here are three ways to reduce and protect your firm:

  1. Internal Controls.  What a firm does in the back offices is as important as what is done on the showroom floor.  The back-end of a firm directly impacts what the client sees and the image that is portrayed.  It is vital to have internal controls, policies and procedures in place that maintain the highest level of professionalism and protection for your company.  From the handling of money, to regular password changing, each item of a business can be systemized to elevate the protection around that business function.
  2. Insurance.  Insurance will be required at some point in every business’ life.  Most of the time it is a legal requirement (such as hiring your first employee) or contractual requirement (such as leasing office space) that makes a business buy their first policy.  With basic coverage starting under $500 a year, firms should look into this quickly upon launching.  Depending on the type of business you are engaged in, network security policies, professional liability policies or management liability policies should be researched.
  3. Team of Experts.  Having a team of experts on speed dial is something every firm should consider.  We generally recommend that a business form a relationship with a lawyer, an accountant and an insurance broker at minimum.  These relationships should be ongoing so that a quick phone call will answer questions that a firm may encounter in their everyday operations.

This list is thorough and adaptable to every firm – from manufacturing to nail care to internet firms. Reach out to us to discuss how these principles can be adapted to your unique situation and how your start-up can be protected.

Dangers of Hiring Independent Contractors

For a new business, money is almost always tight. The decision on how to best use company funds spills into all aspects of the business – from where to rent office space to the amount of legal services it can afford and whether to pay executives or not. Another area that companies must watch is its salaries to employees. Since hiring an employee is a big commitment which can carry extra costs, often the answer to this dilemma is to hire independent contractors. However, independent contractors can be risky and has led to many lawsuits.

Last year, we read articles where the entertainment industry was hiring unpaid interns, but using them as employees. Production studios ended up paying out large sums of money to these interns for misclassifying them and not paying them a wage. This year, we have the case of FedEx Ground being sued by seven drivers who were hired as independent contractors – but in reality should have been classified as employees. They just won a $5.8M settlement in Maine. The facts of the case explained that these drivers were incorrectly classified as independent contractors, and therefore denied overtime pay and other various benefits an hourly employee would have enjoyed.

For start-ups and small businesses, this is the risk of hiring contractors – incorrectly classifying them as contractors when in reality they are employees. The line between independent contractor and employee is thin, and engaging with an employment attorney on the matter is important. However, there are three risks that a new firm should be aware of when considering whether to hire independent contractors.

1) WORKERS COMPENSATION INSURANCE – The moment a business hires their first employee, that business is mandated by state and federal laws to provide workers compensation insurance for the employee. Executive officer/owners do not need to purchase this insurance on themselves. Also, a company generally does not need to purchase workers compensation insurance on independent contractors. However, if that contractor was wrongly classified and it was later discovered that the person was an employee, fines and penalties could be levied against the firm for their failure to purchase this mandatory coverage.

2) WAGE AND HOUR DISPUTES – Contractors are generally paid by the job, not by the hour. However, if a contractor can prove in court that they were actually an employee, the business may be on the hook for back-pay including overtime. Additional penalties may also apply for breaking wage and hour laws.

3) REGULATORY FINES – Employees are under the protection of many laws and governmental regulations. Failing to provide the appropriate documents, rights and other benefits to an employee could result in fines and penalties. Hiring an employee and incorrectly calling them a contractor could mean the business is going to be faced with these fines.

It is clear that the decision to hire independent contractors versus employees is not as cut and dry as it initially seems – and what businesses hope it would be. Contact us today to discuss how to best protect your start-up from these and other employment related risks.

Licensing for Software Developers and Coders

A Vice Magazine article sums up a push that will likely continue to license individual software coders. States currently license professions from doctors to hairdressers and the trend has been increasing regulation of the most mundane professions. As the article points out, software is everywhere and the ramifications from coding errors and becoming increasingly catastrophic. The general opinion is when, not if, coders will be required to carry licenses.

There are two main liability issues that will present themselves when the first state requires licensing. The first is increased regulation and the second is increased liability. When a doctor or lawyer makes an error they are called in front of a state regulatory agency, the ensuing investigation can be costly and possibly result in the suspension or cancellation of the license that allows the professional to practice. Most professional liability insurance policies for these professions include coverage for the costs related to defending the actions taken in front of regulators. When a professional’s ability to earn a living is on the line investing in a top notch defense is paramount.

The second issue, increased professional liability, is also an expensive issue. Current case law often allows for personal liability when a license is involved. A restaurant could form an LLC to protect itself against lawsuits, for a lawyer or doctor this protection does not apply. When a professional license is required most courts allow for personal liability and disallow liability to shielded by a LLC or Corporation.

The coding and startup culture is extremely risk tolerant and many entrepreneurs delay purchasing insurance until a customer or investor forces them to do so. If licensing laws begin to propagate purchasing individual professional liability (errors and omissions) insurance will begin to become to standard. We advise all companies actively selling, servicing or developing software to require independent contractors to carry insurance. The events of today could leave to lawsuits years down the line and the laws will almost certainly be different. Companies and individuals are suffering massive economic losses from cyber events and courts are beginning to embrace the idea that the developers must pay.

Contact InsuranceForStartups.com today to discuss your specific situation and how to better protect your venture.