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.
-
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.
-
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.
- 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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