IRMI Update
Risk Management & Insurance
Commentary, Tips, and Tactics
August 19, 2009 | Issue 212 | ISSN: 1530-7948
In This Issue
Colleague,
Green construction projects are now a reality for owners, developers, designers,
and contractors, as well as those who manage their risks and place their insurance.
Green building offers significant opportunities for the construction industry,
and much of corporate America seems to embrace the idea. However, as with any
emerging trend, it also presents risk. The risks range from traditional risk
issues to new exposures that are specific to the sustainable building industry.
While some of these risks are covered by traditional insurance policies and
specialized products designed to address green building construction are being
introduced, management of these risks requires a carefully constructed risk
management strategy.
On September 1, we will hold the first of a six-part webinar series to address
the growing risks and potential exposures of green construction, strategies
for identifying and managing these risks, and emerging insurance coverage considerations
and products. Choose the webinars you wish to attend, or sign up for all six
at a discount. Attendance will apply toward CRIS reaccreditation. Learn more
about the
Green Building Webinar Series on IRMI.com.
A half-day workshop at the 29th IRMI Construction Risk Conference in November,
"Filling Your 'Green'
Toolbox," will also address this important topic. The early-bird registration
discount ends August 31, leaving only 7 business days before the $100 fee increase.
See the conference agenda
and speakers, review the
benefits of attending,
and register on
IRMI.com. If you haven't yet made up your mind about attending, you can lock
in the low fee by registering now and cancel for a full refund any time before
October 2. I hope to see you in our nation's capital.
Best regards,
Jack
Jack P. Gibson, CPCU, CRIS, ARM
President
International Risk Management Institute, Inc.
Featured Educational Event
Early-Bird Price Ends August 31
The early-bird discount for the
IRMI Construction Risk Conference ends August 31. See "What's New" at this
year's premier educational and networking symposium.
View testimonials to learn why many of your peers make this event a must
each year. You can also
download a "business case" for seeking approval to attend. If you haven't
yet made up your mind about attending, you can lock in the low fee by registering
now and cancel for a full refund any time before October 2.
Risk Tip
Consider Employee Lending To Return Employees to
Work
Mitigating workers compensation claims cost can be tricky. The best way to
control challenging cases is managing an effective return-to-work program. How
many times have we heard that? What about, "If you would just return this employee
to a job within his restrictions, it would help with your experience modifier
rate?" What if you are too small and do not have opportunities within your company?
There are charitable organizations that need volunteers desperately in order
to continue the valuable work that they do for their communities. They need
people to answer phones, schedule interviews, perform light janitorial tasks,
and sell items in their used goods stores. Once an injured employee is released
to return to some level of activity, this is an opportunity for an employer
to "lend" that employee to a charitable organization. It shows the employer
to be a good citizen and offers a much-needed service to the community. The
employer pays the employee wages and may be eligible for a tax benefit, plus
the workers compensation claim is being managed toward resolution. When the
employee has reached full duty or a point in healing that the employer can accommodate,
s/he can go back to his/her job or another employer. In most states, this is
considered a suitable job offer.
What is the value? The bottom line is that by returning an employee to a
job, the healing process is enhanced. Employee lending starts the act of work
hardening by getting the employee back to the routine of going to a work environment.
The employee becomes productive again, and the reconditioning process is in
place.
By: Crystal A. Witham, Sr. Injury Resolution Consultant
CM-Services
Inc.
Pittsfield, ME
GET PUBLISHED IN IRMI
UPDATE: 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 acknowledge your contribution as we did for Crystal.
Submit an IRMI Update risk
tip.
What's New in Your IRMI Library
Are You Ready for the Pandemic?
On June 11, 2009, the World Health Organization (WHO) officially declared
the outbreak of influenza A (H1N1) virus a pandemic, Phase 6—the highest level—for
the first time in 41 years. So far we have been fortunate that this virus is
not more deadly, but medical experts are concerned that this could change. We
shouldn't grow complacent. It's time to make certain that your plan is ready
for this fall's flu season.
A short article in the most recent issue of
Risk Management Notes (the newsletter that accompanies supplements to
Practical Risk Management) includes links
to a number of Web sites that can help you fine-tune your plans. If you subscribe
to Practical Risk Management, review the article and access the links on the
platform to which you subscribe:
For summaries of other new and updated information in your IRMI library,
go to What's New on IRMI Online or
What's New in SilverPlume.
Recent Articles on IRMI.com
New Expert Commentary
There are over 1,100 risk management and insurance articles on IRMI.com.
Below you'll find summaries of some recent additions with links to the articles.
IRMI Featured Publication
White Paper: "Effective Contractual Risk Transfer in Construction"
Get this valuable white paper from IRMI at no charge when you sign up for
IRMI Construction Risk Manager—a new, free monthly e-mail newsletter with
the same integrity and quality you've come to expect from IRMI Update. If you
buy, sell, underwrite, or litigate construction insurance or manage construction
risks, this newsletter will become an essential part of your tool belt.
Learn more.
Your View
Worst-Case Wrap-ups
IRMI Update 211 asked readers for
their wrap-up horror stories for possible inclusion in the panel discussion
at "Wrap-up Do's and
Don'ts," as part of the
IRMI Construction Risk Conference. Below are some of the responses.
-
Wrap-up worst practices:
1. Sponsor who allows contractors onsite without enrollment and plans
to enroll them later with a "no known loss letter."
2. Sponsors imposing subcontractor offsite insurance requirements that
the subcontractors can't meet.
3. Sponsors and upper tiered subcontractors who do not pass wrap-up information
and offsite insurance requirements to subcontractors in contract language.
4. Prime contractor who sued lower tiered subcontractor for expenses
not covered under the wrap-up general liability policy.
5. Lower tiered subcontractors placing a lien on the owner's property
based on disputes between lower tiered subcontractors.
6. Sponsors who have complex payroll tracking that require subcontractors
to enroll numerous times on the same project.
7. Large projects where enrolled contractors of various tiers subcontract
with each other and don't report the payroll.
—Colleen Aegerter, Vice President, CIP Manager,
Lockton Companies LLC, Kansas City, MO
-
As an independent consultant, I have had clients on both sides of a wrap-up.
From the sponsor side (problem for the contractor), the biggest difficulty
is dealing with bid credits on the umbrella coverage since such a large
percentage of umbrellas are flat rated. Most sponsors I have worked with
have had fair coverage and reasonable allocation of deductibles to trades.
To make the wrap work, they have to get the bid credits and get credits
on flat rated umbrellas, which is always an issue since the contractors
get no premium back from their insurers.
The contractor side poses far more issues to the sponsor, in my experience.
Claims have to be managed carefully as I have seen contractors try to "slip"
claims from other jobs into the sponsor's wrap. The sponsors have also had
issues with contractors that have large deductible programs themselves,
since that leads to negotiated credits for expected retained losses as the
contractor's premium itself reflects the retention of expected claims. This
can be a most contentious negotiation. Also, getting contractors and GCs
to avidly support safety and loss control can be a great challenge to the
sponsor. The wrap is only a good financial decision for the sponsor if losses
are minimized. I have found that proper incentives by the sponsor to the
GC and trades for proper loss control and safety resulting in low to no
losses works very well for both sides.
Lastly, both sides suffer from the lack of availability of the proper
completed-operations coverage tail. Most wraps offer 5 or maybe a maximum
of 10 years. Many states have statues of repose that exceed the available
tail coverage. This exposes both sponsor and contractor to uninsured defect
exposure in the latter stages of the period of repose even if the sponsor
buys the maximum coverage available. These aren't horrors, just real-life
difficulties of wraps. However, on large projects, a wrap is still the best
way to go for all. Management, communication, and partnership are the keys!
—Donald McKaba, Owner,
Insurance Consulting Experts, Oradell, NJ
-
One practice that has given workers comp carriers and their agents some
difficulty is when an OCIP requires a waiver of subrogation and a certificate
from the individual contractor participants that states specifically that
the non-OCIP policy coverage applies to "offsite exposures" of the OCIP
job. As a workers comp insurer, we exclude coverage for the OCIP by specific
endorsement so that the OCIP payroll will not be picked up and charged on
our policies final premium audit, since the OCIP policy should be the one
providing coverage for any exposure related to that OCIP job/workplace and
the contractor does not want to pay twice for the same coverage. Thus, the
request to have a certificate of insurance provided that references coverage
that is in fact excluded on the policy itself makes no sense. Since workers
comp coverage and policy language are largely similar in each given state,
and not manuscript or tailored, then there needs to be uniformity in the
drafting of OCIP policies so that they mesh with non-OCIP policies and provide
obvious boundaries that define when coverage applies and when it does not.
—Eric England, Senior Underwriter,
Hawaii Employers Mutual Insurance Co., Hawaii
-
I have two different insureds that are on a CCIP that is for 3 years,
and now that they are about 60 percent finished with their work, the GC
is canceling program. This is unfair as the work is excluded on their policy,
and we are trying to get the company to make an exception on this project.
The insureds do not understand that 4 years from now, they could be left
bare, without coverage for a claim.
—Sharon R. Myers, Commercial Account Manager,
Frank H. Furman, Inc., Pompano Beach, FL
-
Inadequate limits and insufficient completed-operations term (not matching
the statute of repose) can be troublesome, particularly on smaller residential
projects. Compounding this is subcontractors not buying difference in conditions
coverage in the event the wrap-up blows the aggregate or the term expires
prior to the loss. Why do subs not buy this? Underwriter unwilling to offer?
Too expensive? Agent fails to recognize the exposure and recommend appropriate
coverage?
—Fred Lapointe, AVP Business Development, ACE USA
-
I have represented enrolled contractors as well as the owner/developer
in over 50 construction personal injury suits arising on wrap-up projects.
A couple of points come to mind. One, it is the rare case on a wrap-up where
none of the enrolled contractors (other than plaintiff's employer) are potentially
liable under the multiemployer worksite analysis. Therefore, personal injury
litigation on wrap-up projects in effect are strict liability cases with
the only goal of damage control rather than a negligence action requiring
the plaintiff to find a liable contractor. Union workers quickly learn of
this "financial" situation which requires a strong claims management process
(quarterly claims review meetings) in place to minimize damages, and this
should be considered during the underwriting process. This concern should
also be addressed during the contract drafting stage where the parties are
establishing who is responsible for control over means and methods of the
work as well as safety on the project, as those are the contractual provisions
the courts focus on in assessing liability. Control over these areas should
be placed on the employer of the exposing employee to the extent possible.
Two, I have seen cases tried to verdict despite reasonable settlement
possibilities because the excess/umbrella carrier was not the same as the
primary carrier. This is a problem when the annual primary aggregate is
exhausted so the excess carrier is involved in the claim resolution process,
yet the primary carrier controls reimbursement of the workers compensation
lien. There should be some discussion of how these types of cases will be
resolved short of necessitating trials in cases that otherwise should settle.
It was a major problem on one wrap-up where the carriers were different,
but not a problem at all on a recent project where the primary and excess
carriers were the same.
—Joseph Spitzzeri, Tier I Shareholder,
Johnson & Bell, Ltd., Chicago
-
My worst wrap was an OCIP about 10 years ago where the owner felt that
they "hired" others to be responsible for the safety of the site. They took
no ownership after they hired others. We had several severe injuries and
at least 2 deaths due to a lack of safety from the top management down.
—Patricia L. Wright, Vice President, Chartis, Chicago
-
In response to your request for wrap horror stories, recently I have
had two similar claims involving subcontractors, where the projects were
$20 million but the wrap policy was written to provide coverage for all
subs with a policy limit of $1 million burning limits defense to be shared
by all subs—in one case the GC back-charged each sub the cost (based on
a policy limit of $1 million for each sub—not the project). Thus, the wrap
was written by underwriters who knew they were selling a $1 million wrap
for $20 million projects. Obviously, the wrap is not sufficient, and many
subs have endorsements which exclude GL coverage for projects under a wrap.
—Roger D. Link, JD, MS-CNS, Sr. Litigation Claim
Specialist,
Farm Bureau Mutual
-
Low-level liability only CIP programs—Liability only CIP programs providing
limits of $1.0 million/$2.0 million or $2.0 million/$4.0 million for the
project duration and only a few years beyond completion for products and
completed operations should be prohibited. Contractors providing CIP credits
often do not recognize their own insurance won’t cover excess or DIC of
the CIP. This leaves a contractor or subcontractor with no coverage in the
event of a products or completed operations claim after the policy ends.
In the event of a catastrophic bodily injury, property damage, personal
injury, or advertising injury claim from ongoing operations during the project,
the contractor’s or subcontractor’s umbrella or excess program will not
provide coverage. You can keep this from happening with an appropriate CIP
endorsement, but most policies contain CIP exclusions and coverage can be
tough to obtain.
[Another problem is] CIP programs requiring credits equal to manual rates
when you have a loss rated large deductible plan. CIP credits are supposed
to be cost neutral.
—Dan Sielicki, Risk Manager,
Baker Concrete Construction, Inc., Monroe, OH
-
We have seen a lot of "carrier issues" on wrap-ups. There are only a
few carriers in the wrap-up game, and wrap-ups are so foreign to everyone
that carriers are either "taking liberties," messing around with numbers,
or just do not exactly know what they are doing.
First [problem] is the audit system; carriers say they do "physical audits,"
but in reality, they are just calling up the contractors and asking them
what they reported. We have seen carriers accept multiple excluded or nonrelevant
codes; such as Construction at a Perm Yard, Sales Persons, Clerical (from
the home office), Drivers, and more. Also, if you know about New York workers
comp, you know about capped and uncapped payroll. Workers comp payroll is
capped in New York; it changes, but it is currently $900 a week per employee
(based on our data, capped is ~56% of uncapped).
Capped payroll is probably the most annoying thing for contractors and
everyone else involved. We have seen carriers take capped when uncapped
should be taken, and uncapped when capped should have been used, which could
be good for a sponsor of a wrap-up if they take capped when it should be
uncapped.
Also, we have seen carriers get very "creative" on program cost estimates,
especially with state assessment estimates. State assessments change by
the year, so there is some room for error; however, we have seen some things
that are likely not just "errors." We have seen carriers place huge payroll
estimates on codes with really low rates, bringing down the assessment estimates
to almost 80% of what they should have been. This kills the sponsor at the
end of a wrap, when their assessments are way higher than expected.
When contractors are enrolled in a wrap-up, their payroll on that job,
and any claims they incur, are reported to their states' rating board by
the wrap-up insurer. We have seen many times where the payroll was not reported
or reported improperly by the carrier. This really messes with contractors'
EMR, especially if much of its work is on wrap-up jobs.
—Ben Slocum, Account Manager, CR Solutions, Georgia