Category Archives: Insurance

Small Contractors Beware of Wrap-Up Limitations

Posted on February 27, 2019 by Marijana Dabic

Any endorsement to a standard commercial general liability (CGL) endorsement that eliminates coverage should be of concern to small contractor insureds—a class of risks for whom general liability exposures are by far the most significant they face in the course of business. Yet the number of exclusionary endorsements added to many contractor accounts makes the review process formidable even for experienced industry personnel.

If an important restriction on coverage is missed and not addressed, the results can be catastrophic. Today’s example involves severe language removing coverage for contractor activities on sites where consolidated insurance—”wrap-up”—programs are or ever were in place.

Separating enrolled versus non-enrolled contractors in wrap-up programs is well understood within the industry. But some CGL insurance providers materially expand the extent of wrap-up exclusions imposing limitations not anticipated by any of the parties. One such wrap-up exclusion read as follows:

“Does not apply to any work insured under a consolidated (Wrap-Up) insurance program and this insurance shall have no obligation to defend or indemnify for any claim or any project where such wrap-up insurance exists or has ever existed. This exclusion applies whether or not a claim is covered under such wrap-up insurance. The limits of such wrap-up insurance are exhausted, the carrier is unable to pay, or for any other reason.”

Who Is Included?

There are categories of included and excluded—”enrolled” and “non-enrolled”—parties in all wrap-up programs. Delivery services, suppliers, truckers, equipment installers, waste removal, and other categories of business usually are ineligible for coverage under the wrap-up policy under which all enrolled contractors are named insureds.

The language quoted above was found in the policy of an equipment installer, a traditionally ineligible party to a wrap-up. The firm was occasionally installing high technology equipment on large construction sites as work reached completion. Wrap-up insurance was, or had been, in place on the project.

What makes this particularly sweeping exclusionary language so problematic is the fact that the equipment installer will continue to service the equipment for years after the construction project is completed—a project, in other words, where a wrap-up program “ever had been” in place.

Please note that the exclusion makes no reference to the insured equipment installer being a participant in the wrap-up program.

The Severity of Language

The severity of the exclusion becomes apparent when compared to standard designated operations exclusions, standard wrap-up exclusions developed by Insurance Services Office, Inc. (ISO), or other limitations specific to an enrolled contractor. Designated operations exclusion are specific to scheduled construction sites. The standard ISO wrap-up exclusion applies specifically because “a consolidated (wrap-up) insurance program has been provided by the prime contractor/project manager or owner of the construction project in which you are involved.” Such standard exclusions are readily understood. But the exclusionary language quoted above goes well beyond industry norms to remove coverage for any claim or project where wrap-up insurance is in place or ever existed.

The application for insurance that preceded the issuing of the exclusion endorsement made no inquiry as to the applicant’s participation in wrap-up insured projects or its performance of work at wrap-up sites. Information addressing limitations related to wrap-up issues was not descriptive. The policy to which the quoted wrap-up exclusion was added had approximately 50 pages of other endorsements, all of which reduced important coverage.

Only One Example

Wrap-up endorsements are only one of many severe endorsements that can be routinely added to contractor accounts. The quality of a contractor’s general liability insurance is highly important to all parties involved. Insurance coverage forms for this segment of our economy have evolved over more than a century in the United States through a laborious process of identifying construction risks and developing insurance coverage to deal with them. The use of nonstandard, severely restrictive endorsements and exclusions that remove coverage otherwise available and essential to the construction industry poorly serves the public.

Source: www.irmi.com

“Reading the Policy” Means Reading Every Word

Posted on January 23, 2019 by Marijana Dabic

Every insurance professional has had experience with small policy language changes that have big effects (usually negative) on coverage. Sometimes it’s a single word—added, deleted, or altered—that fundamentally changes the way a policy will respond to a given loss exposure, and those language differences are obviously the hardest to deal with, or even to find.

Take a look, for example, at this phrase from a modified commercial general liability (CGL) policy “aircraft, auto or watercraft” exclusion: “… the ownership, nonownership, maintenance, use or entrustment to others of any auto.…”

The term nonowership, of course, has a long tradition in commercial automobile insurance. It provides liability coverage for automobiles the insured does not own, hire, lease, rent, or borrow but that are used in connection with the named insured’s business. It includes autos owned by employees, partners, or members of their households used in connection with the business. So, it’s not a strange coverage term … in an auto policy. But remember, the policy under discussion is a CGL policy.

A knowledgeable CGL insured doesn’t expect to have coverage for liability arising out of the ownership, maintenance, or use of autos. But that same insured will expect to have CGL coverage in connection with auto-related exposures when some unrelated third party—for whose activities the insured does not otherwise have any legal responsibility—is the owner, operator, or user of an auto. (The use of vehicles by an independent contractor doing work for the insured is a common example. In such situations, the insured’s liability arising out of the nonownership of an auto is an important feature of CGL coverage, although few people would be likely to describe the exposure using that term.)

In this instance, the CGL insurer that was excluding coverage for the “nonownership of any auto” was one that markets its policies to firms with large land holdings, industrial operations, or retail establishments with substantial vehicular traffic. Warehouses, industrial sites, timber operations, quarries, and entertainment venues are examples. These risks typically have heavy traffic on their premises and perhaps personnel directing traffic in and out. An exclusion applicable to the “nonownership” of autos wipes out general liability coverage for these common exposures.

The modified exclusion in question was imposed in the middle of 1 of 23 pages of endorsements to a standard CGL policy. While it resulted in a material, and important, reduction in coverage, it could easily have gone unnoticed by an insured—or that insured’s insurance professional—unless every word of the policy and its endorsements were read carefully.

Source: International Risk Management Institute, Inc. (IRMI)

The Importance of Certificates of Insurance

Posted on November 16, 2018 by Marijana Dabic

No matter what industry you’re in, chances are your organization will, at some point, rely on the help of a third party to fulfill certain business needs. Regardless of who you work with, business arrangements with contractors and vendors can open you up to a number of risks—risks that need to be accounted for through insurance.

However, when accounting for risks related to contracted work, securing your own insurance is not always enough. It’s critical that your partners are covered as well. This is particularly important when you consider that, following an incident involving a contractor or vendor, your business could be the one held liable for any damages that occur.

To protect against this sort of risk, many organizations turn to certificates of insurance (COIs).

What is a Certificate of Insurance?

One of the main ways organizations manage and review the coverages of their partners is through COIs. A COI is a valuable—yet misunderstood—tool in the insurance industry. COIs are used across a variety of commercial business relationships and essentially serve as proof that a particular party has an insurance policy in effect.

While you may require your partners and vendors to carry insurance in your contracts, coverage needs can change quickly, making it necessary to regularly review the policies. In addition, contractors and vendors may not be honest about what risk management strategies they have in place, making you wrongfully assume you are protected.

Often only a few pages long, COIs are summary documents issued on behalf of an insurer that outline the name of the insurer and insured, essential terms and conditions, policy limits and the duration of the policy.

COIs also contain qualifying language that defines the document as informational. This means that COIs are not contracts or the legal equivalent of actual insurance policies.

The Purpose of COIs

For the insured, COIs serve as proof of coverage—proof that can be provided to customers, contractors or other third parties quickly and efficiently. COIs also indicate that the insured has the financial resources available to protect those who may be harmed by their actions.

It’s incredibly important for businesses to get COIs for every contractor or third party they bring onto a project. Even if you have worked with these third parties in the past and trust them, COIs prevent organizations from accidently taking on risks associated with the work of their subcontractors and vendors.

Before allowing contractors to perform work on your property or on your behalf, asking for a COI is a must. This can help you in several ways:

COIs can keep companies from taking on unnecessary risks if a contractor is responsible for a loss and is not properly insured.
COIs can provide protection in the event that a contractor is injured on your property while performing work.
COIs ensure organizations are compensated if contracted work is done improperly or not completed.

However, while collecting COIs is an important risk management strategy, there are a number of administrative considerations to keep in mind.

Managing COIs Effectively

Managing COIs can pose an administrative challenge, and businesses need to have procedures in place to collect and maintain them effectively. Many organizations choose to automate this process as much as possible, opting for systems that notify them when a COI is required but is no longer in effect.

In addition, when managing COIs, it’s important to ask yourself the following:

Is the COI provided on a proper form?
Is the company named on the COI the same as the one named in the contract?
Is the policy issued by a reputable insurer?
Is the COI signed by an insurance company or agency representative?
Are the types and limits of insurance listed on the form the same or greater than those required by you under the contract?
Are specific policy numbers listed on the certificate?
Are the dates of coverage adequate for the specified work?
Are there notice of cancellation provisions listed on the COI? Are they acceptable?
Does the COI indicate any special insurance requirements you have specified?
Do you require written contracts with every third party you work with, either by annual agreement for all work or by separate agreement for each project?
Are your files organized and do they account for contracts, COIs and any other additional insured endorsements?
Do you have a system in place (e.g., a certificate management system) for tracking expiration dates?

Learn More

Securing the right insurance policy, outlining specific insurance requirements in all contracts and requiring COIs can provide all parties with peace of mind. However, securing and managing COIs can be complicated, and it’s critical to enlist the help of an experienced insurance broker.

Professional Liability Insurance for Design-build Firms

Posted on September 7, 2018 by Marijana Dabic

Design-build is a project-delivery method that provides an owner with one point of contact for both the design and construction elements of a project. This process has gained popularity in recent years largely due to its simplicity, affordability and speed.

While the design-build method has many benefits, it can expose firms to risks they wouldn’t otherwise experience during the traditional design-bid-build method. As such, it’s essential that design build firms understand all of the risk associated with the design-build process.

Unique Design-build Exposures

Unlike the more traditional design-bid-build project-delivery method, there isn’t a clear distinction between the firms performing the construction work and the architects and engineers offering their professional services. This means design builders are accountable for the accuracy of the plans, the execution of construction and the safety of the job site.

As such, design-builders can be held liable for workplace accidents, specification errors, material failures, construction errors and delays. Essentially, by taking on the design elements of a project, firms inherit more professional liability. These liabilities can result in severe financial losses.

When it comes to managing all of the new risks the design-build process brings, general liability policies are simply not enough. Under most commercial general liability policies, professional liability exposures are excluded from coverage.

In particular, claims related to the act of preparing blueprints, reports, surveys, field orders, change orders, specifications and other professional services could all be excluded from coverage. Professional liability policies are designed specifically to fill in gaps caused by general liability limitations.

For design-builders, the most effective way to protect against exposures is to secure unique insurance tailored to the sector. Specifically, professional liability policies can the proper coverage for design-build firms.

These policies provide coverage for claims stemming from an actual or alleged act when performing a professional service. Working in conjunction with other policies, professional liability insurance is a critical component to a design-builder’s risk management program. What’s more, working with a qualified insurance broker, these policies can be tailored to meet the unique needs of design-build firms.

More Information

Design-build construction is an increasingly popular approach with many benefits. However, using this method increases professional liability exposures and creates a variety of risk management challenges. When taking on design-build projects, firms have a lot to consider, including performance guarantees, licensing requirements and appropriate coverage. Contact your insurance broker today to learn about your firm’s identification options, review your exposures and bolster your risk management options.

Protecting Intellectual Property in Manufacturing

Posted on August 28, 2018 by Marijana Dabic

Some of a manufacturers’ most important assets are their intellectual property (IP)—intangible assets like patents, trademarks and trade secrets. For manufacturers, this can include, but is not limited to, proprietary information like product designs, unique processes, names and software.

Organizations that fail to protect their IP may struggle to foster innovation, keep up with the competition and reap the benefits of their inventions. The government offers a couple forms of IP protection, including patents, copyrights and trademarks. These classifications can protect things like:

Tangible assets
Names, phrases and branding associated with your products
Trade secrets and the expression of ideas

While patents, copyrights and trademarks are critical, there’s more manufacturers can do. To further protect the various types of IP, consider the following strategies:

Address IP ownership through written employee agreements. Clearly state that you own all IP generated by employees throughout their employment and that previously created IP—such as work done during prior studies—should not be used without clear permission.
Address IP ownership through written agreements with contractors and service providers. Be sure to consider IP that is owned, generated or developed by all applicable parties throughout the duration of a contract or agreement.
Address licence rights and IP ownership in agreements with customers. Key topics to consider include IP ownership, IP retention, and restrictions related to use, distribution, sublicensing and assignment.

In addition to the above, organizations should consider speaking to a qualified insurance broker to better protect their IP.