Guest Matt Burns has extensive experience assisting startups to Fortune 500 companies with their corporate insurance needs. Matt joins us to share the essential types of coverage new businesses need, from basic general liability policies to more complex coverage like cyber liability and employment practices liability. Tune in to learn how to navigate insurance requirements, the best time to secure coverage, and general insurance insights for businesses of all sizes.
Listen to the full episode using the player below, or by visiting one of the links below. If you have any questions or would like to learn more, email us at firstname.lastname@example.org.
*The below transcript has been edited for readability.
Intro: [00:00:00] Welcome to Legal 123s with ByrdAdatto. Legal issues simplified through real client stories and real-world experiences. Creating simplicity in 3, 2, 1.
Brad: Welcome back to Legal 123s with ByrdAdatto. I’m your host Brad Adatto, with my co-host, Michael Byrd.
Michael: Thanks Brad. As a business and health care law firm, we represent clients in multiple business sectors, especially health care. This season, we are diving deep into the exhilarating and terrifying process of opening a business. Our theme this season is Starting a Business.
Brad: And Michael, starting a business can sound terrifying to some people, but that’s just really one season of a business. What are some of the other seasons?
Michael: This journey, this whole year is actually going to go through four different podcast seasons covering these four seasons. We have the Building Season which is kind of getting the infrastructure in place, the starting a business that we’re talking about now. [00:01:00] You have the Operating Season where you’re up and going, and the different crises that you’re managing during this stage. And then the Scaling Season; what happens when you’re trying to grow your business. And then the Buying and Selling Season; the whole set of things that comes up when you’re at that point of either acquiring another business or selling your own.
Brad: Yeah, and today’s guest, Michael, is another OG who really played a big part in helping us start ByrdAdatto.
Michael: And I’m super excited. Our guest will cover an important need that people need to look at when they’re starting a business. But before we bring him on, Brad, we have a little something to talk about. I’m excited because our World Champions Texas Rangers are a month away from their title defense. I’ve been thinking about the awesome nickname for one of our star players, Adolis Garcia.
Brad: El Bombi.
Michael: Yes, Brad, you got it. [00:02:00] It seems like such a great nickname for a Cuban player known for hitting monster homeruns.
Brad: Yeah, I agree. It’s perfect. I mean, he hits these massive bombs and he does so with his dramatic moments during the season. He’s also known for having a huge personality and then some creative celebrations, let’s call it, when he does hit a home run.
Michael: The hilarious thing is that he’s had this nickname since he was a little boy in Cuba.
Brad: Was he hitting big home runs back in Cuba T-Ball time?
Michael: No, Brad, that’s not it. Boys in his neighborhood started calling him this because his head looks like a light bulb.
Brad: Ah, well, based on my five minutes of Spanish I took today with the Duolingo, El Bombe means light bulb in Spanish, Michael.
Michael: Yes, Brad, it does. And it does remind me just how brutal guys are to each other. Nicknames are often, in some ways, making fun of him whether it’s a body part or otherwise. Which makes me wonder, Brad, have you had any nicknames growing up? [00:03:00].
Brad: Are you counting Brett as a nickname right now?
Michael: Of course not, Brad. Brett is only a recurring character in some of our stories who has an inferiority issue with his counterpart, Miguel. I never said that you are Brett, though I do see how you could draw that conclusion.
Brad: Yeah. It appears that Brett needs to stop making fun of this Miguel character as maybe he’s getting too sensitive. But I did have many nicknames between high school, college, and even in law school. However, the one that I’ve had the longest from high school, I was known as De Butcha. And the reason why was my freshman year playing high school football, I was five feet, maybe a hundred pounds soaking wet, and the locker next to me was the old state running back who was leading the state and rushing. And we bumped into each other one day when we were getting ready to go outside, and I kind of bowed up to him, which was kind of a joke. And our backup quarterback ran over [00:04:00], his name was Chris, pushed Chris back and goes, “Watch out, Chris, De Butcha’s going to take your lunch money.” And the entire locker room laughed hysterically. And from then on, I became known as De Butcha. And for those who don’t know, I’m still not very tall.
Michael: Well, I’m just relieved that it’s not like some sort of true crime nickname. Not a serial killer. and
Brad: No, no, not a serial killer. But what about you?
Michael: Well, with the last name Byrd, I’ve had too many nicknames to count over the years. I practically forgot that my name was Michael by the time we got into the workforce. The most common name I’ve been called is Byrd, or some variation like Bird Dog, Bird Man, or Birdie.
Brad: Yeah. And another nickname you really really love, and audience members I mean hate, is when someone calls you Mike. Well, any less common and more embarrassing nicknames?
Michael: Let’s stay away from Mike. My roommate in college guy had multiple nicknames for every person he meets. [00:05:00] They’re all affectionate, so I would not say they’re embarrassing. His main nickname for me is Doc. And he calls my wife Slim Shady.
Brad: Okay. Is this because you’re claiming to be practically a doctor?
Michael: Fair question. My dad is a doctor, so that does almost make me a doctor. Actually his nickname has no ties to anything. He just started calling me Doc. And Stephanie actually does not have any ties to Eminem, other than this was like Eminem’s Prime back when he gave her that nickname.
Michael: The only embarrassing nickname is that my nieces from my sister Meredith call me Uncle Donkey. Yeah, it stemmed from a movie reference from Shrek. I called my son Aiden Donkey in front of them, and they all decided to reverse it and have, for the past 20 years, been calling me Uncle Donkey.
Brad: Okay. Doc Donkey. [00:06:00] What does this have to do with our nice guests who’s waiting to join us?
Michael: Nothing other than I’ve known him long enough to know his nickname, but I’ll let him tell you that here shortly. Joining us today for the first time is our friend Matt Burns. He is the Senior Vice President for Willis Towers Watson in Austin, Texas. Prior to that, he was the Senior Vice President for Steven’s Insurance. He has been a commercial insurance broker for more than 20 years. He graduated from Baylor in 1995, and has, like I said, been a longtime friend and helped get us up and going with our insurance needs several years ago. Matt, welcome.
Matt: Hey. Great to be here with you guys. Thank you for having me.
Brad: Absolutely. Well, I guess we have to jump right in there, Matt. If you could share, what is the nickname that Mr. Byrd was referencing to earlier?
Matt: It’s really easy. [00:07:00] I don’t know many people that don’t call me Burnsy. That’s kind of stuck. It’s always been a part of the equation.
Michael: Well, that is it.
Michael: Well, cool. Well, we’re so glad you’re here and to kick things off, give a little bit of introduction about you professionally. Tell us about Willis and your clientele. Just kind of introduce what you do.
Matt: Yeah, no, I appreciate it. And thanks again guys, seriously, for having me on. I’ve been in insurance for actually coming up on 30 years. It’s hard to believe that. It doesn’t seem like – some days it seems like it’s been a long time and other days it seems like it’s been since yesterday. My expertise is on the property and casualty side. I’m focused on corporate insurance, so from startups to all the way to Fortune 500 companies and anything and everything in between. And so, the focus [00:08:00] really for me in my practice is really more education than it is product sales. I try to stay very, very, very far away from that aspect of things. And what I love about your firm that complements our mentality and our goals, is just making sure that we are complementing where a business is and its lifecycle. So, I love what you guys are doing, and it fits really well with our practice for sure.
Brad: Awesome. Well, that’s a perfect segue back to this season, Matt, where we we’re focusing on starting a business, from an insurance perspective, we’d love to have you share some thoughts. When one of your clients says to you, “Hey, I’m thinking about starting a business,” what is the first question you are going to ask them?
Matt: Yeah. I think the first thing, especially these days, I think the first thing is what’s your funding? Do you have a capital partner or funding source? [00:09:00] That in conjunction – that question along with a real clear, high-level understanding of what the business does, what they’re involved with, what industry sector, and what variations of that are they focused on. Those two things will have a lot to do with where you take the insurance placement and how you build it out. And unfortunately, it’s not asked very often. They’re relegated to an SIC code, or you just don’t dive quite deep enough to figure out how to build that out. Does that make sense?
Michael: Yeah. And how does that help you knowing kind of where getting that answer of their funding strategy?
Matt: Well, a lot of times, for example, if they’re private equity backed and let’s say that they they’ve given up the majority ownership in that scenario, [00:10:00] there’s a broader way to establish coverage and program at the capital partner level. But by and large, you’ll have folks that’ll give up 15, 20, 25% equity in their firm in exchange for a capital partner. In that case – in either case, those capital partners are going to have certain requirements and certain needs or requests for specific types of coverage that you wouldn’t see if it was ground up, self-funded, and you had the money already. So that’s the first thing. And then as you establish from an industry point of view, that can play a role too. So, not to get ahead of us, does that make sense?
Michael: Makes sense. Yeah, totally. And I think in a moment, I want to ask something first, but I want to get into the types of insurance you think about for business. But I guess, kind of before we get there, [00:11:00] let’s touch a little bit about the timing. A new business owner is thinking of a lot of things on their checklist they need to do to get their business up and going. When do you think they should be thinking about acquiring insurance?
Matt: Man, great question. And it’s probably one of the bigger questions out there that I personally, I’ll see people rush to get things put in place too early.
So let me give you a, a little bit of a real example kind of roadmap. So as you start something, you don’t really have any liability if you’re not selling anything, whether that’s a service or a product. As a general rule, I would say, well you need to be prepared from a budgetary perspective and we can help with that, as can a lot of different brokers. But from a budgetary perspective, getting an idea of cost [00:12:00] based on projections, based on – and I would say to any startup, don’t worry about year three, year two, worry about year one, and it’s important to focus on how much do you know you’re going to hit versus how much you hope to hit in a way of revenue. That’s going to have a big bearing on how insurance is structured, but more importantly, the timeline.
Don’t put it in place before you’re actually performing the services or selling the product, or doing what you are intending to do. And sometimes when a business is started, it may be months before that happens. I would tell you that the most basic trigger for starting just a business owner’s policy is if you’ve got a lease on space. And the landlord’s going to require you to carry certain elements of cover that are basic, right? It pays to put that in place first for that reason and wait for some of the other more complex lines of cover [00:13:00] until you start actually selling whatever it is, service, support or product that you’re going to be servicing or supporting or servicing yourself.
Brad: That makes sense. I mean, first off, it’s great advice because when someone’s starting a business from a cashflow perspective, you’re helping them realize that they will need insurance, but let’s hold off until you actually need it. Which really, I think, and you kind of started talking about this, but for our audience members, really start talking about the types of insurance that it doesn’t matter what type of business you are in, some of the basic stuff that you should consider when you’re starting your business. Let’s say, to your point, you’re now operational. What are the things should they be considering?
Matt: So, a couple things to start with that are non-insurance related, but we rely very heavily on it is folks like ByrdAdatto, firms like ByrdAdatto. Where I really feel like most insurance transactions miss, is we have to be able to look at indemnity agreements between you and your client-base. [00:14:00] The requirements are one thing, right? You’re going to have contractual requirements to carry certain aspects of insurance. But as you guys know better than me, it all comes down to the language in that contract as to how a claim could potentially be defined. So that’s the first place to start. And for us, we aren’t drafting – clearly, we’re not drafting legal opinions, but I want to put a client in a position where they can understand, we’ve got to craft product and build that product specific to their need based on those points within their MSA or within a contract that they’re required or obligated to. That being said, you start with the most basic, which is what I talked about earlier, a business owner’s policy or general liability and property policy that are packaged together. That meets the criteria of release. That slip and fall cover [00:15:00:00] doesn’t cost a whole lot of money at all to do those things depending on the industry sector. But for a startup, typically regardless of industry, doesn’t cost a whole lot of money.
Then we start getting, kind of moving through things like malpractice if you’re a clinic or a physician’s group. Any kind of professional liability if you’re a lawyer or if you’re an insurance broker. That’s important to be very specific about what you’re doing, where you’re going with it, and what type of business interaction you’re having with your client base. And then we get into other aspects of cover, like cyber liability, employment practices liability, directors and officers of board liability cover, depending on the nature of where the company is in the moment and what their requirements would look like from a contractual point of view.
There’s a lot there. And I want to make sure I’m covering what you guys intend for me to cover.
Michael: I’d like to unpack a couple of these. Just, you know, we’re going to have our audience is anywhere from an entrepreneur thinking about starting, up to private equity folks that are doing more sophisticated transactions. And I’d like to kind of start unpack it a little bit from the ground up. So just generally, you’re talking about a general liability policy. Talk a little bit, just generally, what do those policies typically cover?
Matt: Yeah. And to reinforce, that’s the most basic entry point policy from a business perspective that you have to have. Typically the un-insurance related answer is to meet the criteria of a lease agreement. You got to have it in order to inhabit the space you’re in. Now, depending on the nature of the company, that policy is [00:17:00] going to cover you for third parties that take action against you for property damage or bodily injury. So you can imagine the difference between, just to make the point, the difference between, let’s say a law office and the traffic in a law office versus a neighborhood grocery store. If you think about those, they’re going to be looked at differently from a rating perspective. One’s going to have more severity than the other as far as the potential for claim, but they’re both the same type of policies – very basic.
Michael: Gotcha. I’m going to gloss over malpractice, not because it’s not important, but I think it’s intuitive to most of our audience that this is going to cover professional negligence for whatever service you’re providing. I would love to hear your perspective on employment liability and cybersecurity because it feels like we get [00:18:00] a lot of questions about this over the last several years in particular.
Matt: And amen. I mean, I would tell you that from our practice’s perspective, those two claims are things we see, I would venture to say weekly. It’s just all the time, so I understand. Let me start, I’m going to divide them both kind of independent of one another because there are some things to really consider with both. Let’s start with the, when I say easier, I mean easier to get, easier to obtain, which is the Employment Practices Liability policy. Typically, and it is some somewhat of an oxymoron, there’s so many in insurance, I realize. But if you buy employment practices liability and it’s attached to a directors and officers liability policy, so that’s your board, your officers, your executives, blah, blah, blah. [00:19:00] If you buy that policy, you can actually attach employment practices liability to it. And many times, that will drive cost down further, which is therein lies the oxymoron. It doesn’t make sense, but that’s typically what you’ll see. You can also buy it on a standalone basis.
Now, the big thing with employment practices that you have to really focus on if you’re a consumer, client, or a small business, is what does your turnover ratio look like? If you’ve got a high turnover percentage, and I would suggest that if the turnover is more than 40%, less than 40% you’re pretty okay, if it’s over that it’s not that you’re not okay, but they’re going to scrutinize things a lot more closely from an underwriting perspective based on that. Because the direct connection between a claim and turnover is there, so you have a higher probability of claim if you’ve got a higher turnover rate.
So [00:20:00] I would tell you that from a private startup private company perspective, the biggest reason people will take employment practice liability is for the defense cover. So they’re not taking it anticipating some, this is the practical answer, they’re not doing it anticipating some big settlement or judgment or front-page paper scenario, although that could happen. The majority of the time they’re doing it because they want the ability to access legal defense and get them through to settlement as fast as possible. And then on the other hand, you do have legitimate situations in which any kind of hostile work environment scenario can happen, and you want that kind of cover in order to fund that event in case you do get served for wrongful termination, or discrimination, or liable slander, defamation, sexual harassment, [00:21:00] things like that. And that’s just kind of a lightning rod situation these days in general where you see legitimate claims, but you also see claims that aren’t so legitimate, or appear not to be.
Brad: And I know Michael mentioned cybersecurity. Just 10 years ago, probably very few people had cybersecurity. Have you seen an increase in people understanding the need for it and actually understanding why they need to get it from you?
Matt: Yeah, that’s a great. And you’re right. There was a huge influx of purchasing and, I would say, massive amounts of cyber liability coverage was taken up. And then in about 2020/2019, we started to see the market. And we’re still here, but we’re starting to see the insurance market tighten up. And if anybody is awake these days, they hear almost weekly, daily, whatever, of a breach that has occurred, whether it’s [00:22:00] a big, big box retailer, or bank, or whatever the case may be. And so, you still have access to cyber liability, but the underwriters are much, much more fickle and particular about detail. How you’re protecting your data is going to be a critical piece to gaining access to cyber liability cover, what your protocols are to prevent a breach from occurring. Carriers are a lot more involved in the loss control and mitigation of those types of scenarios. And then the market has also shrunk from the standpoint of, let’s say, five years ago, Brad, there was probably 20 carriers in the market domestically that were offering cyber liability for small businesses and now there may be three or four.
Matt: It’s a difficult market. It’s a difficult thing to grasp and to gain access to, but it can be done.
Michael: Are [00:23:00] there a lot of hoops to get to the underwriting process for cybersecurity? In other words, does a small business need to have their IT ducks in a row to be able to apply?
Matt: Yeah. And I would tell you this, I don’t want to pigeonhole any small business into these categories, but if you’re FinTech, if you’re in the banking industry, or if you’re a hospital for example, and you’re dealing with a lot of personal identifiable information, then yeah, there’s a lot of scrutiny. But to answer the question directly, I think you need to be prepared to have your IT ducks in a row, but you also need to be prepared – kind of going back to ByrdAdatto. It’s really relying on firms like ByrdAdatto that can review and evaluate third-party agreements that your startup companies may have with an IT provider of some sort. [00:24:00] The more you can push that liability, that cyber risk away from your own company, the better off you’re going to be. And it does reflect in the cyber liability policies that are attainable. When you can show them the measure you’ve taken, carriers realize, “my goodness, I mean, we’ve defrayed our risk because of what they’re doing from a contractual point of view” and otherwise and that will help – that’s a must I would say at this point in the game.
Michael: Awesome. And then, kind of a final question before we wrap up. Just quick thoughts. You’ve mentioned that general liability is going to be required typically with your lease. I think malpractice is typically going to be required as part of your license for whatever type of license you have. Are there any other insurance types that tend to be a [00:25:00] must versus a may when someone’s considering starting a business?
Matt: You know, I really can’t think of anything other than the best advice I could give, you got to have a broker and an attorney that are communicating with each other to review both upstream and downstream contracts. Because what we’re seeing, especially in the startup world, it’s evolving, it’s a moving target. I mean, we’re seeing it change it seems like monthly where people are requiring more and more and more product to be purchased, so I would start there first.
Michael: Amazing. Yeah. That’s awesome. And I just looked up, we’re out of time. Matt, I’m so grateful to have you on. Thank you for joining us today.
Matt: Thanks for having me.
Michael: Absolutely. What we’ll do next is we’ll go into commercial and on the other side Brad, and I’ll wrap up with a few legal insights. [00:26:00] Thank you.
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Brad: Welcome back to Legal 123s with ByrdAdatto. I’m your host Brad Adatto, with my co-host Michael Byrd. Now Michael, this season, our theme is Starting a Business and we’re really camping out on this Building Season right now. We just had Matt on, and he had a lot of really interesting takes about insurance in general, but I thought he raised a couple of great points about when you are starting a business, things to consider. [00:27:00] And maybe of course, if you have a broker like Matt, you will hopefully know this, but a lot of people don’t realize when they do enter these contracts with a landlord, or with an employee, or employment opportunities, there’s going to be certain language inside that contract that requires you to carry a certain type of insurance and/or a certain level of insurance. That’s an important element, understanding those requirements that are built into it. That’s just a piece of the aspects. There also can be buried in their indemnifications, which he did kind of mention a little bit. Maybe you can jump in on there.
Michael: Sure. Yeah. And I’d just add to the more sophisticated your startup is, the more places you have to look for insurance requirements. So, as you’re raising capital, the stakes can go up on the types of [00:28:00] policies, and the indemnification question that you just mentioned goes up. So indemnification is a super boring topic even to lawyers, and so I’ve got to try to get in and get out since you gave me that question.
Brad: You’re welcome.
Michael: Yes. So, audience, the best way I can describe indemnification is think of it as insurance, but between two people and instead of an insurance company. And so, if I’m indemnifying Brett for something, I’m basically saying in these circumstances, I will pay if something happens. This becomes important because when you have indemnification, there’s this coverage that two people give each other and that can impact your policy that you have written. That’s why you have to have a broker, because if you don’t have certain language, like maybe that says to the extent not covered by insurance, you indemnify or you make it clear that you [00:29:00] want the insurance to cover things first before you get down to this private indemnification or otherwise, you could actually block yourself out of eligibility for insurance proceeds.
Brad: Well, Michael, unfortunately that is all the time we have today. But do not panic audience. We will be back next Wednesday when Chris Williams comes and joins us to talk all about helping you start your business and understand the important elements of commercial banking.
Thanks again for joining us today. And remember, if you like this episode, please subscribe, make sure to give us a five star rating and share with your friends.
Michael: You can also sign up for the ByrdAdatto newsletter by going to our website at www.byrdadatto.com.
Outro: ByrdAdatto is providing this podcast as a public service. This podcast is for educational purposes only. This podcast does not constitute legal advice, nor does it establish an attorney-client relationship. Reference to any specific product or entity does not constitute an endorsement or recommendation by ByrdAdatto. The views expressed by guests are their own, [00:30:00] and their appearance on the program does not imply an endorsement of them or any entity they represent. Please consult with an attorney on your legal issues.