Controlled
Insurance Programs (CIP) – Do you REALLY have coverage?
Over the last 10 years the advent of an Owner Controlled
Insurance Program (OCIP) has gained popularity for many
reasons. Theoretically, buying one Program for the benefit
of all parties to the Project provides cost efficiency and
ease of claims administration. There is reduced “finger
pointing” amongst [contractor] insurers and “control” of the
site generally improves.
OCIP’s also have a
downside, the Contractors “enrolled” often give up their
coverage in deference to the CIP. Having a broad “wrap up
exclusion” on the contractor’s policy is not uncommon
(Endorsement
CG 21 54 01 96). There is often little
or very superficial review of the CIP and a genuine trust
that the CIP will continue through the State Period of
Repose (statutes_of_repose.09.09.09.pdf).
This brings up
some very disturbing issues that need to be surfaced by the
Contractor:
|
1. |
Am I
giving up my coverage (by virtue of an exclusion to
my policy) if I enroll in the OCIP or CCIP? |
|
2. |
Is the
coverage being afforded in the CIP at least as broad
as what the Contractor has? Who is doing the “due
diligence” on the CIP coverage? |
|
3. |
What
assurances do I have that the coverage will, in
fact, stay in effect through the Period of Repose?
Is the full “period” afforded or a shorter period of
time, say 3-5 years? Are the limits sufficient for
all contractors on the Project? |
|
4. |
How is
call back coverage afforded? Will your exclusion
prohibit coverage for call backs (warranty work)
after substantial completion? Does the CIP cover
that? You’ll be surprised how many times there is a
gap where NO coverage is afforded. |
| 5. |
Can the CIP be
“prematurely” terminated by the Sponsor? What
recourse do you have in such a situation? Would you
even know (most times notification is haphazard)? |
There is an
interesting article that recently appeared in Construction
Executive that deals with some of the issues noted above (Const
Exec OCIP's April 2010.pdf). We strongly suggest
that anyone that is considering a CIP proceed with caution
and review the terms of coverage carefully to make sure you
are covered. Please feel free to contact me to discuss ways
to have coverage afforded even when things take an
unexpected turn.
Albert Sica is the
Managing Principal of the ALS Group. For more information
call 201-341-6773
Horizontal Limits Exhaustion -
Risk Transfer Challenges
One of the most
vexing areas today is for an "upstream" party to structure
an effective means to transfer risk to "downstream" parties.
Courts have been applying a limits allocation theory that
complicates this process referred to "Horizontal
Exhaustion". Simply, "horizontal exhaustion" means that all
parties (including the "upstream" party) must exhaust all
primary limits of coverage before an excess (Umbrella) limit
comes into play. This is a challenging issue but with proper
agreement language and corresponding policy language the
intent of the parties will have a greater chance of being
realized. The following link is a good article on the
subject written by Saxe, Doernberger & Vita that better
describes the issue.
Click
here to read the full
article.
Longshoremen's and
Harbor Workers
Compensation Act Coverage Endorsement
Longshore and
Harbor Workers' Compensation Act (LHWCA)-Provides no-fault
workers compensation benefits to employees other than
masters or crew members of a vessel injured in maritime
employment-generally, in loading, unloading, repairing, or
building a vessel. Employers can obtain coverage by
purchasing a longshoremen's and harbor workers compensation
act coverage endorsement (WC 00 01 06A) to a standard
workers compensation policy.
Click
here to read the full
article.
Maritime Coverage Endorsement
General Maritime Law-The common law of
the sea holds that vessel owners owe "transportation, wages,
maintenance, and cure" to masters or members of a crew of a
vessel in the event of injury or illness during the voyage,
regardless of whether the injury or illness is work-related.
Also, seamen can sue the vessel owner for damages resulting
from the unseaworthiness of the ship. Employers can obtain
coverage by purchasing a maritime coverage endorsement (WC
00 02 01 A) to a standard workers compensation policy.
Click
here to read the full
article.
Internet Abusers Create Liability
for Companies
The attached article that recently
appeared in Business Insurance highlights the increased
liability for businesses that have poor supervision of
employee usage of the internet. The article discusses how
companies who fail to react to this issue face a possible
increase in risk and subsequently an increase in their Total
Cost of Risk.
Click
here to read the full
article.
Contingent Commissions
The whole issue of Insurance broker
contingent commission is back in the headlines. What is it
and should you care? The attached article written by
Rich Sarnie and published in "National
Underwriter" explains what it is and how to manage the issue
so you can better quantify your Total Cost of Risk.
Click
here to read the full
article.
ERM is More Than Just a Buzzword
for Buyers
ERM is in all the press, news and risk
management publications. Yet no one seems to know what it
is and how to implement it. A recent article written by
Rich Sarnie and published by "Property & Casualty: National
Underwriter" simplifies the process, in concise
understandable steps, that make it not only easy but
practical.
Click
here to read the full
article.
Contractors v. Employees – The
escalating challenges faced by Companies
The WSJ published an
article earlier this week
that details the challenges and potential financial
complications that arise from using contractors that could
be considered “employees”. Our views center on the insurance
risk & non-insurance risk implications of this scrutiny and
how a Company’s need to evaluate what their internal
exposure is along with insurance related mitigation
strategies. Interesting enough in August 1989 the NY times
published a similar article
(click here).
Talking steps
implementing an effective contractor insurance program will
lower the Company’s
Total Cost of Risk (TCoR)
and demonstrate to their insurers and stakeholders that
thoughtful risk management standards are being contemplated
and implemented. From helping design the
“contractor agreement” standards to effective
review and monitoring of the certificates of insurance, the
ALS Group can help guide toward an effective strategy.
Clarity is Missing Link in Supply
Chain
The supply chain poses
risk to businesses in many ways. This article explores
how the current economic climate has wreaked havoc on
companies’ ability to manage and forecast inventory
levels and how it has impacted companies. An additional
supply chain risk is where a major suppliers suffers a
loss (i.e. fire) causing a disruption in your business
since you rely on that supplier for a major component or
part. This risk can be transferred via insurance by
adding contingent business interruption contracts to
your property policy. We are available to discuss this
often overlooked coverage with your firm.
Click
here to read the
article by Phred Dvorak - "Wall Street Journal", May
18th 2009
Layoffs May Spark Defamation
Suits
As
unemployment and the economy is on everyone's mind,
optimistic changes seem to be headed our way. In the
meantime, businesses must stay alert to the risks their
exposed to with employee related liability issues.
Click
here to read the
article by Judy Greenwald - "Business Insurance", May
31st 2009
Managing the Risks of Long-Term
Contracts
In
most long-term contracts of any type, it is extremely hard
to predict what could/will occur over a span of many years.
In this article, Michael touches upon subcontractor or
supplier default and price escalation that will most likely
occur along the way as well as unforseen events.
Click
here to read the
article by Michael Culnen - "Construction Executive", June 2009
Drywall Disputes Trigger Lawsuit
This article goes into detail about the tainted drywall that
has been imported from China. More than a dozen states have
reported this problem and the builders may face lawsuits.
This article reminds us how important having a good risk
management approach is.
Click
here to read the
article by Jeff Casale - "Business Insurance", May 2009
D&O Checklist
As the market tightens have you diversified the number
of D&O insurers enough to reduce the risk of insolvency?
Click
here to read the article
by Russ Banham - Treasury & Risk, April 2009
Age Bias Claims Rise
Claims arising from employment are often the most
volatile and difficult to defend. There is often very
subjective criteria for an employee’s dismissal, in many
cases poor recordkeeping and lately, more sympathetic judges
and juries to decide awards. This adds up to a significant
financial risk for a Company.
The May 2009 issue of Treasury and Risk Management magazine
article on the subject captured many sobering facts and it
is clear that risk mitigation is critical.
Click
here to read the article.
