IRMI Update—Issue #52
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
November 6, 2002
In This Issue
Colleague,
We received some exciting news last week about IRMI Online, our Internet
delivery system for subscription publications. It has been honored with a Best
of Show award in the Business Insurance Best of the Web competition. Check out this week's issue of BI for an in-depth article about IRMI
Online. Needless to say, I am very proud of the team of IT and editorial professionals
who built IRMI Online.
If you would like access to IRMI Online for a few days to try it out at no
cost, we’ll be happy to let you do so. Simply contact us and include your
full name, title, company and country. We'll send you an e-mail with a password
to access the full 23,000 page (in print) IRMI library.
This is the second year in a row that IRMI was recognized in the Best of
the Web competition—last year IRMI.com was honored—and it will inspire us to
continue to employ state-of-the-art technology to deliver leading-edge risk
and insurance information to you.
We also achieved another milestone last week when our subscriber list for
this e-mail newsletter surpassed 25,000 people. Thank you very much for subscribing,
for sending your views on my editorials, and for forwarding IRMI Update to your
colleagues. I really appreciate your support!
I hope to see you at the IRMI Construction Risk Conference in San Diego next
week.
All the best,
Jack
Jack P. Gibson
President
IRMI
Don't Create a Rule You Can't Enforce—When
employers lose direct contact with an employee they sacrifice much of the control
over that employee's actions. But loss of control does not relieve the employer
of his responsibility for the actions of that employee. The principle of respondeat superior allows that literally
any act of an employee acting within the course and scope of his employment
can create a vicarious liability problem for the employer, regardless of when
or where the act occurs.
If you choose to develop policies and procedures to govern the actions of
your employees while traveling, in the hope of limiting your liability, be warned:
you MUST be willing to enforce the rules every time and at every level of the
organization. Employers unwilling to perform under these conditions may be better
off choosing to take their chances and hope for the best.
Ask your lawyer, but creating a well-intended rule that is not enforced may
be worse than no rule at all. If enforcing the rules would be corporately "impossible"
or they wouldn't be applied indiscriminately to all levels of the organization,
you may be better of if you don't create the policies.
By: Christopher J. Boggs, CPCU, ARM, ALCM, AAI, APA
Cameron M. Harris & Co.
Charlotte, NC
Suggest a Risk Tip. Future issues of IRMI Update will include more risk tips from our readers. Send
us a practical tip (less than 300 words) for identifying and managing risks,
buying insurance, managing claims, or filling gaps in insurance coverages. We'll
give you credit for your contribution.
There are now 351 articles on IRMI.com, and many more are in production.
Below you'll find summaries of some recent additions with links to the articles.
-
Even More on Defective
Work as an "Occurrence"—Pat Wielinski explains how a recent Texas
Supreme Court case may finally put to rest the question of whether the CGL
policy provides coverage for the defective work of others despite the definition
of occurrence.
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Commercial Insurance
Market Index Released—The Council of Insurance Agents & Brokers
has released their third quarter data which indicates a strong concern about
insurer solvency.
-
The Cost of Safety—Setting
an organization up to track safety costs can be a complicated and time-consuming
process. Ron Prichard examines some ways to approach the task.
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Actuarial Projections
and the Captive—Actuaries are crucial to the formation and success
of captives. Michael Mead discusses the role of the actuary in understanding
claims, establishing premiums, and projecting profits.
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Developing Young Talent:
A Vital Task for the Long Term—Robert Giles takes a broad look
at the future of both wholesale and retail agencies by examining three key
elements to professional development: education, recognition, and networking.
Non-Practicing Extensions
in Professional Liability Insurance Policies—Liability claims can
be made against insureds even after they cease to practice their professions.
Robert Bregman discusses the importance of non-practicing extensions in professional
liability insurance policies.
Logistical
Info for Construction Risk Conference Attendees—Are you heading to
the IRMI Construction Risk Conference next week in San Diego? If you need to
know what clothes to bring, what weather to expect, the hotel address or phone
number, or have other questions about the conference, drop by our Conference section on IRMI.com
for answers.
New IRMI Classification
Cross-Reference—We've updated and improved the Classification Cross-Reference. Now in
its eleventh edition, this popular tool contains a master cross-reference sorted
over 10 different ways—alphabetically then numerically by workers comp codes,
CGL code, NAICS code, SIC code. In addition to the NCCI codes, 7 different state
workers compensation codes systems are included. Follow the link for more information
or to purchase the
Cross-Reference.
In IRMI Update 51, we asked whether, in light
of the hardening insurance market, it was necessary to review insurance requirements
to address new marketplace realities. We wondered what you were seeing and how
you were responding. Below are some reader comments.
- It has been my experience that problems with demands and compliance
with those demands either for insurance (risk financing) or assumption of
liability (risk transfer) has been and continues to be the result of a lack
of understanding of what is actually being requested and why.
In a "competitive" market, insurers often go along with most requests
from their policyholders, even if the demands on their policyholders are
ambiguous or, in some cases, nonsense that no one could figure out. In the
current "hard" market, what I think is happening is that insurers are refusing
to go along with some of these requests, often with justification, leaving
their policyholder in a difficult position.
While I think it is unfair to blame attorneys, a risk manager can pick
up just about any real estate lease agreement and often find that the insurance
and indemnity requirements are arcane, redundant, incomplete, ambiguous,
unreasonable, or just nonsense. Provisions regarding releases and "waivers
of subrogation" are clearly misunderstood and too many times do not even
accomplish what the landlord thinks is being agreed upon. For example, if
a property insurer attaches a Waiver of Subrogation Endorsement to a property
policy, oftentimes the beneficiary of such an endorsement does not seem
to realize that the tenant or landlord (whoever the beneficiary is) has
not released the other in any way for any uninsured or underinsured losses,
which are still fair game for litigation.
Anyone who has purchased a home is required to buy "hazard" insurance.
As the insurance industry does not have such an insurance contract, why
do lenders insist on using this term? Why not homeowners or dwelling property
insurance? Both of these terms have specific meanings that everyone can
understand.
My point is that mechanical application and enforcement of poorly understood
terms in a contract between a policyholder and their suppliers, distributors,
landlords, etc., has always been a problem that is ignored during the "soft"
market but becomes an issue during the "hard" market as insurers actually
are reading some of the requirements. The answer, in part, is for those
making demands to actually understand what they wish to accomplish and to
understand the approaches that are available and to recognize the implications
of the requests as opposed to presenting a policyholder with a "take it
or leave it" approach to certain contract terms, regardless of how irrelevant
or unreasonable. This, to me, is just part of being reasonable in business
dealings; even those with vastly superior bargaining power can at least
consider such approaches.
I think IRMI is a great resource for anyone who has interest in understanding
these issues—but many who are drafting the contract terms seemingly cannot
be bothered with educating themselves on the issues involved.
—Craig F. Stanovich, CPCU, CIC, AU, Principal, Austin
& Stanovich Risk Manager, LLC, Douglas, Massachusetts
- As a wholesale broker I spend a lot of time reviewing and negotiating
coverages for our clients and their insureds, especially on the contracting
risks. One of the catch-22's I've found recently is when a general contracting
risk is required by his insurance carrier to obtain additional insured status
from his subcontractors, but the subcontractor is written with a carrier
that either doesn't allow a GC to be added as additional insured or that
attaches the contractual liability limitation endorsement (CG 21 39) which
basically prevents the GC's carrier from handing back a claim under the
construction contract. The subcontractor could be in violation of his contract
with the GC, and the GC could be in violation of his insurance policy conditions
(which could end up with his coverage being voided or with a large audit
additional premium).
One of the things I stress to my retail producers is the need for them
to know and understand the various different coverage restrictions/limitations,
etc., of the major carriers. If they are uncertain about what certain endorsements
mean, get a copy of it and request explanation in writing from the carrier.
While this market is a difficult one in terms of obtaining certain coverages,
I also believe this is the type of market where a true professional insurance
broker/agent shines.
—John Buckley, NIF Services of NY, New York
- Agree that organizations especially those that attempt to transfer all
of their risk to their service providers, i.e., subcontractors, are having
difficulties. No longer, for example, can residential developers and homebuilders
mandate their subs add them as additional insureds for completed-operations
coverage, specifically the CG 20 10 11 85. We're seeing one residential
program acknowledge this by not requiring their insured to demand this from
their subs. Unfortunately, the industry brought this mess on themselves
with the idiotic Pressley Homes decision in California.
—James L Knoop, ARM, Vice President, Marsh Risk & Insurance
Services, Newport Beach, California
- The recent action our agency has taken to prevent potential E&Os during
this restrictive market is to require that all additional insured requests
be submitted to us in writing from the insured. In addition, we include
the form number of the additional insured endorsement on every certificate,
and no certificate leaves the office without the endorsement attached. The
insured is also provided a copy of the certificate and endorsement so that
the insured is also well aware of the restrictive wording. The days of appropriate
coverage seem to be long gone—now it's a matter of educating policyholders
and third parties as to the coverage limitations. We also recommend to our
builders and developers that they make it a habit of buying structural warranties
for their clients on the properties they build (see the Internet for many
products available in each state). Nothing is bulletproof anymore; however,
due diligence is a great service to your client (and a wonderful defense
to third-party litigation).
—Lucy Harris, CIC, CPCU, AU, SCF, Insurance Services,
Inc., La Mesa, California
- I do anticipate problems. We are seeing significant push back from physicians
for minimum professional liability limits. This one is getting tense because
physicians are increasingly reluctant to cover back up for the ERs in the
system.
—Michael B. Evans, Sutter Health, California
- As a general contractor, we execute a couple of hundred subcontracts
a year. Before allowing a subcontractor to begin work, we require evidence
that it has the proper insurance coverages in place, in the form of a certificate
prepared by its agent or broker. One of our requirements is that the subcontractor
name us and our client as additional insureds under the subcontractor's
general liability policy.
Our requirement used to be that the subcontractor's certificate include
a statement that our company and the owner were named as additional insureds.
Some years ago, I conducted a random survey of subcontracts, selecting a
sample of 20, and found that in 8 of the cases (40 percent), we had not
in fact been named, despite the required statement having been typed on
the certificate. Then I read the boilerplate on the certificate, which states
in several different ways that the agent is only certifying that the policies
listed are in place for the stated durations. Otherwise, we are cautioned
that the policies say what they say.
If there is a serious loss, I for one do not wish to rely on either some
doubtful claim against an agent's E&O policy, or a breach of contract claim
against a subcontractor to protect our program. So, we now require one of
two documents in addition to the certificate: i) A copy of the additional
insured endorsement itself (automatic or scheduled), or ii) a letter from
the agent to the insurance company requesting the endorsement. I wish more
of our brethren would follow this practice, so I wouldn't have to keep explaining
it. If you really have been named, as required, it is little extra trouble
to prove it.
—Bill Lalor, Vice President, B.L. Harbert International,
L.L.C., Birmingham, Alabama
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