Additional insured — it’s a standard practice in most industries to require vendors to protect you under their insurance policies. These insurance transfers occur most frequently when hiring companies to do construction, maintenance or security, or if you’re leasing space.

“The concept is if I hire you to do work for me, I don’t want to be liable for you. I don’t want to be responsible for what you may do wrong, so I want you to cover me with your insurance” says Brian Chance, MBA, CPCU, AIC, vice president of Claims and Services at ECBM.

Over the years, the use of additional insured status has expanded to more than it was originally intended. So, the insurance industry responded by reigning in coverage.

Smart Business spoke with Chance about additional insured form changes and what this means for existing and future contracts.

When did the insurance industry change the standard forms? What has been the effect?

In April 2013, the insurance industry tightened how much coverage an additional insured can obtain. The new forms aren’t mandatory, so some carriers are still using older versions. However, if they aren’t using the new forms yet, they will soon try to integrate them in their customary practices.

It’s too soon to say how this is impacting businesses. However, the changes will take many by surprise when they discover they don’t have the coverage they thought they requested as part of a business transaction.

What is the biggest change to additional insured endorsements?

The forms now say the language in your contract or agreement governs the scope, extent and limit of coverage that the additional insured receives. For example, if you hire a roofing contractor, you might require that contractor to have $1 million of coverage and name you as an additional insured. Then, let’s say, the contractor accidentally burns down your neighbor’s $5 million building, and he or she sues you. In the past, you could use additional insured status to not only get the first $1 million but also higher limits through the contractor’s excess policies. Now, your limit is just the $1 million you requested.

Before, your contract requirements may not have been flawless, but you were able to get needed protection anyway. Under the new forms, if you are less than perfect in what you ask for, the policies won’t automatically give you what you really want.

What other changes minimize this coverage?

In addition to limits, another concern is the order the policy pays. If you go through the trouble of obtaining additional insured coverage, you want it to pay claims before your policy does. Your contracts need to require the additional insured coverage to be primary and yours to be excess.

Furthermore, carriers will only grant additional insureds the coverage that state law allows. At last count, 10 states, including Delaware and New York, don’t allow you to be an additional insured for your own negligence under another company’s policy. Those states passed statutes to stop negligent people from transferring the cost of their negligence to business partners. So, if your employee injures an employee of your contractor, that injured employee might sue your company. Before, you could use additional insured status to make the contractor pay for that lawsuit. The new language makes it harder to cherry-pick state law, limiting options when you are negligent.

Does it matter when a contract is signed?

No. You need to address this issue in your new contracts and look at existing contracts. Your existing contracts may not contain the right language to obtain the coverage you think you have under today’s policy forms. This is especially true for long-term contracts like lease agreements.

What’s the takeaway for business owners?

Any business owner who hires someone else or leases property is at risk for problems. You should review contracts and standard agreements with your risk management and insurance adviser to ensure you request the best you can get in your contracts.

It may be difficult to update old contracts, because it opens up negotiations to all terms, not just the insurance piece. You may not be able to act immediately, but if existing agreements are re-opened in the normal course of business, these additional insured insurance changes should be addressed.

Brian Chance, MBA, CPCU, AIC, is vice president of Claims and Services at ECBM. Reach him at (610) 668-7100, ext. 1325 or bchance@ecbm.com.

Insights Risk Management is brought to you by ECBM

Published in Philadelphia

The employee benefit procurement process, sometimes called marketing, has changed little over the past 25 years. This continues to frustrate many organizations looking for transparency, and potential cost savings, when procuring life, disability stop loss, dental, vision or pharmacy benefit management coverage.

Formal Requests for Proposals (RFP) may travel by email, but the underlying process is the same; insurance carriers simply send an image of the paper proposal that they would have dropped off years prior. The interpretation, presentation and, most importantly, negotiations haven’t changed, says Matthew R. Huttlin, vice president in the Employee Benefits Division at ECBM.

Almost a decade ago, a major insurance scandal in New York uncovered bid-rigging and anti-competitive activity within the opaque procurement process.

“The industry agreed to reform and become more transparent, which they did to some extent, but procurement activity remains a bit of a ‘black box’ process that continues today,” Huttlin says.

Smart Business spoke with Huttlin about the future of employee benefits procurement — a reverse auction.

What problems still exist today?

The process is clearly still antiquated and fraught with opportunities for mistakes. Business owners often negotiate without solid documentation. Broker/consultants, as well as their clients, continue to see proposal mistakes, missed deadlines, inaccurate proposals and presentation revisions.

Also, insurance carriers market to their strengths, as opposed to conforming to client requirements, which may lead to misinformation, more work, mistakes and increased costs.

How can business owners better obtain employee benefit coverage lines?

An online version of a reverse auction, or Dutch auction, cuts to the heart of the problem by introducing technology to the process while maintaining the business owner’s control of the outcome. This type of auction works opposite of a normal auction — instead of bidding up the price of an item, the auction bids the price down.

What are the benefits of this method?

This process is:

  • Prescriptive — RFPs are standardized, specifying the client requirements. Carriers respond using pre-determined plan specifications.
  • Efficient — Carriers get complete, consistent data on which to act with agreed upon timelines.
  • Transparent — Clients receive documentation on every step from the initial offers to the final pricing.
  • Effective — The online system delivers the RFP to more markets, garnering more accurate quotes that are immediately posted for analysis.

How exactly does this reverse auction work?

There are four phases to the procurement. In the RFP development/submission phase, the RFP is placed on a secure website under a standardized format and peer reviewed to ensure accuracy. Once released, carriers are notified to go to the website to obtain all of the relevant information to prepare their proposal.

During the technical evaluation/initialpricing phase, carriers post proposals into the system for evaluation. The broker/consultant reviews the vendor confirmations and deviations to the requested scope of services, confirming plan design features, alternatives and administrative capabilities. The carrier also posts its initial pricing.

Then, all carriers receive feedback as to their ranking by their initial pricing in the financial evaluation/secondary-pricing phase. Actual rates aren’t shared. Over the course of a set period, usually two days, carriers can revise their pricing offers. Every time a new offer is submitted, all carriers are notified of the new ranking order.

Once the financial evaluation is complete, clients review the detailed results in the evaluation/selection phase. This review can include finalist presentations, site visits, etc. The client maintains full control over the selection process. Business owners aren’t required to select the lowest bid, but rather the carrier that best fits their requirements.

This high-tech approach is an efficient and effective way to handle procurement that provides accurate, transparent and documented results while driving prices down in a timely fashion.

Matthew R. Huttlin is vice president of the Employee Benefits Division at ECBM. Reach him at 610-668-7100, ext. 1312 or mhuttlin@ecbm.com.

Insights Risk Management is brought to you by ECBM

Published in Philadelphia

Historically, private business owners overestimate what their comprehensive general liability (CGL) policy covers, and therefore don’t buy the additional insurance they need.

According to the Chubb 2013 Private Company Risk Survey, 44 percent of private companies have experienced at least one claim in directors and officers (D&O), employment practices, fiduciary liability, employee fraud, workplace violence and cyber liability in the past three years. More than half of the executives interviewed mistakenly believed they had some form of coverage under their CGL policy.

As business owners run into a wide range of costly lawsuits, government fees, data theft, criminal activity and employment claims, they must deal with these disruptive issues, which tax their administrative capabilities and put a financial drain on the institution. Until a company experiences an event that isn’t covered by CGL, however, a business owner may not realize where the coverage gaps are.

“They are starting to understand that they have a problem but very few of them actually buy the extra insurance,” says James A. Misselwitz, CPCU, vice president at ECBM.

Smart Business spoke with Misselwitz about where CGL falls short and what to do about it.

What do private business owners need to know about CGL coverage?

CGL does:

  • Cover legal liability arising out of bodily injury and property damage, and also advertising injury and personal injury (libel and slander).
  • Defend the company from lawsuits rising out of their operations.
  • Defend against infringement on a trademark or copyright.
  • Defend and litigate publications that involve liable and slander.

However, it doesn’t protect against:

  • Wrongdoings of a director or officer of the company.
  • Employment-related lawsuits, such as retaliation, harassment or sexual bias.
  • The personal liabilities arising out of mismanagement of a pension or 401(k) plan.
  • Professional liability risk arising out of services rendered for a fee, such as charging for estimates and quotes.

With D&O liability, why would a privately owned company be affected?

It only takes a marriage, divorce and/or another generation to get involved for a company to become vulnerable. Let’s say a second-generation heir is going through a divorce that isn’t amiable. Now, their spouse may feel like they have a right to an asset that they think is being mismanaged.

Almost all CGL forms exclude cyber liability arising out of social networking and social media, even as defamation and copyright infringement lawsuits increase in this arena. With social media, nothing is as simple as it seems and the ramifications of doing something wrong can be devastating.

In addition, business owners may believe their required ERISA bond covers fiduciary liability. An ERISA bond only protects a retirement plan’s assets from theft. It doesn’t protect the personal assets of fiduciaries who are found in breach of duty, such as making poor investment decisions. For that, you need to buy fiduciary liability insurance.

What’s your advice for business owners who may not have enough coverage?

You need to examine the activities of your company closely, while comparing current insurance policies, so that large holes in coverage don’t crop up. Basically, business owners need to discuss with a knowledgeable insurance broker what risk they can effectively transfer to an insurance company.

But as business owners start becoming aware of areas where coverage is a concern, some still fail to pull the trigger on an up-to-date insurance program. Many think this kind of additional coverage is expensive. However, the marketplace has already responded with insurance companies forming management liability packages that combine risks and lower costs.

The other problem is that some insurance brokers are unable to have an in-depth discussion about these types of coverage. Interview your broker to assess your risks,
and whether or not those risks have been transferred. If you feel your broker is not knowledgeable, then it may be time to call another broker.

James A. Misselwitz, CPCU, is vice president at ECBM. Reach him at (888) 313-3226, ext. 1278 or jmisselwitz@ecbm.com.

Insights Risk Management is brought to you by ECBM

 

Published in Philadelphia

E-risk. Data and network security. Cyber liability. There are as many names for insurance that covers privacy and Internet liability as there are insurance companies.

In general, “cyber” is a catchall phase referring to use of computers, the Internet, networks and electronic data, says Jan O’Rourke, CPCU, RPLU, ARM, assistant vice president and director of client services – specialty division at ECBM.

“I don’t know of any responsible business that would operate without standard insurance coverage — general liability, auto, workers’ compensation and property — to protect the business against financial loss, and possibly ruin,” O’Rourke says.

“With the evolution of computer usage, cyber exposures are growing rapidly. For many businesses, their chance of a loss occurring due to a ‘cyber’ type claim is greater than a loss covered by standard coverage,” she says. “Yet many executives don’t seem concerned about the risk, and still don’t think they need cyber coverage.”

Smart Business spoke with O’Rourke about cyber risks and how insurance has become necessary to cover this exposure.

Do general liability policies provide any kind of cyber coverage?

Years ago, some cyber coverage could be found under the general liability and property policies. Those days are gone. Most insurance companies have added specific exclusions to eliminate any chance of coverage for cyber claims. The exclusions wipe away any doubt about coverage.

Who and what is at risk?

Any business that uses computers, stores personally identifiable data (even if only for employees), communicates electronically and maintains a website or social sites, among other functions, has a risk exposure.

Risks include third-party liability arising from failing to safeguard confidential private information of others, damage to another party’s computer network, infringement or personal-injury-type offenses communicated electronically, regulatory fines and penalties — such as payment card industry compliance, HIPPA and other federal and state regulations — and the cost to defend any of these allegations.

Also, a company that has a cyber attack faces first-party losses, such as the costs to notify persons affected by a privacy breach, including notification, credit monitoring and other services; crisis management event expenses; the cost to restore the computer system and network; and the loss of money, securities or other property from the computer fraud or fraudulent funds transfers. Additional expenses could come from e-commerce extortion, the loss of income due to computer systems not operating, and the costs for experts, forensic, legal or others needed after a breach or other incident occurs.

A 2012 cost study of 137 cyber breaches by NetDiligence found that an average breach cost $3.7 million, ranging from $2,000 to $76 million. The average cost per record was $3.94, with an average of 1.4 million records exposed in a breach.

How can companies benefit from cyber coverage?

One of the most important benefits is not payment of the loss; it is access to the insurance company’s expertise, including assistance after a loss occurs. The carrier knows the laws in each state regarding how notification must be handled, such as whom to notify and in what time frame. It has access to cost-effective legal, forensic and other specialists.

The insurance company also offers access to specialized websites that provide tools, tips and resources to prevent a cyber loss in the first place. Just reading the questions while filling out the application for this insurance provides food for thought.

It’s important to note that the only standard thing about the insurance market for cyber coverage is the fact that every insurer offers a completely different product. Cyber insurance premiums vary more than any other insurance line — as low as a few hundred dollars for the most basic extension to a policy, up to more than several hundred thousand dollars for the largest companies in high-hazard industries, such as health care, education and financial institutions.

You’ll need to utilize the expertise of your risk manager and/or insurance broker to analyze your specific business exposures and recommend the appropriate, broadest coverage for you.

Jan O’Rourke, CPCU, RPLU, ARM, is an assistant vice president and director of client services – specialty division, at ECBM. Reach her at (610) 664-8299, ext. 1210, or jorourke@ecbm.com.

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Published in Philadelphia

Employers today are more likely to have an employment practices liability (EPL) insurance claim than a property or general liability claim.

EPL provides protection against claims made by employees, whether former, current or potential, regarding discrimination — age, sex, race, disability, etc., wrongful termination, sexual harassment and other employment-related allegations.

When looking to have your exposures covered, underwriters carefully evaluate your company’s written procedures and practices.

“You need to confirm that these procedures are distributed and enforced constantly throughout the organization,” says Daniel R. Slezak, vice president at ECBM. “There should be a way to promote awareness and a ‘hotline’ for employees to communicate concerns without fear of intimidation or retaliation.”

Underwriters also will look at factors such as turnover rates to judge employee moral and/or possible management problems.

Smart Business spoke with Slezak about what is — and is not — covered by EPL insurance.

Retaliation claims have greatly increased, according to the Equal Employment Opportunity Commission (EEOC). What do employers need to know about their risks?

Title VII of the Civil Rights act of 1964 states an employer may not fire, demote, harass or otherwise ‘retaliate’ against an individual for filing a charge of discrimination, participating in a discrimination proceeding or otherwise opposing discrimination. The same laws that prohibit discrimination based on race, color, sex, religion, national origin, age and disability, as well as wage differences between men and women performing substantially equal work, also prohibit retaliation against individuals who oppose unlawful discrimination or participate in an employment discrimination proceeding.

Retaliation occurs when an employer, employment agency or labor organization takes an adverse action against a covered individual because he or she engaged in a protected activity. For example, it’s illegal to refuse to promote an employee because he or she filed a charge of discrimination with the EEOC, even if the EEOC later determines no discrimination occurred. The law forbids retaliation when it comes to any aspect of employment, including hiring, firing, pay, job assignments, promotions, layoff, training, fringe benefits, etc.

Employers can reduce claim risk by training managers and supervisors to be aware of anti-retaliation obligations under Title VII, including specific actions that may constitute retaliation. They also can reduce risk by carefully and timely recording the legitimate business reasons for disciplinary or performance-related actions, while sharing these reasons with the employee.

What is covered with Family and Medical Leave Act (FMLA) claims?

The FMLA was virtually unknown, but now most employees know it’s a tool they can use to adapt to life changes. Plus, with recent Americans with Disabilities Act amendments, the number of persons defined as having a disability has increased. While disability discrimination is covered, typically there isn’t coverage for the cost of accommodation and employer fines.

How are social media, harassment and gender/sexual orientation covered?

Social media has little regulation at this time, but employers need to have policies in place that address those practices. An event involving a social media claim is covered to the extent there was discrimination.

Harassment claims increased by 33 percent from 2006 to 2008, according to the EEOC. This seems to always be in the news, whether in schools or the NFL’s Miami Dolphins locker room. These events may trigger coverage, but you should make an effort to ensure everyone is getting along.

Policies can be extended to cover third-party discrimination claims made by customers and tenants. The policy also covers discrimination and sexual harassment claims made by customers for the acts of employees.
Read your policy and pay attention to carve outs and exclusions/endorsements that give coverage or take it away. Expert insurance professionals are available to help with any issues or questions.

Daniel R. Slezak is a vice president at ECBM. Reach him at (610) 668-7100, ext. 1323, or dslezak@ecbm.com.

Insights Risk Management is brought to you by ECBM

Published in Philadelphia

The employee benefit procurement process, sometimes called marketing, has changed little over the past 25 years. This continues to frustrate many organizations looking for transparency, and potential cost savings, when procuring life, disability stop loss, dental, vision or pharmacy benefit management coverage.

Formal Requests for Proposals (RFP) may travel by email, but the underlying process is the same; insurance carriers simply send an image of the paper proposal that they would have dropped off years prior. The interpretation, presentation and, most importantly, negotiations haven’t changed, says Matthew R. Huttlin, vice president in the Employee Benefits Division at ECBM.

Almost a decade ago, a major insurance scandal in New York uncovered bid-rigging and anti-competitive activity within the opaque procurement process.

“The industry agreed to reform and become more transparent, which they did to some extent, but procurement activity remains a bit of a ‘black box’ process that continues today,” Huttlin says.

Smart Business spoke with Huttlin about the future of employee benefits procurement — a reverse auction.

What problems still exist today?

The process is clearly still antiquated and fraught with opportunities for mistakes. Business owners often negotiate without solid documentation. Broker/consultants, as well as their clients, continue to see proposal mistakes, missed deadlines, inaccurate proposals and presentation revisions.

Also, insurance carriers market to their strengths, as opposed to conforming to client requirements, which may lead to misinformation, more work, mistakes and increased costs.

How can business owners better obtain employee benefit coverage lines?

An online version of a reverse auction, or Dutch auction, cuts to the heart of the problem by introducing technology to the process while maintaining the business owner’s control of the outcome. This type of auction works opposite of a normal auction — instead of bidding up the price of an item, the auction bids the price down.

What are the benefits of this method?

This process is:

  • Prescriptive — RFPs are standardized, specifying the client requirements. Carriers respond using pre-determined plan specifications.
  • Efficient — Carriers get complete, consistent data on which to act with agreed upon timelines.
  • Transparent — Clients receive documentation on every step from the initial offers to the final pricing.
  • Effective — The online system delivers the RFP to more markets, garnering more accurate quotes that are immediately posted for analysis.

How exactly does this reverse auction work?

There are four phases to the procurement. In the RFP development/submission phase, the RFP is placed on a secure website under a standardized format and peer reviewed to ensure accuracy. Once released, carriers are notified to go to the website to obtain all of the relevant information to prepare their proposal.

During the technical evaluation/initial-pricing phase, carriers post proposals into the system for evaluation. The broker/consultant reviews the vendor confirmations and deviations to the requested scope of services, confirming plan design features, alternatives and administrative capabilities. The carrier also posts its initial pricing.

Then, all carriers receive feedback as to their ranking by their initial pricing in the financial evaluation/secondary-pricing phase. Actual rates aren’t shared. Over the course of a set period, usually two days, carriers can revise their pricing offers. Every time a new offer is submitted, all carriers are notified of the new ranking order.

Once the financial evaluation is complete, clients review the detailed results in the evaluation/selection phase. This review can include finalist presentations, site visits, etc. The client maintains full control over the selection process. Business owners aren’t required to select the lowest bid, but rather the carrier that best fits their requirements.

This high-tech approach is an efficient and effective way to handle procurement that provides accurate, transparent and documented results while driving prices down in a timely fashion.

Matthew R. Huttlin is a vice president of the Employee Benefits Division at ECBM. Reach him at 610-668-7100, ext. 1312, or mhuttlin@ecbm.com.

For more information about risk management, visit ECBM's blog.

Insights Risk Management is brought to you by ECBM

Published in Philadelphia

For-hire trucking companies have unique risk exposures, so the right insurance is crucial in today’s environment.

In the trucking industry, it’s important to fully understand the nomenclature, nuances between each industry sector and the differing coverages provided by each policy and each insurance company.

“It isn’t an all-encompassing package that is given to every company. Insurance companies are going to want to limit their exposure, so they won’t offer if it’s not requested,” says Scott Nuelle, vice president at ECBM. “If the company is not insured for what management believes it should be, you might not find out until the time of a loss.”

Smart Business spoke with Nuelle about how transportation firms can determine how much excess insurance to buy.

Why is it necessary to buy excess insurance?

The key reason is to protect your assets. Anytime you’ve got trucks on the road, you don’t have as much control of the environment as you’d like. Regardless of your driver safety programs, driver training methods or vehicle technology, an accident could still occur. And the more trucks and miles traveled, the greater the exposure.

The primary layer of a liability policy is usually only $1 million, so excess insurance may be necessary in many cases. Then, if one of your drivers has an accident and is sued, you’ve protected the business.

How does a transportation company know how much excess insurance to buy?

Cost is a big factor in how much excess insurance to carry. Right now, prices are increasing, making it difficult for smaller companies to carry higher limits of liability. But many companies don’t have a choice because shippers may require the higher coverage limits in contracts.

You want to buy enough insurance to reflect the company assets you are trying to protect. Although many businesses have structured the organization to protect assets, you should at least consider what would happen if plans failed.

Then, measure your level of risk aversion. Some people want to completely cover the company and all assets, referring to it as ‘sleep insurance.’ Others perceive the exposure of not buying excess insurance as minimal, gambling on the outcome.

How do recent court cases necessitate the need for more insurance?

Although legal rulings vary by state, when people are hurt, courts generally seek to compensate them. Increasingly when a truck is involved in an accident, trucking companies are paying, whether the driver was at fault or not. For example, if a third party under its own authority is hauling a trailer with your name on it, your company might still have to pay. The exposure could go well beyond what you believe.

What else has changed with the pricing and underwriting?

The general market hardening is having an impact on insurance prices, and there are fewer carriers offering excess coverage. Therefore, even those with good experience are seeing increases because of the decreased number of players in that market.

From an underwriting standpoint, more underwriters are utilizing the compliance, safety, accountability (CSA) scores from the new grading schedule for trucking companies. It measures things like driver out of service, driver safety and vehicle maintenance. As a result, companies must be very active at monitoring and trying to control their scores, which will very likely impact the premium you pay on the excess and primary liability coverage.

If a company has a private fleet of trucks that delivers its own goods, do these exposures still apply?

These companies face similar issues, especially on the liability side. It is more common for the parent company with a private fleet to buy umbrella coverage. However, the umbrella carrier may hesitate to take on the trucking portion, because of the exposure level. Then you would need to get an excess buffer layer to cover the trucking exposure.

The decision of how much insurance to carry is fluid, but you should have a discussion annually with your broker. Don’t be lulled into a false sense of security because a large loss hasn’t happened. Evaluate your exposure, the legal climate and the state of the market to make an informed decision.

Scott Nuelle is a vice president at ECBM. Reach him at (610) 668-7100, ext. 1387, or snuelle@ecbm.com.

Get more information about risk management, on ECBM's blog.

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If a manufacturer, distributor or merchant incurs a loss from your product, you need product liability insurance to protect your business. Product liability is generally considered a “strict liability offense” — if your product has a defect, you’re liable.

“Like most things, the devil is in the details. From an insurance perspective, it’s important to look at all of the terms and conditions of your general liability policy,” says Shane Moran, vice president at ECBM.

 

Smart Business spoke with Moran about the facts of product liability insurance.

What are some product liability claims?

Product claims typically fall into three categories, claims arising from:

 

 

  • The manufacturing or production process — opening a can of soup and finding a piece of metal in it.

 

 

 

 

  • A design failure or hazard — a chair designed with one of its legs significantly shorter than the others.

 

 

 

 

  • A product that is not adequately labeled as to the potential hazard of the product — the label on a cigarette pack or a warning label on prescription medicine.

 

 

Who should have product liability coverage?

Manufacturers are not the only companies with product liability exposure — every company from the manufacturer of the components down to the retailer can be brought into a suit, and potentially has an exposure. A retailer may have an exposure if it assembled or installed the product and didn’t follow the manufacturer’s instructions properly. The retailer also would have a duty to the buyer to test the product for safety.

What possible damages could be awarded?

Your company can be legally obligated for damages to a third party that your product causes. These damages range from bodily injury to property and economic damage, with punitive damages potentially awarded.

You also can sustain loses in terms of recall cost, further product testing, advertising cost to prevent damage to your reputation, and business income and extra expense loss.

Why do some policies cover economic damages, but not punitive or statutory damages?  

When policies cover economic damages, they mean compensation for a verifiable monetary loss, which can include loss of future earnings, loss of business opportunities, loss of use of the property, cost of repair or replacement, loss of employment and even medical expenses.

Punitive damages are awarded for the purpose of punishment, or to deter a reckless decision or action. Typically, they are used when compensatory damages are deemed inadequate. Punitive damage is a tricky area for insurance, as most jurisdictions have ruled that it is uninsurable. You need to examine your commercial general liability policy’s terms and conditions to see whether you have coverage. In most cases, you will find a punitive damages exclusion included.

Why is it a bad idea to underreport sales volume to lower your premium costs?

Most general liability policies are auditable. While an owner may want to use a lower exposure base to keep upfront premiums low, at the end of the day that same owner runs the risk of a large additional premium payment with the audited exposure.

Right after the policy expires, the audit occurs, which coincides with when the deposit premiums are paid. Deposit premiums are usually 25 percent of the total premium, so without using the proper exposure base at the beginning, a company could be looking at a very large outlay of cash in a short time period. This cash flow crunch could cause the cancellation of a company’s insurance for nonpayment.

Most carriers also lower their rates as the exposure base increases. So, by understating your exposure, you could be causing your company to have a higher rate and premium.

What other mistakes do companies make in this arena?

Many business owners think their insurance covers everything. But, for example, you may or may not have a product recall exclusion. The cost associated with recalling a product can be enormous, and you don’t want to find out that you have no coverage when faced with a claim.

If you’re unsure of your coverage, contact your insurance broker and/or risk manager to review the language.

Shane Moran is a vice president at ECBM. Reach him at (610) 668-7100, ext. 1237, or smoran@ecbm.com.

For more information about risk management, see ECBM's blog.

 

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The Compliance Safety Accountability (CSA) initiative, rolled out in 2011, is the most recent way the federal government regulates the heavy truck and bus industries to ensure safe operation of commercial vehicles on our highways.

Companies directly affected are trucking companies, hazardous material haulers, some private carriers, heavy truck fleets and bus companies. But shippers, freight brokers and any companies that hire motor carriers to handle business transportation needs should review and monitor the safety scores of the companies they use.

“Courts have found liability in hiring a motor carrier with known safety issues and violations. This has placed an even greater need for motor carriers and other transportation companies to ensure they have good CSA scores,” says Kevin Forbes, sales executive at ECBM.

Smart Business spoke with Forbes about the CSA program and its impact on insurance.

How does the Federal Motor Carrier Safety Administration’s CSA work?

The goal is to reduce the number of crashes and crash-related deaths involving large trucks; statistics show the federal government’s involvement in safety compliance has helped. With local partners like state police and Department of Transportation (DOT) officials performing inspections and collecting data, the government uses the CSA system to rate motor carriers and bus companies against their peers and create standards of safety compliance. Motor carriers that don’t follow safety regulations can be put out of business.

How has the safety measurement system (SMS) changed?

The SMS is the database that stores and sorts the safety information collected by the various enforcement agencies. The old model was limited in its scope and effectiveness. The new system breaks the safety areas into seven categories called BASIC, or Behavioral Analysis and Safety Improvement Categories, which are:

 

 

  • Unsafe driving.

 

 

 

 

  • Hours of service, the amount of time drivers are allowed to drive.

 

 

 

 

  • Driver fitness.

 

 

 

 

  • Controlled substance/alcohol.

 

 

 

 

  • Vehicle maintenance.

 

 

 

 

  • Hazard substance compliance.

 

 

 

 

  • Crash indicator.

 

 

Information collected during roadside inspections and DOT compliance audits is used to promote safety by rating carriers in these areas. By monitoring these, the system seeks to identify problem motor carriers that need compliance review, as well as notify motor carriers of issues they might be having so they can focus on those areas.

How has CSA affected insurance?

The initiative stores information on all of the different roadside inspections for each company, which is available online to anyone at ai.fmcsa.dot.gov/sms. With this information and more at the underwriter’s fingertips, motor carriers and bus companies have had to focus on keeping BASIC category scores down to ensure competitive insurance pricing.

This trend will likely continue as the CSA program provides regulators and insurance carriers with long-term data trends. Insurance companies are using the data to develop predictive modeling programs that identify loss-indicating trends of transportation companies. In renewal negotiations there is sometimes a greater focus on CSA scores than that company’s specific loss history.

How can businesses decrease their risk?

For transportation companies, a proactive approach to understanding the regulations should provide for lower insurance costs, quality shipper/customer relationships and more money to the bottom line.

The CSA regulation places a greater onus on the drivers, so proper communication and education of the driver workforce is necessary. Strong hiring practices are crucial. Investing in newer equipment and technologies also can help reduce scores. Vehicles can be equipped with safety features such as lane departure warnings, rollover warning devices, computer/video monitoring devices for driver behavior and more.

Companies must monitor their scores and see what areas they need to focus on. Your broker can help you in this constantly changing process.

Kevin Forbes is a sales executive at ECBM. Reach him at (610) 668-7100, ext. 1322 or kforbes@ecbm.com.

For more information about risk management, see ECBM's blog.

Insights Risk Management is brought to you by ECBM

Published in Philadelphia

You are insured and sustained a fire loss. The township has now told you to demolish the damaged and undamaged portions of your building, and when you re-build make sure the building is fully sprinklered. How will you pay for these additional costs?

“The additional costs to comply with an ordinance due to the loss can be substantial, such as the loss of value of an undamaged portion of the building, demolition costs and the additional costs to reconstruct a building to comply with the ordinance,” says Phil Coyne, vice president at ECBM.

Smart Business spoke with Coyne about how building ordinance or law coverage would fill this gap in your standard property insurance policy.

What is ordinance or law coverage?

Standard property ‘cause of loss’ forms have a coverage exclusion for loss or damages that occur as a direct result of enforcement of any law or ordinance regarding construction, use or repair of the property, which includes demolition. Three coverages are available to address this exclusion under the ordinance or law coverage of your property loss form:

  • Coverage A — Loss to the undamaged portion of the building. The limit should be included in the building limit.

  • Coverage B — Demolition coverage, the cost to demolish and clear the building. The amount of coverage should be determined.

  • Coverage C — Increased cost of construction, which covers the additional costs to comply with the ordinance or law. Limits should be determined.

In some cases, Coverage B and C are combined under one limit.

Why is ordinance coverage necessary?

Each state, county, township and municipality chooses to adopt and amend national codes, such as the National Fire Protection Association’s Fire Code, according to their needs and concerns. It can be an ever-changing landscape, and many times older buildings are grandfathered or exempt from these codes until a loss occurs.

The coverage should be on every insured’s wish list. It’s probably most critical for buildings that are older, or have older portions, and may have grandfathered codes or regulations for square footage and density. Many lenders have a requirement for this coverage in mortgage agreements.

What triggers the coverage?

There has to be a covered cause of loss that results in the application of a building ordinance. For instance, in 1990 a city ordinance said every new building in excess of three stories had to be sprinklered. Your building is four stories and built in 1985, so the ordinance doesn’t apply. However, the ordinance also might say if 50 percent of an older building is damaged, the entire building has to be demolished and rebuilt. If, after a large fire, you must demolish the building and put in a sprinkler system, this triggers your ordinance or law coverage.

Where might this coverage not apply?

The ordinance or law coverage will not apply if an insured was required to comply with an ordinance and chose not to. Let’s say, a township requires buildings with four or more apartment units to have hardwired smoke detectors and you decided not to install them. If you chose not to install them and then the building sustains a covered loss, the coverage won’t apply.

The three ordinance coverages all have to do with direct loss to the building or property. There’s no provision for the loss of business income. Standard business income policies exclude coverage for the increased period of restoration due to the enforcement of laws or ordinances. Therefore, you would need to endorse your policy to pick up coverage for this increased time.

Also, anything excluded from the policy would not be covered, such as flood loss. Every building ordinance and business income policy excludes any costs regarding pollution or mold and fungi.

What should you consider when buying this coverage?

Look at the current value on your building(s) and what coverage you get under your policy form because each insurance company adapts it differently. Have a thorough discussion with your broker regarding what coverage you think you need and what you can actually get. The insurance company may limit the amount of coverage, based on your premium and portfolio size.

Phil Coyne is a vice president at ECBM. Reach him at (610) 668-7100 or pcoyne@ecbm.com.

 

For more information about risk management, visit ECBM's blog.

 

Insights Risk Management is brought to you by ECBM

 

Published in National
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