Workshop M1 Monday, November 12 1:30-3:00 p.m. and 3:30-5:00 p.m. KEEPING INSURANCE REQUIREMENTS UP TO DATE Presented by Workshop M1 William H. Perkins Instructor Florida Association of Insurance Agents Susan Staff Director, Risk Management Zachry Holdings, Inc. Contract insurance requirements frequently include outdated or incorrect terminology. These inaccuracies create conflict when attempting to satisfy contract requirements with standard insurance policies. This workshop examines common mistakes in insurance requirement language and provides alternative language that utilizes the correct terminology. Contractors, project owners, attorneys, and insurance agents and brokers will all benefit from knowing the correct way to ask for and provide the desired coverages. Copyright 2012 International Risk Management Institute, Inc. 1 www.irmi.com
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William Perkins Instructor Florida Association of Insurance Agents Mr. Perkins is one of the presenters for Workshop M1, Keeping Insurance Requirements Up to Date, on Monday afternoon. He graduated from Loyola University of the South and later joined a family-owned insurance agency in Orlando, Florida. After 12 years as a commercial insurance sales agent, Mr. Perkins was hired by FAIA in 1993 as a commercial lines instructor. In addition to teaching the principal commercial insurance disciplines of business auto, commercial general liability, property, and workers compensation, Mr. Perkins also specializes in longshore and maritime employment coverage issues. In addition to teaching these subjects, he also is responsible for FAIA s annual Legislative Roundup sessions. He is recognized as a certified trainer by the Institute for Global Ethics and is the primary instructor for FAIA s ethics courses. Mr. Perkins s additional responsibilities include serving as a member on the National Council on Compensation Insurance Florida Appeals Board and as staff liaison for FAIA s Workforce Development Task Force. Mr. Perkins formerly served on the Independent Insurance Agents and Brokers Association s Technical Affairs Committee. Workshop M1 Mr. Perkins has earned the Accredited Advisor in Insurance and the Associate in Risk Management designations and the Construction Risk and Insurance Specialist certification. A frequent speaker at the International Risk Management Institute, Inc. (IRMI), Construction Risk Conference, Mr. Perkins received IRMI s Words of Wisdom award in 2001. Susan Staff Director of Risk Management Zachry Holdings, Inc. Ms. Staff is one of the presenters for Workshop M1, Keeping Insurance Requirements Up to Date, on Monday afternoon. She currently serves as director of risk management for Zachry Holdings, Inc. She is responsible for all aspects of corporate risk management and insurance for Zachry Holdings, Inc., and its related companies. Her duties include developing and implementing internal project risk management processes; managing corporate property, casualty, and specialty insurance programs; facilitating a comprehensive and collaborate enterprise approach to risk management; promoting personal and career growth and development of the Risk Management Department staff; procuring and negotiating project insurance policies with insurance industry professionals; and developing and evaluating subcontract documents and qualification criteria. Prior to joining Zachry, Ms. Staff served as risk manager of projects for the power generation segment of Asea Brown Boveri, Inc., in Windsor, Connecticut, and as manager of corporate insurance for Rust International, Inc., in Birmingham, Alabama. She is currently a member of the Risk and Insurance Management Society and the Associated General Contractors Risk Management Committee. Ms. Staff earned a bachelor s degree in business administration from the University of Georgia, where she majored in risk management and insurance. She has also received the Environmental Risk Management designation and the Construction Risk and Insurance Specialist certification. 3
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Keeping Insurance Requirements Up to Date Presented By: Susan G. Staff Director, Risk Management Zachry Holdings, Inc. And William H. Perkins Instructor Florida Association of Insurance Agents Workshop M1 Course Objectives Understand the purpose of insurance requirements in contracts Help identify the most common mistakes in drafting contract insurance language/requirements Provide appropriate alternative language 2 5
Contracts Which Most Often Require Insurance Leases/Rental Agreements Construction Contracts Purchase and Service Agreements 3 Purpose of Insurance Requirements in Contracts Confirm adequate resources are available for claims To fund indemnification/hold harmless obligations To secure additional insured status under another party s insurance policy(ies) 4 6
The Problem Too often, the language used for insurance requirements in contracts is out of date. Why? Lack of knowledge Knowledgeable about contracts/law but not insurance Inability to transfer knowledge into insurance requirements Not insurance subject matter experts. Workshop M1 5 The Problem Too often, the language used for insurance requirements in contracts is out of date. Why? Laziness/Time Constraints Tendency to use previously drafted contract terms Failure to research changes in terminology Lack of insurance/technical advice or desire to seek same 6 7
The Problem Too often, the language used for insurance requirements in contracts is out of date. So What? Insurance terminology changes over time as new policy forms are developed. References to outdated forms infer different coverage expectations. Breach of contract Coverage/Claims disputes Market unavailability of required insurance 7 The Problem Too often, the language used for insurance requirements in contracts is out of date. So What? Either: No one realizes the language is bad and contract gets signed; or After the fact, someone expends a lot of time and effort trying but failing to comply because the coverage isn t available 8 8
The Problem Too often, the language used for insurance requirements in contracts is out of date. So What Happens next? Claims complications Coverage disputes Lawsuits between insurers and insureds Breach of contract claims Post-Contract negotiations Hard to accomplish after the fact Risk of additional cost or contract termination Workshop M1 9 The Problem We now know HOW it happens, but WHY does insurance language and terminology change over time? Policy forms change Standardized Versions Proprietary Versions Manuscript Policies/Endorsements 10 9
The Problem Standardized versions Insurance Services Office (ISO) American Association of Insurance Services (AAIS) National Council on Compensation Insurance (NCCI) Proprietary versions Insurer specific Captives/Mutuals/Association 11 The Problem Manuscripted versions Customized for specific Named Insureds Negotiating leverage Level of knowledge of buyer/buyer s broker/agent Claims experience Deductible levels (is insured or insurer more at risk?) 12 10
The Wrong Stuff vs. The Right Stuff Antiquated/ Incorrect Terminology Broad Form Property Damage Coverage/Broad form comprehensive general liability endorsement Blanket XCU Public Liability Comprehensive General Liability General Liability Current/ Correct Terminology Commercial General Liability Commercial General Liability Commercial General Liability Commercial General Liability Explanation The coverage extensions which were formerly provided through this endorsement are now included in the base policy form The coverage extensions which were formerly provided through this endorsement are now included in the base policy form Antiquated language; policy by this name is no longer in use Antiquated language; policy by this name is no longer in use Workshop M1 13 11
The Wrong Stuff vs. The Right Stuff General Liability Antiquated/ Incorrect Terminology Current/ Correct Terminology Explanation Coinsured, Additional Named Insured Named Insured, First Named Insured, or Additional Insured In the CGL form, the purchaser of the policy is typically the First Named Insured, with their affiliated and/or subsidiary companies also included as Named Insured. Parties who are seeking direct access to unrelated parties insurance policies would be Additional Insureds to the extent provided under the Named Insured s policy s Additional Insured Endorsement. CG 2010 (11/85) edition Various This Additional Insured endorsement is no longer in use by most insurance companies Independent Contractors Coverage Commercial General Liability Coverage The policy form automatically extends coverage for insured s legal liability arising from work performed by or on behalf of the insured. 14 12
The Wrong Stuff vs. The Right Stuff Antiquated/ Incorrect Terminology Manufacturer s and Contractor s (M&C)liability insurance Owners, landlords, and tenants (O,L,&T) liability insurance Combined Single Limit (CSL) General Liability Current/ Correct Terminology Commercial General Liability insurance Commercial General Liability insurance Per-occurrence, limit, general aggregate limit, and productscompleted operations aggregate limit Form no longer in use Form no longer in use Explanation CGL policy forms do not provide limits in terms of Combined Single Limits Workshop M1 15 13
The Wrong Stuff vs. The Right Stuff General Liability Antiquated/ Incorrect Terminology Current/ Correct Terminology Explanation Primary and non-contributory n/a Unnecessary: Despite the clear priority on order of coverage that has been included in the ISO CGL policy forms since 1997, the demand for primary and noncontributory is still standard fare, regardless of the 1997 change. if other insurance is available to you covering you by endorsement as an additional insured, then your insurer deems your policy to be excess to the policy listing you as an additional insured. Cross-Liability Commercial General Liability Standard CGL separation of insureds condition states the inclusion of more than one person as insured thereunder shall not in any way affect the rights of any such person as respects any claim, demand, suit or judgment made, brought or recovered, by or in favor of any other insured Okay to require that the policy not contain a crossliability exclusion. Covering any and all damages n/a All policies have limitations/exclusions; damages which are not negligence or tort based, such as fines, penalties, willful and intentional acts, etc. are not covered. 16 14
The Wrong Stuff vs. The Right Stuff Antiquated/ Incorrect Terminology Comprehensive Auto Liability Automobile Liability Insurance Current/ Correct Terminology Business Automobile Policy Explanation The BAP replaced the Comprehensive Auto policy in 1978 Workshop M1 Additional Insured Unnecessary Insured status already provided Per occurrence or Combined single limit Unavailable Policy issued on a per accident basis Cross liability Separation of Insureds Automatically Included in ISO s standard BAP separation of insureds clause 17 15
The Wrong Stuff vs. The Right Stuff Commercial Property Insurance Antiquated/ Incorrect Terminology Current/ Correct Terminology Explanation All Risk Special Cause of Loss Replaced in 1983 (Exception: Builder s Risk policies still may use the term all risk, to mean, all risks covered except for what is specifically excluded) Full Replacement Cost Replacement Cost Subject to ACV unless damaged property is actually repaired/replaced Fire and extended coverage or extended coverage endorsement Special Cause of Loss Terminology no longer in use Additional Named/Additional Insured Loss Payee Loss Payee is appropriate wording for property/contractor s equipment/ocean marine cargo where another party maintains a financial interest/equity in the property at risk. Named/Additional Insured continues to be used in Builder s Risk policies 18 16
The Wrong Stuff vs. The Right Stuff Antiquated/ Incorrect Terminology Workmens Compensation Insurance Borrowed Servant Endorsement Workers Compensation Insurance Current/ Correct Terminology Workers Compensation Insurance and Employer s Liability insurance Alternate Employer Endorsement Outdated terminology Explanation Incorrect/Outdated Terminology Workshop M1 All states coverage/broad form all states coverage endorsement Other States Coverage Incorrect/Outdated Terminology Additional Insured No equivalent WC policies will only provide coverage for Named Insured parties In Rem endorsement Maritime coverage endorsement In Rem used on general liability, not Worker s Compensation insurance 19 17
The Wrong Stuff vs. The Right Stuff Antiquated/ Incorrect Terminology Miscellaneous Current/ Correct Terminology Explanation Certificate to required insurer to provide days written notice of material change, nonrenewal, or cancellation to additional insured Insured shall be required to provide. ACORD revisions to insurance certificate forms have been modified to reflect that insurance certificates do not obligate insurers to provide notices of policy changes, cancellations, etc. to all insured parties. Insurance policy provisions rule, and most will only provide such notice to the First Named Insured unless otherwise endorsed. Liability insurance to include Sudden and Accidental pollution coverage n/a Nearly all Commercial General Liability policies specifically exclude Sudden and Accidental pollution. Reference to a separate pollution liability insurance policy is necessary if such is required based on scope of services/type of agreement. Sudden and Accidental pollution insurance/ Pollution Legal Liability Contractors Pollution Liability For construction related contracts, the appropriate policy reference/form evidencing pollution liability coverage for construction operations is Contractor s Pollution Liability. Pollution Legal Liability insurance refers to third party pollution liability coverage for owners/lessees of fixed locations/properties. 20 18
Insurance Requirement Drafting Tips Insurance requirements should be aligned with the risks associated with the business/purpose of the contract Avoid imposing requirements which are no longer available in the marketplace KISS Requirements should not require other parties to renegotiate their current insurance program If specific policies are required to be purchased to meet requirements, allow sufficient time and flexibility to achieve compliance Wording should be generic and flexible enough to account for changes/updates in marketplace and policy form editions, 21 revisions, and variations Workshop M1 Six Steps to Successful Insurance Specifications 1. Analyze risk and determine best and fairest risk allocation between parties 2. Design insurance requirements based on risk analysis outcome 3. Set minimum coverage standards using references to standardized forms 4. Avoid using specific edition dates, forms, or nonstandardized forms 5. Require specific (non-minimum) liability limit requirements 6. Seek advice from coverage experts when drafting language and request at least an annual review to stay up to date 22 19
Notes This file is set up for duplexed printing. Therefore, there are pages that are intentionally left blank. If you print this file, we suggest that you set your printer to duplex. 20