IRMI Update—Issue #81
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
January 20, 2004
In This Issue
Colleague,
The recent filing of revised additional insured endorsements by Insurance
Services Office, Inc. (ISO), responds to concerns by both insurers and transferees,
particularly construction subcontractors, that they were giving away too much
free insurance to other parties. Some 41 states have anti-indemnity statutes
prohibiting one party from transferring its sole negligence to another in a
construction contract's hold harmless clause. However, most of these statutes
don't prohibit one party from requiring the other to purchase insurance on its
behalf, which is in essence what a requirement for additional insured status
on a general liability policy is.
Because the standard endorsement used on the policies of contractors (CG
20 10) has been held by the courts to cover the additional insured's sole negligence
as long as the underlying injury or damage would not have occurred but for the
existence of the construction project, obtaining additional insured status in
effect circumvented the anti-indemnity laws. Thus, the subcontractors' concern
that is addressed by the new ISO filing is the situation in which the mere presence
of the subcontractor at the job site is enough to guarantee the AI coverage
for its sole negligence in causing, say, injury to the subcontractor's employee.
For example, this broad scope of coverage has been held to cover an additional
insured general contractor for its sole negligence when the subcontractor's
employee fell through a hole in the roof of a building that the general contractor
failed to properly safeguard.
Subcontractors became so concerned about this issue that their primary association
began a major effort to lobby state legislatures to disallow such broad additional
insured coverage (and this has worked in a couple of states) and even started
a defense fund to help subcontractors fight coverage battles in this area. Apparently
the insurers were concerned enough to ask ISO to change the standard policy
forms.
When I try to be unbiased in thinking about these changes, I conclude that
they probably make this risk allocation device more equitable. Your feelings
about this development are probably colored by your perspective—whether you
are generally the transferor or transferee. Of course, the ultimate success
or failure of this effort will depend on whether insurers will insist on using
the new endorsements or capitulate to requests to use the current versions.
We've been through this before with the elimination of completed operations
coverage in the endorsements in 1993.
What do you think? Is the insurance industry wise to restrict the coverage
offered to additional insureds in this manner? Does it make this risk allocation
technique more equitable? Will insurers quickly adopt and stick with the new
endorsements? If you are accustomed to being an additional insured, will you
try to require the broader endorsements currently available? What concerns do
you have about this change? [See reader comments].
We hope to see you at one of our California workers compensation seminars
next month. See the Seminars section for all the details.
Have a great day!
Jack
Jack P. Gibson
President
IRMI
Protect Property Owners from Dry Cleaning Pollution
Exposure—While dry cleaning operations can be found in almost any strip
shopping center or other retail location, they pose an environmental threat
that far surpasses almost any other retail business of similar size. Most dry
cleaners use a solvent called Perchloroethylene, or Perc, which is toxic and
a known carcinogen. Perc is heavier than water, and any spill or release can
result in cleanup efforts that are both difficult and expensive. Dry cleaners
also present a pollution exposure from solvent laden air, filters, chemicals,
wastewater storage and disposal, leaking containers, and other related activities—all
part of the dry cleaning process.
Unfortunately, most dry cleaning operations are small businesses with limited
resources to pay for a significant pollution incident. Further, almost any businessowners
policy (BOP) or commercial package policy excludes pollution incidents. Even
BOP products targeted to dry cleaners offer only limited pollution coverage
(e.g., $10,000), which would be virtually worthless in the event of a pollution
incident requiring professional remediation.
To protect property owners, risk managers should require that dry cleaning
operations purchase environmental liability insurance to cover the pollution
exposure. This requirement should be stipulated in the lease, and the property
owner should be named as an additional insured. Insurance policies have been
developed that specifically address the pollution exposures of dry cleaners—with
coverage and high limits that are appropriate for the risk. These policies are
reasonably priced, although many dry cleaning operators will not voluntarily
purchase the coverage unless required to do so.
The risk manager or agent for the property owner may need to direct the dry
cleaners agent where the coverage can be obtained. Many large property owners
are now doing exactly that: advising their lessee on the coverage to purchase
and directing them where to acquire.
By: Ron Tursovsky, CPCU, AIT
Account Executive
Intercorp, Inc.
Ephrata, PA
E-mail:
www.intercorpinc.com
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 492 articles on IRMI.com, and many more are in production.
Below you'll find summaries of some recent additions with links to the articles.
Tenants' Misconceptions
Abound Regarding Contents Insurance—IRMI analyst Rob Olson looks
at a survey indicating that over 64 percent of tenants do not have homeowners
insurance and elaborates on the importance of this coverage.
Take Control
of California WC Costs—"Reducing California Workers Compensation
Premiums: Expert Techniques" is a new IRMI seminar designed for anyone who buys
or sells workers compensation (WC) insurance in California. Earn eight hours
of CE credit when you attend this workshop, and walk away with vital information
on employee classifications, negotiation strategies, self-insurance and multiemployer
pooling options, claims handling/audits, and new developments in the market.
This 1-day seminar is jam-packed with proven techniques guaranteed to save you
premium dollars. Mark your calendar: Pasadena—February 17; Anaheim—February
19; San Diego—March 2; and Oakland—March 4. For exact locations, speaker biographies,
and more details see the Seminars section.
Follow the Additional Insured Filing with Contractual Risk Transfer—Contractual
Risk Transfer is the IRMI reference used by risk and legal professionals
to make sure their contract's indemnity provisions, insurance requirements,
and other risk allocation provisions are state of the art. Check it out for
summaries of all the state anti-indemnity statues, sample insurance clauses
to employ in contracts, and the latest developments with the Insurance Services
Office, Inc. (ISO) additional insured filing. For more information see the Products & Services section.
Daniel
Wagner is truly an international risk writer, contributing articles
on political risk insurance from his far-flung post with the Asian Development
Bank in Manila where he serves as a Political Risk Guarantee Specialist. He
is a prolific author, with more than 25 articles on political risk insurance,
including 12 for IRMI.com (see his latest article referenced
above), as well as the IRMI Political Risk Insurance
Guide. He is also a frequent speaker at conventions and universities.
For more information on Mr. Wagner, see his full biography and a list of his articles.
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