IRMI Update—Issue #158
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
April 4, 2007
In This Issue
Colleague,
At a recent seminar for coverage attorneys, I found myself discussing perhaps
my biggest pet peeve about the insurance industry. This involves an insurer
taking different positions on the application of the same policy terms in two
or more different (but similar) cases. Of course, the position taken is invariably
the one that is most financially advantageous to the insurer.
The choice of coverage trigger theories for liability insurance provides
a good illustration of where this occurred in the past (the law in most states
is settled on this today). While these tend to get complex, a simple example
would be an insurer that was on a risk many years before arguing that the manifestation
of the injury triggers coverage in one case (and it was not the insurer in the
year that the injury become known). Meanwhile, in another case, perhaps on the
other side of the country, the same insurer argues that the exposure trigger
applies (and, coincidentally, it was the insurer of record when the injuries
first manifested).
Some insurers have been known to do this with a variety of coverage issues.
Examples as to where it may be seen include the application of the pollution
exclusion, additional insured endorsements, and insurer-versus-insurer allocation
and contribution cases.
As a self-proclaimed "insurance geek," I understand how reasonable people
can disagree on the application of coverage terms. However, it seems to me that
an insurer should determine its interpretation of a policy provision's meaning
and then apply it consistently. If the additional insured endorsement covers
sole negligence when you write a general contractor (who may benefit under a
subcontractor's policy), it should also cover it when you write a subcontractor.
If an insurer believes a CGL policy covers construction defect when it might
be able to bring other insurers into the fray, it should also consider it covered
when it's to the insurer's disadvantage.
How often this occurs, I cannot say. However, it does happen and, frankly,
I question the ethics of it. This is the type of thing that gives the industry
a bad name. Let's look at this issue in the light of day. Have you seen insurers
do this? Do you think it is unethical? Do you know of insurers that have processes
to keep this from occurring and, if so, what process do they use? [See reader responses.]
Thanks for any thoughts you can lend on this issue. And thanks for subscribing
to IRMI Update—our subscriber family recently grew to exceed 32,000 risk professionals
such as you.
Have a great day.
Jack
Jack P. Gibson, CPCU, CRIS, ARM
President
IRMI
Take the Mystery Out of Premium Audits—Premium
audits continue to be a source of misunderstanding and consternation for many
businesses, especially those that are involved in the construction industry
and in construction-related trades. Premium audits are a means of obtaining
information to determine the actual payrolls, sales, or other variable information
that is used to calculate initial insurance premiums. Premium audits are a standard
industry practice and insurance companies have the contractual right to audit
policies they write. Insurance policies subject to premium audits include workers
compensation and general liability.
To help avoid audit mistakes that can lead to higher insurance premiums,
here are some suggestions:
Before the Audit:
(1) Make a thoughtful decision about who from your company will be best
able to work with the auditor.
(2) Review prior years' audit billing statements and auditor's work sheets.
(3) Gather pertinent accounting records, such as payroll journals, sales
journals, cash disbursement journals, general ledgers, social security reports,
and state unemployment tax returns.
(4) Review payroll documents to make sure that the records include breakdowns
of wage types by employee, department and class code.
(5) If subcontractors or independent contractors are used, make sure
to have on file certificates of insurance documenting that they have their
own workers compensation and general liability insurance.
When the Auditor Arrives:
(1) Request that the audit take place on-premises so that all pertinent
records are readily available.
(2) Ask questions during the audit to clarify areas you do not understand.
(3) Before the auditor leaves, ask for a hard copy of their specific
findings.
After the Audit:
When the audit billing statement is received, review it carefully and compare
it to the original policy. Note all changes and discuss any questionable areas
with the auditor before agreeing to pay additional amounts due.
By: Kevin L. Glaser, CPCU, CIC, ARM, AAI, AIS, ARM-P
President, Risk
& Insurance Services Consulting, LLC
Oconomowoc, WI
Suggest a Risk Tip. Send us a practical tip (less than 300 words) for identifying and managing risks,
buying insurance, managing claims, or filling gaps in insurance coverages. Submit your tips. We'll
acknowledge your contribution as we did for Kevin.
We have recently updated a number of the reference manuals in the IRMI library
and published new issues of The Risk Report and Captive Insurance Company Reports.
To make sure you don't miss any of this new information take 30 seconds to scan
the "What's New" summary page.
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There are now nearly 900 risk management and insurance articles on IRMI.com.
Below you'll find summaries of some recent additions with links to the articles.
Construction
Seminars Begin This Month. Have you registered yet, or encouraged
your associates to attend? The 2007 IRMI Construction Seminars—Construction
Defect Risk Management and Insurance, and Wrap-Ups: Avoiding the Pitfalls—will
be held back-to-back in three locations. You can choose to attend one, or save
$100 by attending both. Capacity is limited, so check out the dates, agenda,
speakers and more today on the IRMI.com Seminars page.
Since joining the IRMI.com team in 2004, Jack Hungelmann has authored 12
articles on personal risk management.
Author of Insurance for Dummies, Mr.
Hungelmann has over 30 years of insurance experience. He has provided insurance
counseling for over 1,000 clients as an insurance agent/owner of Corporate 4
Insurance Agency, Inc., in Edina, Minnesota. For more information on Mr. Hungelmann,
see his full biography and a list
of his articles.
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