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Applying for life insurance is a simple process for most. Let’s take a look:

1: Submit the paperwork

The company you are dealing with will need to get some preliminary information about you to start the underwriting process. The paperwork require that you supply your personal identification information, current job status, income information, and health background.

Some insurance carriers will require a proof of income as well, so be prepared to supply a most recent paystub or tax return.

Additionally, you will sign a few forms that will allow your medical records to be released to the insurance company for review.

2: Complete a phone interview

Once you have supplied the life insurance company with your application, they will want to schedule a phone interview with you to discuss your decision with you and to gather some additional information needed for underwriting. It is extremely important that you are open and honest with the interviewer. All of these calls are recorded and will be reviewed if you die within a certain window of time. If it is proven that you lied in the application or the phone interview, the insurance company may deny the claim.

3: A medical exam, performed by a company hired by the insurance carrier.

A paramedic will call you to set up an appointment to do a basic health screening. They are typically available 7 days a week and they will come to your house and your place of work. Be prepared for them to take your blood pressure readings, resting heart rate, draw a blood sample, and have you pee in a cup.

4: Wait

For the next few weeks an underwriter will review the application, medical records, and the results from the health exam. During this process they may reach out to you for additional clarification on certain items, but many times you won’t hear anything at all. It’s during this process that you rates will be factored.

5: Application Approval or Decline

The underwriter will make a decision on if they believe you are insurable. Some people do get declined, and if you do, don’t worry. The insurance company will release your medical records that you can take to your doctor to get whatever health issue you have checkout out. If you are approved, you will receive an approval letter with an offer of insurance along with the rates you will need to pay to keep the policy inforce.

6: The policy goes into effect

Once you sign your acceptance of the policy, you will need to immediately make a payment to satisfy the inforce requirements.

You will receive an official policy by mail. Be sure to store it in a protected place and let the beneficiaries know where to find it should something happen to you.

 

Today I received a call from one of my long time clients who was madder than hell about an accident his wife was involved in. An elderly woman had accidently pressed the accelerator in her 4Runner instead of the brake when pulling into a parking spot and plowed into my client’s vehicle causing $8,500 in damage. You see, Mr. Smith (not his real name) is a plumbing contractor in a small mountain town in Boone North Carolina who has worked his ass off his entire life and had just purchased this Chevy Tahoe for his wife – it was the first new vehicle she had ever owned.

Mr. Smith raised one of the recurring questions I get from insureds suffering auto damage. He asked “I understand that the woman who hit my parked car is liable for the damage. But what about the depreciation? What happens when I trade it in or try to sell it and they see the CARFAX report?”

He asked because he intuitively understood the fact that when a vehicle is damaged in an accident, the resale value will be less than a vehicle that has not been in an accident...even if the vehicle has been repaired to 100% of its previous state. In legal terms, the damage resulted in reduction or “Diminution Of Value” in the marketplace, even though repairs have been made. Insurance professionals call this a “D.O.V. Claim” and there are steps to take to ensure you get made whole.

First off, the definition of “diminished value” can be confusing. There are three types that are defined here by the partners at Matthiesen, Wickert & Lehrer in South Carolina:

Immediate Diminished Value

This is the loss in value that results immediately after an accident before any repairs are made. It is the difference in market value immediately before and after an accident caused by a negligent tortfeasor. In many states, this is the measure of damages for injury to personal property.

Inherent Diminished Value

This refers to the loss in value of a vehicle that remains after it is completely and professionally repaired. It is the loss of value that results from the simple fact that the vehicle has been in an accident. This type of diminished value is also known as “stigma damage.” Given two identical vehicles on a car lot, the one which has not been involved in an accident is preferable to the one which has been damaged and repaired.

Repair-Related Diminished Value

This refers to the additional loss in value to a vehicle which results from incomplete or poorly-performed repairs. It could include simple cosmetic damages that remain after repair or major mechanical or structural deficiencies.

You can read their full article here:

https://www.mwl-law.com/a-primer-on-diminution-in-value-claims/

Please note that inherent diminished value is the most common form used by insurance companies. There are two types of inherent diminished value claims, both of which can use the tips below:

1.First-Party Claims: These are claims made by the vehicle owner against their own insurance company 2.Third-Party Claims: These are claims made by the vehicle owner against another person for negligently causing damage to the owner’s vehicle.

Here are my 5 tips when making a diminished value claim.

5 TIPS WHEN MAKING A DIMINISHED VALUE CLAIM

1. Don’t file until the vehicle is fully repaired

Picture this: In Mrs. Smith’s haste, she files a DOV claim immediately after the accident. She already has the repair estimate of $8,500 from her local Chevy dealer and the dealer was kind enough to give her trade in values for the vehicle from before the accident and after the accident so she could reference them when discussing the claim with us, her insurance carrier. The difference from pre to post accident trade in value is $3750 after the car was repaired 100%. The insurance company representing the driver that hit Mrs. Smith’s Tahoe may very well accept that initial estimate of $3750 on the spot.

Here is the concern with that. What if the damage exceeds the estimate? What if instead of simple body damage, the frame is bent and the transmission is out of alignment? In that case the perceived damage to this vehicle in its future owner’s eyes is much worse than body repair. It’s important that you wait until you know the full extent before you file. By waiting for the final repair to be completed you can have much more confidence that you are getting a fair value for the depreciation.

2. Make sure your vehicle is repaired with OEM Parts

For new vehicles like Mr. and Mrs. Smith’s it’s important that the vehicle is repaired with parts made by the original equipment manufacturer (OEM). Often times, repair shops will try to install generic or aftermarket parts to keep the repair cost down. Many insurance companies will encourage this as it will decrease their costs in the claim.

When working with the claims adjuster, you need to keep stating that you expect your vehicle to be restored to its “pre-loss condition”. Be prepared for a lot of pushback.

3. Gather evidence of your vehicle’s the lost value

Let’s circle back to my insured’s claim. They did a good job of getting the trade in value differences (even though she should have waited until after the vehicle was repaired). Additionally I would encourage her to shop multiple dealers for trade in information while making sure to disclose the damage.

On top of dealerships, please advertise the vehicle independently and record the offers made. Craigslist, autotrader.com, cars.com, carsguru.com are the big 4.

4. Negotiate

The insurance company is out to keep their premiums low for all of the policy holders so they will always try to minimize their losses. With this in mind, you need to know that whatever they offer to you is negotiable.

Let’s play out an example. If your estimated loss in value is $3750 like my clients, you should file a claim for $6000. They will offer you $2000. You need to provide evidence (gathered from the previous step) that your car has lost much more than $2000 and you expect to be made hole for this loss. The insurance will never come up to the $6K, but they may get to the $3750 that will make you whole.

5. Be prepared to sign a release

Finally, once you come to an agreeable number, the insurance company will ask you to sign a release. This form will state that the insurance company is no longer liable for any additional losses. Before you sign this, make sure you are ok with the settlement and what it represents.

 

If this is a situation you are facing, please feel free to contact me at any time. I’d love to help in any way I can.

All the best,

Aaron Peacock

828-434-3215

704-236-5598

[email protected]

Insurance companies have created calculators that offer multiple methods for determining the value of a human life. These methods are:

  1. Debt; Income; Education (D.I.E Calc.)
  2. Survivors’ Needs (the difference between future expenses and income)
  3. Lost Future Family Income (method developed by the federal government)
  4. Multiple of Earnings

In this post, let’s take a look at an example using the DIE Calculator. Debt; Income; Education is a simplified calculation and the inputs are a condensed version of the more complete list of Questions I always ask business owners about their current financial protection plan. Here’s an example based on business owner in the construction industry that I work with regularly:

  • DEBT
    • Financial Obligations of the Business: $350,000 building loan, $225,000 Equipment Debt, $12,300 Accounts Payable, $55,000 credit line, 45,000 vehicle loans, $75,000 3 months payroll
    • Personal Debt (Mortgages, Loans, Credit Card): $300,000 mortgage, $6000 credit card
  • INCOME
    • Annual Income Need for Spouse $50,000
    • Number of Years Needed: 20
  • EDUCATION
    • Child #1 Age: 10
    • Child #1 Type of Schooling (public/private) public university
    • Child #2 Age 15
    • Child #2 Type of Schooling (public/private) public university
    • What percentage do you expect to pay? 100%

Total Life Insurance Needs Based on DIE: $ $2,268,300

Less Existing Life Insurance Currently Inforce: $1,000,000

Additional Life Insurance needed based on the DIE Calculator: $1,268,300

 

This method does a pretty good job figuring out how much life is needed for many small business owners and for the personal needs of individuals outside of business. Once your business reaches a certain size you should consider a more in depth analysis, but if you have nothing in place currently, this is a great place to start!

Next week, we’ll dig into a more popular method for non-business owners: the Survivors’ Needs Analysis.

Questions I always ask business owners about their current financial protection plan.

Business Continuation

Who are the shareholders in the business and what percentage do they own?

Are there any inactive owners?

If you died today, what would the business status be at death? Continued by heirs? Sold to surviving owners? Sold to Key Persons? Liquidated?

Do you have a written Buy Sell Agreement?

If there is no Buy Sell agreement, how will remaining owners determine how much to pay your heirs?  Will they pay them enough?

If you do have one, what date was your Buy Sell Agreement was last reviewed?

What type of Buy Sell Agreement is it? Cross Purchase Plan? Stock Redemption? Unsure?

What is the approximate value of the business?

How did you come up with thus valuation? (Book Value, Capitalized Earnings, From Attorney or CPA?)

Is the business growing? If so, at what rate?

How do you plan to fund a buyout? (Life Insurance, Sinking Fund, Bank Loan?)

Regarding Key Person Protection & Employee Retention

Who else, other than you, is critical to the operation and proifability of your business?

Do you currently have any protection against the loss of a key employee?

Do you want to retain the key employee(s)? (i.e. through a private bonus, or golden handcuff plan)

If a Key Person dies, would you feel obligated to help provide continued family income with personal life insurance?

Business Debt Protection

How would you repay business debts should you (or one of the other owners) die prematurely?

How much long term debt does the business have? (i.e. Buildings, Land, Heavy Equipment)

How much short term debt does the business have? (Contents of buildings, vehicles, revolving credit line)

Who signed the note at the bank? Owners? Spouses? Business?

Personal Long Term Disability Coverage for Owners

What sources of income will be available to you and your family if you are unable to work due to illness or an accident? What would the impact be on the business?

What is your gross annual income? What is your Spouse's gross annual income?

Any other sources of income? Rentals?

What is your mortgage balance and monthly payment?

How much other personal debt do you have?

Do you plan to pay for your children's education if they decide to go?

Personal Life Insurance Coverage for Owners

Who presently depends on your income? (rule of thumb is at least 10x your income for personal coverage)

Do you have any special needs children?

If you intend to pay for your children's college education, what percent? Will they go to a public or private school?

Do you want to provide continued spousal benefit? If yes, how much income do you want to provide annually?

Do you have any other life insurance? (subtract this amount from your total need that we come up with)

Estate Protection

Have you made any specific plans for conserving and distributing your assets when you die?

Do you have a will?

When was your will prepared?

Do you have a trust in effect?

Do you have any anticipated family inheritances?

What is your estimated net worth?

Which of the following estate planning objectives are most important to you? Avoiding probate, minimizing taxes, equalizing the estate among children, provide for spouses, paying of debt, making charitable gifts, providing for grandchildren, providing college education.

Problem:

Knowledgeable business owners know their business runs several risks for which life insurance is a prudent purchase. These include such things as key person indemnification, debt-protection, stock-purchase funding, and funding for carefully selected employee benefits. Sometimes, meeting these needs creates unnecessary, multiple policy charges and processing fees.

Solution:

Let me audit your existing insurance program or design a new program to make sure your insurance premiums work as hard as possible for you. Sometimes this may only save a modest amount of money, but it will always simplify things for you.

Often, one policy can be designed to do double, triple, or even quadruple duty. One policy can provide key person and debt protection, as well as funding for stock purchase and employee benefits. This simplification and efficiency in premium use can help make sure hard-earned dollars work harder for you.

Here’s an example of “premium shaving” for a business that wants to insure an owner who is a 45-year-old male, at standard non-smoker rating:

# of Polices 4 # of Policies 1
Key Person $100,000
Debt Protection $250,000
Stock Redemption $500,000
Deferred Compensation $150,000
Total Insurance $1,000,000 Total Insurance $1,000,000
Total Premiums $12,562 Total Premium $12,100

 

*Premiums in this post are for illustration purposes only and it provides only general information.

Unfortunately, a lot of people haven't considered the fact that one day they may become disabled. Most will readily admit that contracting cancer, having a stroke, or sustaining a long term disabling injury is a real risk, but all too often those same people say it won't happen to them.

Your income is such a valuable asset, but for many, it is something that is assumed and even taken for granted. When I discuess this exposure with the business owners I serve, I always as the same question:

How long could you go without an income?

Let's assume you have a savings rate of 10% of your annual income per year. Just one year long disability could wipe out 10 years of savings just to support you while you recover! Now what if you couldn't work for 2 years, 5 years, or what if you contract Myasthenia Gravis like my uncle and become bedridden for many years?

Having an income during this painful time, doesn't make the situation better, but it sure does relieve a huge burden for you and those supporting you. And the cost to provide that protection is not nearly as expensive as you might think.

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Here's how long term disability insurance works:

What are the chances of becoming disabled?

  • rovides a smooth transition of control and ownership
  • Avoids ownership by unwanted parties and potential disagreements about business decisions
  • Reassures creditors, suppliers, customers, and employees of the continued viability of the business
  • Helps ensure the legacy of your business

What are some claim examples?

  • Binding on all parties and prevents future negotiations and disputes
  • Locks in a buyer for the business interest
  • Helps ensure your heirs will receive a fair value when they sell
  • Time frames and payment terms are agreed upon ahead of time
  • Helps make sure the active owner(s) retain control of the business

The Insurance That Replaces Your Income

  • Liquid cash is immediately available upon an insured owner's death
  • Tax-deferred growth of cash value
  • Death Benefit is generally received income tax free
  • Disciplined means of setting aside funds
  • Policy cash value can be used toward a lifetime buyout or for financial emergencies

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Everything you need to know about Entity Purchase Buy/Sell Agreements

Have you thought about what would happen to your business after an owner's death or disability? Business owners may not want to be in business with the departing owner's non-active spouse and/or children. Failing to plan for this transition can be the greatest threat to the business's survival.

A buy/sell agreement provides an orderly process for a business to pass from one owner to another. The individuals agree in writing that the business interest will be sold for a negotiated, predetermined price upon the occurrence of certain events including:

  • Death
  • Disability
  • Retirement
  • Divorce
  • Bankruptcy of Owner

How It Works

An Entity Purchase (or Stock Redemption) Buy/Sell is a written agreement between the business (entity) and the owners of a business for the sale and purchase of business interests. This type of agreement is often used when there are multiple owners.

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Here's the steps:

  1. During the owners lifetime an attorney prepares an agreement under which the business will purchase the business interests of owners.
  2. The business buys a life insurance policy on each owner to fund the buy/sell.
  3. In the event that one of the owners die, the business receives the death benefit and uses it to buy deceased owner's business interest from his/her estate.

Benefits of an Entity Purchase Buy/Sell

To the Business

  • Provides a smooth transition of control and ownership
  • Avoids ownership by unwanted parties and potential disagreements about business decisions
  • Reassures creditors, suppliers, customers, and employees of the continued viability of the business
  • Helps ensure the legacy of your business

To the Owners

  • Binding on all parties and prevents future negotiations and disputes
  • Locks in a buyer for the business interest
  • Helps ensure your heirs will receive a fair value when they sell
  • Time frames and payment terms are agreed upon ahead of time
  • Helps make sure the active owner(s) retain control of the business

Benefits of Using Life Insurance to Fund a Buy/Sell Agreement

  • Liquid cash is immediately available upon an insured owner's death
  • Tax-deferred growth of cash value
  • Death Benefit is generally received income tax free
  • Disciplined means of setting aside funds
  • Policy cash value can be used toward a lifetime buyout or for financial emergencies

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What Is A One Way Buy-Sell Agreement?

When people think of Buy-Sell Agreements, they often assume they are only for businesses that have multiple owners. But what happens if you are a business owner that dies and you don't have a partner to buy out your shares from your spouse or kids?

A great solution to this is a One-Way Buy Sell Agreement.

Sometimes there is only one logical buyer for a business--whether that buyer is already indetified or has to be fond. In this situation, it's a given that only one person will be buying out the current owners.

A one way buy sell agreement is a written contract for the sale and purchase of an owner's business interest where only one party has the right and obligation to buy.

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How It Works

  1. The Owner or Multiple Owners enter into an agreement to sell to one buyer and that buyer agrees to purchase the interest of all other owners.
  2. Buyer purchases life insurance on the sellers to fund the plan
  3. when a seller dies, the buyer recieves the life insurance proceeds
  4. Buyer uses life insruance proceeds to purchase the seller's business interest from the seller's estate

Common One-Way Buy/Sell Scenarios

  • Family owns and runs a business.  Everyone agreems that a specific sibling will run the business if either mom or dad passes away.
  • Mulitiple owners of a business--all of whom want to get out of the business, except for one
  • A 100% owner has no family buyer in sight. A buyer is then usually selected from key employees in the business

What Happens if There is No Buy/Sell Agreement?

  1. Close down the business--no value recieved
  2. liquidate the business--a portion of value is recieved
  3. Unqualified family members could take over the business and attempt to run it--unknown probability of success

Whats Are Better Options?

Here's a better option: Sell the business to a competitor, willing and able relative, or key employee and lock in the value with a funded buy/sell agreement--that way your estate will recieve the full value of the business.

What Should I Consider When Looking at Potential Buyers?

  • Experience, Skill, and Ability
  • Time Commitment
  • Existing Employees
  • Existing Management
  • Franchisor Requirements
  • Education and Training Needs

Summary: The Business Owner's Action Plan

  1. Set the value of your business
  2. Determine the appropriate candidate
  3. consult an attorney who specializes in Business Continuation Agreements
  4. Create a formal Buy/Sell Agreement
  5. Fully Insure the value of each owner's interest to guarentee payment

 

Why Work With Aaron Peacock?

I’m am a top producing commercial insurance professional with licenses in property & casualty, workers compensation, life & disability, and group health insurance. I am an Appalachian State University alum currently living in Hickory North Carolina and my  office is located in my alma mater’s city of Boone North Carolina. I am considered an expert in helping business owners with their business succession plans and I insure many firms in the western half of North Carolina. In addition to performing at a very high level in my role as my client’s insurance partner I am also engaged to be married to my fiancé Anna, who is a kindergarten teacher and master chocolate chip cookie baker. I am a volunteer and proud supporter of Appalachian State’s Walker College of Business where I have been asked to speak about relationship marketing & direct sales, personal productivity, career development, and personal finance to the students enrolled in the business school.  In our spare time, Anna and I enjoy walking our dogs Sophie & Bruce, playing yard games and grilling out on our Big Green Egg, riding mountain bikes, and getting out on the water on some stand up paddle boards.

 If you are ready, feel free to request a life insurance quote on this site – here’s the link aaronpeacock.com/free-quote or call me at 828-434-3215 or email me at [email protected] It’s easy, fast, safe and always secure. 

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Recent Insurance Claims from Specialized Contractors

People ask me this question all the time: "yea, but really Aaron. How often does that actually happen?" Its gotten to the point that its almost comical. Here's a list my company has compiled of our most recent claims for specialized contractors. This is just from our book of business in the construction industry....from masonry and concrete guys, to grading, paving, HVAC, Plumbing, Electrical.

Take a look for yourself! The claims are outrageous:

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Property

Amount Paid/Reserved Situation
$2,452,000 Property: Fire caused damage to the insured's building and inventory. Cause of the fire was unknown. Building $1.32M, BPP $1.12M, and Business Income $5K.
$504,000 Property: Burglary and theft of personal property.
$224,000 Property: Hail Damage to metal roofs and A/C units on seven insured buildings
$177,000 Property: Wind damage to roof and interior water damage.
$172,000 Property: Tornado destroyed insured building and personal property.
$120,000 Property: Water damage from one of the rental units above the insured's location. The tenant did not carry insurance.

Systems Breakdown

Amount Paid/Reserved Situation
$24,000 Mechanical Breakdown: Insureds water jet cutting table malfunctioned and is no longer working.
$24,000 Artificially Generated Electrical Current: Power surge damage to numerous electrical and computer items.
$14,000 Artificially Generated Electrical Current: Insured had a power surge causing damage to various pieces of equipment.
$6,500 Artificially Generated Electrical Current: Brown out/power outage caused the control panel to go down in press.

 

Inland Marine

Amount Paid/Reserved Situation
$580,000 Installation Floater: Insured had supplies stored at an off premises warehouse and the warehouse caught on fire causing damage to some of the supplies.
$250,000 Specialty Trade Contractors Extension: Insured misinterpreted HVAC plans and incorrectly installed components. Errors were noted during the construction and corrected.
$165,000 Contractor's Equipment: Hydraulic line burst and started the insured's excavator on fire.
$125,000 Borrowed, Leased, Rented or Hired BPP: Insured borrowed crane to move A/C unit and tipped it over - operator error by insured's employee.
$75,000 Installation Floater: Theft of copper tubing and wire, tools, equipment and other property from jobsite - these claims represent the greatest frequency of any loss dealing with all contractor TOBs.
$55,000 Borrowed, Leased, Rented or Hired BPP: Insured rented two pieces of equipment to customer and they were never returned. Insured failed to obtain proper identification of customer.
$35,000 Specialty Trade Contractors Extension: Insured incorrectly read blue prints and installed the wrong A/C units in the wrong place on roof.
$8,000 Specialty Trade Contractors Extension: Insured ran wiring for a UPS system. The terminals were reversed and when breaker was energized, the unit smoked.
$3,000 Specialty Trade Contractors Extension: Insured installed pump motor and caused a power surge to it.

 

Inland Marine - Contractors Extension Endorsement

Amount Paid/Reserved Situation
$250,000 Contractors Extension Endorsement: Insured misinterpreted HVAC plans and incorrectly installed components. Errors were noted during the construction and corrected.
$101,000 Contractors Extension Endorsement: Insured installed fire alarm system with different material than was outlined in the job specifications. The insured had to tear out and redo the work.
$57,000 Contractors Extension Endorsement: Electrical contractor's employee had four separate faulty workmanship losses where he incorrectly installed wires to transformer and flex connections, installed wrong compression fittings and wire, installed wrong throat fittings and did not install correct size pigtails on light fixtures.
$35,000 Contractors Extension Endorsement: Insured incorrectly read blue prints and installed the wrong A/C units in the wrong place on roof.
$20,000 Contractors Extension Endorsement: The state inspector is not approving that breaker boxes that the insured installed in a multi-unit building. The inspector is stating the insured should have installed residential boxes rather than commercial.
$8,000 Contractors Extension Endorsement: Insured ran wiring for a UPS system. The terminals were reversed and when breaker was energized, the unit smoked.
$4,000 Contractors Extension Endorsement: Insured installed ten feet of 3" pipe, rather than 4" pipe, which could cause plumbing problems in the future. The homeowner would like this repaired which involves tearing up the basement floor.
$3,000 Contractors Extension Endorsement: Insured installed pump motor and caused a power surge to it.
$3,000 Contractors Extension Endorsement: Insured installed a furnace that was wired wrong and they fried the control panel.

 

Crime

Amount Paid/Reserved Situation
$35,000 Crime: Employee theft of 401(k) contributions.
$3,200 Crime: Employee theft of copper cable and lugs.

 

General Liability

Amount Paid/Reserved Situation
$1,000,000 Operations Liability: Insured was working on a commercial building construction site, responsible for erecting wall panels and structural steel components. The insured's employee was cleaning up at the end of the day, pushing debris off the floor to a dumpster sitting on the ground below. A metal stud missed the dumpster and landed on the claimants head/shoulder. The claimant had shoulder surgery and is suffering from a closed head injury. He has not worked since the accident.
$1,000,000 Products-Completed Operations Liability: Carbon monoxide poisoning resulting from unit insured installed and serviced
$685,000 Operations Liability: Insured hit a gas line while performing work at a jobsite causing a gas leak. One home exploded and several others nearby sustained damage.
$685,000 Operations Liability: Insured installed a new bathroom. The fitting on the tub leaked causing water damage.
$630,000 Operations Liability: Insured employee was soldering piping in the wall of a condo building when the building caught on fire.
$525,000 Products-Completed Operations Liability: Plumbing and heating contractor was hired to install a furnace and AC in a rural home remodel job. They also installed the gas lines in the home to the furnace, stove, and fireplace. Four years after the project was completed a fire broke out in the home. The home was completely destroyed. The homeowner and three of her grandchildren were killed in the fire. Allegations against our insured centered on faulty installation, failing to check the gas lines for leaks, and failing to properly ground the system.
$465,000 Products-Completed Operations Liability: Insured installed plumbing drain. Later, the drain failed due to improper installation of the waterproofing membrane, which resulted in damage to electrical lines and other items.
$304,000 Operations Liability: Insured serviced electricity to a new home under construction and when the power company hooked up the electricity the home started on fire and was destroyed.
$263,000 Operations Liability: Insured employee stepped on a sprinkler pipe causing pipe to break resulting in water damage to residential units.
$124,000 Products-Completed Operations Liability: Insured was subcontracted to install plumbing in a new home and the water supply line in the main floor bathroom was not tightened down enough and the line started leaking. The claimants were not home for seventeen days resulting in serious water damage.
$100,000 Products-Completed Operations Liability: Insured performed service work on a customer's furnace and late the furnace malfunctioned causing soot damage and carbon monoxide poisoning.
$46,000 Pollution Liability: Insured was a glazing contractor hired to caulk around windows on a multi-story office building. The Insured was using a 60' boom lift to reach the glass. The hydraulic hose on the boom lift broke unbeknownst to the insured and 55 gallons oil hydraulic fluid leaked onto the sidewalk, parking lot, and adjoining lawn. Steam cleaning was needed to remove the stains from the concrete and three feet of surface dirt had to be removed and replaced. Significant costs were incurred to clean up the hydraulic oil spill.

 

General Liability - Fungi or Mold

Amount Paid/Reserved Situation
$25,000 Fungi or Mold: Insured customer alleges mold and water damage.
$14,000 Fungi or Mold: Duct work, which the insured had installed, has fallen down and created mold damage.
$8,000 Fungi or Mold: Insured performed work on a shower valve. The claimant alleged it leaked for 16 months, but the damage does not support this. Claimant is also claiming respiratory injury from mold.
$5,000 Fungi or Mold: A leak in HVAC caused damage to claimant's ceiling and possible mold.
$2,000 Fungi or Mold: Insured was making repairs. Water was not shut off and caused damage to carpet and molding.

 

Additional Insureds

Amount Paid/Reserved Situation
$41,000 Products-Completed Operations Additional Insured: Insured was a subcontractor in a residential development consisting of 166 homes. Water damage to the homes began being noticed five years after they were completed. Many areas were identified as potential sources for the water leaks, including roofing, plumbing, exterior grading, siding, and landscaping. A lawsuit was filed alleging numerous construction defects against the general contractor, who was a national home builder, as well as nine subcontractors, including our insured. Total damages sought were in excess of $3 million. Damages related to our insured's work were approximately $300K. The GC was listed as an additional insured (AI) that included products completed operations under our insured's policy. The GC demanded we share in their defense as they were listed as an AI under our insured's policy. The case was settled for $300,000. The defense costs to defend our insured were $48,000. In addition, we had to pay another $41,000 towards the GC's defense.
$200,000 Products-Completed Operations Additional Insured: Our Insured contracted with a large fuel refinery operator to work on a steam cleaning system used to clean their refinery tanks and equipment. Pursuant to the contract, our insured had the refiner listed as an additional insured (AI) that included products and completed operations under our policy. After our work was completed, the refiner contracted with another company to perform the cleaning services. An employee of the company retained to do the cleaning was severely burned while using the system installed by our insured. He filed a lawsuit against the refiner alleging it was negligent in failing to provide an adequate safety program, failing to perform maintenance on the system, and failing to comply with OSHA standards. Even though the safety issues were the responsibility of the refiner and did not involve our insured, the refiner was able to tender the defense of this suit to our insured because they were listed as an AI including products and completed operations on our insured's policy. The AI exposure forces the insured's policy to defend the refiner, which is expected to exceed $200,000.
$32,000 Ongoing Operations Additional Insured: Our Insured was a plumbing subcontractor in a development consisting of 21 condominium buildings, each containing nine units. The construction was completed over the course four years. The developer was a national home builder. A construction defect lawsuit was filed against the developer as well as numerous other contractors, including our insured. The allegations were very vague especially regarding our insured, but the developer was able to tender the claim to our insured because the builder was listed as an additional insured (AI) under our insured's policy. The AI endorsement naming the developer only provided coverage to the AI arising out of ongoing operations. Since this claim arose from operations that had been completed six years prior, we did not have to pay for the builder's defense. The other three subs. that had provided AI coverage on a completed operations basis, however, were stuck paying a share of the developer's defense. We settled on behalf of our insured for $32,000 and our insured was dismissed from the lawsuit. The developer settled the suit against them for $3.7 million. The developer incurred in excess of $400K in defense costs, which the other three subs with AI obligations were forced to share. Had our insured's policy provided the AI completed operations coverage, they would have had to pay $80,000 for the defense of the builder. In this scenario, limiting the AI exposure to only ongoing operations, resulted in a savings of $80,000.

 

Business Auto

Amount Paid/Reserved Situation
$1,000,000 Auto Liability: Heating and cooling contractor employee was driving a company van on his way to a service call. Employee ran a red light in a 45 mph zone and struck claimant's vehicle. The employee was talking on a cell phone at the time of the accident. The claimant was a coffee shop owner. She suffered a fractured vertebra which required cervical fusion. She claims she is unable to operate her business.
$1,000,000 Auto Liability: An electrical contractor allows a service technician to drive the company van to and from work. The insured employee was heading home at 5:30 p.m., traveling in the right lane of a two lane highway, with his cruise control set at 60 mph. He dropped something on the floor and bent over to pick it up. When he looked back up, he saw the claimant driving a motor scooter directly in front of him. He was unable to stop and struck the scooter. The claimant was thrown from the scooter and later died from her injuries. The insured driver has no idea why he did not see the scooter prior to the accident.
$450,000 Auto Liability: Employee was driving to a job site at 10:30 a.m. He was not familiar with the area and in the process of looking at various addresses as he passed by, failed to notice a stop sign. He ran the stop sign going 40 mph and broadsided the claimant vehicle. Insured driver was not on the driver's list. His MVR was ordered after the accident and it came back clear. The claimant suffered several facial fractures and had neck surgery. There will be some permanent scarring on his face.
$1,000,000 Auto Liability: Plumbing and heating contractor employee, age 74, was driving service van when he failed to see vehicle in front of him stop for red light and rear ended the claimant vehicle. There were four people in claimant vehicle and all were injured. Driver's MVR contained no violations.
$750,000 Auto Liability: Insured owner, age 59, was involved in rear end accident at 7:30 a.m. He was not working on the day of the accident, although he was driving company vehicle. He could not recall to the police what happened or why he was on the road at that time. He was charged with DUI. His MVR revealed another accident and subsequent DUI charge one year earlier. The claimant was a 35 year old paramedic. She underwent cervical fusion and is unable to perform her duties as a paramedic.

 

Workers Compensation

Amount Paid/Reserved Situation
$3,300,000 Work Comp: 48-year old millwright employee was on a scissor lift, which was raised six feet in the air. Despite a requirement to wear a harness and being a certified safety trainer, he chose not to wear the harness that was available to him. He climbed onto the railing of the lift and while stepping from the railing to the silo that he was working on he apparently lost his balance and fell backward striking his head and upper back. The employee suffered multiple compression fractures of the spine and severe head injuries. It was initially believed he would not survive. The employee has not returned to work and long term treatment will be required.
$797,000 Work Comp: Employee was a 41-year old plumber installing a pipe vent in a vaulted ceiling. He cut through the ceiling with a reciprocating saw and laid the saw on the roof. He went down the ladder and when he came back up, he bumped the cord causing the saw to slide down the roof and fall through the opening. The saw struck him next to the right eye and he fell off the ladder. He was taken by ambulance to the hospital. He developed an infection and died of a massive stroke eight days after the injury.

 

Employment Related Practices Liability

Amount Paid/Reserved Situation
$25,000 Age Discrimination & Wrongful Termination: Employee suffered non-work related injury that caused him to be off work two months. Employee returned to work with doctor's okay, but employee didn't seem able to handle the physical requirements of the heating and cooling installer position. No physical ability testing conducted. Insured put employee back to work.

Insured received complaints from other employees about the employee's work. When work slowed down employee was laid off. Insured indicates lay off was with intention of bringing him back when work picked up again, but it never really did. Investigation showed insured did not lay off two younger employees with less seniority.

Employee alleged age discrimination. Employee was hired at age 59 and was 62 when laid off. Investigation indicated that employee was referred to as "old man" by co-workers.

Defense attorney believed that had the insured implemented job requirement testing in place that the claim would not have occurred. Observations of the employee following his return to work indicate that although he had a doctor's release to return to work, that he would not have been able to complete/pass the physical requirements necessary to perform the HVAC installer position.

$11,000 Discrimination & Wrongful Termination: Employee alleges he was terminated because of his gender (male), race (white) and age (66). Employee indicates he was terminated by female supervisor and replace with a younger native american male. Employee filed a charge with the state human rights agency and received a probable cause finding.

 

Business Errors & Omissions

Amount Paid/Reserved Situation
$600,000 Faulty Workmanship/Design: Insured completed work on boiler project for a large hospital. The city provided the design and the architect was through the general contractor. It was later determined that the system was not providing the necessary heat to the hospital. There was some inefficiency noted in the design of the system, as well as questions regarding the size of the piping used by the insured. Although the insured followed specs, potential liability existed as they didn't use their professional expertise to question the specs.
$500,000 Faulty Workmanship: The insured was performing HVAC upgrades at a duplex and there was a fire.
$300,000 Faulty Workmanship: Insured installed solar panels at a commercial retail location three years ago. The panel box caught fire causing interior damage. It appears there was an issue with the panel box that was manufactured by a separate entity.
$209,000 Faulty Workmanship: Insured installed heating system which failed to work properly.
$80,000 Faulty Design: Insured hired to design a chiller system to cool down melted rubber. The insured designed and installed a 50-ton chiller. After the job was complete, the claimant began complaining that the rubber was not being cooled down as quickly as was needed. It was determined that a better system would have been designed using a 100-ton chiller. Insured had to redo the system using a bigger chiller. The additional costs for the larger cooler are not covered.
$79,000 Faulty Workmanship: Insured was a plumbing subcontractor at the claimant's building. Water leaks are occurring at connections between galvanized and plastic pipes. No water damage, but joints must be redone.
$79,000 Faulty Workmanship: Insured subcontractor performed faulty pipe insulation which caused condensation and water damage. Pipes had to be reinsulated.
$78,000 Faulty Workmanship: Water piping installed by insured now leaking and needs to be fixed.
$73,000 Faulty Workmanship: Insured's customer's geothermal heat pump failed due to rock damage.
$71,000 Defective Materials: HVAC unit sold and installed by insured is defective and must be replaced.
$69,000 Faulty Workmanship: Insured installed new equipment on top of building and did not seal flashing properly causing roof to leak.
$60,000 Improper Design: Claim for inadequate design of a digital media recording system installed in claimant's residence.
$57,000 Faulty Workmanship: Insured wired processing plant, switchgear blew up and caused fire at plant.
$50,000 Faulty Workmanship/Design: HVAC system installed by insured is not functioning properly, lack of adequate cooling in many areas of the building.
$42,000 Faulty Workmanship: Insured's completed installation of HVAC system was faulty. It needed to be removed and replaced. The claimant's/tenant's operations are on-hold until repairs can be completed. Business income loss claimed by the tenant of the building.
$36,000 Defective Materials: Insured installed several defective light fixtures from manufacturer in a commercial building. The fixture manufacturer never admitted fault, so we were unable to fully subrogate the loss. The cost to redo the job was $225,000. The manufacturer agreed to supply all of the replacement equipment, so our insured's cost was only their labor.
$25,000 Faulty Workmanship: Insured was electrical contractor on grain dryer project that was completed a year ago. Now a fire occurred at grain dryer site causing extensive damage, including the need to replace the insureds work.
$15,000 Faulty Workmanship: Electrical contractor installed the wrong type of wiring.
$15,000 Faulty Workmanship: Plumbing contractor installed sewer pipe which backed up in the office building.
$14,000 Improper Design: Electrical contractor prepared the design for an intensive care unit at a hospital. They mistakenly omitted electrical receptacles in the design.
$12,000 Faulty Workmanship: Insured installed a heating unit on the roof of a building and it was the wrong unit.
$10,000 Faulty Workmanship: Insured installed thermostats in building and had to go back and change height.

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Why You Should Never Have An Informal Buy-Sell Agreements

Have you ever thought about what would happen to your business after an owner's death or disability? Often times business owners may discuss what they want to happen, but they do not take the necessary steps to lock these plans in. Trying to rely on these discussions after something happens can be one of the greatest threats to your businesses survivial.

How Do Informal Buy-Sell Agreements Work?

During the business owners lifetime, the multiple owners discuss some general terms for a future buyout situation, but do not put anything in writing. Some day in the future, one owner dies. Since prior verbal agreements were informal, all surviving parties must negotiate the terms at the worst possible times to negotiate. If the parties are unable to come to an agreement, then legal intervention is usually required for a resolution.

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What Are The Consequences Of Having An Informal Buy-Sell Agreement?

An Informal Buy-Sell Agreement is a verbal agreement between owners that is not legally binding. Without a formal written agreement, the buyer, price, and terms are all open to negotiation. To complicate the situation, the negotiations may include parties that were never aware of the verbal understanding

An Informal Agreement Is No Agreement At All

A written buy-sell agreement provides an orderly process for passing the business from one owner to another. The individuals agree in writing that the business interest will be sold for a negotiated pre-determined price, upon the occurrence of certain events. These events can include:

  • Death
  • Disability
  • Retirement
  • Divorce
  • Bankruptcy of the Owners

Benefits Of A Written Buy-Sell Agreement

  1. To the Business

    • Provides a smooth transition of control and ownership
    • Helps avoid ownership by unwanted parties
    • Helps avoid potential disagreements about business decisions
    • Reassures creditors, suppliers, customers, and employees of the continued viability of the business
    • Helps ensure the legacy of the business
  2. To the Owners

    • Binding on all parties
    • Locks in a Buyer for the business interest
    • Helps ensure your heirs will receive fair value when they sell
    • time frames and payment terms are agreed upon ahead of time
    • helps make sure the active owners retain control of the business

The Benefits of Using Life Insurance to Fund a Buy-Sell Agreement

I speak about this much more in depth in this post: Life Insurance Funding for Buy-Sell Agreements

Here are the key benefits of using life insurance to fund a buy-sell agreement:

  • cash is immediately available upon an insured owners death
  • tax deferred growth of cash value
  • death benefit is generally received income tax free
  • disciplended means of setting aside funds
  • policy cash can be used for a lifetime buyout or for financial emergencies

 Please take advantage of the risk management  resources I have to offer! If you are ready, feel free to request a life insurance quote on this site – here’s the link aaronpeacock.com/free-quote or call me at 828-434-3215 or email me at [email protected] to discuss business succession planning. It’s easy, fast, safe and always secure. 

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Aaron Peacock

Aaron Peacock

Hi, I'm Aaron and I'm a marketing representative for Federated Mutual Insurance Company - a Ward's Top 50 and an A.M. BEST A+ Superior rated insurance carrier. After my wife was severely injured in an accident involving a distracted driver, I've found one of my passions in life is to help educate people about the Danger of Distracted Driving and have started speaking to businesses in Western North Carolina on implementing the Federated Insurance DriveS.A.F.E. program. Click here to read more...

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