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INDEX
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According to a report published by the Center for WorkLife Law, the number of lawsuits alleging that employees were discriminated against because of their family responsibilities has significantly increased in the last decade. The report found that 481 such cases involving allegations of discrimination were filed from 1996 to 2005. In the prior decade only 97 cases were filed. Such cases typically involve charges that a worker was discriminated against because of obligations to care for family members, such as children or aging parents.
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Police in Shreveport, Louisiana have developed a novel approach for catching auto thieves. The department is now using "bait" cars. The vehicles have been donated by insurers and include high-tech tracking devices, hidden cameras and remote-control door locks and engine override technology. Models range from 1980 Chevrolets to the latest Cadillac Escalade.
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There are at least two grounds for denial of claims under liability policies that always need closer examination. These are denial because of an "intentional act," and denial based on "no occurrence."
Most liability policies exclude coverage for intentional acts. The purpose of this exclusion is to prevent insureds from deliberately committing some wrong that they should reasonably expect to result in a claim and then expecting to be covered by insurance for their wrong. The exclusion is not intended to defeat coverage merely because an act of the insured was intentional. Most acts are intentional, though the consequences may not be.
For example, on the way home from the office you decide to take a shortcut over a rough road that you never have driven before. Your car is damaged when an axle falls into a rut. Did you intentionally take the rough road? Yes. Did you intentionally damage your car? No. Even though it could be argued that you should have known the rough road was dangerous to your vehicle, the "intentional act" denial would not be appropriate. Of course, if "off road" driving was excluded in the policy you might have another problem.
For coverage under most liability policies (we are not referring to professional liability or other such policies here), there must be an occurrence (or accident). If there is no occurrence, there is no coverage. The intent of this exclusion is to protect the concept of insurance as protection against fortuitous events. Fortuitous events could also be called "accidents." If there is no fortuitous event, there is no insurance.
Some events are not exactly fortuitous, such as for example, when a contractor deliberately uses substandard materials and the materials later fail causing a loss. Such practices are not covered, as they are not "occurrences."
Coverage determinations should be reached after careful examination and interpretation of the policy exclusions. Unfortunately, sometimes denials of claims arise out of misunderstanding or overbroad application of exclusions intended to be interpreted narrowly. There is a wide range of cases applicable to this issue. If your company receives a claim denial based on one of these exclusions, you may wish to discuss the matter with your insurance professional and legal counsel.
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| Tough property insurance renewals |
Times are not the best for companies renewing their property insurance programs. Times are really rough for those organizations with earthquake or coastal windstorm exposures.
At least two major factors have helped create this situation. The severe windstorms of 2005 have caused turmoil in some of the insurance markets. In addition, recalculation of the catastrophe "models" (mathematical systems for calculating the possible effects of catastrophic events) have caused those insurers that provide coverage for catastrophic events to rethink their pricing. The models now show much greater potential losses from natural catastrophes than before.
The areas where the worst increases have occurred include California properties (earthquake) and the Gulf Coast (coastal windstorm). Increases have been in the double and triple digits. Another problem is the lack of availability for the coverage. According to some reports, organizations with long-term relationships with insurers have done better than others in obtaining "reasonable" pricing and terms for their renewals.
As always in tight insurance markets, allow ample time for your insurance professional to "market" the coverage and be prepared to work harder in preparing applications and supplemental information to present to the insurers. Many organizations should expect to receive less coverage than they may be used to, especially if earthquake or windstorm exposures are involved.
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According to data from American Risk Management Resources, mold risk is more a factor of construction techniques than climatic conditions. Mold can be worse in dry climates than in wet ones. The analysis leading to this conclusion compared insurance claims for mold with premiums.
According to the information provided by ARMR, there was more mold growth resulting from inferior building materials or poor construction than by the hurricanes that hit the Gulf Coast last year. In dry, hot climates, building practices that seal off structures from the outside environment can also promote the growth of mold within those same structures when the moisture cannot evaporate naturally.
According to the analysis, the worst states are, in order:
Texas
Florida
Oklahoma
South Carolina
Nevada
Arizona
California
South Dakota
Tennessee
Kansas
Considering the methodology of the study, it should be noted that some part of the ranking might be attributable to the level of litigiousness in the states analyzed.
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| Needless contract requirements |
Landlords, general contractors, developers, purchasers and others commonly require indemnification and insurance of those with whom they do business. The indemnity agreement is a promise to pay for losses that arise out of the work performed, use of premises, or product sold. The insurance is a means of financing that payment. This whole process sometimes is called "contractual risk transfer."
Many organizations have raised this practice to an art form. Persons practicing this "art" usually do so with the intent of protecting their own organization from loss. Sometimes, however, the process is carried to extreme and can not only defeat the intent of the transferring party but also can complicate and subvert the entire contracting process. This occurs when the party transferring the risk does not understand some of the issues. Here is a list of common risk transfer errors.
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Requiring coverage when there is no exposure. Examples include:
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Professional liability when there are no professional services being performed,
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Workers compensation when there are no employees (such as in the case of a small contractor or individual tenant), and
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Auto insurance when the indemnifying party does not own or use autos in the work. However, when the other party owns no autos, it is still prudent to require non-owned auto insurance just to be safe.
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Requiring insurance forms that are inappropriate or unnecessary, such as:
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Additional insured endorsements for coverage for which additional insured status is not desirable or impossible (workers compensation, professional liability), and
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Inappropriate forms (e.g. insistence on a particular form type or number when a different form is called for).
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Coverage provisions that are difficult or impossible to meet. For example:
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Policy per occurrence and policy limit (aggregate) multiples that do not normally exist in the industry (e.g. $5 million per occurrence, $10 million aggregate for primary general liability insurance), and
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Coverage for liability assumed in the contract, when policies clearly prohibit such assumptions, such as professional liability policies.
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Requiring adding by endorsement provisions that already are in the policy. Examples may include:
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Severability of interest provisions (each insured is treated separately),
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Primary coverage wording (most standard policies already are primary); and
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Additional insured status in automobile policies (already covered in the "who is an insured" section of the policy).
These are but a few examples of requirements that drive service providers, tenants and their insurance professionals crazy. They may be well intentioned but seriously flawed. From time to time it may be worthwhile to have an insurance professional or attorney look over your contract language and make some suggestions that could make life easier.
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| Strategies for buying umbrella insurance |
Umbrella or excess liability policies can be used to increase the limit provided by primary policies, principally general liability, auto liability and the employers' liability portion of the workers compensation policy. Knowing something about how umbrella liability underwriters evaluate and price their product may help save money.
Generally, umbrella insurers set their pricing based on the cost of the primary insurance, auto and general liability. Pricing most commonly ranges from about 10% to 30% of the primary layer total cost when writing over both auto and general liability. Of course, under special circumstances, the range could be higher or lower. Ironically, when market conditions "harden" making the primary coverage more expensive, umbrella underwriters tend to increase the percentage of the primary coverages that they get for the umbrella coverage. This results in a sort of "one, two punch" for the insured.
Higher layers of excess coverage, used when the insured wants to acquire a relatively high limit, which necessitates using several layers, also are based on the cost of the insurance immediately below. For example, the second layer excess insurer may charge half of what the first layer umbrella underwriter charges. If you want to purchase $10 million above a primary $1 million layer, for instance, your program may be structured like this:
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Primary coverage at X dollars
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Five million umbrella coverage at 20% of X
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Five million excess liability (for a total of $11 million) at 10% of X
Obviously your strategy should begin with getting "X" as low as possible. Aggressive assumption of risk through deductibles in this example could lower the cost of the primary insurance and carry the savings through to the higher layers. Such a strategy is consistent with a sound risk management principle of putting premium dollars at the top end to protect against catastrophes, instead of at the bottom end where you are merely trading dollars with the insurance company.
Another useful strategy when insurance pricing is low ("soft" market) is to lower the primary limit. This should lower the primary premium. Many umbrella underwriters will continue the practice of charging a percentage of the primary layer enabling you to build your protection system using less expensive higher layers. This won't work in "hard" markets.
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| Workers compensation waivers of subrogation |
A waiver is a "surrender of a right or privilege." A contracting party, such as a contractor or tenant, is asked to give up the right to make a claim against the other party, such as an owner or landlord, for bodily injury or property damage. Most policies allow the insured to give up this right, which thereby effectively waives the insurer's right to recover, known as "subrogation."
Workers compensation insurance is very different with regard to subrogation practices. First is the issue of whose right or privilege is involved. It is not the right of the contractor or tenant to waive workers compensation recovery in the contract situation. The rights involved are those of the worker and the workers compensation insurer. The tenant or contractor cannot waive a right it does not possess.
Second, the workers compensation insurer's right to subrogate for medical and indemnity benefits it has paid is protected by statutory and common law in most states. Finally, waiving the right of recovery could result in double recovery by the injured worker, which is disfavored in most jurisdictions.
If a contract requires a waiver of subrogation for workers compensation losses, generally the only way to comply is to ask the insurer to voluntarily waive its subrogation rights by endorsement to the policy. Some insurers will refuse, but most will comply - for an additional charge. The cost could be around 2% of policy premium if on a blanket basis, or 2%-5% for the premium attributable to a specific contract, although charges in the vicinity of 10% - 15% have been reported. Many contractors pass through this cost to the other party in the contract.
Some argue that requiring waivers of subrogation from workers compensation insurers is a "belt-and-suspenders" approach. If the contractor or tenant has agreed to defend and indemnify the owner/landlord, any subrogation claim from a workers compensation insurer can be tendered back to the contractor/tenant under the indemnity agreement.
The contractor/tenant would submit the claim to their general liability insurer for payment under the contractually assumed liability coverage in the policy. Or, the landlord/tenant would be protected against the claim as additional insured under the contractor/tenant liability policy. Either way, the general liability insurer for the contractor/tenant would pay on behalf of the owner/landlord.
The decision to require (or comply with) requirements for workers compensation waivers in contracts is a business decision with legal implications. Contracting parties should discuss this issue with their legal and insurance professionals to obtain an understanding and to develop a philosophy regarding waiver usage.
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