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INDEX
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- Good Housekeeping and Accidents
Remember that good housekeeping is central to safety in any work environment. Even if equipment is kept up to date, rules and procedures are followed and everyone wears personal protective equipment, a messy or dirty workplace can result in accidents. However, most safety experts would tell you that those conditions (up to date equipment, rule enforcement and personal protection) are rare or nonexistent in worksites with poor housekeeping.
- Insurance Claim Fraud
According to a recent survey conducted by the Insurance Research Council, one in three Americans believes that it is acceptable to pad an insurance claim under certain circumstances. Those surveyed felt that it is all right to increase the amount of the claim to cover the deductible. One in five felt that claims can be padded to make up for years in which premiums were paid but no claims filed. The National Insurance Crime Bureau estimates that fraud against property- casualty insurers costs Americans $30 billion per year in additional premium.
- Rising Insurance Premiums
A recent survey by the Risk and Insurance Management Society indicates that financial liability insurance premiums are still soaring. The benchmark survey of 750 companies showed fiduciary liability premiums up 150% from last year and directors and officers premiums up 200%. Policyholder retained losses (deductibles and self-insured retentions) are up 500% from a year earlier. The survey also showed that the cost of property insurance appears to be leveling off.
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| Think you've got coverage as an additional insured? Think again. |
It is common practice in many industries for subcontractors to indemnify their customer for losses arising out of the work. Usually, the customer (in the construction industry, commonly the general contractor or the owner) is also added as an insured on the contractor's or vendor's general liability policy. Many customers consider this pretty good protection. A recent New York Appellate case, Hayner Hoyt Corporation v. Utica First Insurance Company casts some doubt on this assumption.
Hayner Hoyt (contractor) entered into a construction contract with subcontractor. The agreement required the subcontractor to name the contractor as an additional insured under the subcontractor's general liability policy. This is a common practice in the construction industry. Most additional insureds assume that they will also acquire protection against claims from the subcontractor's employees, a common source of claims in this business.
Two of the subcontractor's employees were injured in falls. Contractor requested defense and indemnity from the subcontractor's general liability insurer Utica First. The insurer denied any obligation to defend and won a motion for summary judgment to that effect in the trial court.
On appeal the Court, in a 3-2 decision, held that the policy did not cover the additional insured. The policy excluded coverage for "bodily injury to an employee of an insured if it occurs in the course of employment." The court found the term "an insured" to encompass both the named insured/subcontractor and the additional insured. The majority said that the exclusion applied to the additional insured because the plaintiffs in the underlying actions were employees "of an insured," i.e., the subcontractor.
The dissenting two justices disagreed, concluding that the insurer had separate and distinct obligations to the subcontractor as the primary insured and to contractor as the additional insured. Reading the exclusion as if the policy had been issued separately to the additional insured, the dissent concluded that the injuries were not sustained by "an employee of an insured" because the injured persons were not employees of the additional insured.
This decision applies only in New York. It is not unique, however. Some other courts have reached similar conclusions. This line of thinking imperils the security of a common business practice - obtaining from contractors indemnity and insurance that covers injuries to their employees.
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| Blanket property limits and "margin clauses" |
Several studies by insurers and independent property valuation firms have shown that somewhere between 70% and 75% of all properties are underinsured. The average amount of underinsurance ranges from 25% to 35% depending on the year of the study and the type of construction. Trends are worsening.
When a property value (cost to replace, not purchase price or market price) is reported to an insurer for obtaining coverage it is expected to be accurate. If insurers do not receive accurate values (underreported), they must raise rates to compensate for the shortfall since rates are based on the "exposure" (overall amount of property at risk).
One way to avoid penalties for "underinsuring" applies to insureds with multiple locations. "Blanket" limits allow the limit for the entire policy limit to apply to a loss at any location. The insured will not be penalized if the values reported for a specific location are lower than the actual replacement cost or actual cash value at that location.
Despite the use of blanket limits, many insureds still underreport property values, knowingly or unknowingly. As the insurance market "hardens" (insurance becomes more costly and harder to obtain) fewer insurers are willing to write coverage with blanket limits. Some insurers are attempting to protect themselves but still accommodate insureds' desires for adequate coverage by adding "margin clauses" to policies that include agreed value endorsements and blanket provisions.
A margin clause can apply a limit to payment for loss at any location in several ways. One way is to limit the loss payable to a percentage (e.g., 115%) of the value reported at any location or structure. Another is to limit the payment to the percentage of total values under the policy that the one structure or location represents. This percentage can be calculated using measures such as square footage.
If your insurer is unwilling to provide blanket limits, a margin clause may be a way to help protect both parties. On the other hand, some insurers have been adding margin clauses to renewal policies reportedly without notifying insureds. It is important that you know what is in your policy and also important that your property values are correct.
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| The ABCs of accident investigation |
Ideally every accident should be investigated. Only through learning from mistakes can we expect to prevent them from happening again. While serious accidents should be investigated by an expert in causation, most investigations rely on internal staff of the organization.
Some entities have accident investigation teams. Likely candidates include a safety representative, the involved supervisor, and internal technical specialists such as engineering or maintenance workers. In smaller organizations it may be only the owner, an officer or a human relations staff person conducting the process.
Assuming that the actual investigation begins after the essentials are taken care of (first aid, medical care, securing of the site, etc.) the following elements are key to deriving the most useful information from the event:
- Start as soon as possible after the event
- Preserve information and evidence (such as a tool in use at the time)
- Get witness accounts in writing
- Identify behavioral factors (e.g., was there a distraction?)
- Identify physical conditions (e.g., was the floor wet?)
- Prepare a written report for documentation and review
- Develop a plan to correct conditions to prevent future accidents
- Implement the plan
Of course there is much more to accident investigation than this simple list would imply. Each of the items listed above could be the subject of a book. This list helps keep in mind the objective, however. For specifics about accident investigation and links to more information try these web sites.
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A U.S. Court of Appeals has ruled that data loss as the result of a computer hacker attack is property damage under a property insurance policy. The Court also found coverage for resulting lost income to be covered under the business income provisions of the policy and coverage for extra expense under that policy coverage section.
The case involved a software developer. The attack, by a former employee, damaged files and databases that the company needed for its operations. The employee, prior to his termination, had installed two hacking programs on the company's computers. These programs enabled him to access the company's computers and destroy files.
Because the hacker had installed the programs while still an employee, the insurer denied coverage based on the dishonesty exclusion in the policy. The insurer won a summary judgment at the trial court level. The 4th Circuit Court of Appeals reversed the judgment and remanded the case for further proceedings.
The Appellate Court cited an exception to the dishonesty exclusion that restored coverage for "acts of destruction" by employees. Since the data was completely destroyed, the Court determined that the exception applied and coverage therefore applied. One dissenting judge disagreed with the majority and affirmed the district court's finding. The case is NMS Services Inc. v. The Hartford, No. 01-2491, 2003 WL 1904413.
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| D&O worries go beyond cost |
Many, if not most, organizations have seen their cost for directors and officers liability insurance increase substantially in the last few years. Accounting scandals, securities violations and fraud in areas such as energy trading have fueled the increases. The general "hardening" of the insurance market has not helped either.
Boards have grudgingly accepted the premium increases. And there is a general demand for higher limits despite the higher costs. Directors have become more aware that their own assets are at risk and want greater protection. Unfortunately, market conditions have also limited "capacity" or the amount of financial protection insurers are willing or able to offer. As a result, the average policy limits for large organizations actually declined last year.
Perhaps the most treacherous aspect of the declining market conditions for D&O is the restriction of coverage some insurers are attempting to apply. A critical restriction imposed by some insurers is removal of the so-called "severability" clause. Severability provisions provide that if the one insured's actions void coverage under the policy, coverage remains for those individuals not involved in the actions.
Because of the allegations of financial fraud involved in so many recent corporate scandals, some insurers have attempted to void an entire policy if a covered director or officer was complicit. In other cases, insurers have invoked clauses voiding coverage for misrepresentations in the application form. In either case, innocent directors and officers should not be without coverage because of the actions of another.
Obtaining coverage and negotiating adequate limits through tough bargaining is of little value if the insurer can void coverage when it is most needed. Directors and officers should ensure that when their D&O policy is being negotiated, coverage is given at least as much weight as price. If cost is critical, the best way to save money is to share some of the risk through higher deductibles or coinsurance provisions. The worst way is to reduce coverage or limits.
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According to the American Medical Association, the safety of older drivers is a public health issue. For drivers over 65, motor vehicle injuries are a leading cause of death from injury. Per mile driven, drivers 85 and older have 9 times the fatality rate of drivers aged 25 to 69 years. Some recent tragic accidents have brought the matter of older driver safety to the public's attention in shocking ways.
There are many issues involved in responding to the subject of safety and older drivers. A good source of information is an AMA website at www.ama-assn.org/go/olderdrivers. The site has many useful links and presents some of the physiological, societal and political aspects of the problem.
For organizations with motor vehicle fleets or those that require employees to use cars on company business, the issue of older driver safety can present a dilemma. Not the least of the potential problems is the matter of possible discrimination charges if the organization tries to develop or implement a policy with regard to older drivers.
The best approach may be to take a position that no employees with impairments that could interfere with their ability to drive safely should be required to operate vehicles on the job. Factors that would preclude driving can be physical or behavioral. Drug use is an obvious factor. Driving history is an indicator. Physical decline may be another. Some of the physical and situational impairments related to age can be visual acuity loss, cognition deficiencies, motor impairment and the increased likelihood of prescription medication use.
However, any of these potentially restrictive conditions could also apply to 20-year olds. People do not age physically and mentally at the same rate. Therefore, objective screening tools that identify situations that could potentially interfere with driving ability can be applied in a non-discriminatory fashion. The AMA offers a screening tool for doctors. It is available for download at www.ama-assn.org/ama/pub/category/10791.html.
A policy of screening potential drivers and a requirement for a physical screening using generally accepted protocols are ways to deal with the dilemma of keeping unsafe drivers from being assigned driving responsibilities. Done properly these systems can also avoid being legally discriminatory. As always, however, an organization should consult with legal counsel regarding any type of employment or work assignment screening measure.
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