Omni Risk Mgmt E‑Newsletter
December, 2006 Happy & Healthy Holidays to All! Volume 5, Number 1
In This Issue · Commercial Lines · Personal Lines · Surety Bonds · Life & Health · Construction News Insurance Industry Links www.ambest.com Lines Of Business Bonds Property Work Comp Commercial Auto General Liability Umbrella Inland Marine Ocean Marine Personal Auto Homeowners Flood Insurance Group Personal Lines Pension Plans Payroll Deduct Plans Health Insurance Disability Insurance Boiler & Machinery Professional Liability Executives Rob Mastrantonio, Pres. Rob@omni-risk.com Frank Strcich, VP Frank@omni-risk.com Glenn Glubiak, VP Surety Glenn@omni-risk.com Commercial Lines Tara Pattona Tara@omni-risk.com Christine Schuller Chris@omni-risk.com Adam Stone Adam@omni-risk.com Gina Di Paoloa Gina@omni-risk.com Tom Weigand Tom@omni-risk.com Teressa Richardson Teressa@omni-risk.com Personal Lines Patricia Micari Pat@omni-risk.com Joe Schepis Joe@omni-risk.com Mechelle Diaz Mechelled@omni-risk.com Surety Jennifer Spadaro Jen@omni-risk.com Penny Rocco penny@omni-risk.com Life & Health Joe Schepis Joe@omni-risk.com Claims Debbie Oggeri Debbie@omni-risk.com Accounting Maria Salvo Maria@omni-risk.com Administration Natalie Perry Natalie@omni-risk.com Candace Strasser Candace@omni-risk.com	Please visit us at our new website www.omni-risk.com Commercial Lines Incestuous lawsuits Liability insurance policies typically cover more than one person or entity; there are named insureds, automatically defined insureds and additional insureds. Should a policy indemnify one insured who sues another insured covered by the same policy? Does this sound a little "incestuous"? It certainly is reasonable to be concerned about collusion between insureds, particularly when the insureds are family members. If one family member is successful in getting a judgment against another family member, the benefit will likely accrue to both insureds at the expense of the insurer. For this reason it is taboo to cover cross-liability suits between family members in most personal lines policies. Intercompany suits A similarly "incestuous" situation arises when two related companies are insured under the same policy and a products liability suit is brought by one company against another. You may be surprised to learn that these intercompany suits are covered by the unendorsed Insurance Services Office Inc. (ISO) commercial general liability (CGL) policy. If it is desired that coverage not be provided, then the Exclusion—Intercompany Products Suits (CG 21 41) endorsement may be added. This may be in the best interest of the "family" of entities insured on the policy, since using this endorsement will lower the premium by eliminating the intercompany receipts from the rating basis. Separation of insureds Coverage for cross-liability suits among commercial insureds can be impacted by several provisions located in different parts of the policy. In the context of the ISO CGL policy, we begin our analysis by identifying the provision that tells us such coverage is not prohibited and, in fact, affirmed. In item 7, Separation Of Insureds of Section IV—Commercial General Liability Conditions, we find the policy is applied so every insured enjoys the same coverage it would have had if a separate policy had been issued for that insured (except with respect to the limits). In the absence of other policy provisions, this condition opens the coverage door to all cross-liability suits between insureds. Who is an insured Although employees are defined insureds covered for acts within the scope of their employment according to Section II—Who Is An Insured, their status as insureds is qualified when it involves bodily injury or personal injury to the named insured, principals (executive officers, partners or members) of the named insured and co-employees. Often referred to as the fellow-employee exclusion, this restriction precludes coverage when one employee sues another employee, or when a corporation or its executive officer sues an employee. It further eliminates insured status for an employee when it involves loss to property owned, occupied, used or in the care of the named insured, principals of the name insured and any employee. Consequently, the cross-liability door created by the "separation of insureds" condition does not swing open for suits against an employee that are brought by other employees, principals or the named insured. There is, however, an exception. The restrictions in the preceding paragraph do not apply to an insured executive officer or an insured manager of a limited liability company when it involves bodily injury and personal injury suits brought by the named insured, other officers or managers, members or employees. These principals enjoy a higher degree of protection than regular employees. Other insureds are defined in Section II—Who Is An Insured without cross-liability restrictions, which include a real estate manager, a legal representative of a deceased named insured and a newly acquired or newly formed organization (other than a joint venture or partnership). Permissive operators of mobile equipment also are defined as insureds, but they are subject to cross-liability restrictions for suits by co-employees and damage to property owned by, or in the care of, the named insured or the equipment operator's employer. Employers' liability exclusion Since the named insured on a CGL policy also is the employer, that obviously makes the employer an insured. Nevertheless, the employers' liability exclusion (e) of Coverage A—Bodily Injury and Property Damage Liability removes coverage for bodily injury suits by employees against their employer. So, not only are employees restricted as insureds when sued by their employer, the door for cross-liability suits is blocked in the other direction when employers are sued by employees. We have another policy to handle this type of suit—the workers' compensation and employers' liability policy. Additional insureds There are many CGL endorsements available for naming additional insureds. When added, these insureds are impacted by the "separation of insureds" condition in the same manner as the automatically defined insureds. If there is no qualifying restriction in the wording of the additional insured endorsement, the cross-liability door remains open to these insureds. Let's consider the different treatment of cross-liability suits to be expected from the wording of two common additional insured endorsements. Additional Insured—Club Members (CG 20 02). This endorsement merely names club members as insureds with respect to club activities, with no qualifying languages regarding cross-liability suits. Therefore, coverage remains for these suits. Additional Insured—Volunteer Workers (CG 20 21). This endorsement adds as insureds volunteers who are under the direction of the named insured, but qualifies their insured status in the same manner as employees are qualified in Section II—Who Is An Insured. The following denial of a claim, which was brought to my attention, underscores the cross-liability exclusion found in this endorsement. A service organization was holding a series of dinners at the homes of various board members. The purpose of the dinners was to permit fellow volunteer board members to get acquainted with one another. A member attending one of these dinners opened the wrong door while attempting to use the host's bathroom, and fell down the basement stairs. When personally sued by the injured guest, the host expected to be protected by the service organization's CGL policy. The insurer denied coverage under the cross-liability exclusion in the CG 20 21 endorsement. While not covered by the CGL, it should be noted that the host's homeowners policy covered this accident, since it did not pertain to a business activity. On the other hand, had the host and injured person been club members, the CGL policy of the club would have responded. The lesson to be learned from this story is to take careful notice of the cross-liability restrictions in the additional insured endorsement. This article was reprinted with permission from Professional Insurance Agents of New York, New Jersey, Connecticut and New Hampshire. Any reproduction of this material is strictly prohibited without the permission of PIA. They may be contacted at (800) 424-4244 or by e-mail at pia@pia.org. Personal Lines Maintain Your Smoke Alarms One of the most important safety techniques you can employ is the purchase and proper installation of an adequate number of smoke alarms in your home. The National Fire Protection Association (NFPA) offers the following facts regarding smoke alarms and fires. * One-half of home fire deaths occur in the 6 percent of homes without smoke alarms. * Homes with smoke alarms typically have a death rate that is 40 to 50 percent less than the rate in homes without alarms. * In three of every ten reported fires in homes equipped with smoke alarms, the devices were not operational. The NFPA offers safety tips regarding smoke alarms for you to consider. * New batteries should be installed in all smoke alarms annually or when the alarm chirps to warn that the battery is weak. * Smoke alarms should be tested monthly. * Smoke alarms should be placed outside each sleeping area and on each floor of the home, including the basement. * Smoke alarms should be interconnected, so if one goes off, they all go off. Surety Bonds Fidelity A fidelity bond is a bond which indemnifies the insured for loss caused by the dishonest and fraudulent acts of its covered employees. In addition, a fidelity bond typically covers the insured against the following: Forgery or Alteration; Loss inside the premises caused by theft, disappearance and destruction, and robbery and safe burglary; Loss outside the premises caused by the robbery of a messenger. These coverages sometimes are referred to as Crime Coverage. Annually writers of Fidelity and Crime Coverage incur over $300 million in losses by protecting organizations from risks that are present each day they are open for business: employee dishonesty, robbery and burglary. Fidelity bonds are divided into two primary categories: financial institutions (for example, banks, stock brokers, insurance companies and finance companies) and mercantile and governmental entities (non-financial institutions). The coverage needs of these categories differ and carriers have developed standard forms that meet the particular coverage needs of each group. Life & Health Tax breaks for the young and rich November is the month when most of us re-enroll in various employee-benefits plans. This year's debate: Whether newfangled health insurance is good for patients. An increasing number of people now have the option of signing up for a plan with a high deductible (which often cuts premiums) and pairing it with a special savings account (to cover that deductible). You get big tax breaks as long as you spend the savings on health care. Supporters believe these plans will get patients to focus on costs. Critics think they are a lousy deal for those with lower incomes, who will face four-figure deductibles, and the sick or families, who will burn through any savings each year. This is a crucial debate. But what often gets lost in the rhetoric is this: If you're young, healthy or wealthy, health savings accounts, or HSAs, can help to defuse a looming time bomb -- the six-figure, out-of-pocket health-care tab that experts believe most of us will face during retirement. Because the young and healthy generally don't spend much on health care today, current savings can pile up for later. The wealthy, meanwhile, can max out their savings and hope they don't need it all before they retire. To open an HSA, your insurance will need a minimum deductible of $1,100 for individuals in 2007 and $2,200 for families. The government generally won't let individuals deposit more than the lesser amount of $2,850 or the insurance plan's deductible; families are limited to $5,650 or the deductible. Those who make deposits on their own can subtract them from gross income on their tax returns, whether they itemize deductions or not. People who make deposits through employer payroll deduction put in pretax money. You can invest deposits, and you avoid taxes on withdrawals, too, if you use them for qualified health expenses. Plus, anyone of any income can participate. All of this can make HSAs more lucrative than many retirement plans. Given the expected size of the coming retirement health-care tab (and the fact that fewer employers are covering retired workers), it would be foolish not to give these new plans a hard look if you have access to one. Examine premium savings, deductible levels, coverage limits and whether your employer puts money in the HSA. Many employers offer a Health Reimbursement Arrangement, an HSA cousin. But only employers can deposit money, and they generally keep it if you change jobs. If the numbers make sense, then consider in what order you'll save. One option for the healthy but not wealthy: Max out any 401(k) employer match, fund an HSA, then save more for retirement if you can. If you're flush, max out the HSA and any retirement accounts, too. One risk: You get sicker and need all of the savings before you retire. Then again, it may be possible to switch to a plan with better coverage later. The other potential hazard here is a moral one. If all of the healthy people switch to high-deductible plans, premiums could rise for sicker folks left in traditional plans. Or, big employers could someday point to the newfound popularity of the high-deductible plans and stop making the old ones available. You may not want that on your conscience. Or, you may decide the best insulation against all possible outcomes is money in the bank. Construction News Beware of Reverse Risk Transfer— Some contractors and vendors are using a novel contractual approach to reduce the amount of protection they are providing to their customers. They provide a contract that holds a client company harmless and indemnifies it in the event of a loss. But buried in the contract is a statement that they are liable for only a stated amount of damages at which point the client company agrees to hold them harmless and indemnify them. Such provisions are sometimes called "reverse risk transfer." They can then provide a certificate of insurance showing high policy limits and broad coverages, including an indication that additional insured status applies, but rely on the contract to limit their indemnification obligation and a limitation in the additional insured endorsement to limit the additional insured’s coverage to less than policy limits. When coupled with the reverse risk transfer provision, the effect is that the vendor or contractor protects the client company for the relatively low losses but and the client company protects the contractor or vendor for larger losses. While there is nothing wrong with this approach when all the parties understand and agree to the arrangement, it does not follow standard practice for most industries. These provisions are easily overlooked by managers and are often accepted unknowingly in contracts provided by contractors or vendors. We have found that the best solution is to have an attorney develop custom contracts for use with vendors and contractors that include hold harmless wording, indemnification statements, and insurance requirements. If contracts are not used with smaller vendors or contractors, the attorney may be able to establish a work order system incorporating such provisions that also meet the requirements of a contract. Along with reviewing the hold harmless contract provisions, ensure that an attorney includes insurance requirements in contracts—both coverages and insurance limits. Generally, the contract should also require the contractor or vendor to name your company as additional insured on its general liability insurance policies and obligate it to provide certificates of insurance confirming that this policy change is in place. Then make sure the certificates are received and reviewed against a checklist of requirements. Any that are not in compliance should be kicked back for re-issuance. To add someone to this email list, send newsletter@omni-risk.com and put in subject Line “Add to Newsletter” To be removed from this email, send newsletter@omni-risk.com and put in subject Line “Remove from Newsletter”