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INDEX
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Dispose of your rejected products properly. Do not just discard them in the refuse bin. They can be stolen or acquired and re-sold by unscrupulous parties, which could result in either damage to your firm's reputation or possibly product liability.
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A startlingly high percentage of fatal traffic accidents are caused by a driver falling asleep at the wheel. If your employees work very long hours and then must drive, make arrangements for them to get home safely or offer to pay for hotel accommodations.
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Be sure doors, windows, skylights and other means of entry are always locked when the building is not in use. Opportunistic thievery may be discouraged by the simple act of locking up. Also, some burglary insurance policies may not cover unless there are visible signs of entry.
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Your liability policies require that you report not only claims, but also any occurrence or circumstance which might result in a claim. The "Conditions" section of the liability coverage form explains your reporting duties and the information that you must report.
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| Who gets injured in an "advertising injury?" |
Most policyholders realize that a general liability policy covers the insured's liability for bodily injury and property damage. There are other coverages within the policy, however. Perhaps the least understood is "advertising injury."
Although exact wording depends on the policy, advertising injury typically covers damages for use of another's advertising idea, and infringing on another's copyright, trade dress or slogan, in an advertisement. In some policies, coverage also applies to written or spoken material that disparages a competitor's product. This is true in older (pre-1998) commercial general liability policies and in some policies still in use.
In a case involving a large scissor manufacturer (Acme), the company advertised that its product was sharper and more durable than stainless steel. A competitor, who made stainless steel scissors, filed a false advertising claim based on publication of the allegation by Acme. The competitor alleged that its product had been discredited by the advertisement.
Acme turned the claim over to its general liability insurer. The insurer refused to defend stating that the circumstances did not constitute an advertising offense, even though the complaint specifically alleged advertising injury. The underlying action for coverage went to trial.
The court held that although the advertisement did disparage stainless steel scissors and trimmers, but did not disparage the business, premises, products, services, or work of others. In the court's opinion the advertisement had to name another brand for the advertising injury coverage to apply. It decided that only a category of products were identified, not a particular company.
There was no duty to defend the insured, and no coverage. The court granted a summary judgment in favor of the insurer. For an "advertising injury" a company, not just a category of product must sustain the injury.
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| Avoiding gaps in coverage for new properties |
Property insurance policies contain provisions for automatic coverage for newly acquired properties. But, what about newly constructed properties?
During the course of the construction of a structure, a site owner or their contractor will arrange "builder's risk" insurance, also called "course of construction" coverage. Although this risk could be covered under a regular property insurance policy, many property owners prefer a special policy form for builder's risk. These so-called "inland marine" forms provide broad coverage and are usually more directly attuned to the risks involved when a building is in its various stages of completion.
The coverage could be arranged either by the property owner or by the contractor and each party's "insurable interest" is protected. In a "turnkey" arrangement the contractor takes all responsibility (sometimes including acquiring the property) and then turns the completed work over to the owner. In such cases, the builder's risk protects the contractor's interest until the property is turned over.
When the builder's risk coverage ends, coverage under the permanent property insurance program must begin simultaneously so that there is no gap in coverage. Builder's risk policies frequently terminate coverage upon certain conditions being met. Typical phrases describing such events are the following:
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A "purchaser" accepts the property as complete
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The insured's financial interest in the property ends
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The property is put to its intended use
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The owner formally accepts the project
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The project is placed into commercial service
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The structure is "occupied" according to a definition in the policy
The last condition may be somewhat flexible. An "occupancy" clause may allow coverage to continue if a building is partly occupied but partly still under construction. Usually this is subject to strict reporting requirements and underwriter approval.
Transition from construction insurance to permanent insurance may or may not be automatic. There may be conditions and restrictions on newly constructed properties in the permanent policy. Often there is a lesser limit for this coverage.
It is critically important that a property owner understands and complies with policy conditions of both construction property insurance policies and permanent property policies. To avoid a gap in coverage, the owner should work with their insurance professional to make sure the transition happens smoothly. If the construction insurance is arranged by someone else, such as a contractor, it is important to make sure your insurance professional is aware of this arrangement and has full access to the construction policy and any relevant information.
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| The most dangerous occupation |
News of disasters gives pause for thought about the dangers of certain occupations. Certainly, most people probably realize that firefighting is dangerous work. News of mining accidents stirs up graphic images of the threats in that occupation. Construction also seems among the most dangerous jobs. Certainly one of these must top the list of most dangerous. Not according to the data, however.
The Bureau of Labor Statistics (BLS) reports that agriculture (including forestry, fishing and hunting) is the most deadly work. In 2004, this classification reported 30.1 fatalities per 100,000 workers. This rate is more than 7 times the fatality rate for all industries and is ahead of mining (28.3) and transportation and warehousing (17.8). Construction comes in fourth with a rate of 11.9 per 100,000.
The most common cause of fatalities across all occupations is transportation incidents, accounting for 43% of all fatalities. Even in the high-risk occupations, transportation incidents are at or near the top among causes of death. In agriculture, one of the most common causes of death is equipment rollover.
The BLS compiles mountains of data about the workforce. Safety and health data available here are not obtainable anywhere else. This remarkable source of information is online at www.bls.gov. Most of its reports are available for download.
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| Insure the right property |
Some insureds pay more premium than necessary by inadvertently including property on an insurance policy that does not need to be insured. It is important to pay careful attention to the property schedules you provide to your insurance professional.
For many businesses, some owned property may not need to be insured. Examples may include ground level parking lots, fences, stand-alone property below the deductible, athletic fields, ground-level roadways, buildings scheduled to be demolished and others.
Look at the scope of coverage of your policy. If the perils insured against could not cause substantial harm to the type of property in question, you may not need to insure it. If the property is discreet, i.e., separate from other structures and property and falls below the deductible, there may be no reason to insure. If you have no further use for the property, such as a structure scheduled for demolition, insurance may be optional.
In each of these instances, however, you should spend some time with your insurance professional to analyze possible sources of loss that you may not have considered. It is critical that this analysis is done right. You do not want to pay premiums unnecessarily but you also do not want to risk an uninsured property loss that is financially significant.
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| Understanding insurance rates |
Many policyholders have some experience with or concept of insurance rating. A rate is a number applied to a measure of exposure (rating basis) to produce a premium. For example in workers compensation, the measure is payroll. For general liability, the measure may be sales, payroll or some other item that changes with exposure.
Several developments in recent years have changed some of the underlying principles of rating. A little knowledge of these developments may save your organization money and dispel some confusion. The comments below apply to some, but not all, lines of commercial insurance.
In the past, insurance rates were heavily regulated. Rates were developed from loss data collected by rating organizations and published by the various state regulators. Every insurer had to use them. They could deviate for certain reasons (good or bad loss history, extra safety measures), but the deviations had to be approved and were held within ranges.
In the 1990s, states moved toward a concept of "open rating" in which an insurer can set its own rates subject to some constraints by the insurance regulators to prevent insurer insolvencies. In some states, a rating agency still operates but provides "advisory" rates or so-called "pure premium" rates based on expected losses. In most cases, insurers can deviate from these rates without approval so long as the competitiveness does not put the insurer in financial jeopardy.
Pure premium rates only contemplate expected losses. The insurer must add amounts for their operating expenses and profit.
Open rating promotes competition. It can allow for wide divergence in rates and therefore costs to an insured. It also increases negotiating possibilities. Therefore it is more important than ever to compare prices between insurers and to understand how rates are created to increase your negotiating edge.
The change in rating practices in recent years puts more emphasis on the professionalism and expertise of the insurance agent or broker. The system requires more work than before to determine and negotiate the best coverage and price. Skill and knowledge are at a premium. Your company's working relationship with your insurance professional is more important than ever.
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| Claim administration service contracts |
If you use the services of a third party administrator (TPA) to manage self-insured claims, here are some tips for what to include in the contract. Particularly, if you use the TPA's standard contract form, expect to add the following items:
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Benchmarks for initial response time and follow-up intervals for claims handling.
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Use of sub-contractors: identification of who is actually doing the work and who has access to your data. Subcontractors may include adjusters and investigators, case managers, utilization review experts, and database services.
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Confidentiality of information, including data security and confidentiality of information available to subcontractors.
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Types, frequency, assurance and timeliness of reports and data access and any additional charges for these services.
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Your ownership of the files.
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Insurance to be maintained by the TPA, including errors and omissions and a fidelity bond.
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Auditing of imprest accounts and related accounting matters.
Do not forget to look at the termination clause. Some TPA contracts specify cancellation only at anniversary, with substantial notice. Your organization should be able to cancel at any time with reasonable notice. You don't want to be locked into the contract if service is unsatisfactory.
In the event of cancellation, the contract should specify wind-down procedures. It should describe how and when files will be turned over, and specify that files will be orderly. For workers compensation cases in particular, you have an obligation to continue claim payments to injured workers and to meet all deadlines mandated by law. In one instance a TPA dumped the open files in cartons in random order, so the new TPA would have to sort them, at client expense. In another case, the TPA trashed or misplaced most of the unprocessed hard copy materials in its possession when the contract was terminated.
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