IRMI Update—Issue #116
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
July 12, 2005
In This Issue
Colleague,
One of our most important activities each year is the IRMI Construction Risk
Conference. We're proud that it has become the premier gathering place for construction
risk and insurance professionals and look forward to celebrating the 25th conference
with all our friends in Las Vegas this November.
I am pleased to announce the agenda is set and the speakers are committed.
We'll be hitting all the hot topics—such as additional insured issues, the state
of the market, construction defect, design liability insurance challenges, OCIPs
and CCIPs, the insurance industry's evolution in the face of Spitzer's challenges—all
covered from every angle. With 1,300 or so of the industry's best and brightest
in attendance, participation also provides an incredible networking opportunity.
I hope you plan to join us.
You can access the agenda and speaker biographies (and register) from this
Web page.
Thank you for subscribing to IRMI Update. I hope to see you at the 25th IRMI
Construction Risk Conference.
All the best,
Jack
Jack P. Gibson, CPCU, CRIS, ARM
President
IRMI
Dealing with Stolen Art—At a recent Inland
Marine Underwriters Association (IMUA) Arts & Records Committee Seminar on Art
Theft and Recovery, Gregory Smith provided attendees with the following advice
about how to handle an art loss investigation:
- After a theft, ensure someone inspects the site as soon as possible
and learns all the facts.
- Determine who owns the property.
- Identify exactly the location within the building from which the item
or art was taken.
- Find out if any visitors; repairmen or "tire kickers" (third parties
that ask numerous questions) expressed an interest in the stolen goods.
- Convey any images of the stolen items to the Art Loss Register(™), police,
FBI, auction houses, and dealers as soon as possible.
- Check for staff changes, and identify all people with access to the
location.
- Contact the alarm company, if any.
- Consider offering a reward and work with law enforcement specialists
to correctly word the reward notice.
- Go over the insurance policy terms, conditions, and issues.
By Gregory Smith
Principal Claim Investigator
G.J. Smith & Associates
Irvington, N.Y.
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 Gregory.
There are now 684 risk management and insurance articles on IRMI.com. Below
you'll find summaries of some recent additions with links to the articles.
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.
For
IRMI Online and Print Subscribers. For
SilverPlume
Sage subscribers.
The Construction Risk and Insurance Specialist (CRIS) continuing education
program is only $49 per course, and for just $10 more, insurance CE credit is
also available. You can check the CE approval status for any state, online at
the CRIS Learning Center. Agents, brokers, CSRs, underwriters, and construction-industry
professionals who complete the program may display the CRIS designation to certify
their construction insurance expertise and earn state insurance CE credit in
the process. Construction risk managers and insurance buyers will want to take
the CRIS program to sharpen knowledge on specific subjects in order to work
more effectively with their broker. For more details, go to the
CRIS Web site.
We are now accepting nominations for the annual Gary E. Bird Horizon Award,
to be awarded at the 25th IRMI Construction Risk Conference. This award was
created to promote the awareness of innovative risk management techniques and
processes. The four previous awards went to representatives from Mo-Kan Construction
Industry Substance Abuse Fund, Hoffman Corporation, Southern Industrial Contractors,
and Rifenburg Construction.
If you are proud of the accomplishments of your risk manager or safety manager,
please submit your and your nominee's contact information via the Contact Us
form.
In his Message from the Editor in IRMI Update
115, Jack Gibson criticized contract drafters for requiring outdated endorsements
and coverages in contracts. This out-of-date language causes needless negotiations
and results in many contract breeches that go undiscovered until a coverage
problem surfaces. Jack asked readers for their opinions on what types of archaic
language their seeing, their opinions on why it's still being used, and any
solutions they might offer. Following are some of the responses received.
-
As someone who is relatively new to the insurance industry, I was shocked
to find how out of date insurance language is. It is difficult to review
contracts for this very reason, short of rewriting every insurance section
one comes across, let alone try and comply with outdated requirements. It
is the responsibility of the entire industry to do their part and update
contract language to reflect current coverages.
—Kevin Smith, Target Corporation
-
We see this problem constantly, from the construction contracts to the
building/office leases. On one hand, I think it is just being lazy and costly
to update legal documents therefore just ignored. On the other hand, I do
feel it is a mechanism to easily skirt liability issues. I used to send
attachments with certificates stating the coverage requirements were outdated
and no longer available in the formats requested. Unfortunately the time
involved in explaining the issues to the insured and dealing with the irate
calls from the certificate holders became almost a full time job in itself.
Now I simply advise the insured of the issues (in writing of course) and
no longer try to convince certificate holders to make changes.
—Linda Ray, Commercial Lines Agent, Ray & Ray Insurance
Services, Inc., Temecula, CA
-
The problem with contract insurance requirements language naturally begins
with the specification writers, many of whom seem to continually refer to
old documents and repeat the contents. Also, as sad as it may seem, many
attorneys are either not up-to-date on current insurance terminology or
are deliberately rewriting what they feel are better or safer specifications.
Does IRMI advertise its products to just the insurance industry? It would
seem that risk managers as well as attorneys could benefit from the IRMI
"Contractual Risk Transfer" manual.
—Joseph Carroll, Independent Consultant, Syracuse,
NY
-
My biggest pet peeve in contract requirements is when they want $1 million
on fire legal. A close second is when they amend the paragraph for injury
or destruction of tangible property to say "including" the work itself,
rather than the correct "other than to the work itself." And then they still
leave in the builders risk requirement, so it's obvious they have no clue
what they are asking for. When I review contracts for our insureds, I respond
in writing and clearly state any provisions that will not/cannot be complied
with. I hope they take that information and request that the contract be
amended so that there is no breach (at least in the insurance provisions).
I would like to see everyone using the AIA contract with minimal revisions.
I will never understand why some insist on reinventing the wheel when there
is a perfectly good one already available. Also, it would be a good idea
to let your agent review the insurance clauses. Just yesterday I had a client
send in a subcontract for review and they had limits of $1 million for fire
legal and medical payments and I instructed them to change those items to
standard limits.
—Gayle Youtsey, Marketing—Construction Dept., Willis,
Knoxville, TN
-
I could not agree more with Jack Gibson's commentary on outdated insurance
requirements. From a broker standpoint, we are often not privy to the contract
language until after it is signed. Then the difficulty is trying to either
amend the contract or provide evidence that the coverage requested exists.
Both create their own problems.
The problem is getting worse. We are now seeing contracts outside the
United States using similar language. So, not only does it not make sense
in the United States, outdated terms are being applied in other countries
where they really don't make any sense.
—Michael Rodgers, Vice President, Marsh, New York
- Broad form property damage coverage, but instead that the CGL policy
not be endorsed with Exclusion—Damage to Work Performed by Subcontractors
on Your Behalf (CG 22 94 or 22 95)
- Explosion, collapse or underground coverage, but instead that the
CGL policy not be endorsed with Exclusion—Explosion, Collapse and Underground
Property Damage (CG 21 42 or 21 43)
- Broad form contractual liability coverage, but instead that the
CGL policy not be endorsed with Contractual Liability Limitation Endorsement
(CG 21 39) or Amendment of Insured Contract Definition (CG 24 26)
- Fire Legal Liability Coverage but that the CGL policy not be endorsed
to with Exclusion—Damage to Premises Rented to You (CG 21 45) (5) Products
and completed operations coverages but that the CGL policy not be endorsed
with Exclusion—Products/Completed Operations Hazard (CG 21 04)
This list can be extended by various endorsements depending on circumstances.
Unfortunately, determining whether the insurer is in compliance with these
requests cannot be confirmed with existing ACORD certificates. Since obtaining
certified copies of policies are a virtual impossibility, the only way,
short of trusting someone, is to insert or modify the appropriate insurance
certificate with a check list, something like the Evidence of Property Insurance
that has been created by ACORD for financial institutions.
—Donald Malecki, Principal, Malecki Deimling Nielander
& Associates, LLC, Erlanger, KY
-
I see antiquated language in virtually every contract unless it is an
AIA or AGC document. In my opinion, the continuing use of this language
is the result of the "sheep syndrome," meaning that no one wants to do anything
new or unusual. For contracting parties, the solution is to use the skill
of their risk management professional to help draft or review contract provisions
that relate to insurance, indemnity, or other risk management issues. I
help my clients in this regard all the time.
—David Doig, CPCU, ARM, Producer, Kern Insurance
Associates, Inc., Bakersfield, CA
-
Outdated insurance and indemnity requirements are a real problem that
will only get worse. Risk transfer language becomes standardized without
necessarily being understood. Review and updating of the language occurs
randomly and usually in response to a seismic shift (e.g., adopting the
express negligence rule). Insurance forms, especially surplus lines, change
to restrict coverage, but the contractual risk transfer requirements remain
the same. The growing trend toward eliminating third- party-over coverage
and limiting additional insured coverage to vicarious liability has not
been appreciated. In short, the protection agreed to by the contractor is
not being provided under the policies being sold, and the contractor is
left exposed to indemnity and breach of contract claims.
—John Hagan, Attorney, Jones Day, Houston
-
Inappropriate insurance requirements continue to plague
the industry and are in large part a result of the use of outdated "boilerplate"
terms and conditions. It is a particular problem on public works that are
let based on sealed bids, because if the low bidder can't deliver what the
bid package required in the way of insurance, it is immediately in breach.
Requirements for mold or silica coverage, additional insured endorsements,
occurrence-based coverages, long completed operations, etc., do not reflect
what is available in the market. Right now, I think that frequently the
reality is that the contractor is not in fact providing what was required
but no one on behalf of the owner catches it. As long as there is no loss,
no one is the wiser. Where the project is bonded, however, if all required
insurance hasn't been in fact supplied, and a problem arises, the surety
becomes the de facto insurer. The best way to solve this problem is for
the construction community and its insurance and legal advisers to approach
risk managers for owners, and help them update their coverage requirements.
—Susan McGreevy, General Counsel, National Association
of Surety Bond Producers, Washington, DC
-
I think the reason that outdated insurance terminology is still being
used in contracts, particularly construction contracts, is because the contracts
are drawn up by lawyers who know nothing about insurance let alone whether
the insurance terminology is current. Business customers should require
their law firms to attend some INS, CPCU, or CIC courses before they write
contracts for them.
—Susan Powell, Underwriting Specialist, SAFECO Insurance
Company, Redmond, WA
-
I agree that using archaic terms in setting forth insurance requirements
happens more often than it should. I have seen major general contractors
doing such. How can they enforce the provisions when they may be impossible
to perform? I know of no case law regarding this issue, but I would love
to testify against the practice.
—Bob Mahan, Guru, ISU—Mahan, Irvine, CA
-
I am constantly amazed to find leases, construction contracts, distribution
agreements, and the like which require these "pre-simplified" coverages.
It's been going on nearly 2 decades, so you would think that by now these
people would be getting the hint, especially when all the certificates they
receive don't match their contract requirements!
For some of the younger people out there administering these contracts,
they probably weren't even taught the 1973 forms in whatever business insurance
classes they attended. That's scary—it means they are just rubber stamping
old grandfathered wording in these contracts without any understanding of
it. (One real scary area is that there wasn't a general aggregate at all
in the pre-simplified forms—just a products agg—so just in that one area,
we are all out of compliance.)
It is as bad on the property side—I see "all risk" as opposed to "special
causes of loss form" more often than not, especially in leases.
I would bet that nobody on the side of the fence issuing the contracts
wants to stick their necks out by changing anything, and the other parties
are not in any negotiating position.
—Jayne Mazziotti, Account Executive, Arthur J. Gallagher
& Co.
-
These obsolete contracts drive me nuts. On one end, we are stuck practicing
law when we evaluate these contracts, and on the other end, we are trying
to help protect our client in making sure that they comply with the insurance
requirements set forth. It makes our job very difficult, especially when
you get one request after another from risk management departments asking
to specifically see items such as the X,C & U on certificates when it's
automatically included!
Updating the contracts to reflect current insurance terms would be a
tremendous help to everyone!
—Donna McCormick, CPCU, AAI, AIS, CPIW, CRIS, President,
McCormick Insurance Agency, Las Vegas
-
My pet peeve as well! We battle this all of time and consistently try
to educate those who put in archaic, senseless requirements. But, they very
rarely change their contracts. I think it's from laziness and/or expense
to have new contract language drafted by a competent attorney who has updated
insurance experience. Also, on the front line are certificate "clerks" who
have no authority and probably do not pass on the information to higher-ups.
Added to this is getting the cert request at the eleventh hour—no time to
revise and thus, any revisions get put on the back burner or just ignored.
On the bright side, we do see some excellent contracts from municipalities,
who have obviously hired skilled risk managers, and they actually try to
understand where we're coming from
—Evelyn Taylor, Vice President, Diversified Risk
Insurance Brokers, Emeryville, CA
-
I am a third year part-time law student and the Contract Administrator
for the construction division of a large insurance agency. Essentially,
it is my job to read every construction contract that comes into my office
which, is about 20 per day or so. Some contracts reach me pursuant to a
certificate request, but many come in seeking my advice on the insurance
and indemnification requirements. I encounter several areas of misunderstanding
that are a constant problem. The least of which are the arcane and vastly
pervasive contractual requirements long ago outmoded by our current ISO
policy forms. Though occasionally I get someone request that the Acord 25
contain the letters "XCU" somewhere near the General Liability portion of
the document.
Generally the problems arise around additional insured status and its
various misunderstandings. General contractors are increasingly looking
for "primary and non-contributory" language either by separate endorsement
or on the additional insured endorsement as well the beloved "waiver of
subrogation." Some endorsements contain the primary language, while many
others don't, such as the CG 20 33 10 01 and the CG 20 37 10 01 combination.
I have yet to successes fully argue that the subcontractor providing the
additional insured status also is providing certain coverage to the general
contractor on a primary basis. Trying to explain to the box checker that
works in the insurance compliance department of a general contractor that
it is their own policy they need to look to is a lost cause.
On the other hand, I have had great success with the argument that as
and additional insured, a waiver of subrogation endorsement is irrelevant.
I usually base this argument on something the box checker can relate to,
their own personal auto insurance. I explain that as an additional insured
you become an honorary member of the insurance policy with certain restrictions.
I then explain the basics of what "subrogation" means. Once I am confident
that the box checker understands this concept, I ask them whether their
auto insurance would make sense if their insurance company sought recovery
from them for a claim they paid to someone they were involved in an accident
with. Generally they understand this and drop the request for an actual
endorsement called a "waiver of subrogation." These issues are of course
just the tip of the iceberg.
—Shawn Eady, Contract Administrator, IMA of Colorado,
Denver
-
We are constantly running into incorrect insurance requirements on client
contracts. We usually assist them in proposing changes which do comply.
The difficulty is that attorneys use form books which rarely have insurance
experts' input and/or they use out-of-date insurance terminology. Risk managers,
brokers, or agents should review such requests and ask the proposing contract
party and their attorneys to alter the terminology. The use of contracts
to transfer risks is becoming a coverage nightmare.
—Don Renau, Chairman & General Counsel, Kiely HInes
& Associates Ins. Agency Inc., KY
-
All of the major national residential home contractors are still "requiring"
CG 20 10 [11-85]! To my knowledge this form has not generally been in use
for at least 5-7 years. Their insurance people do not know that essentially
the same coverage can be achieved by using two currently available forms.
This lingering requirement takes us days of our time to get someone at these
builders' offices to understand what they should already know ... very frustrating!!!
The real question is where has their lawyer or broker been all these years?
—Tom Davis, President, Davis-American, Ltd., Oak
Brook, IL
- It is a huge cost to the company to hire attorneys to review the
current contracts being used and redraft new ones. Companies put so
much faith in their in-house counsel, but they are overworked. So they
need to hire an outside firm to straighten up the loose ends. This tends
to be a costly process.
- The company sometimes does not really care, as this ends up on the
carrier, and a false sense of security for the company as they feel
that they will not absorb the hit, it will be the carrier that they
have.
- Which leads me to my third reason. There is not enough interaction
between the company and their carrier. The carrier should be on the
phone the first time the wording of the contract is ineffective. Then
a plan needs to be put in motion to get the company back on track, and
to close any loopholes in the contracts.
- And lastly, the people handling the contracts are not technically
proficient, and therefore, they do not know if the contract they are
issuing is outdated and will end up hurting them down the road. The
company, their insurance carrier and the in-house legal department need
to work together, instead of in an adversarial relationship to get to
the finish line, and make sure that the company is running as efficiently
as it possibly can.
—Douglas Millner, Construction Claims Specialist, Zurich
North America, Melville, NY
-
Yes, we see these out-of-date requirements regularly. It seems that even
agents do not understand what is included in the CGL. One particular out-of-date
requirement that seems to pop up is "broad form property damage."
—Tom Finley, Commercial Underwriter, Employers Mutual
Insurance Co., Charlotte, NC
-
Absolutely agree that antiquated terms and limits are in the majority
of contracts. Split limits for BI & PD (eek!), contractual liability, etc.,
just as stated in the editorial. It's a time consuming job to review and
meet the terms or advise insured to amend the agreements (especially when
the GC doesn't "get it!" and expects exact following on cert). It's a chore
every time to discuss the problems and fixes with each party—who doesn't
understand or care to understand, they just want to get a cert and don't
care how.
—Ruth Hare, C/L Account Manager, M&T Insurance Agency,
Inc., Buffalo, NY
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