Presented by: George W. Erickson, JD, CPCU, LLM Siver Insurance Consultants

Transcription

1 Presented by: George W. Erickson, JD, CPCU, LLM Siver Insurance Consultants

2 Siver Insurance Consultants is not in the practice of law, and the observations made during this presentation are offered solely as laypersons in our capacity as insurance consultants.

3 What we will be covering General Concepts Limits Deductibles Claims Made vs. Occurrence Types of Coverage First Party Third Party Combination Specialty Lines

4 PERSPECTIVE Everything will not apply to everyone. Focus is primarily on the insurance YOUR organization purchases or may purchase. What contractors/vendors should purchase and the concerns created by contractors and vendors is another subject for another day.

5 Limits Deductibles Claims Made vs. Occurrence

6 Per Occurrence/Accident Per Aggregate For all covered losses under a policy or for all policies during an underwriting period Liability insurance aggregate limits usually included Property insurance not often used, except for certain catastrophic exposures (e.g., flood) Per Claim/Claimant

7 Sublimits vs. Additional Limits Sublimit limit available to cover a specific type of loss Part of the limit (not in addition to) Maximum amount available to pay for that type of loss

8 How Deductibles Apply Differs by Coverage Type Coverage limit can apply excess of deductible Deductible can reduce limit Percentage vs. flat dollar amount

9 How Deductibles Apply Defense Costs (Liability) Policy Language Governs E.g., property policies Some apply single deductible to total amount of loss Some apply per location (i.e., campus) Some apply deductible separately to each building, contents of each building, etc.

10 Deductibles - INSURER is responsible to pay loss (up to limit). NAMED INSURED is responsible to reimburse. SIRs - NAMED INSURED (or INSURED) must pay SIR before insurance policy will respond to a loss.

11 Why does this matter? Changes timing of when claim is reported to insurer (if reported at all) Treatment of defense costs and obligations Timing of payment SIR payment is made by insured up front Some Deductibles may reduce policy limits

12 Who is Required to Pay the Deductible/SIR Named insured The insured Can an additional insured pay?

13 When is coverage triggered? Typical Claims Made Coverage for claims [first] made [and reported] during the policy period, regardless of when the wrongful act/bodily injury/property damage leading to the claim occurs Occurrence Coverage for when wrongful act/bodily injury/property damage occurs during the policy period, regardless of when the claim is made

14 Example: January 1, 2015 December 31, 2015 Company is insured with INSURER A January 1, 2016 Company changes to INSURER B November 30, 2015 Incident occurred January 2, 2016 Company becomes aware of claim To which Insurer should the Company report the claim? Claims Made Assuming both policies are claims made (assuming no reporting period is purchased) Insurer B Occurrence Assuming both policies are occurrence Insurer A

15 Additional Issues to Consider: Long tail exposures Retroactive dates in claims made policies Potential issues when changing from one insurer to another with claims made policies

16 First Party Third Party (Liability) Combination (First and Third Party Combined) Specialty Lines

17 Commercial Property Insurance Coverage for physical damage to your organization s own buildings and contents due to covered causes of loss Also includes Time Element coverages (i.e., business income and extra expense) Additional coverages may be available (e.g., debris removal, fire department service charges, etc.)

18 Building Property Buildings & structures Permanently installed machinery & equipment Additions Business Personal Property of the Insured Furniture & fixtures Machinery & equipment Stock

19 Be aware of: Scheduled Coverage vs. Blanket Coverage All Risks vs. Named Perils coverage forms Valuation replacement cost vs. actual cash value Coinsurance provision vs. Agreed Value Application of deductibles single vs. deductible for each building, etc. Flood often very limited Earth Movement vs. Earthquake

20 Flood Other Types of Property Policies Fine Arts Contractors Equipment Builder s Risk Boiler and Machinery/ Equipment Breakdown Insurance Electronic Data Processing Cargo Installation Floater

21 Flood Primary coverage typically provided by National Flood Insurance Program (NFIP) Be aware of: Per occurrence sublimit Annual aggregate limit Separate deductible FEMA issues

22 Boiler and Machinery/Equipment Breakdown Insurance Coverage for cost to repair/replace equipment and other property damaged due to mechanical or electrical breakdown of equipment To insured s own property To property of others in insured s CCC Other coverages available, such as: business income, extra expense, utility service interruption

23 Coverage may be offered under your property or package policy, by endorsement, or under separate policy

24 Fine Arts Major reason for purchase VALUATION!! Be aware of: Coverage usually on scheduled basis Property in transit and unscheduled/newly acquired locations Limitations on newly acquired property Excluded property

25 Electronic Data Processing (EDP) Unendorsed standard commercial property policies usually do not exclude EDP equipment, but usually exclude loss due to: Electrical disturbance Mechanical breakdown Utility service interruption EDP policies offer all risks coverage for EDP equipment such as computers, software, data

26 Electronic Data Processing (EDP) Other coverages available, such as: business income, extra expense, expediting expenses Be aware of: Computers owned by organization but used by employees off-site Difference in limits for scheduled locations vs. property in transit or at temporary locations Coverage forms vary so do exclusions Sublimits for each category of covered property

27 Equipment Commercial Property Policy vs. Equipment Floater Commercial Property Policy Coverage for buildings and contents at a particular location, or within a short distance of that space Potential coverage gap Equipment Floater Covers equipment that is often moved place to place

28 Coverage applies to: Mobile equipment (e.g., construction equipment, lawnmowers, cranes, etc.) Equipment owned by insured Equipment in insured s CCC, including rented or borrowed

29 Builder s Risk (BR) Coverage for property in the course of construction: On the job site At off-site storage locations Property in transit Key Coverages: Physical damage to covered property Delay in completion coverage plus soft costs coverage

30 Builder s Risk Issue? Ownership of covered property during various stages of construction is fluid E.g., contractor buys materials and equipment that will be incorporated into project; eventually becomes property of project owner Property located in different locations during length of construction E.g., on the job site, off-site storage, in transit

31 Builder s Risk Issues? Value of construction project increases as it moves towards completion Incomplete structures more susceptible to damage from elements

32 Be aware of: All of the right parties need to be covered under BR policy Contractors and subcontractors Insurable interest in the property Construction contract governs which party must purchase BR insurance Project owners may prefer to purchase BR to give them greater control over coverage terms Blanket deductibles and specified peril deductibles Sublimits

33 Be aware of: Coverage termination when coverage ends varies Need to be sure that insurance policy termination provision satisfies construction contract terms Excludes coverage for damage resulting from: Faulty design Faulty planning Faulty workmanship Faulty materials

34 Crime Why would my organization need a crime policy? CGL policies exclude most types of theft Money and securities do not qualify as covered property Employee theft of money or other property is usually excluded

35 Commercial Crime Policy Coverage for: Employee dishonesty Forgery or alteration Money and securities Money order and counterfeit money Computer fraud Funds transfer fraud

36 Employee Dishonesty Coverage for employee theft of money, securities and other property ERISA & Employee Benefit Plans May be used to satisfy the ERISA requirements by naming the plans as a named insured Who is an employee? Not directors or trustees (except while performing duties within scope of an employee s usual duties) Not independent contractors, agents, brokers, etc. May get coverage for these types of people by endorsement

37 Forgery or Alteration Coverage for loss resulting from forgery or alteration of checks, bank drafts, promissory notes, etc. drawn on insured s bank account Money and Securities Coverage for loss to money and securities resulting from theft or from destruction by fire, explosion, etc. inside the premises vs. outside the premises

38 Money Order and Counterfeit Money Coverage for direct loss from acceptance of counterfeit paper currency and money orders Computer Fraud Coverage for loss of money, securities, and other tangible property caused by use of a computer to fraudulently transfer such from inside the insured s premises (or a banking premises) to outside

39 Funds Transfer Fraud Coverage for loss of money and securities resulting from fraudulent use of a bank s funds transfer system where the thief purports to be insured and instructs that the transfer take place Computer Fraud and Funds Transfer Fraud coverage may be combined into a single coverage on a crime form

40 Social Engineering (e.g., phishing) These losses may be covered under either a crime policy or a cyber policy Public Employee Dishonesty Coverage Coverage for governmental entities covering loss arising from employee dishonesty Limits can be written per loss or per employee

41 Commercial General Liability Umbrella/Excess Liability Professional Liability Management Liability Workers Compensation

42 768.28

43 Commercial General Liability (CGL) Provides organizations with defense and indemnity coverage against claims for: Coverage A Coverage B Coverage C Bodily Injury and Property Damage Personal Injury and Advertising Injury Medical Payments

44 Basics of the CGL Policy: Each Coverage section has its own: Provisions Exclusions Limits Coverage A negligent torts Coverage B intentional torts

45 Basics of the CGL Policy: Named insureds and insureds under the policies Differences in the duties and rights of these parties Conditions some do create conditions precedent to coverage E.g., insured s duties in event of a claim

46 Coverage A: Bodily Injury (BI) and Property Damage (PD) Covers insured s liability for BI and PD arising from: Premises and operations Products and completed operations Independent contractors Contractual liability

47 Coverage A: BI and PD Bodily injury and property damage are defined terms in the CGL policy Coverage A has many exclusions, for example: Pollution Aircraft, auto, watercraft or mobile equipment Damage to Your Product or Your Work Electronic data

48 Coverage B: Personal Injury and Advertising Injury Personal Injury Libel Slander Defamation of character False arrest Invasion of privacy Advertising Injury Libel Slander Invasion of privacy Copyright infringement Misappropriation

49 Coverage B: Personal Injury and Advertising Injury Coverage B has many exclusions, for example: Knowing violation of rights of another Criminal acts Contractual liability Breach of contract Infringement of intellectual property

50 Coverage C: Medical Payments Coverage for accidental BI that occurs on the insured s premises or, if away from premises, because of insured s operations These payments are made regardless of fault Medical payments coverage is subject to all of the BI exclusions of Coverage A Even though the exclusions overlap in effect, they are separate

51 Umbrella/Excess Liability Policies Levels of coverage Primary and secondary Umbrella insurance policy and excess insurance policy are not synonymous Both extend coverage limits provided by primary (or underlying) policies Both drop down to replace exhausted primary coverage Difference umbrella generally provides broader coverage (may provide coverage for losses not insured by underlying policies)

52 Umbrella/Excess Liability Policies Coverage forms vary Often have coverage gaps between umbrella/excess policies and underlying policies Package Policies Combination policy providing several lines of coverage (usually general liability, property, auto)

53 Professional Liability Medical Malpractice (Physicians Professional Liability) Legal Malpractice (Lawyers Professional Liability) Architects and Engineers Professional Liability Professional Liability/Errors and Omissions (E&O)

54 Professional Liability Typically written on Claims-Made basis Often have per claim and annual aggregate limits Can have high deductibles/sirs Can be very expensive for some professions

55 Professional Liability/Errors and Omissions (E&O) Coverage against liability for errors and omissions in performing professional duties Policies generally cover financial losses (rather than BI and PD)

56 Management Liability Types Directors and Officers (D&O) School Leaders E&O Public Officials Liability Covers Personal Liability of Individual Officers/Directors Entity Obligation to Indemnify EMPLOYMENT PRACTICES LIABILITY!!!!

57 Common Types of Claims/Exposures: Securities litigation Federal and state regulatory actions Misrepresentation and breaches of fiduciary duties Employment Practices Liability Exposures Wrongful termination Failure to hire/promote Breach of contract Discrimination Sexual harassment

58 School Leaders E&O/School Board Liability a.k.a. Educators Legal Liability (ELL) Insurance Coverage against claims alleging errors and omissions in performing duties Covers financial loss, not BI or PD claims But mental injury and emotional distress usually covered Available for all levels of educational institutions, including public schools, private schools, charter schools, and cyber schools

59 Coverage for the following: Educational institution itself School board members/board of trustees/ administrators Employees Staff members Student teachers/interns Volunteers

60 Common Types of Claims/Exposures Directors and Officers Liability Exposures Losses caused by financial mismanagement Fund-raising improprieties Negligent management of endowment funds Antitrust claims Employment Practices Liability Exposures Wrongful termination Failure to hire/promote Denial of tenure Discrimination Sexual harassment

61 Common Types of Claims/Exposures Educators E&O Liability Exposures Media Liability Exposures (from school newspapers, campus radio, etc.) Failure to educate Negligent counseling (career or academic) Wrongful dismissal on academic/disciplinary grounds Discrimination in financial aid grants Libel Plagiarism Copyright or trademark infringement

62 Typical Exclusions: Intentional acts ERISA obligations Claims by or against affiliated institutions Professional services Outside directorships BI and PD liability (corporal punishment?) Contractual obligations

63 Public Officials Liability Despite governmental immunities, public officials can be held liable for their actions in carrying out their duties Coverage for errors and omissions of public officials Covers financial loss, not BI or PD claims

64 Workers Compensation Coverage for claims arising out of employee s workrelated injuries while employee in course and scope of employment Employee gets wage replacement and medical benefits (or death benefits) in exchange for employee giving up right to sue employer No fault Statutory in nature

65 Part One Workers Compensation Covers employer s statutory liabilities under the workers compensation laws No limit on policy amount Part Two Employer s Liability Covers liability arising out of employees work-related injuries that do not fall under the workers compensation statute Who can sue the employer? Injured worker (under certain circumstances) Spouse or family members (e.g., loss of consortium) Third party (e.g., injured worker sues machine manufacturer, who then sues the employer) Monetary limit Workers compensation claims can remain open for decades

66 Vehicle Liability/Physical Damage Pollution/Environmental Liability Cyber/Privacy Liability

67 Liability Coverage (Section II) Insurer will pay sums that insured becomes legally obligated to pay as damages because of injury or damage resulting from ownership, maintenance, or use of covered auto Insurer also has obligation to settle or defend suits

68 Liability Coverage (Section II) Who is covered? Named insured Permissive users Anyone liable for the conduct of the insured

69 Liability Coverage (Section II) What is excluded from coverage? Expected/intended injury Contractual liability Workers compensation Fellow employee exclusion Racing

70 Physical Damage Coverage (Section III) Insurer will pay for physical damage loss to a covered auto (or its equipment) from one or more specified set of perils: Collision or Overturn Comprehensive Covered auto s collision with another object or overturn All risks coverage (other than for collision or overturn), or Specified Causes of Loss Fire, lighting or explosion Theft Windstorm, hail or earthquake Flood Mischief or vandalism Sinking, burning, collision or derailment of any conveyance transporting covered auto

71 Physical Damage Coverage (Section III) Auto Physical Damage is often: Self-insured or Included in the Property Insurance

72 Physical Damage Coverage (Section III) What is excluded from coverage? Racing Wear and tear Electronic devices/equipment Diminution in value

73 Be aware of: Named insureds and insureds under the policy Differences in the duties and rights of these parties Employees using personal vehicles for business Employees using district-owned vehicles for personal purposes

74 Pollution/Environmental Liability Many policies contain broad pollution exclusions, including CGL, auto, and umbrella liability policies What is a pollutant? Solid, liquid, gas, thermal irritant, or contaminant (e.g., smoke, vapor, soot, fumes, acid, chemicals, waste) Often includes fungus, mold, and bacteria

75 Environmental Impairment Liability (EIL) Insurance What coverage may be included? BI PD Cleanup expenses Defense costs (usually within the limit) Additional coverages available (e.g., business interruption)

76 When Should Your Organization Have Pollution Coverage? Not just for organizations generating or handling hazardous materials Construction issues Fueling operations Storage tanks Mold Issues Pre-Existing Pollutants Changing Laws EPA Broad power to name PRPs

77 Issues with Pollution Coverage Almost always written on claims-made basis Beware of retroactive dates Extending reporting period

78 First Party Malware Attack on Systems Viruses, adware, spyware, worms, trojans, ransomware Loss of Data Malicious destruction of data Accidental damage to data Failures in IT system Electrical power surges

79 First Party Fraud Outside fraud (e.g., social engineering such as phishing) Internal fraud (e.g., employee theft) Business Income/Extra Expense Public Relations/Goodwill

80 Third Party Disclosure of Private Information/Breach of Privacy HIPAA Defamation or Slander Transmission of Malicious Content

81 Who Needs Cyber/Privacy Liability Insurance? Nature of losses have changed Range of exposures goes beyond privacy and data breaches Internet-of-Things (IoT) is changing the landscape of cyber and privacy exposures Any organization can be impacted!

82 What do Cyber policies cover? First Party Coverage Theft of property coverage Extortion/ransom threats Data asset coverage and restoration Computer fraud (but not by employees) Funds transfer fraud Social engineering Investigative costs

83 What do Cyber policies cover? First Party Coverage Post-breach response coverage Crisis management/public relations Notices Credit Monitoring Time element coverage Business interruption Business income/extra expense

84 What do Cyber policies cover? Third Party Coverage Information security and privacy liability Provides coverage for insured s liability for breaches of third party s private information Regulatory defense and penalties Website media content liability PCI fines and assessments Bodily injury and property damage liability

85 Typical Exclusions: Portable Electronic Devices Intentional Acts Terrorism/Cyber Terrorism Negligent Computer Security Insureds must install software updates and patches BYOD Bring Your Own Device

86 Student Accident Catastrophic Accident Police Professional/Law Enforcement Fiduciary Liability

87 Read your policies carefully!

88 Questions or Comments?

89 Thank you! George W. Erickson, JD, CPCU, LLM (727)