Auditors On The Road Area Training (OTRAT) July 20, Vendor and Contract Risk Management (workbook and guide)

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1 Auditors On The Road Area Training (OTRAT) July 20, 2018 Vendor and Contract Risk Management (workbook and guide) Presented by: Robert Ruiz, TAC Associate Director of RMS Todd Kisel, TAC Risk Management Consultant

2 The information in this presentation and accompanying handouts is for informational purposes only. The information presented is not a TAC Risk Management Pool requirement, but rather is intended as best practices in risk management. In all legal matters and when seeking legal advice, you should always consult with your County Attorney. Any endorsement or certificate of insurance provided in this workbook is only a sample. It is your responsibility to request and verify the most current version of any insurance endorsement or policy. Information which is copyrighted by and proprietary to Insurance Services Office, Inc. ("ISO Material") is included in this publication.

3 Scenario #1 Lone Star County (LSC) and the Lone Star County Sheriff s Office (LSCSO) have had discussions with a local school district to provide a school resource officer (SRO). Both the County and school district have agreed in principal and the contract language is being drawn up and negotiated between the county attorney and school district attorney. Each side, respectfully so, needs to protect its interests in this contract. The SRO will be employed by the County and will be in course and scope of County employment when performing their job duties while at the school district. The County s insurance (or coverage) will respond with respect to Workers Compensation, General Liability, Law Enforcement Liability, and Auto (liability and physical damage) if needed. The County has exposure here that should be protected as best as possible through risk transfer, done via contractual language, and the school district will request protection as well. You as the Auditor have just receive this on your desk soliciting your input on the following: What should/might the County request in this hypothetical scenario? (ANSWERS PROVIDED IN SESSION) What will/might the school district request in this hypothetical scenario? (ANSWERS PROVIDED IN SESSION)

4 CERTIFICATE OF LIABILITY INSURANCE DATE (MM/DD/YYYY) 3/28/2017 THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER. IMPORTANT: If the certificate holder is an ADDITIONAL INSURED, the policy(ies) must have ADDITIONAL INSURED provisions or be endorsed. If SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may require an endorsement. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s). PRODUCER 3510 Torrance Blvd Suite 305 Torrance CA INSURED P O Box 5290 Compton CA COVERAGES CERTIFICATE NUMBER: REVISION NUMBER: THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. INSR ADDL SUBR POLICY EFF POLICY EXP LTR TYPE OF INSURANCE INSD WVD POLICY NUMBER (MM/DD/YYYY) (MM/DD/YYYY) LIMITS A X COMMERCIAL GENERAL LIABILITY Y CF4GL /22/ /22/2017 EACH OCCURRENCE 1,000,000 DAMAGE TO RENTED CLAIMS-MADE X OCCUR PREMISES (Ea occurrence) 100,000 B AUTOMOBILE LIABILITY X OTHER: ANY AUTO OWNED AUTOS ONLY HIRED AUTOS ONLY SCHEDULED AUTOS NON-OWNED AUTOS ONLY CONTR-1 CONTACT NAME: PHONE (A/C, No, Ext): ADDRESS: INSURER A : INSURER B : INSURER C : INSURER D : INSURER E : INSURER F : MED EXP (Any one person) 5,000 PERSONAL & ADV INJURY 1,000,000 GENERAL AGGREGATE 2,000,000 PRODUCTS - COMP/OP AGG 2,000,000 COMBINED SINGLE LIMIT TP /22/ /22/2017 (Ea accident) 1,000,000 BODILY INJURY (Per person) BODILY INJURY (Per accident) PROPERTY DAMAGE (Per accident) FAX (A/C, No): INSURER(S) AFFORDING COVERAGE Everest National Ins Co of the State of PA NAIC # UMBRELLA LIAB EXCESS LIAB OCCUR CLAIMS-MADE DED RETENTION WORKERS COMPENSATION AND EMPLOYERS' LIABILITY ANY PROPRIETOR/PARTNER/EXECUTIVE OFFICER/MEMBER EXCLUDED? (Mandatory in NH) If yes, describe under DESCRIPTION OF OPERATIONS below Y / N N / A EACH OCCURRENCE AGGREGATE PER STATUTE E.L. EACH ACCIDENT GEN'L AGGREGATE LIMIT APPLIES PER: PRO- POLICY JECT LOC OTH- ER E.L. DISEASE - EA EMPLOYEE E.L. DISEASE - POLICY LIMIT DESCRIPTION OF OPERATIONS / LOCATIONS / VEHICLES (ACORD 101, Additional Remarks Schedule, may be attached if more space is required) Certificate holder is included as Additional Insured as respects General Liability when required by written contract. CERTIFICATE HOLDER County CANCELLATION SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, NOTICE WILL BE DELIVERED IN ACCORDANCE WITH THE POLICY PROVISIONS. AUTHORIZED REPRESENTATIVE ACORD 25 (2016/03) ACORD CORPORATION. All rights reserved. The ACORD name and logo are registered marks of ACORD

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6 POLICY NUMBER: COMMERCIAL GENERAL LIABILITY CG THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY. ADDITIONAL INSURED STATE OR GOVERNMENTAL AGENCY OR SUBDIVISION OR POLITICAL SUBDIVISION PERMITS OR AUTHORIZATIONS This endorsement modifies insurance provided under the following: COMMERCIAL GENERAL LIABILITY COVERAGE PART SCHEDULE State Or Governmental Agency Or Subdivision Or Political Subdivision: Information required to complete this Schedule, if not shown above, will be shown in the Declarations. Section II Who Is An Insured is amended to include as an insured any state or governmental agency or subdivision or political subdivision shown in the Schedule, subject to the following provisions: 1. This insurance applies only with respect to operations performed by you or on your behalf for which the state or governmental agency or subdivision or political subdivision has issued a permit or authorization. 2. This insurance does not apply to: a. "Bodily injury", "property damage" or "personal and advertising injury" arising out of operations performed for the federal government, state or municipality; or b. "Bodily injury" or "property damage" included within the "products-completed operations hazard". CG Insurance Services Office, Inc., 2008 Page 1 of 1

7 COMPANY INFORMATION Company name: New Vendor Setup Checklist Project: CHECKLIST Choose type of business entity. Business entity type: [Sole Proprietorship/LLC/Corporation] Project Type. Indicate Tier: I, II, III or IV Register with state as a business. YES or NO General Liability Insurance. Requested: YES or NO Limits Provided to County: Business Auto Liability Insurance. Requested: YES or NO Limits Provided to County: Workers Compensation and Employers Liability Insurance Requested: YES or NO Limits Provided to County: Professional Liability Insurance (Cyber, E&O, etc ) Requested: YES or NO Type provided: Limits Provided to County: Commercial Umbrella or Excess Liability Insurance Requested: YES or NO Limits Provided to County: Other Specialty Type Insurance (Builder s Risk, Cyber, Liquor, Pollution, Special Event, etc ) Requested: YES or NO Limits Provided to County: Copies of relevant policies, endorsements and certificates obtained, reviewed and on file Reviewed and approved by Risk Management Reviewed and approved by Purchasing Department or Agent Reviewed and approved by County Attorney

8 Sample Vendor Tiers: Tier I small projects that are routine in nature (i.e. small repairs, landscaping, etc.); duration of project is less than 1 month; cost of project is less than 10,000 Tier II medium sized projects that can be specialized or more complex in nature; duration of project is more than 1 month but less than 6 months; cost of project is less than 25,000 Tier III large sized projects that can be complex or large in scale and invasiveness; duration of project is more than 6 months but less than 15 months; cost of project is less than 250,000 Tier IV very large project; duration is more than 15 months and cost is more than 250,000 If any Project being undertaken by a vendor, contractor or service provider, has a factor that is applicable to a higher tier, consider evaluating the requirements at the higher tier level. If a Project being undertaken by a vendor, contractor or service provider falls beneath Tier 1, evaluate what if any requirements the County will want (i.e. Hold Harmless, waiver, etc.). It is good risk management to actively use hold harmless agreements, indemnity agreements and volunteer release of liability where applicable. Consult with your County Attorney. Each project and provider should be evaluated individually, to ensure that the full scope of the project and potential risk to the County, its employees, assets and general public is understood. Additional Insured: A person or organization not automatically included as an insured under an insurance policy who is included or added as an insured under the policy at the request of the named insured. A named insured's impetus for providing additional insured status to others may be a desire to protect the other party because of a close relationship with that party (e.g., wanting to protect church members performing services for the insured church) or to comply with a contractual agreement requiring the named insured to do so (e.g., project owners, customers, or owners of property leased by the named insured). In liability insurance, additional insured status is commonly used in conjunction with an indemnity agreement between the named insured (the indemnitor) and the party requesting additional insured status (the indemnitee). Having the rights of an insured under its indemnitor's commercial general liability (CGL) policy is viewed by most indemnitees as a way of backing up the promise of indemnification. If the indemnity agreement proves unenforceable for some reason, the indemnitee may still be able to obtain coverage for its liability by making a claim directly as an additional insured under the indemnitor's CGL policy. In property insurance, additional insured status is most often used in conjunction with a premises lease agreement between the named insured as the lessee and the owner of the leased building, in which the insured tenant is required to purchase insurance on the leased building and name the building owner as an additional insured on the insurance policy with respect to the leased building (IRMI.com). There are several AI endorsements, make sure you get the actual endorsement and read it, to ensure it provides you what coverage you need. Trust but Verify! Certificate of Insurance (COI): A document providing evidence that certain general types of insurance coverages and limits have been purchased by the party required to furnish the certificate (IRMI.com). Does not confirm if the policies are still in force or active. Does not afford coverage, only the actual policy and endorsement(s) will be used to determine what coverage is applicable.

9 Vendor, Contractor and Service Provider Insurance Considerations At a minimum, most projects should consider having the following types of insurance listed below. Limits will and can vary based on the County s needs, requirements and project scope and size. Commercial General Liability Insurance: Including Bodily Injury and Property Damage Liability, Independent Contractors Liability, Contractual Liability, Product Liability and Completed Operations Liability in an amount not less than 1,000,000 (minimum) limit, per occurrence, and 2,000,000 aggregate. This coverage should be written on an occurrence basis. A contract or agreement should provide that such insurance as afforded under vendor s/contractor s policy is primary insurance as respects to County, its employees and volunteers, and that any other insurance or self- insurance program maintained by County is excess and noncontributing with the insurance required. The vendor/contractor/service provider is fully and wholly responsible for payment of any deductible, regardless of its amount. There should be no limiting or exclusionary endorsement for Contractual Liability. Request CG Amendment of Cancellation Provisions or Coverage Change (or its equivalent and updated form). Are defense costs outside the limit of liability? Are you using an indemnification agreement in conjunction with seeking Additional Insured status? How long should you request Completed Operations coverage, after the project is completed? Bonds: A bond is a three-party contract in which the surety company guarantees the performance or honesty of the contractor to [County]. Contractors typically are required to provide up to three types of bonds on a construction project. A bid bond is commonly required in competitive bid situations. It is submitted with the bid and guarantees that if the contractor is awarded the job, it will agree to perform the work at the price quoted and will provide additional bonds as required by the construction contract. If the contractor declines to enter into a contract to perform the work at the agreed-upon price, the bid bond will reimburse [County] the difference between the defaulting contractor s bid and the next lowest bid, up to the bid bond penal amount. A performance bond guarantees that the contractor will perform the work in accordance with the construction contract and related documents, thus protecting [County] from financial loss up to the bond limit in the event the contractor fails to fulfill its contractual obligations. The general contractor is responsible for contracting for all materials and labor needed for the project, and for paying for such materials and labor in accordance with the contract provisions. The payment bond guarantees that suppliers and subcontractors will in fact be paid for materials and labor furnished to the contractor. The ultimate purpose of the payment bond is to guarantee [County] delivery of a project that is free of liens. Business Auto Liability Insurance: written in the amount of no less than 1,000,000 each occurrence (minimum, many contracts will require more), for bodily injury and/or property damage liability combined, including: Owned autos Hired or borrowed autos Non-owned autos An endorsement affording 30 day s notice to the County in the event of cancellation or non-renewal. Pollution Liability Insurance: Pollution Liability Coverage should be considered whenever the contracted work involves the handling of hazardous materials or the operations could create or exasperate an environmental hazard. The contractor should provide Pollution Liability coverage for bodily injury, property damage, (including natural resource damage), cleanup costs, removal, storage, disposal and or use of the pollutant; and defense including costs and expenses incurred in the investigation, defense, or settlement of claims. Coverage should apply to the alkalis, toxic chemicals, liquids, gases, natural gas, waste materials, or other irritants, contaminants, or pollutants (including asbestos).

10 Workers Compensation and Employer s Liability Insurance: affording the County with 30 days notice of cancellation. Workers Compensation Statutory Limits The Employers Liability Minimum limits are as follows: Bodily Injury by Accident - 100,000 each accident Bodily Injury by Disease - 500,000 policy limit Bodily Injury by Disease - 100,000 each employee Regardless what coverage or endorsement is being requested, get a copy of it. Trust but verify! There are other types of insurance policies that are available depending on the type of project. Some common types of insurance are Professional Liability, Commercial Umbrella or Excess, Cyber Liability, Crime, etc This list is not meant to be exhaustive and each project should be evaluated to determine what is needed and appropriate. This is not legal advice, please consult with your County Attorney. Specialty Type Insurance Builder s Risk Insurance: A property insurance policy that is designed to cover property in the course of construction. There is no single standard builders risk form; most builders risk policies are written on inland marine (rather than commercial property) forms. Coverage is usually written on an all risks basis and typically applies not only to property at the construction site, but also to property at off-site storage locations and in transit. Builders risk insurance can be written on either a completed value or a reporting form basis; in either case, the estimated completed value of the project is used as the limit of insurance (IRMI.com) It is important to consider the size, scope and duration of construction projects. The General Contractor or the project owner (i.e. County) can purchase a builder s risk policy it depends on the project and the control the project owner wants to have. The TAC RMP Property policy does provide some limited coverage for property in the course of construction and is intended to protect the member only. Cyber Liability (Data & Privacy Security) Insurance: A type of insurance designed to cover consumers of technology services or products. More specifically, the policies are intended to cover a variety of both liability and property losses that may result when a business engages in various electronic activities, such as selling on the Internet or collecting data within its internal electronic network. Most notably, but not exclusively, cyber and privacy policies cover a business' liability for a data breach in which the firm's customers' personal information, such as Social Security or credit card numbers, is exposed or stolen by a hacker or other criminal who has gained access to the firm's electronic network. The policies cover a variety of expenses associated with data breaches, including: notification costs, credit monitoring, costs to defend claims by state regulators, fines and penalties, and loss resulting from identity theft. In addition, the policies cover liability arising from website media content, as well as property exposures from: (a) business interruption, (b) data loss/destruction, (c) computer fraud, (d) funds transfer loss, and (e) cyber extortion.

11 Cyber and privacy insurance is often confused with technology errors and omissions (tech E&O) insurance. In contrast to cyber and privacy insurance, tech E&O coverage is intended to protect providers of technology products and services, such as computer software and hardware manufacturers, website designers, and firms that store corporate data on an off-site basis. Nevertheless, tech E&O insurance policies do contain a number of the same insuring agreements as cyber and privacy policies (IRMI.com). Anytime a vendor will have access to your data, IT infrastructure, or any other system which may allow access to EMPLOYEE or the PUBLIC S Personal Health Information (PHI), Personal Financial Information (PFI) or Personal Identifiable Information (PII), Cyber Liability should be considered, if appropriate The information presented is not an official TAC RMP requirement, but intended only as a guide or best practice. This list is not meant to be exhaustive and each project should be evaluated to determine what is needed and appropriate. This is not legal advice, please consult with your County Attorney. Reference Sites International Risk Management Institute (IRMI) Texas Public Risk Management Association (TX PRIMA) A Dozen Things You Wish You Had Known About Commercial Insurance. Locke & Comiskey, 2013 Link to: ISO Additional Insured Endorsements: Putting the Changes into Context for the Construction Industry. Via IRMI.com. Link to:

12 Scenario #2 Lone Star County (LSC) has always tried to do business locally. A recent tree trimming and stump grinding project came up which was awarded to Bob s Tree service. The project involves the cutting of two trees that are on the courthouse square and whose limbs are too close to the courthouse itself. Bob is a County resident and assures the Court that he has the expertise to complete this project and is insured for any loss related to this project. You have just received the news about this project and that work has already started. The County judge comes to you and asks for your input: What would be some types and limits of insurance that the County might request of the Vendor? (DISCUSSED DURING SESSION) What if the Vendor tells you that he/she cannot obtain the insurance you are asking for? What else could you do in such a scenario? (DISCUSSED DURING SESSION) Assume that your recommended limits for each coverage was provided by the Vendor. How many of you believe that would be sufficient for this project? (DISCUSSED DURING SESSION)

13 Policy Number: COMMERCIAL GENERAL LIABILITY CG THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY. PRIMARY AND NONCONTRIBUTORY OTHER INSURANCE CONDITION This endorsement modifies insurance provided under the following: COMMERCIAL GENERAL LIABILITY COVERAGE PART PRODUCTS/COMPLETED OPERATIONS LIABILITY COVERAGE PART The following is added to the Other Insurance Condition and supersedes any provision to the contrary: Primary And Noncontributory Insurance This insurance is primary to and will not seek contribution from any other insurance available to an additional insured under your policy provided that: (1) The additional insured is a Named Insured under such other insurance; and (2) You have agreed in writing in a contract or agreement that this insurance would be primary and would not seek contribution from any other insurance available to the additional insured. CG Insurance Services Office, Inc., 2012 Page 1 of 1

14 RELEASE OF LIABILITY - VOLUNTEER I,, the undersigned, hereby acknowledges that I am performing volunteer work for my community, and that I have not been coerced or forced to do so. Recognizing that there may be unforeseen dangers in any activity, I agree to indemnify and hold harmless the County of, its officials, employees and agents. I understand that it is my responsibility to avoid dangerous situations which may result in injury to my person. I further understand that I am not covered by Worker s Compensation Insurance and that I am not an employee of County. It is my understanding that the volunteer work in which I am engaging has been organized by another volunteer who will supervise the activities. As an adult over the age of 18, I acknowledge that I am volunteering of my own free will. As such, I agree to follow all safety rules set out by the volunteer supervisor. I will not work under the influence of alcohol, medication or drugs. I will wear appropriate safety glasses, hearing protection, gloves as well as appropriate clothing for the job. Signed on this day of, 201X By Volunteer Worker Witnessed By

15 COMMERCIAL GENERAL LIABILITY CG THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY. TEXAS CHANGES AMENDMENT OF CANCELLATION PROVISIONS OR COVERAGE CHANGE This endorsement modifies insurance provided under the following: COMMERCIAL GENERAL LIABILITY COVERAGE PART LIQUOR LIABILITY COVERAGE PART OWNERS AND CONTRACTORS PROTECTIVE LIABILITY COVERAGE PART POLLUTION LIABILITY COVERAGE PART PRODUCTS/COMPLETED OPERATIONS LIABILITY COVERAGE PART RAILROAD PROTECTIVE LIABILITY COVERAGE PART In the event of cancellation or material change that reduces or restricts the insurance afforded by this Coverage Part, we agree to mail prior written notice of cancellation or material change to: 1. Name: 2. Address: 3. Number of days advance notice: SCHEDULE (If no entry appears above, information required to complete this endorsement will be shown in the Declarations as applicable to this endorsements.) CG Copyright, Insurance Services Office, Inc., 1994 Page 1 of 1