Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
1499 Cards in this Set
- Front
- Back
|
Liability loss
|
Any loss that a person or an organization sustains as a result of a claim or suit against that person or organization by someone seeking damages or some other remedy permitted by law.
|
|
|
Legal liability
|
The legally enforceable obligation of a person or an organization to pay a sum of money (called damages) to another person or organization.
|
|
|
Civil law
|
A classification of law that applies to legal matters not governed by criminal law and that protects rights and provides remedies for breaches of duties owed to others.
|
|
|
Criminal law
|
The branch of the law that imposes penalties for wrongs against society.
|
|
|
A liability insurance policy typically obligates the insurer to do this
|
To defend the insured against allegations that, if true, would be covered under the policy.
(Therefore, an organization can experience a liability loss even as a result of a suit in which it is not legally held liable. The policy also obligates the insurer to pay damages for which the insured is legally liable.) |
|
|
T or F: Insurance for criminal liability is prohibited by law
|
TRUE. Insurance for criminal liability IS prohibited by law.
|
|
|
Bases for Legal Liability
|
- Torts (negligence, intentional torts, strict liability torts)
- Contracts (hold-harmless or indemnity agreements, breach of contract) - Statutes (workers’ compensation, other statutes that define legal duties and standards of care) |
|
|
Tort
|
A wrongful act or an omission, other than a crime or a breach of contract, that invades a legally protected right.
Torts may be civil wrongs or private wrongs. |
|
|
Types of torts
|
- Negligence
- Intentional torts - Strict liability torts |
|
|
Types of contracts
|
- Hold-harmless or indemnity agreements
- Breach of contract |
|
|
Types of statutes
|
- Workers’ compensation
- Other statutes that define legal duties and standards of care |
|
|
Negligence
|
The failure to exercise the degree of care that a reasonable person in a similar situation would exercise to avoid harming others.
(A motorist driving at an unsafe and excessive speed who causes an accident as a result of it would be guilty of negligence.) |
|
|
Intentional tort
|
A tort committed by a person who foresees (or should be able to foresee) that his or her act will harm another person.
The act does not necessarily have to be performed with malicious or hostile intent. Libel is an example. |
|
|
Strict liability
|
(aka Absolute Liability)
Liability imposed by a court or by a statute in the absence of fault when harm results from activities or conditions that are extremely dangerous, unnatural, ultrahazardous, extraordinary, abnormal, or inappropriate. (Common examples: liability for wild animals, activities such as blasting, or malfunctioning smoke detectors. Strict liability is also used to describe liability imposed by certain statutes, such as workers’ compensation laws.) |
|
|
Four elements to negligence
|
1. A duty owed to another person
2. A breach of that duty 3. A close causal connection between the negligent act (breach of duty) and the resulting harm 4. The occurrence of actual loss or damage of a type recognized by law and measurable in monetary terms |
|
|
Contract
|
A legally enforceable agreement between two or more parties in which each party makes some promise to the other.
|
|
|
Breach of contract
|
The failure, without legal excuse, to fulfill a contractual promise.
|
|
|
Hold-harmless agreement (or indemnity agreement)
|
A contractual provision that obligates one of the parties to assume the legal liability of another party.
|
|
|
Warranty
|
A promise in a contract
|
|
|
T or F: The law implies a warranty that every product is fit for the particular purpose for which it is sold.
|
TRUE. The law DOES imply a warranty that every product is fit for the particular purpose for which it is sold.
|
|
|
Contractual liability
|
Liability assumed through a hold-harmless agreement.
(contractual liability is commonly covered under liability insurance policies) |
|
|
Statute
|
A written law passed by a legislative body, at either the federal or state level.
(An important example of liability imposed by statute is the workers compensation system.) |
|
|
Major categories of commercial liability loss exposures
|
- Premises and operations liability
- Products and completed operations liability - Automobile liability - Workers’ compensation and employers liability - Management liability - Professional liability - Environmental liability - Marine liability - Aircraft liability |
|
|
Premises and operations liability loss exposure
|
Liability resulting from bodily injury or property damage caused either by an accident that occurs on an organization’s owned, leased, or rented premises
-or- By an accident that arises out of the organization’s ongoing (as opposed to completed) operations but occurs away from the premises. |
|
|
T or F: Under common law, an owner/occupier owes the same level of care to a business guest/customer as they do to an adult trespasser.
|
FALSE. An owner/occupier owes a greater degree of care to a business guest or customer than to an adult trespasser.
However, many jurisdictions have abandoned these common-law rules in favor of a reasonable care standard that applies to anyone who might be on the premises. |
|
|
T or F: The premises and operations liability loss exposure excludes bodily injury or property damage arising out of the use of mobile equipment (such as bulldozers or cranes).
|
FALSE. The premises and operations liability loss exposure INCLUDES bodily injury or property damage arising out of the use of mobile equipment (such as bulldozers or cranes).
However, some types of autos are treated as distinct loss exposures (e.g., vessel, aircraft) |
|
|
Products liability
|
Arises out of the manufacture, distribution, ro sale of an unsafe, dangerous, or defective product and the failure of the manufacturing distributor, or retailer to meet its legal duties to the user or consumer of the product.
|
|
|
In actions for products liability, the plaintiff must prove that the defendant…
|
…failed to take reasonable care in the design, manufacture, distribution, or sale of the article that caused the injury.
|
|
|
For strict liability to apply in a products liability case, the plaintiff must prove these three elements:
|
- The product was defective when it left the manufacturer’s or supplier’s custody or control.
- The defective condition made the product unreasonably dangerous. - The defective product was the proximate cause of the plaintiff’s injury. |
|
|
Completed operations liability
|
The legal responsibility of a contractor, repairer, or other entity for bodily injury or property damage arising out of the entity’s completed work.
|
|
|
Automobile liability
|
Legal responsibility for bodily injury or property damage arising out of the ownership, maintenance, or use of automobiles.
Auto liability loss can also arise from negligent maintenance of a commercial auto. (For example, negligent servicing of brakes, tires, or steering apparatus may be the proximate cause of a truck’s running into another vehicle.) |
|
|
T or F: When an employee substantially deviates from the scope of employment and causes an accident in an employee-owned auto, the employer is usually not liable.
|
TRUE. When an employee substantially deviates from the scope of employment and causes an accident in an employee-owned auto, the employer is usually NOT liable.
|
|
|
Goal of auto no-fault laws
|
To provide stated benefits for all persons injured in auto accidents without a need to prove fault.
|
|
|
Personal Injury Protection insurance
|
Provides specified first-party benefits for medical expenses, loss of income, or death resulting from auto accidents.
|
|
|
Verbal threshold
|
A threshold in which there is a defining of the seriousness of injuries (for example, a total or partial loss of a bodily member or bodily function, permanent disability or disfigurement, or death) beyond which the right to sue is allowed in a no-fault state.
(as opposed to a monetary damages threshold) |
|
|
T or F: An employer may also be held liable for occupational injuries or illnesses of its employees as a result of either tort suits or hold-harmless agreements to which the employer is a party.
|
TRUE. An employer MAY also be held liable for occupational injuries or illnesses of its employees as a result of either tort suits or hold-harmless agreements to which the employer is a party.
|
|
|
Workers compensation goal
|
To provide an “exclusive remedy” for occupational injury or illness to all employees subject to the law.
Exclusive remedy means that the only remedy available to an injured employee under workers compensation is to recover, on a no-fault basis, the benefits required by the applicable statute. |
|
|
Exceptions that allow a covered employee to make a tort claim against the employer:
|
- Claims for employee injury caused intentionally by the employer
- Claims by the employee’s spouse for loss of consortium as a result of employee injury caused by the employer’s negligence or other torts - Claims for injury resulting from the employer’s negligence or torts while acting in some capacity other than employer |
|
|
T or F: Workers compensation statutes prohibit covered employees from suing persons other than their employers for occupational injuries or diseases.
|
FALSE. Workers compensation statutes DO NOT prohibit covered employees from suing persons other than their employers for occupational injuries or diseases.
|
|
|
Risk control
|
A conscious act or decision not to act that reduces the frequency and/or severity of losses or makes losses more predictable.
|
|
|
Risk management
|
The process of making and implementing decisions that will minimize the adverse effects of accidental losses on an organization.
|
|
|
T or F: An employer who agrees to indemnify another party against certain types of claims may be agreeing (sometimes unknowingly) to indemnify the other party for claims made by the employer’s own employees against the other party.
|
TRUE. An employer who agrees to indemnify another party against certain types of claims may be agreeing (sometimes unknowingly) to indemnify the other party for claims made by the employer’s own employees against the other party.
This is how an employer (or the employer’s insurer) can end up paying for injury to the insured’s own employee despite the fact that workers compensation is considered to be the exclusive remedy for on-the-job injuries of employees. |
|
|
The continuum of a loss exposure
|
1. Hazard (person, property, or activity)
May yield 2. Accident (injury or damage) May yield 3. Litigation Risk control actions may be taken at any point along the continuum. |
|
|
Loss prevention
|
A risk control technique that reduces the frequency of a particular loss.
Loss prevention is the optimum risk control technique; it disrupts the events on the loss continuum that may lead to an accident. |
|
|
Loss reduction
|
A risk control technique that reduces the severity of a particular loss
|
|
|
These particular elements of a risk control program are vital to its success
|
- Management support
- Employees being given a sense of ownership of the program |
|
|
T or F: It is suggested that risk control be a dimension equal to other organizational areas such as marketing, finance, quality control, and human resources.
|
TRUE. It is suggested that risk control be a dimension equal to other organizational areas such as marketing, finance, quality control, and human resources.
|
|
|
Root cause
|
The event or circumstance that directly leads to an occurrence.
|
|
|
Considerations that need to be made in the development of any risk control technique:
|
- Cost-effectiveness
- Legal requirements - Requirements and recommendations of the organization’s insurers - Public perception (the organization’s image) - Degree of risk aversion of an organization’s senior management |
|
|
The optimum risk control technique is
|
Loss prevention
It disrupts the events on the loss continuum that may lead to an accident. |
|
|
Separation
|
Separating loss exposures to reduce frequency or severity or both. (This technique is theoretically possible but rarely practiced for liability exposures.)
|
|
|
Avoidance
|
A risk control technique that involves ceasing or never undertaking an activity so that the possibility of a future loss occurring from that activity is eliminated.
|
|
|
Noninsurance risk transfer
|
Transfers the exposure to a third party – typically, as part of a contractual transfer such as hold-harmless or indemnification agreements.
|
|
|
Claim management
|
The technique of mitigating the effects of losses after they occur.
Effective claim management measures at each stage along the post-accident loss continuum can result in significantly improved outcomes. |
|
|
Determining the root causes based on claim information helps to…
|
…direct future loss prevention and loss reduction techniques.
|
|
|
The context for commercial liability is formed by two tenets:
|
- Organizations, as well as individuals, must respect others’ rights.
- Government at all levels creates laws and regulations that impose responsibilities on some entities and confer rights on others. |
|
|
Common-law system
|
A legal system in which the body of law is derived more from court decisions as opposed to statutes or constitutions.
|
|
|
Tort law
|
The branch of civil law that deals with civil wrongs other than breaches of contract
|
|
|
Statutory law
|
The formal laws, or statutes, enacted by federal, state, or local legislative bodies.
|
|
|
Organizations can use commercial liability risk control to manage these loss exposures:
|
- Premises liability
- Off-premises operations - Products-completed operations - Motor vehicle liability - Workers compensation and employers liability - Technology and communication |
|
|
Risk control can provide safeguards to premises liability in these ways:
|
- Regular inspections
- Maintenance programs - Policies and procedures - Protection (fire protection, security systems, surveillance video) |
|
|
The goal of products liability risk control:
|
To prevent or reduce liability losses arising out of the organization’s products or services.
|
|
|
Risk control techniques for products liability:
|
- Research, testing, and development of the materials to be used
- Quality control of the raw materials - A manufacturing process with precise specifications and quality control - Strict adherence to procedures in manufacturing processes - Clear and explicit instructions for employees and users of the product - The design of proper packaging - Storage of the product in a controlled environment (as needed) - Documentation of product test results - Documentation of product lots to provide tracking in the event of a need to determine the origination of an alleged effective product and/or plan a recall of the product |
|
|
Potential areas of concern with products liability
|
- The unpredictable behavior of the product’s consumers
- The high liability standard that applies to products liability (strict liability) - Evolving statues and regulatory requirements - The catastrophic consequence of having a batch of products found defective (resulting in a class action lawsuit) |
|
|
Essential loss prevention practices for completed operations liability
|
- High-quality workmanship
- Reliable materials - Independent inspections of the work product |
|
|
Examples of commercial driver risk control techniques
|
- Comprehensive, written safe-driver policy communicated to all staff
- Driver section criteria using driving records and Federal Motor Carrier Safety Administration’s physical exam - Training of the staff at orientation, in campaigns, and annually in classroom and over-the-road venues - Substance abuse testing - Consistent disciplinary procedures for unsafe driving practices |
|
|
Distinguishing risk control elements of workers compensation
|
- The injured person involved (employee)
- The law that applies (statutory workers compensation) A result of these distinguishing elements of work comp is that the employee usually has a more personal relationship with the employer because they typically share the same working environment and a common goal. |
|
|
Another significant difference b/w workers compensation liability and commercial general liability
|
Work comp provides no-fault coverage to employees for most types of occupational injury and illness. (e.g., negligence on the part of the injured employee would not eliminate or reduce the employer’s liability)
|
|
|
T or F: The employee in most cases has the right to sue the employer in tort for damages such as pain and suffering in a work comp case.
|
FALSE. The employee in most cases has NO right to sue the employer in tort for damages such as pain and suffering in a work comp case.
|
|
|
Exceptions to the doctrine of exclusive remedy are often covered under…
|
…Part Two – Employers Liability Insurance (which has an applicable dollar limit, unlike Workers compensation)
|
|
|
Exceptions to the doctrine of exclusive remedy typically arise because of one of these two situations
|
- The employer’s liability for the injury rises to a level at which the governing statutes or common law permit employees to sue their employers for occupational injuries.
- The employer is operating in a dual capacity both as the employer of an injured employee and as the manufacturer of the product that injures the employee. |
|
|
Examples of risk control techniques for organizations that conduct business over the Internet:
|
- Firewalls and antivirus software
- Policies and procedures for employees who use portable devices with access to confidential information - Measured response after sabotage/infiltration that jeopardizes the confidentiality of client information - Critical reviews for trademark/text/idea right infringement |
|
|
Personal and advertising injury
|
Injury, including but not limited to bodily injury, resulting from false arrest or detention, wrongful eviction or entry, slander, libel, oral or written publication in any manner of material that violates a person’s right of privacy, and copyright or trademark infringement. Injury other than bodily injury includes mental anguish or injury, fright, shock, humiliation, and loss of reputation, but it is not limited to them.
|
|
|
Commercial General Liability Coverage Form
|
A coverage form commonly used for insuring an organization’s premises and operations liability los exposures and products and completed operations liability loss exposures
|
|
|
Coverage A of the Commercial General Liability Coverage Form
|
Bodily Injury and Property Damage Liability
|
|
|
Coverage B of the Commercial General Liability Coverage Form
|
Personal and Advertising Injury Liability
|
|
|
Coverage C of the Commercial General Liability Coverage Form
|
Medical Payments
|
|
|
Organizations of all types purchase general liability insurance to cover these types of loss exposures:
|
- Premises and operations liability loss exposures
- Products and completed operations liability loss exposures |
|
|
ISO maintains two versions of the CGL coverage form:
|
- Occurrence version (CG 00 01)
- Claims-made version (CG 00 02) |
|
|
T or F: The occurrence version of the CGL coverage form is used only in cases in which the possibility of long-tail claims is a major underwriting concern.
|
FALSE: The CLAIMS-MADE version of the CGL coverage form is used only in cases in which the possibility of long-tail claims is a major underwriting concern.
|
|
|
Two distinct duties of an insurer as stated by the Coverage A insuring agreement of the CGL
|
- A duty to pay damages on behalf of the insured
- A duty to defend the insured against suits seeking damages covered under the policy |
|
|
Definition of “you” in the CGL
|
The named insured shown in the declarations
|
|
|
Definition of “the insured” in the CGL
|
Includes either the named insured or any other person or organization that qualifies as an insured under the “Who is an insured” section of the policy.
Employees of the named insured, for example, are insureds even though they are not individually named in the policy. |
|
|
Conditions for the insured to have a duty to pay damages on behalf of the insured
|
- The insured must be legally obligated to pay damages
- The damages must result from bodily injury or property damage - The policy must apply to the bodily injury or property damage |
|
|
Additional conditions imposed by the insuring agreement provisions in order for the insured to have a duty to pay damages on behalf of the insured
|
- The bodily injury or property damage must be caused by an occurrence
- The occurrence must take place in the coverage territory - The bodily injury or property damage must occur during the policy period - Before the policy period began, the bodily injury or property damage must not have been known, in whole or in part, to the named insured or to certain other persons who qualify as insureds. |
|
|
T or F: Only a court can determine whether the insured is legally obligated to pay damages.
|
FALSE. Either a court (such as when a plaintiff wins a judgment against the insured) OR the insurer’s investigation of a claim can determine whether the insured is legally obligated to pay damages.
|
|
|
T or F: The insurer may, at its discretion, investigate any occurrence and settle any resulting claim or suit.
|
TRUE. The insurer MAY, at its discretion, investigate any occurrence and settle any resulting claim or suit.
|
|
|
T or F: The insurer has the sole right to decide whether it will settle or defend.
|
TRUE. The insurer DOES have the sole right to decide whether it will settle or defend.
|
|
|
Bodily injury
|
Physical injury to a person, including sickness, disease, and death
|
|
|
Property damage
|
Physical injury to, destruction of, or loss of use of tangible property
|
|
|
Special damages
|
Damages for such out-of-pocket costs as loss of earnings and medical expenses
|
|
|
General expenses
|
Such as for pain and suffering
|
|
|
Punitive damages
|
Damages awarded to punish or make an example of the wrongdoer
|
|
|
T or F: Some states do not permit insurers to pay punitive damages on behalf of an insured when the insured is vicariously liable.
|
TRUE: Some states do not permit insurers to pay punitive damages on behalf of an insured when the insured is vicariously liable.
|
|
|
The Coverage A insuring agreement specifies that damages because of bodily injury include damages for:
|
- Care
- Loss of services - Death |
|
|
T or F: Property must be physically injured in order for it to be considered ‘property damage’.
|
FALSE. Loss of use of tangible property that is not physically injured is still considered ‘property damage’ as far as the coverage is concerned.
For example, the loss of use of a stock brokerage’s telephones and computers as a result of telephone and power lines being severed by a negligent contractor. |
|
|
T or F: Electronic data is tangible property.
|
FALSE. Electronic data is NOT tangible property.
|
|
|
Occurrence
|
An accident, including continuous or repeated exposure to substantially the same general harmful conditions.
An accident applies to intentional acts as well, assuming the incident is the unintended result of an intentional act. However, bodily injury or property damaged intended by the insured is specifically excluded. |
|
|
Coverage territory applying to most claims for Coverage A
|
U.S. (+ territories & possessions), Puerto Rico, and Canada
Coverage may also apply in the course of travel or transportation between any of those places |
|
|
Worldwide coverage sometimes applies for Coverage A coverage territory. Two conditions:
|
- The injury or damage must arise out of goods or products sold in the U.S., its territories & possessions, Puerto Rice or Canada; the activities of a person whose home is in those locations but who is away for a short time on the named insured’s business; or personal and advertising injury offenses that occur through the Internet or similar electronic communications
- The insured’s liability for damages must be determined in either a settlement to which the insurer agrees or a suit “on the merits” filed in the U.S., its territories or possessions, Puerto Rice or Canada. A suit on the merits is a suit that is based on facts and legal grounds as opposed to extraneous or technical points such as rules of legal procedure. |
|
|
Worldwide products coverage
|
Applies to products made or sold by the named insured in the U.S., its territories or possessions, Puerto Rico, or Canada.
The CGL form therefore covers injury arising out of a product made in one of those jurisdictions but sold abroad, as long as the suit is also filed in one of those jurisdictions. |
|
|
T or F: Coverage territory for injury or damage arising from completed operations is usually limited to the U.S., its territories and possessions, Puerto Rico, and Canada.
|
TRUE. Coverage territory for injury or damage arising from completed operations is usually limited to the U.S., its territories and possessions, Puerto Rico, and Canada.
|
|
|
T or F: In the occurrence version, the policy that applies to a particular claim is the one that is in effect when the bodily injury or property damage occurs.
|
TRUE. The policy that applies to a particular claim is the one that is in effect when the bodily injury or property damage occurs. (In the occurrence version.)
This is the case even if the claim is not made until many years after the policy period ends. |
|
|
Occurrence coverage trigger
|
The event that triggers coverage under the occurrence coverage form.
(See the example on p. 2.9 – good for better understanding this.) |
|
|
Continuous trigger theory
|
(An asbestos related concept, adopted by some courts.)
Holds that bodily injury occurred continuously from the time the claimant was first exposed to asbestos until disease actually manifested, perhaps twenty or more years later. Consequently, all occurrence liability policies in effect during those years were triggered and their limits “stacked”. |
|
|
Stacking
|
Refers to a situation in which the insured can collect multiples of the policy limit.
If, for example, bodily injury is considered to have occurred over a twenty-year period, the insured might recover the sum of the policy limits in effect during each of the 20 years. |
|
|
Claims-made CGL coverage form
|
First introduced in 1986
Requires that the claim must be made during the policy period. In practice, these policies usually give the named insured the option to purchase an extended reporting period. |
|
|
Tail coverage
|
Another name for an extended reporting period (claims-made form of CGL); covers claims made after the end of the policy period for injury or damage that occurred before the policy expired.
|
|
|
Montrose language
|
Policy wording based on a 1995 California case.
The basic intent behind the Montrose language is to eliminate coverage for progressive injury or damage that spans multiple policy periods if the named insured or certain other insureds knew of the original injury or damage before the current policy period began. |
|
|
Anti-Montrose policy language
|
A provision incorporated into the 2001 edition of the CGL, Coverage A, which clarifies that insureds can become aware of these losses “by any means” but fails to specify whether (1) liability must be established prior to the knowledge or (2) the proof of loss for a known loss or a loss in progress must follow (a) an objective standard (the insured knew or had reason to know of the loss before policy inception) or (b) a subjective standard (the insured had not yet been held liable for the loss but it had actual knowledge that a loss was probable). Most states are undecided, but a majority of states that have taken a position adopted the subjective standard position.
|
|
|
T or F: If a suit is later found to be groundless, false, or fraudulent, the insurer does not need to defend an insured even if the plaintiff alleges facts that could conceivable fall within the policy coverage
|
FALSE. Even if a suit is later found to be groundless, false, or fraudulent, the insurer must defend an insured if the plaintiff alleges facts that could conceivably fall within policy coverage.
|
|
|
T or F: In most states, the insurer is obligated to defend the insured if at least one of the claimant’s allegations would be covered, even if the other allegations are not covered.
|
TRUE. In most states, the insurer is obligated to defend the insured if at least one of the claimant’s allegations would be covered, even if the other allegations are not covered.
|
|
|
T or F: The costs of defending the insured against covered suits or claims are payable in addition to the applicable limits of insurance.
|
TRUE. The costs of defending the insured against covered suits or claims are payable in addition to the applicable limits of insurance.
However, the insurer’s duty to defend is stated to end when the applicable limit of insurance has been exhausted in paying damages for judgments or settlements. |
|
|
Exclusions with Exceptions
|
- Expected or Intended Injury
- Contractual Liability - Liquor Liability - Employers Liability - Pollution - Aircraft, Auto, or Watercraft - Mobile Equipment - Damage to Property - Damage to Your Product and Damage to Your Work - Damage to Impaired Property and Property Not Physically Injured - Recall of Products, Work, or Impaired Property |
|
|
Expected or Intended Injury exclusion
|
(An exclusion with exception(s))
Defines a type of loss that is excluded because the bodily injury or property damage was expected or intended from the insured’s standpoint. Exception: Bodily injury resulting from the use of reasonable force to protect persons or property. |
|
|
Contractual Liability exclusion
|
(An exclusion with exception(s))
Excludes coverage for bodily injury or property damage for which the insured is obligated to pay damages because of the assumption of liability in a contract or an agreement. Exceptions: - Liability the insured would have in the absence of the agreement - Liability assumed within an insured contract – a defined term under the policy. (Types of insured contracts that apply: a contract for lease of premises; a sidetrack agreement; any easement or license agreement; an obligation, as required by ordinance, to indemnify a municipality; an elevator maintenance agreement; the part of any other contract or agreement pertaining to your business under which you assume the tort liability of another party to pay for bodily injury or property damage to a third party or organization) |
|
|
Sidetrack agreement
|
An accepted insured contract under the exception to the Contractual Liability exclusion
Businesses may operate more efficiently if a railroad can transport goods onto or off their premises via a sidetrack. Therefore, certain manufacturing and distribution operations have sidetrack agreements with railroads. In exchange for offering this service, the railroad will contractually require that the business hold the railroad harmless for the ownership, maintenance, or use of the sidetrack. Such a stipulation may also require that the business be responsible for damage to the railroad’s property. |
|
|
Accepted insured contracts under the exception to the Contractual Liability exclusion
|
- A contract for lease of premises
- A sidetrack agreement - Any easement or license agreement, except in connection with construction or demolition operations on or within 50 feet of a railroad - An obligation, as required by ordinance, to indemnify a municipality, except in connection with work for a municipality - An elevator maintenance agreement - That part of any other contract or agreement pertaining to your business (including an indemnification of a municipality in connection with work performed for a municipality) under which you assume the tort liability of another party to pay for bodily injury or property damage to a third party or organization (Limits: only tort liability obligations are assumed; contracts that indemnify an architect, an engineer, or a surveyor for injury or damage arising out of various professional services are excluded) |
|
|
Contractual liability coverage
|
Coverage for liability that the insured has assumed under an insured contract.
|
|
|
T or F: Defense costs are not part of the limit of liability.
|
FALSE. Defense costs are considered damages and are, therefore, part of the limit of liability.
When a lawsuit is brought against both the insured and the indemnitee, such defense costs are covered in addition to the limit of liability (p. 2.15) |
|
|
Amendment of Insured Contract Definition endorsement
|
The endorsement that modifies the CGL coverage form so that subpart f. of the insured contract definition will not include bodily injury or property damage caused solely by an indemnitee of the named insured.
This endorsement modifies the definition so that it applies to circumstances under which the insured caused the liability “in whole or in part.” This modification effectively precludes coverage for situations in which the insured is obligating itself to protect another party who is solely responsible for the accident. |
|
|
Liquor Liability Exclusion
|
(An exclusion with exception(s))
Excludes bodily injury or property damage for which any insured may be held liable by causing or contributing to the intoxication of any person; by furnishing alcoholic beverages to a person under the legal drinking age or under the influence of alcohol; or through any statute, ordinance or regulation relating to the distribution or use of alcoholic beverages. Exception: Applies only if the insured is in the business of manufacturing, distributing, selling, serving, or furnishing alcoholic beverages. |
|
|
Host liquor liability coverage
|
Coverage for a person or an organization that serves alcoholic beverages to others but is not in the alcoholic beverage business; it covers the insured host against liability for accidents caused by persons who become intoxicated as a result of the insured’s serving of alcoholic beverages.
|
|
|
Amendment of Liquor Liability Exclusion endorsement
|
Adds coverage for events at which the insured sells or furnishes alcoholic beverages for a charge or at which a license is required for such activities.
|
|
|
Exclusive remedy
|
The workers’ compensation law grants benefits as the employee’s sole source of recovery against the employer, so employees lose the right to sue their employers for injuries covered by workers compensation.
|
|
|
Dual-capacity doctrine
|
A legal doctrine giving the employee the right to sue the employer when the employer acts in a capacity other than that of employer.
|
|
|
Third-party-over action
|
A separate legal action, brought by a defendant in a lawsuit, against a third party that might be liable to the defendant for all or part of the plaintiff’s claim in the original lawsuit.
|
|
|
Employers Liability Exclusion
|
(An exclusion with exception(s))
Applies if the insured is liable in another capacity, such as the dual-capacity doctrine or a third-part-over action. Exception: Liability assumed by the insured under an insured contract. |
|
|
Pollution Exclusion
|
(An exclusion with exception(s))
Pollution liability and cleanup claims are the subject of a separate type of insurance, and the Pollution exclusion eliminates coverage under the CGL for most pollution exposures. Exceptions: - Coverage is provided for bodily injury caused by smoke, fumes, vapor, or soot emanating from cooling, heating, or dehumidifying equipment. (e.g., carbon monoxide poisoning.) - Coverage is provided for bodily injury or property damage if the insured is a contractor and the owner of the premises is named as an additional insured regarding the premises on which the insured is conducting operations. - Coverage is provided for bodily injury or property damage resulting from a hostile fire spewing smoke, particulates, and other “pollutants” into the surrounding area - Coverage is provided for bodily injury or property damage resulting from the escape of fluids needed to perform normal functions of mobile equipment operation – for example, a transmission fluid leak from a cracked gear box - Coverage is provided for bodily injury or property damage that occurs within a building and is caused by the release of gases, fumes, or vapors that emanate from materials (not pollutants) brought onto the premises by the insured (or on the insured’s behalf) for its operations |
|
|
Exceptions to the Pollution Exclusion (5)
|
- Coverage is provided for bodily injury caused by smoke, fumes, vapor, or soot emanating from cooling, heating, or dehumidifying equipment. (e.g., carbon monoxide poisoning.)
- Coverage is provided for bodily injury or property damage if the insured is a contractor and the owner of the premises is named as an additional insured regarding the premises on which the insured is conducting operations. - Coverage is provided for bodily injury or property damage resulting from a hostile fire spewing smoke, particulates, and other “pollutants” into the surrounding area - Coverage is provided for bodily injury or property damage resulting from the escape of fluids needed to perform normal functions of mobile equipment operation – for example, a transmission fluid leak from a cracked gear box - Coverage is provided for bodily injury or property damage that occurs within a building and is caused by the release of gases, fumes, or vapors that emanate from materials (not pollutants) brought onto the premises by the insured (or on the insured’s behalf) for its operations |
|
|
Aircraft, Auto, or Watercraft Exclusion
|
(An exclusion with exception(s))
Excludes coverage for bodily injury or property damage arising out of the ownership, maintenance, use, entrustment to others, loading, or unloading of any aircraft, auto, or watercraft owned, operated by, rented, or loaned to any insured. (By excluding this stuff, it defers to other insuring forms that are more appropriate.) Exceptions: - Owned or rented watercraft that is ashore - Non-owned watercraft less than 26 feet long and not used to carry people or property for a charge - Parking a non-owned or non-rented auto adjacent to the insured premises - The assumption of liability under an insured contract for the ownership, maintenance, or use of aircraft of watercraft (note: does not refer to autos) - The operation of machinery or equipment attached to what otherwise would be considered an auto |
|
|
Definition of “auto”
|
Any land vehicle that is subject to a compulsory or financial responsibility law.
Note: what may be considered mobile equipment in one state may be considered an auto in a neighboring state. |
|
|
Mobile Equipment Exclusion
|
(An exclusion with exception(s))
Excludes liability arising out of the ownership, maintenance, or use of mobile equipment. Eliminates coverage for: - The transportation of mobile equipment by an auto that is owned, operated, rented, or borrowed by an insured, OR - The use of mobile equipment in a prearranged racing, speed, or demolition contest or in a stunt activity |
|
|
Mobile equipment
|
Various types of vehicles designed for use principally off public roads, such as bulldozers and cranes
|
|
|
Damage to Property exclusion
|
(An exclusion with exception(s))
This exclusion is concerned mainly with property damage that occurs while the insured has possession of the damaged property or is working on it. This exclusion has four parts: - The insured’s property (except for property damage other than damage by fire to premises rented to the named insured for 7 or fewer consecutive days; also, except for property loaned to the insured or otherwise in the care, custody or control of the insured for 7 or fewer consecutive days) - Coverage for property damage to a building that has been sold or given away to another party - Property damage to the particular part of real property on which the named insured, or any contractors or subcontractors working on the insured’s behalf, are performing operations (except for the other portions of a building that may have been damaged as a result of the insured’s operations, including areas where the insured previously completed construction) - Work that was incorrectly performed (except for liability under a sidetrack agreement and property damage included in the products-completed operations hazard) |
|
|
Damage to Your Product and Damage to Your Work exclusion
|
(An exclusion with exception(s))
Excludes damage to the insured’s product and damage to the insured’s work. The purpose of this is to prevent the insurer from having to pay for repairing or replacing a product that was incorrectly designed or defectively produced – a business risk that is not normally insurable. This exclusion applies to work that has been completed, not to work in progress. Exception: applies to damage to the insured’s work, if the damaged work (or the work that caused the damage) was performed on behalf of the insured by a subcontractor. |
|
|
Damage to Impaired Property or Property Not Physically Injured exclusion
|
(An exclusion with exception(s))
In the course of commerce, a host of businesses produce various components used to make a final product. If one of those components fails to operate in accordance with design parameters, the cost of replacing such a failed or an inadequately performing component is not covered by the CGL because of this exclusion. Exception: The exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to the insured’s product or work after it has been put to its intended use. (e.g., if a contractor improperly wires a heating unit and it catches fire, the claim by the building owner for loss of use of the building while the unit is being repaired or replaced would be covered.) |
|
|
Definition of “impaired property”
|
Tangible property (other than the insured’s product or work) that cannot be used or is less useful because it includes a product of the insured’s that is defective – if the property could be restored to use by the repair, replacement, or removal of the insured’s product
|
|
|
Recall of Products, Work, or Impaired Property exclusion
|
(An exclusion with exception(s))
Excludes coverage for recall or replacement costs. Exception: Coverage for product recall expense IS available through either the Limited Product Withdrawal Expense Endorsement or the Product Withdrawal Coverage Form. |
|
|
Exclusions without exceptions (Coverage A, CGL)
|
- Workers compensation
- War - Personal and Advertising Injury - Electronic Data - Distribution of Material in Violation of Statutes |
|
|
T or F: The War exclusion applies to acts of terrorism.
|
FALSE. The War exclusion does NOT apply to acts of terrorism. Coverage for terrorism is provided for many commercial loss exposures through the Terrorism Risk Insurance Act (TRIA).
|
|
|
TCPA and CAN-SPAM Acts
|
Telephone Consumer Protection Act (TCPA) and the CAN-SPAM Act are federal laws that restrict the use of telephones, fax machines, and computers for transmitting unsolicited advertisements or e-mail messages. This activity would be excluded under the Distribution of Material in Violation of Statutes exclusion.
|
|
|
Fire legal liability coverage
|
Coverage for the insured’s liability for fire damage to premises rented to or temporarily occupied by the named insured.
At the end of the Coverage A exclusions section is an exception that creates this type of coverage. A separate limit of insurance is specified in the policy limits section for this coverage. This exception does not apply if the only reason the insured becomes liable for fire damage is because of an indemnification agreement. For example, fi a fire starts because a building is struck by lightning, coverage would be excluded. |
|
|
Personal and advertising injury
|
Injury that is covered by Coverage B of the CGL and includes injury resulting from numerous offenses, such as false detention, malicious prosecution, wrongful eviction, slander, libel, use of another’s advertising idea, and copyright infringement.
|
|
|
T or F: Litigation can almost always be avoided by paying for an injured person’s medical treatment after an accident and after admitting liability.
|
FALSE. Litigations can SOMETIMES be avoided by paying for an injured person’s medical treatment after an accident WITHOUT ADMITTING LIABILITY.
|
|
|
Coverage B of the CGL Coverage Form
|
Personal and advertising injury liability coverage
This coverage can be excluded by endorsement |
|
|
Ways in which the Coverage B insuring agreement parallels the Coverage A insuring agreement
|
* The insurer agrees to pay those sums that the insured becomes legally obligated to pay as damages
* The insurer agrees to defend the insured against any suit seeking such damages |
|
|
Offenses that trigger personal and advertising injury coverage (7):
|
* False arrest, detention, or imprisonment
* Malicious prosecution *The wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling, or premises that a person occupies, committed by or on behalf of its owner, landlord, or lessor * Oral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products, or services * Oral or written publication, in any manner, of material that violates a person’s right of privacy * The use of another’s advertising idea in one’s advertisement * Infringing upon another’s copyright, trade dress, or slogan in one’s advertisement |
|
|
T or F: The CGL definition of personal and advertising injury is limited to bodily injury.
|
FALSE. The CGL definition of personal and advertising injury includes, but is not limited to, bodily injury.
|
|
|
Definition of ‘injury’:
|
- Violation of another’s legal right
- A wrong or injustice - Harm or damage |
|
|
T or F: ‘Injury’ includes mental anguish or injury, fright, shock, humiliation, and loss of reputation.
|
TRUE. ‘Injury’ DOES include, but is not limited to, mental anguish or injury, fright, shock, humiliation, and loss of reputation.
|
|
|
Consequential bodily injury resulting from personal and advertising injury (such as bodily injury resulting from the false detention and imprisonment of a store customer by a security guard) is covered by ___________ and excluded by ____________
|
Covered by Coverage B; excluded by Coverage A
|
|
|
T or F: Regarding personal and advertising injury liability, defense costs are covered in addition to the limits.
|
TRUE. Defense costs are covered in addition to the limits, and the insurer’s duty to defend ends only when the insurer has paid the personal and advertising injury limit or the general aggregate limit.
|
|
|
T or F: The CGL does not provide coverage for certain e-commerce exposures of organizations whose primary business is not related to advertising or Internet services.
|
FALSE. The CGL provides limited coverage for certain e-commerce exposures of organizations whose primary business is not related to advertising or Internet services.
|
|
|
Exclusions applicable to Coverage B (16):
|
- Knowing violation of rights of another
- Material published with knowledge of falsity - Material published prior to policy period - Criminal acts - Contractual liability - Breach of contract - Quality of performance of goods – failure to conform to statements - Wrong description of prices - Infringement of copyright, patent, trademark or trade secret (this exclusion does not apply to infringement, in your “advertisement”, of copyright, trade dress or slogan) - Insureds in media and internet type businesses (this exclusion does not apply to the definitions of “personal and advertising injury” that relate to false arrest or detention; malicious prosecution; or wrongful eviction, wrongful entry, or invasion of private occupancy) - Electronic chatrooms or bulletin boards - Unauthorized use of another’s name or product - Pollution - Pollution-Related - War - Distribution of material in violation of statutes |
|
|
E-commerce
|
The act of conducting business activities on the internet
|
|
|
T or F: Coverage territory is worldwide for personal and advertising injury offenses that occur through the Internet or similar electronic means of communication.
|
TRUE, even though otherwise the CGL coverage territory is limited to the U.S. + territories & possessions, Puerto Rico, and Canada for most occurrences
|
|
|
Medical payments coverage
|
Coverage C of the CGL
Coverage that pays necessary medical expenses incurred within a specified period by a claimant (and in certain policies, by an insured) for a covered injury, regardless of whether the insured was at fault. This serves as a way to settle minor injury cases without a determination of legal liability. In such cases, the insurer can make prompt settlements with claimants and possibly avoid larger liability claims. Can be excluded by endorsement. |
|
|
T or F: Medical expenses must be incurred and reported to the insurer within 6 months after the date of the accident in order for Coverage C to apply.
|
FALSE. Medical expenses must be incurred and reported to the insurer within ONE YEAR after the date of the accident in order for Coverage C to apply.
|
|
|
Covered medical expenses under Coverage C include:
|
- First aid administered at the time of an accident
- Necessary medical, surgical, X-ray, and dental services, including prosthetic devices - Necessary ambulance, hospital, professional nursing, and funeral services |
|
|
Basic limit for medical payments coverage
|
$5000 per person
All medical expenses paid by the insurer are also applied to the each-occurrence limit along with damages payable under Coverage A for the same occurrence |
|
|
The injured person who wishes to receive medical payments coverage must:
|
- Submit to examination (at the insurer’s request)
- By physicians of the insurer’s choice - As often as the insurer reasonably requires |
|
|
Exclusions applicable to Coverage C (7):
|
- Any insured
- Hired person - Injury on normally occupied premises - Workers compensation and similar laws - Athletics activities - Products-completed hazard - Coverage A exclusions |
|
|
Costs covered as Supplementary Payments (CGL coverage form):
|
- All expenses incurred by the insurer (such as fees charged by outside defense counsel)
- Up to $250 for the cost of bail bonds required because of accidents or traffic law violations arising out of the use of any vehicle to which the bodily injury liability coverage applies (the insurer does not agree to provide these bonds, only to pay for them) - The cost of bonds to release attachments, but only for bond amounts that do not exceed the applicable limit of insurance - All reasonable expenses incurred by the insured at the insurer’s request to assist the insurer in investigating or defending claims or suits. (Actual loss of earnings resulting from time away from work is covered up to $250 per day.) - All court costs taxed (assessed) against the insured in the suit - Prejudgment interest awarded against the insured on that part of the judgment that the insurer pays - Interest on the full amount of any judgment that accrues after entry of the judgment and before the insurer has paid (or offered to pay) that part of the judgment that is within the applicable limit of insurance |
|
|
T or F: The insurer does not agree to defend indemnitees of the insured.
|
FALSE. The insurer agrees to defend an indemnitee of the insured (if specific conditions are met: they must both be named as defendants in the same suit, and the insured must have assumed the obligation to defined the indemnitee under an insured contract
|
|
|
Who is an insured under the CGL Form?
|
- Any person or organization listed in the CGL coverage form declarations as a named insured
- Persons who receive insured status through the named insured (spouse, partner/joint venture and their spouses, members & managers of an LLC, officers & directors, stockholders, named trusts) - Employees and volunteer workers of the named insured (excluding co-employees, medical professional liability, and property belonging to named insured’s, employees’, or partners) - Real estate managers - Legal representatives - Newly acquired or formed organizations - Unnamed partnerships, joint ventures, or limited liability companies |
|
|
Partnership v. joint venture
|
Partnership is usually an ongoing business, whereas a joint venture is usually formed to accomplish a single defined project.
|
|
|
Temporary workers vs. leased workers
|
Leased workers qualify as insureds just as any other regular employee of the named insured; temporary workers are not considered employees under the CGL
|
|
|
Co-Employee and Related Exclusions
|
- Exclude claims made by one of the named insured’s employees against another of the named insured’s employees (in order to not duplicate workers’ comp)
- Also exclude any employee or volunteer for injury to these parties: the named insured; a partner or member of the named insured; a co-employee while in the course of his or her employment or while performing duties related to the conduct of the named insured’s business; any of the named insured’s other volunteer workers while performing duties related to the conduct of the named insured’s business; and the spouse, child, parent, brother, or sister of a co-employee or volunteer worker |
|
|
Medical Professional Liability Exclusion
|
Employees are not insured for bodily injury or personal injury arising out of their providing or failing to provide professional healthcare services.
(For example, an employee of the named insured who is a registered nurse would not be covered by the named insured’s CGL policy against professional liability claims) |
|
|
Exclusion of Named Insured’s, Employees’, or Partners’ Property
|
No employee or volunteer worker is an insured for damage to property owned, occupied, or used by the named insured, by any of the named insured’s employees or volunteer workers, or by any partner or member.
The exclusion also applies to property rented to these persons or in their care, custody, or control. |
|
|
Coverage for a newly acquired or formed organization continues until:
|
Until the new organization is specifically added to the policy or for 90 days, whichever period is shorter.
|
|
|
T or F: The CGL coverage form does not include as an insured any person or organization involved in any current or past partnership, joint venture, or limited liability company that is not listed as a named insured.
|
TRUE. If the named insured wants to cover current or past partnerships, joint ventures, or limited liability companies, they must be specifically declared and named in the policy. The insurer will usually charge an additional premium for covering the added loss exposure.
|
|
|
Aggregate limit
|
The maximum amount an insurer will pay for all covered losses during the covered policy period.
CGL coverage forms contain two types of aggregate limits: a general aggregate limit and a products-completed/operations aggregate limit. |
|
|
Each occurrence limit
|
The most the insurer will pay for any one occurrence, including all damages under Coverage A and all medical payments under Coverage C.
(Because Coverage C is often subject to a relatively low limit, such as $5000 per person, the each occurrence limit is principally concerned with limiting damages under Coverage A. A typical each occurrence limit is $1 million. Defense costs do not apply to each occurrence limit.) |
|
|
Excess liability insurance
|
Insurance coverage for losses that exceed the limits of underlying insurance coverage or a retention amount.
|
|
|
Additional insurance for each occurrence is commonly provided through these:
|
- Excess liability insurance
- Umbrella liability policy |
|
|
Umbrella liability policy
|
A liability policy that provides excess coverage above underlying policies and may also provide coverage not available in the underlying policies, subject to a self-insured retention.
|
|
|
Personal and advertising injury limit
|
The most the insurer will pay under Coverage B for the sum of all personal and advertising injury to one person or organization.
Under ISO rules, this limit is set at the same amount as the policy’s each occurrence limit, but it is possible for a different amount to be used. |
|
|
Damage to premises rented to you limit
|
The most the insurer will pay under Coverage A for damage to any one premises while rented to the named insured (or, in the case of fire damage, while rented to or temporarily occupied by the named insured). Basic amount is $100,000
|
|
|
Medical expense limit
|
The most the insurer will pay under Coverage C to any one person. Basic amount is $5000
|
|
|
General aggregate limit of the CGL coverage form
|
The most the insurer will pay during the policy period for the sum of these values:
- Damages under Coverage A, except those that arise out of the products-completed operations hazard - Damages under Coverage B - Medical expenses under Coverage C |
|
|
Products-completed operations aggregate limit
|
The most the insurer will pay during the policy period under Coverage A for damages arising out of the products-completed operations hazard.
Two important facets: - The P/CO aggregate limit is reduced by any damages the insurer pays for bodily injury or property damage arising out of the P/CO hazard - The general aggregate limit is reduced by any damages the insurer pays for bodily injury or property damage that does not fall within the P/CO hazard |
|
|
Provision b.3 of the P/CO hazard
|
States that the P/CO hazard does not include bodily injury or property damage arising out of products or operations classified in the declarations or in a policy schedule as subject to the general aggregate limit.
This provision pertains to certain business classifications that have only incidental products or completed operations liability exposures. (e.g., salons, funeral homes, insurance agents, Internet access providers, kennels, nursing homes, daycare centers, financial firms) |
|
|
Just a note to review the exhibits on 3.19 and 3.20 re: how limits are applied for CGL
|
Do it!
|
|
|
T or F: Insureds should seek to have exclusion CG 21 04 (exclusion of the P/CO hazard) eliminated if there is any possibility that they might acquire or begin new operations that would be classified as P/CO during the policy period.
|
TRUE. Insureds SHOULD seek to have exclusion CG 21 04 (exclusion of the P/CO hazard) eliminated if there is any possibility that they might acquire or begin new operations that would be classified as P/CO during the policy period.
|
|
|
Long-tail claim
|
A claim that is characterized by an extended delay between the claim’s triggering event and the reporting of the event to the insurer.
|
|
|
A liability policy with an occurrence coverage trigger covers injury or damage that occurs…
|
…during its policy period, regardless of when the claim is made.
|
|
|
Claims-made policy
|
Covers only claims first made against the insured during its policy period.
A claim made after the policy expires is not covered by that policy, unless the claim is made during an extended reporting period. Typically used only for specialty coverages (medical malpractice, D&O, pollution) |
|
|
ISO claims-made liability coverage forms include various versions of these 2 provisions:
|
- Retroactive dates
- Extended reporting periods |
|
|
Basic requirement of the ISO claims-made coverage trigger is:
|
That the claim for the covered event must be first made against any insured during either the policy period or an extended reporting period provided by the policy.
|
|
|
An additional requirement of the ISO claims-made coverage trigger is:
|
That the covered event must not have occurred before the policy’s retroactive date, if any, or after the end of the policy period.
Thus, the claims-made policy in effect when a claim is first made against the insured is the policy that covers the claim. |
|
|
After a retroactive date has been established, the insurer may not advance the retroactive date without the insured’s consent, and then only if at least one of these events has occurred:
|
- The insured has changed insurers
- The insured’s operations have changed substantially, with a resulting increase in loss exposure - The insured failed to provide the insurer with material information - The insured has requested the change |
|
|
Extended reporting period
|
An additional period (also called a “tail”) following the expiration of a claims-made policy.
The expired policy covers claims first made against any insured during this additional period, if the injury, damage, or other insured event occurred on or after the retroactive date, if any, and before policy expiration. |
|
|
ISO claims-made forms make their extended reporting periods available to the named insured when any one of these scenarios occurs:
|
- The insurer renews or replaces the current coverage with claims-made coverage that has a retroactive data later than that applying to the current coverage
- The insurer renews or replaces the current coverage with coverage that does not apply on a claims-made basis - The coverage form is either canceled or nonrenewed |
|
|
Deductible Endorsements
|
(CG 03 __)
This endorsement can be used to add either of these types of deductibles for bodily injury liability, property damage liability, or both: - A per-claim deductible applies to all damages sustained by any one person or organization as a result of any one occurrence. (For example, if 5 persons make claims against the insured for injuries received in one occurrence, a per-claim deductible will apply separately to each person’s claim) - A per-occurrence deductible applies only once to the total of all claims paid arising out of one occurrence |
|
|
Additional Coverage Endorsements
|
(CG 04 __)
Examples: endorsements that cover employee benefits liability and electronic data liability |
|
|
Employee Benefits Liability Coverage
|
(CG 04 35)
Provides coverage for damages resulting from negligent acts, errors, or omissions in administering the named insured’s benefits program. Usually has a claims-made coverage trigger. (A number of exclusions are typically included in this endorsement that reinforce the limitation of coverage to negligence in administration of the insured’s benefit plans) |
|
|
Electronic Data Liability Endorsement
|
(CG 04 37)
Adds limited coverage for loss or loss of use of electronic data resulting from physical injury to tangible property. The coverage is subject to a specific limit stated in the endorsement. |
|
|
Additional Insured Endorsements
|
(CG 20 __)
Provide additional insured status, in a variety of situations, to individuals or organizations that are not already covered. |
|
|
Additional Insured – Owners, Lessees, or Contractors – Scheduled Person or Organization
|
(CG 20 10)
Typically used for naming property owners, lessees, or contractors as additional insureds under the CGL policies of organizations that are entering into contracts with any of those parties. (For example, when a property owner enters into a construction agreement with a general contractor, the property owner often asks the general contractor to make the property owner an additional insured under the general contractor’s CGL policy.) Provides coverage only if the injury or damage is caused, in whole or in part, by the acts or omissions of the named insured at the designated location of operations. Subject to exclusions that eliminate coverage for bodily injury or property damage occurring after the work at the location of the covered operations has been completed or arising out of a portion of the work that has been put to its intended use. |
|
|
Additional Insured – Owners, Lessees, or Contractors – Automatic Status When Required in Construction Agreement
|
(CG 20 33)
Endorsement that provides coverage in construction agreements for an additional insured without the requirement to name the additional insured or specify the location of the covered operations. 2 conditions must be met: - Named insured must be performing operations for the person or organization that has requested additional insured status under the named insured’s policy - Named insured and the person or organization requesting additional insured status must have agreed in a written contract or agreement that the person or organization be added as an additional insured in the named insured’s policy Exclusions eliminate coverage for any injury or damage arising from professional architectural, engineering, or surveying services. |
|
|
Certificate of Insurance
|
A brief description of insurance coverage prepared by an insurer or a producer that is used by an insured to provide evidence of insurance.
|
|
|
Exclusion Endorsements
|
(CG 21 __)
Used for adding exclusions to the CGL coverage form or other general liability coverage forms. Most are optional. |
|
|
Nuclear Energy Liability Exclusion Endorsement (IL 00 21)
|
Eliminates coverage for bodily injury or property damage resulting in any way (whether in peace or war) from the hazards of nuclear material.
Added automatically to any policy containing a commercial liability coverage part. Nuclear energy liability policies are available to cover organizations that have significant nuclear energy loss exposures. |
|
|
Employment-Related Practices Exclusion Endorsement (CG 21 47)
|
Eliminates coverage for bodily injury or personal and advertising injury to a person arising out of any employment-related practice, policy, act, or omission.
Required for CGL insureds with employment practices liability policies; optional for others |
|
|
Exclusion – Products/Completed Operations Hazard (CG 21 04)
|
Excludes bodily injury or property damage arising from the products-completed operations hazard
|
|
|
Exclusion – Coverage C – Medical Payments (CG 21 35)
|
Omits Coverage C – Medical Payments
|
|
|
Exclusion – Personal and Advertising Injury (CG 21 38)
|
Omits Coverage B – Personal and Advertising Injury Liability
|
|
|
Exclusion – Explosion, Collapse, and Underground Property Damage (Specified Operations) (CG 21 42)
|
Excludes coverage at the described location for the explosion, collapse, and underground (“X, C, U”) hazards as defined in the endorsement
|
|
|
Exclusion – Financial Services (CG 21 52)
|
Excludes coverage, under CGL policies for financial institutions, for injury or damage resulting from the insured’s rendering or failing to render any of several financial services.
|
|
|
Exclusion – Volunteer Workers (CG 21 66)
|
Eliminates insured status for the named insured’s volunteer workers
|
|
|
Classification Endorsements (CG 22 __)
|
Designed for particular classifications of insureds. Many are exclusions.
|
|
|
Miscellaneous Coverage Amendment Endorsements (CG 24 __)
|
Endorsements that, in most cases, broaden CGL coverage to accommodate a particular insured’s coverage needs.
(For example, liquor liability coverage endorsement, which eliminates the liquor liability exclusion and provides coverage for organizations in the business of selling or serving alcoholic beverages.) |
|
|
Exclusion – Corporal Punishment (CG 22 30)
|
Classification endorsement intended for schools. Excludes coverage for injury to any student resulting from corporal punishment.
|
|
|
Exclusion – Construction Management Errors and Omissions (CG 22 34)
|
Classification endorsement intended for contractors involved in construction management, such as design-build projects. Excludes injury or damage arising out of several activities that are usually covered by an architects and engineers professional liability policy.
|
|
|
Exclusion – Public Utilities – Failure to Supply (CG 22 50)
|
Classification endorsement intended for public utilities, including governmental subdivisions that produce gas, oil, water, electricity, or steam for sale. Excludes injury or damage resulting from the failure of the insured to supply the services described in the endorsement.
|
|
|
Misdelivery of Liquid Products Coverage (CG 22 66)
|
Classification endorsement intended for fuel oil dealers and other businesses that deliver liquid products. Covers injury or damage resulting from (1) the delivery of a liquid product into the wrong receptacle, or (2) the erroneous delivery of one liquid product for another by an auto – if the injury or damage occurs after the delivery has been completed.
|
|
|
Operation of Customers’ Autos on Particular premises (CG 22 68)
|
Classification endorsement intended for auto repair shops, car washes, gasoline stations, and tire dealers. Covers injury or damage resulting from operating customers’ autos on the insured premises and adjoining ways.
|
|
|
Amendment of Limits of Insurance (CG 25 02)
|
Replaces the limits shown in the policy declarations
|
|
|
Designated Construction Project(s) General Aggregate Limit (CG 25 03)
|
Endorsement that provides a separate general aggregate limit for each construction project designated in the endorsement’s schedule
|
|
|
Designated Location(s) General Aggregate Limit (CG 25 04)
|
Endorsement that provides a separate general aggregate limit for each location designated in the endorsement’s schedule.
|
|
|
Claims-Made Endorsements (CG 27 __)
|
Endorsements for providing extended reporting periods for the claims-made version of the CGL coverage form and the Employee Benefits Liability Coverage endorsement.
Two examples: the Supplemental Extended Reporting Period Endorsement (CG 27 01) and the Supplemental Extended Reporting Period Endorsement for Employee Benefits Liability Coverage (CG 27 15) |
|
|
Electronic Data Liability Coverage Form
|
Provides broader coverage for an insured’s liability for loss of electronic data caused by an “electronic data incident”.
Broader compared to the similar endorsement, which applies only to electronic data losses that result from physical injury to tangible property. Applies on a claims-made basis. |
|
|
Electronic Data Incident definition
|
“An accident, or a negligent act, error or omission, or a series of causally related accidents, negligent acts, or errors or omissions, which results in loss of electronic data.”
Because of this definition, the EDL coverage form encompasses a broader range of causes of loss than the endorsement. |
|
|
Owners and Contractors Protective Liability Coverage Form
|
Protects the property owner against loss exposures in which the principal is held vicariously liable for injury to others resulting from the negligence of its general contractor.
|
|
|
T or F: There are now many situations in which a principal can be held vicariously liable for injury to others resulting from the negligence of its general contractor.
|
TRUE. Even though it has not (in the past) always been the case, these days there are many situations in which a principal can be held vicariously liable for injury to others resulting from the negligence of its general contractor.
|
|
|
Insuring Agreement of the OCP coverage Form
|
Insurer promises to pay damages that the named insured becomes legally obligated to pay because of bodily injury or property damage arising out of either:
- Operations performed for the named insured by the designated contractor at the location specified in the policy - The named insured’s own acts or omissions in connection with the “general supervision” of such operations |
|
|
Exclusions to the OCP Coverage Form
|
Similar or identical to exclusions contained in Coverage A, plus:
- Completed Operations - Acts or Omissions of the Insured Except for General Supervision of the Contractor’s Work - Damage to Property - Contractual Liability |
|
|
Limits of Insurance for the OCP Coverage Form
|
Subject to a general aggregate limit and an each occurrence limit.
Does not need limits for personal injury and advertising injury, medical payments, damage to rented premises, or products and completed operations, because it does not provide those coverages. |
|
|
T or F: OCP other insurance condition states that the coverage is secondary to any other primary insurance.
|
FALSE. The OCP other insurance condition states that the coverage is primary insurance and that the insurer will not seek contribution from any other insurance available to the named insured unless the other insurance is provided by another contractor working at the designated site.
|
|
|
Alternatives to OCP Insurance
|
- Owner could require that the contractor add the owner as an additional insured under the contractor’s CGL policy
- Hold-harmless and indemnification agreement |
|
|
Completed Operations Exclusion (OCP)
|
Applies to bodily injury or property damage that occurs after the designated contractor has completed the project (or a portion of the project that has been put to its intended use), other than service, maintenance, or repairs.
|
|
|
Acts or Omissions of the Insured Except for General Supervision of the Contractor’s Work Exclusion (OCP)
|
Applies to injury or damage arising out of any act or omission of the named insured, or an employee of the named insured, other than general supervision of work performed by the contractor
|
|
|
Damage to Property Exclusion (OCP)
|
Applies only to property owned, rented to, loaned to, or occupied by the named insured; personal property in any insured’s care, custody, or control; or work that the contractor performs for the named insured
|
|
|
Contractual Liability Exclusion (OCP)
|
Same as the CGL version except that the definition of insured contract does not include the CGL provision concerning “that part of any other contract or agreement” in which the named insured assumes tort liability of another party
|
|
|
Construction Project Management Endorsement (CG 31 15)
|
Modifies the OCP coverage form to insure not only a project owner but also a designated contractor, architect, engineer, surveyor, or construction manager
|
|
|
Railroad Protective Liability Coverage Form (CG 00 35)
|
Insurance provided by a contractor working on, over, under, or adjacent to a railroad owner’s property to protect the railroad owner against liability arising out of the work performed by the contractor.
Serves essentially the same purpose as OCP but is designed specifically for insuring railroad owners. Contains 2 coverage agreements: Coverage A (bodily injury and property damage) and Coverage B (physical damage to property owned by or leased or entrusted to the railroad) |
|
|
Railroad Protective Liability (RPL) – Coverage A
|
Bodily Injury and Property Damage Liability
Similar to Coverage A in the CGL but with add’l exclusions and exceptions. Exclusions eliminate coverage for liability assumed under any contract other than a ‘covered contract’; eliminate coverage for completed work; eliminate coverage for injury or damage caused solely by acts or omissions of any insured, except for any designated employees of the insured RPL exclusion for workers compensation does not apply to any obligation of the insured under the Federal Employers’ Liability Act (FELA). |
|
|
“Covered contract” definition in RPL
|
Any contract to carry a person or property for a charge or any interchange contract respecting motive power, or rolling stock equipment
|
|
|
FELA
|
Federal Employers’ Liability Act. Permits employees of interstate railroads (or intrastate railroads that connect to interstate railroads) to sue their employers for occupational injuries resulting from the employer’s negligence.
|
|
|
Railroad Protective Liability (RPL) – Coverage B
|
Physical Damage to Property
Provides first-party physical damage insurance on these types of property owned by, leased, or entrusted to the named insured: - Rolling stock and their contents - Mechanical construction equipment or motive power equipment - Railroad tracks - Roadbeds - Catenaries (overhead transmission lines) - Signals - Bridges - Buildings Exclusions are similar to those under Coverage A: completed work, acts or omissions of the insured, nuclear incidents or conditions, and pollutions. |
|
|
Railroad Protective Liability (RPL) Limits of Insurance
|
Coverages A and B of the RPL Coverage Form are subject to an aggregate limit and an each occurrence limit.
Payment under Coverage B is also limited to the lesser of these two values: - The actual cash value of the property immediately before the physical damage occurred - The cost to repair or replace the property with other property of like kind or quality |
|
|
Dram shop acts
|
Statutes holding establishments that serve alcoholic beverages responsible for harm that results from serving patrons alcohol in violation of statutes
|
|
|
Liquor Liability Coverage Form
|
The insurer agrees to pay those sums that the insured becomes legally obligated to pay as damages because of bodily injury or property damage resulting from the selling, serving, or furnishing of any alcoholic beverage.
Available in occurrence or claims-made versions. |
|
|
Exclusions applicable to the Liquor Liability Coverage Form
|
- Expected or intended injury
- Workers compensation and similar laws - Employers liability - War - Injury arising out of any alcoholic beverage sold, served, or furnished while any required license is not in effect - Injury arising out of the named insured’s products - Other insurance (eliminates coverage for any injury to which other insurance applies, or would apply if its limits were not exhausted) |
|
|
T or F: The Liquor Liability Coverage Form excludes liability arising out of the use of an auto, aircraft, watercraft, or mobile equipment.
|
FALSE. The form does NOT exclude liability arising out of the use of an auto, aircraft, watercraft, or mobile equipment. Consequently, the form covers the liquor liability of the insured if the intoxicated person was operating an auto, aircraft, watercraft, or piece of mobile equipment at the time of the injury.
|
|
|
Limits of insurance – Liquor Liability Coverage Form
|
Subject to an aggregate limit and an each common cause limit.
|
|
|
Each Common Cause Limit
|
The each common cause limit is the most the insurer will pay for all injury sustained by one or more people as the result of the selling or serving of any alcoholic beverage to any one person. (If, for example, a drunk driver injures five people in five separate incidents after leaving Joe’s Bar, the most that Joe’s Liquor Liability Coverage Form will pay for the claims of all five people is the each common cause limit.)
|
|
|
T or F: An organization is usually required by law to obtain auto liability insurance.
|
TRUE. An organization IS usually required by law to obtain auto liability insurance.
|
|
|
Two main consequences of damage to or destruction of an auto are:
|
- Decrease in or loss of the auto’s value
- Loss of use of the auto until it can be repaired or replaced |
|
|
Valuation for auto physical damage
|
ACV or the cost of repairing the vehicle, whichever is less
|
|
|
Doctrine of respondeat superior
|
“let the employer answer”
The rule of placing liability on the employer (such as in ‘owned auto’ liability; it’s based on the fact that the employee was acting on behalf of the employer at the time of loss. The employer’s liability in this situation is also referred to as vicarious liability. |
|
|
Vicarious liability
|
Places liability on the employer for an employee’s acts because the employee was acting on behalf of the employer at the time of the loss.
Based on the doctrine of respondeat superior. |
|
|
T or F: Due to vicarious liability, the owner of an auto is liable for negligent operation of a vehicle by someone even if they are not acting on behalf of the owner.
|
FALSE. They would have to be acting on behalf of the owner.
|
|
|
Commercial auto insurance covers liability of the insured that arises out of the ____, ____, or ___ of a covered auto.
|
Ownership, maintenance, or use.
The insured’s liability in any of these situations would be covered by commercial auto insurance, assuming the owned auto is a covered auto. |
|
|
Lease
|
A rental period of six months or longer
(A shorter rental period is usually called a ‘rental’) |
|
|
Business Auto Liability Exposures
|
- Owned Autos
- Hired and Borrowed Autos - Liability Assumed Under Contract - Employers Nonownership Liability - Bailee Loss Exposures |
|
|
Employers Non-ownership Liability
|
An employer’s liability for its employees’ operation of their autos in the employer’s business
|
|
|
T or F: A bailee is legally liable for damage to customers’ property regardless of whether the damage occurs as a result of the bailee’s negligence
|
FALSE. A bailee is legally liable for damage to customers’ property ONLY if the damage occurs as a result of the bailee’s negligence.
|
|
|
Garagekeepers coverage
|
Insures loss to customers’ autos while they’re in the custody of the insured auto or trailer dealer.
(Nondealer auto service businesses, which are no longer eligible for coverage under the Garage Coverage Form, can insurer their bailee loss exposures under a separate garagekeepers endorsement to the Business Auto Coverage Form.) |
|
|
Business Auto Coverage Form
|
A coverage form, filed by ISO, that covers liability arising out of the ownership, maintenance, or use of autos and physical damage to autos owned, leased, or hired by the named insured.
|
|
|
Five sections of the Business Auto Coverage Form
|
Section I: Covered Autos
Section II: Liability Coverage Section III: Physical Damage Coverage Section IV: Business Auto Conditions Section V: Definitions |
|
|
Coverage symbols
|
Numeric symbols used in a commercial auto policy to indicate which autos are covered for particular coverages.
There are ten of them defined in Section I of the Business Auto Coverage Form. The term “symbol” is used differently in personal auto insurance, where the symbol roughly corresponds to its list price. That is not the case with commercial auto. |
|
|
Definition of “auto”
|
A land motor vehicle, trailer, or semitrailer designed for travel on public roads,
OR Any other land vehicle subject to compulsory or financial responsibility law. (Does NOT include “mobile equipment”) |
|
|
Semitrailer
|
A trailer that, because it has no front axle, relies on its power unit (truck tractor) to support its forward weight.
|
|
|
Business Auto Coverage Form Symbols
|
1. Any Auto
2. Owned Autos Only 3. Owned Private Passenger Autos Only 4. Owned Autos Other Than Private Passenger Autos Only 5. Owned Autos Subject to No-Fault 6. Owned Autos Subject To A Compulsory Uninsured Motorists Law 7. Specifically Described Autos 8. Hired Autos Only 9. Non-owned Autos Only 19. Mobile Equipment Subject To Compulsory Or Financial Responsibility Or Other Motor Vehicle Insurance Law Only |
|
|
Symbol 1 (Business Auto Coverage Form)
|
Any Auto
If Symbol 1 is entered for a coverage, that coverage is provided for any auto, including autos owned by the named insured, autos the named insured hires or borrows from others, and other nonowned autos used in the insured’s business. Symbol 1 provides the best protection for the insured. Ordinarily, this symbol is used for liability coverage only. |
|
|
Symbol 2 (Business Auto Coverage Form)
|
Owned “Autos” Only
Only those “autos” you own (and for Liability Coverage any “trailers” you don’t own while attached to power units you own). This includes those “autos” you acquire ownership of after the policy begins. It is also used for physical damage and medical payments coverages. |
|
|
Symbol 3 (Business Auto Coverage Form)
|
Owned Private Passenger Autos Only
Only the private passenger autos you own. This includes those private passenger autos you acquire ownership of after the policy begins. |
|
|
Symbol 4 (Business Auto Coverage Form)
|
Owned Autos Other Than Private Passenger Autos Only
Only those autos you own that are not of the private passenger type (and for Liability Coverage any trailers you don’t own while attached to power units you own). This includes those autos not of the private passenger type you acquire ownership of after the policy begins. |
|
|
Symbol 5 (Business Auto Coverage Form)
|
Owned Autos Subject to No-Fault
Only those autos you own that are required to have no-fault benefits in the state where they are licensed or principally garaged. This includes those autos you acquire ownership of after the policy begins provided they are required to have no-fault benefits in the state where they are licensed or principally garaged. |
|
|
Symbol 6 (Business Auto Coverage Form)
|
Owned Autos Subject To a Compulsory Uninsured Motorists Law
Only those autos you own that because of the law in the state where they are licensed or principally garaged are required to have and cannot reject Uninsured Motorists Coverage. This includes those autos you acquire ownership of after the policy begins provided they are subject to the same state uninsured motorists requirement. |
|
|
Symbol 7 (Business Auto Coverage Form)
|
Specifically Described Autos
Only those autos describe din Item Nine of the Declarations for which a premium charge is shown (and for Liability Coverage any trailers you don’t own while attached to a power unit described in Item Nine) |
|
|
Symbol 8 (Business Auto Coverage Form)
|
Hired Autos Only
Only those autos you lease, hire, rent or borrow. This does not include any auto you lease, hire, rent or borrow from any of your “employees”, partners (if you are a partnership), members (if you are a LLC) or members of their households. |
|
|
Symbol 9 (Business Auto Coverage Form)
|
Non-owned Autos Only
Only those autos you do not own, lease, hire, rent or borrow that are used in connection with your business. This includes autos owned by your employees, partners, members, or members of their households but only while used in your business or your personal affairs. |
|
|
Symbol 19 (Business Auto Coverage Form)
|
Mobile Equipment Subject To Compulsory Or Financial Responsibility Or Other Motor Vehicle Insurance Law Only
Only those autos that are land vehicles and that would qualify under the definition of mobile equipment under this policy if they were not subject to a compulsory or financial responsibility law or other motor vehicle insurance law where they are licensed or principally garaged. |
|
|
T or F: If any of symbols 1 through 6, or 19, is shown for a coverage, that coverage applies to vehicles of the type indicated by the symbol if such vehicles are acquired during the policy term.
|
TRUE. If any of symbols 1 through 6, or 19, is shown for a coverage, that coverage DOES apply to vehicles of the type indicated by the symbol if such vehicles are acquired during the policy term.
|
|
|
T or F: If symbol 7 is shown for a coverage, autos acquired are not covered from the time of acquisition.
|
FALSE. If symbol 7 is shown for a coverage, autos acquired ARE covered from the time of acquisition SO LONG AS these conditions are met:
- The insurer insures all autos owned by the named insured, or the newly acquired auto replaces a covered auto - The named insured asks the insurer to cover the newly acquired auto within 30 days of the acquisition |
|
|
T or F: If the business auto coverage form provides liability insurance, trailers with a load capacity of 1,000 pounds or less are covered automatically for liability insurance.
|
FALSE. If the business auto coverage form provides liability insurance, trailers with a load capacity of 2,000 pounds or less are covered automatically for liability insurance.
Also covered: - Mobile equipment while being carried or towed by a covered auto - Auto being used as a temporary substitute for a covered auto |
|
|
T or F: The Business Auto Coverage Form can be included in a CPP or issued as a monoline policy.
|
TRUE. The Business Auto Coverage Form CAN be included in a CPP or issued as a monoline policy.
|
|
|
The business auto form includes these five liability coverage provisions:
|
- A coverage agreement
- A definition of who is insured - Coverage extensions - Exclusions - A limit of insurance provision |
|
|
Three distinct duties of the liability coverage agreement:
|
- A duty to pay damages
- A duty to pay “covered pollution cost or expense” - A duty to defend the insured |
|
|
Definition of “accident”
|
Continuous or repeated exposure to the same conditions resulting in “bodily injury” or “property damage”
|
|
|
Pollution exclusion (business auto form)
|
Eliminates almost all coverage for bodily injury or property damage resulting from the escape of pollutants being transported by a covered auto. (However, the form covers certain pollution costs and expenses, such as those resulting from the escape of fuel or other fluids needed for the normal running of the covered auto.)
|
|
|
T or F: The insurer agrees to pay all sums the insured legally pay as “covered pollution cost or expense.”
|
TRUE. The insurer DOES agree to pay all sums the insured legally pay as “covered pollution cost or expense.” To be covered, pollution cost or expense must be caused by an accident and must result from the ownership, maintenance, or use of a covered auto. In addition, the same accident that causes the pollution cost or expense must also result in bodily injury or property damage covered by the policy. Cleanup costs for any incident excluded by the pollution exclusion are not covered.
Covered pollution cost or expense is not paid in addition to the stated limit of liability. It reduces the applicable limit. |
|
|
T or F: For the insurer’s duty to defend to kick in, the claim or suit need only allege damages that would be covered under the policy.
|
TRUE. For the insurer’s duty to defend to kick in, the claim or suit need only allege damages that would be covered under the policy. Therefore, the insurer must defend against even false or fraudulent claims or suits as long as they allege covered damages.
|
|
|
Definition of “suit”
|
Not only civil proceedings but also an arbitration proceeding or any other alternative dispute resolution proceeding to which the insured must submit or does submit with the insurer’s consent.
|
|
|
T or F: The duty to defend ends when the suit ends.
|
FALSE. The duty to defend ends when the insurer has paid its applicable policy limit in full or partial settlement of the claim.
The costs of defending the claim are payable in addition to the limit of insurance. |
|
|
Who is an insured under business auto form liability
|
Anyone other than the named insured is an insured while using – with the named insured’s permission – a covered auto owned, hired, or borrowed by the named insured.
Also, any person or org (other than those excluded) held liable for the conduct of an “insured” is also an insured. However, there are these restrictions: - A lender of an auto is not an insured unless the covered auto is a trailer connected to a covered auto owned by the named insured - An employee of the named insured is not an insured if the covered auto is owned by the employee or a member of the employee’s household - A person using a covered auto while working in the business of selling, servicing, repairing, or parking autos is not an insured unless that business is the named insured’s - Anyone other than the named insured’s employees or partners, or a lessee or borrower of a covered auto or any of their employees, is not an insured while moving property to or from a covered auto. - If the named insured is a partnership, a partner of the named insured is not an insured for a covered auto owned by that partner or by someone residing in that partner’s household - If the named insured is an LLC, a member of the named insured’s company is not an insured for a covered auto owned by that member or by someone residing in that member’s household |
|
|
T or F: If a covered auto is outside the state in which it is licensed, the limit of insurance is, if necessary, increased on that auto to the minimum required by the outside jurisdiction in which the auto is being operated.
|
TRUE. If a covered auto is outside the state in which it is licensed, the limit of insurance IS, if necessary, increased on that auto to the minimum required by the outside jurisdiction in which the auto is being operated.
Also, if the outside jurisdiction requires a different type of coverage, the policy provides such coverage automatically. |
|
|
Exclusions that apply to Business Auto Liability Coverage
|
- Expected or Intended Injury
- Contractual Liability - Workers’ Compensation - Employee Indemnification and Employer’s Liability - Fellow Employee - Care, Custody or Control - Handling of Property - Movement of Property by Mechanical Device - Operations - Completed Operations - Pollution - War - Racing |
|
|
Contractual Liability exclusion (business auto)
|
Liability assumed by contract or agreement is excluded, except in these two instances:
- Liability the insured would have in the absence of the contract - Damages assumed in an “insured contract,” provided the injury or damage occurs after the contract has been executed |
|
|
Workers Compensation exclusion (business auto from)
|
Excludes any liability under a workers’ compensation, a disability benefits, or an unemployment compensation law
|
|
|
Employee Indemnification and Employer’s Liability exclusion (business auto)
|
Eliminates, subject to two exceptions, coverage for bodily injury to employees of the insured that should be covered under work comp and employer’s liability insurance.
The two excepts that allows coverage for employee injury are injury to domestic employees not entitled to workers comp and liability assumed by the insured under an insured contract |
|
|
Fellow Employee exclusion (business auto)
|
Excludes bodily injury to any fellow employee of any insured that arises in the course of the fellow employee’s employment.
Can be deleted by endorsement. |
|
|
Care, Custody or Control exclusion (business auto)
|
No coverage exists for property owned by the insured or in the care, custody, or control of the insured. (This can be covered by an appropriate form of property insurance. Property of others can be insured under inland marine.)
|
|
|
Handling of Property exclusion (business auto)
|
Eliminates coverage for bodily injury or property damage resulting from the handling of property under these conditions:
- Before property is moved from the place where it has been accepted by the insured for movement into a covered auto - After it has been moved from a covered auto to the place where it is finally delivered by the insured The CGL covers the exposures that exist in connection with property before loading begins or after unloading is completed. |
|
|
Movement of Property by Mechanical Device exclusion (business auto)
|
Excludes bodily injury or property damage resulting from movement of property by a mechanical device unless the device is attached to the covered auto or is a hand truck.
For example, movement of property by a mechanical hoist attached to a flatbed truck is covered; movement of property by a conveyor belt not attached to the truck is excluded by the business auto form (but covered by the CGL form) |
|
|
Operations exclusion (business auto)
|
Eliminates coverage for the operation of several specified types of equipment attached to covered autos. (The specified types of equipment are “cherry pickers” and similar devices used to raise/lower workers; air compressors, pumps, or generators; equipment sued for spraying, welding, building cleaning, geophysical exploration, lighting, or well servicing; and machinery or equipment that is part of, or attached to, a land vehicle that would qualify as “mobile equipment” if it were not subject to a compulsory or financial responsibility law or other motor vehicle insurance law in the state in which it is licensed or principally garaged.)
|
|
|
Completed Operations exclusion (business auto)
|
Clarifies that the business auto form provides no insurance for completed operations performed with the insured’s autos. (For example, injury resulting from allegedly negligent snowplowing performed (and completed) by the insured would not be covered.
|
|
|
Pollution exclusion (business auto)
|
Eliminates, with few exceptions, coverage for bodily injury or property damage resulting from the discharge of any pollutants being transported or stored in, or moved to or from, a covered auto. (By a specific exception, the exclusion does not apply to the escape of fuels, lubricants, fluids, exhaust gases, or other similar pollutants needed for the functioning of the covered auto.)
|
|
|
War exclusion (business auto)
|
Excludes liability for damage caused by war, warlike actions, civil war, insurrection, rebellion, or revolution
|
|
|
Racing exclusion (business auto)
|
Excludes covered autos while they are used in organized races or demolition contests. Practice or preparation for such activities is also excluded.
|
|
|
Business auto – limit of insurance
|
Subject to a combined single limit of insurance applicable to all bodily injury, property damage, and covered pollution cost or expense arising from a single accident.
No annual aggregate limit applies. The single limit is the maximum amount the insurer will pay for all claims arising from a single accident regardless of the number of vehicles, the number of drivers, or the number of claimants involved. |
|
|
Available physical damage coverages (business auto section III)
|
- Collision coverage
- Comprehensive coverage - Specified causes of loss coverage |
|
|
Collision coverage
|
Coverage for direct and accidental loss or damage to a covered auto caused by collision with another object or by overturn.
|
|
|
Comprehensive coverage
|
Coverage for direct and accidental loss or damage to a covered auto by any peril except collision or overturn or a peril specifically excluded
|
|
|
Specified causes of loss coverage
|
Coverage for direct and accidental loss caused by fire, lightning, explosion, theft, windstorm, hail, earthquake, flood, mischief, vandalism, or loss resulting from the sinking, burning, collision, or derailment of a conveyance transporting the covered auto.
Is a slightly less expensive alternative to comprehensive coverage. |
|
|
Towing and labor coverage
|
Coverage for necessary towing and labor costs (for labor performed at the place of disablement) due to the disablement of a covered private passenger auto
|
|
|
Transportation expenses
|
Coverage extension for substitute transportation costs incurred when a private passenger type auto has been stolen.
Subject to a daily limit of $20 and a total limit of $600. Payments begin 48 hours after the theft and end when the insured auto is return to use or when the insurer pays for the auto. |
|
|
Loss of use expenses
|
Coverage extension that pays for loss of use of a rental auto when an insured becomes contractually obligated to make such payments.
Provides up to $20 per day, to a max of $600, to cover that exposure. Limits can be increased by endorsement. |
|
|
T or F: Comprehensive and specified causes of loss coverage are often purchased on the same auto.
|
FALSE. Because comprehensive coverage encompasses all of the specified causes of loss (and more), these two coverages are never purchased on the same auto.
|
|
|
T or F: Glass breakage, damage resulting from hitting an animal, and damage caused by falling objects or missiles, are paid under collision coverage.
|
FALSE. They are paid under comprehensive coverage.
This provision usually benefits the insured because most insureds carry lower deductibles on comprehensive than on collision coverage. An insured CAN choose to have glass breakage covered by collision instead of comprehensive, which would allow the insured to avoid paying two deductibles. |
|
|
Rental Reimbursement Coverage endorsement
|
Covers the cost of renting a substitute auto for a designated auto of any type that has sustained a loss due to any covered peril, subject to maximum daily and aggregate limits.
|
|
|
Exclusions for business auto physical damage
|
Very few exclusions, including:
- nuclear hazards - war or military action - Loss due and confined to wear and tear, freezing, mechanical or electrical failure, and road damage to tries - loss to tapes, records, discs, or similar devices - loss to radar detectors, laser detectors, and similar devices - loss to any electronic equipment – regardless of whether it is permanently installed in the vehicle – that reproduces, receives, or transmits audio, visual, or data signals (with some exceptions) - Loss to any accessories used with the equipment described above - Racing - Actual or perceived loss in market value resulting from a covered auto being repaired (Does NOT exclude earthquake or flood or other water damage.) |
|
|
A detailed exception reinstates coverage for all electronic equipment that reproduces, receives, or transmits audio, visual, or data signals. This applies only if:
|
- The equipment is designed to be powered solely by the vehicle’s electrical system and if it also has either of these qualities:
- It is either permanently installed in or on the vehicle or removable from or an integral part of a permanently installed housing unit - It is necessary for the auto’s normal operation or for monitoring the auto’s operation |
|
|
The most the insurer will pay for a business auto physical damage loss is the lesser of two amounts:
|
- The ACV at the time of loss
- The cost of repairing or replacing the property with other property of like kind or quality |
|
|
Limit for loss to electronic equipment that is no excluded by the policy (business auto coverage form)
|
$1000
|
|
|
T or F: If two of the insured’s vehicles collide, two deductibles will apply.
|
TRUE: If two of the insured’s vehicles collide, two deductibles will apply.
|
|
|
T or F: The deductible applicable to comprehensive coverage does not apply to loss by fire or lightning.
|
TRUE. The deductible applicable to comprehensive coverage does not apply to loss by fire or lightning.
This exception can be of considerable value to an owner of a fleet of autos that are garaged at the same location and therefore susceptible to total loss by fire. In the absence of this exemption, the insured would have to bear a portion of the loss equal to the amount of the deductible multiplied by the total number of cars destroyed. |
|
|
Loss Conditions of the Business Auto Coverage Form
|
- Appraisal for Physical Damage Losses
- Duties in the Event of an Accident, Claim, Suit or Loss - Legal Action Against the Insurer - Loss Payment – Physical Damage Coverages - Transfer of Rights Against Others |
|
|
Duties in the event of an accident, claim, suit or loss
|
- Prompt notice
- Must give assistance in obtaining the names of injured persons or witnesses - Cooperate with the insurer in its investigation and defense of the accident or loss - Immediately send to the insurer copies of any notices or legal papers received in connection with the accident or loss - Submit to physical examinations by physicians selected and paid by the insurer as often as the insurer may reasonably request - Authorize the insurer to obtain medical reports and other medical information - NOT commit the insurer to make any payment either for damages or expenses Additionally, if the claim is for loss or damage to a covered auto, the named insured must take these actions: - Promptly notify the police if the insured auto or any of its equipment is stolen - Do what is reasonably necessary to preserve the property from further loss - Permit the insurer to inspect and appraise the damaged vehicle before it is repaired - Agree to be examined under oath at the insurer’s request and give a signed statement |
|
|
T or F: Legal action can be brought against the insurer at any time by the named insured.
|
FALSE. No legal action can be brought agains the insurer under any coverage until the named insured and the insured bringing the action (if different) have complied with all provisions of the coverage form.
In addition, under the liability coverage, no action can brought against the insurer until either a court has determined that the insured is liable for the loss or the insurer has agreed in writing that the insured is liable for the loss. |
|
|
3 options that insurer has with regard to damaged or stolen property:
|
- Pay to repair or replace the property
- Return the property at the expense of the insurer and repair any damage caused by theft - Keep all of the property and pay an agreed or appraised value |
|
|
Transfer of Rights Against Others
|
If the insurer pays the loss, it is entitled, under this condition, to take over the insured’s right of recovery from the other party. (This right is referred to as subrogation.)
|
|
|
General Conditions of the Business Auto Coverage Form
|
- Bankruptcy
- Concealment, Misrepresentation, or Fraud - Liberalization - No Benefit to Bailee – Physical Damage Insurance Only - Other Insurance - Premium Audit - Policy Period, Coverage Territory - Two or More Coverage Forms or Policies Issued by the Insurer |
|
|
Bankruptcy condition
|
Bankruptcy or insolvency of the insured does not relieve the insurer of any of its obligations under the policy
|
|
|
Material fact
|
One that would have changed the underwriting decision in some way
|
|
|
Liberalization condition
|
If, during the policy term, the insurer revises the Business Auto Coverage Form to provide more coverage at no increase in premium, the insured’s policy will provide that additional coverage, automatically, as of the date the revision becomes effective in the insured’s state.
|
|
|
No benefit to bailee condition
|
Attempts to preserve the insurer’s subrogation rights by stating that the insurer does not recognize any assignment of coverage or any other grant of coverage to any person or organization that holds, stores, or transports property for a fee.
|
|
|
Other Insurance condition (business auto)
|
For any covered vehicle owned by the named insured, the coverage is primary
Otherwise: for any covered auto not owned by the named insured, the coverage is excess. Business auto liability is primary for any liability assumed under an insured contract. If 2 or more policies of the same level apply to the same loss, each policy contributes to the loss in the proportion that its limit bears to the total limits of all policies of its level. |
|
|
When an accident or a loss is covered by two or more policies issued by the same insurer or affiliated insurers, the maximum amount the insurer or affiliated insurers will be required to pay is:
|
The highest limit provided under any one policy.
However, this does not apply to any coverage specifically purchased as excess over business auto coverage, such as a commercial umbrella liability policy. |
|
|
Employees as Insureds Endorsement (business auto)
|
Covers any employee of the named insured while using any covered auto that the named insured does not own, hire, or borrow in the named insured’s business or personal affairs.
The Social Service Agencies – Volunteers as Insureds endorsement does the same thing for volunteers of social service agencies. |
|
|
Employee Hired Autos Endorsement (business auto)
|
States than an employee of the named insured is an insured while operating an auto rented in that employee’s name, with the named insured’s permission.
(The employee is covered only while performing duties related to the conduct of the named insured’s business.) |
|
|
Rental Reimbursement Coverage Endorsement (business auto)
|
Pays the cost to rent a temporary substitute auto when a covered auto has been damaged by any covered cause of loss – not just theft.
Begins to pay 24 hours after the auto was damaged. Reimbursement ends when the lesser of these periods is reached: the number of days reasonably required to repair or replace the covered auto, or the number of days shown in the schedule of the endorsement. |
|
|
Stated Amount Insurance Endorsement (business auto)
|
Modifies the auto physical damage insurance to apply on a stated amount basis. When attached, the insurer’s liability for physical damage loss is the least of these values:
- The actual cash value of the damaged or stolen property as of the time of the loss - The cost of repairing or replacing the damaged or stolen property with other property of like kind and quality - The limit of insurance shown for the covered auto in the endorsement’s schedule |
|
|
Uninsured and Underinsured Motorists Coverage Endorsements
|
Combined to provide UM and UIM coverage. Typically, applies in excess of what the injured person can collect under a workers compensation law.
|
|
|
Reasons why orgs purchase UM/UIM endorsements:
|
- Even when work comp benefits are payable, they do not always pay all of an injured employee’s damages. UM/UIM can provide needed excess coverage for these employees.
- Employees may be injured by an uninsured motorist while driving a company auto for personal use or under other circumstances that do not qualify for workers compensation. - Executive officers or other employees who are provided with company cars for personal use may have no other auto insurance and therefore want UM/UIM coverage for themselves, their family members, and other persons who occupy such autos. - The insured organization may transport customers or other persons who are not covered by work comp - The named insured may be a sole proprietor who has chosen not to be covered by work comp |
|
|
Personal Injury Protection (No-Fault) Endorsements (business auto)
|
Provides first-party benefits for medical expense, loss of income, loss of services, and funeral expenses resulting from bodily injury to occupants of a covered auto because of an auto accident. (PIP is also called no-fault coverage because it pays regardless of which party was at fault in the accident.)
|
|
|
Auto Medical Payments Coverage Endorsement (business auto)
|
Provides a prompt source of medical expense reimbursement for the named insured and other persons injured in auto accidents. Auto medical payments coverage applies regardless of who is at fault in an accident and is subject to a relatively low limit of insurance.
Is for the benefit of the named insured/his or her family members while occupying any auto or when struck by an auto as pedestrians. |
|
|
Individual Named Insured Endorsement
|
When the named insured under a Business Auto Coverage Form is a sole proprietor, the policy can be amended by endorsement to provide coverages that the named insured and his/her family members would have had if they were covered under the Personal Auto Policy.
|
|
|
Drive Other Car – Broadened Coverage for Named Individuals Endorsement
|
Provides liability insurance for the individual named in the endorsement and his or her spouse while using autos that they do not own.
|
|
|
Review the comparison of these four previous endorsements, on p. 4.35
|
Do it! You won’t regret it.
|
|
|
Waiver of Subrogation Endorsement (business auto)
|
New with the 2010 revision of the Business Auto Coverage Form
Amends the subrogation condition so that it does not apply to the entity listed in the endorsement if subrogation is waived before the accident or loss under a contract with the entity. |
|
|
Trailer Interchange Coverage Endorsement (business auto)
|
New with the 2010 revision of the Business Auto Coverage Form
Allows trailer interchange coverage to be added to the Business Auto Coverage Form for a private carrier that enters into trailer interchange agreements and wants to obtain this coverage. |
|
|
Golf Carts and Low-Speed Vehicles Endorsement (business auto)
|
New with the 2010 revision of the Business Auto Coverage Form
This endorsement allows coverage for golf carts and other low-speed vehicles that are not subject to financial responsibility or other motor vehicle insurance laws and thus would not otherwise meet the definition of “auto” in ISO commercial auto forms. |
|
|
Garage Coverage Form
|
The coverage form, filed by ISO, that covers the commercial auto and general liability exposures of auto and trailer dealers.
Is the equivalent of CGL and Business Auto in a single overage form, an approach that prevents coverage gaps and disputes that might occur if an auto dealer had separate general liability and auto policies. |
|
|
Garagekeepers coverage
|
Insures loss to customers' autos in the care, custody, or control of the insured
|
|
|
Value reporting provisions
|
Determine premiums for physical damage coverage on an auto dealer's fluctuating inventory of autos
|
|
|
Three main coverages of the Garage Coverage Form:
|
- Liability Coverage
- Garagekeepers Coverage - Physical Damage Coverage |
|
|
The only organizations that are eligible for the Garage Coverage Form are:
|
Franchised and nonfranchised auto and trailer dealers
This also includes motorcycle, two-wheeled cycle, RV, and self-propelled land motor vehicle dealers. |
|
|
Franchised dealer
|
A dealer that is authorized by one or more auto manufacturers (through a franchise agreement) to sell their autos under the manufacturers' names and trademarks
|
|
|
Nonfranchised dealer
|
Has no franchise agreement with an auto manufacturer and typically sells used vehicles
|
|
|
T or F: Prior to 2002, auto service businesses (such as repair shops, service stations, auto detailing shops, parking lots, and other garage businesses) were also eligible for the Garage Coverage Form.
|
TRUE. Prior to 2002, auto service businesses (such as repair shops, service stations, auto detailing shops, parking lots, and other garage businesses) WERE also eligible for the Garage Coverage Form. Now, they no longer are. (Those operations use the CGL and Business Auto Coverage forms)
|
|
|
The first garage policy was introduced in the year _____ and included these 3 coverages:
|
1978, and:
- Liability Coverage - Garagekeepers Coverage (covering damage to customers' autos in the insured's care, custody, or control) - Physical Damage Coverage (with a reporting form option for auto dealers' inventories) |
|
|
Garage Coverage Form (CA 00 05 03) – Sections
|
Section I – Covered Autos
Section II – Liability Coverage Section III – Garagekeepers Coverage Section IV – Physical Damage Coverage Section V – Garage Conditions Section VI – Definitions |
|
|
Garage Coverage Symbols
|
11 of them:
Symbol 21 – Any Auto Symbol 22 – Owned Autos Only Symbol 23 – Owned Private Passenger Autos Only Symbol 24 – Owned Autos Other Than Private Passenger Autos Only Symbol 25 – Owned Autos Subject to No-Fault Symbol 26 – Owned Autos Subject To A Compulsory Uninsured Motorist Law Symbol 27 – Specifically Described Autos Symbol 28 – Hired Autos Only Symbol 29 – Nonowned Autos Used in Your Garage Business Symbol 30 – Autos Left With You For Service, Repair, Storage, or Safekeeping Symbol 31 – Dealers Autos (Physical Damage Coverages) |
|
|
Garage Coverage Symbol 21
|
Any Auto
Provides the broadest coverage – includes owned, nonowned, private passenger, commercial, and newly acquired |
|
|
Garage Coverage Symbol 22
|
Owned Autos Only
Includes owned private passenger, commercial, and newly acquired, but does not include nonowned autos |
|
|
Garage Coverage Symbol 23
|
Owned Private Passenger Autos Only
Includes owned private passenger and newly acquired private passenger, but does not include owned commercial and nonowned autos |
|
|
Garage Coverage Symbol 24
|
Owned Autos Other Than Private Passenger Autos Only
Includes owned commercial and newly acquired commercial, but does not include owned private passenger and nonowned autos |
|
|
Garage Coverage Symbol 25
|
Owned Autos Subject to No-Fault
Includes owned private passenger, commercial, and newly acquired autos that are required by law to have no-fault coverage, but does not include nonowned autos |
|
|
Garage Coverage Symbol 26
|
Owned Autos Subject To A Compulsory Uninsured Motorist Law
Includes owned private passenger, commercial, and newly acquired autos that are required by law to have uninsured motorist coverage, but does not include nonowned autos |
|
|
Garage Coverage Symbol 27
|
Specifically Described Autos
Each auto separately listed on the declarations page |
|
|
Garage Coverage Symbol 28
|
Hired Autos Only
Includes leased, hired, rented, or borrowed autos; does not include autos of employees, partners, members, or household members. |
|
|
Garage Coverage Symbol 29
|
Nonowned Autos Used in Your Garage Business
Includes autos not owned, leased, hired, rented, or borrowed; includes autos owned by employees, partners, members, or household members |
|
|
Garage Coverage Symbol 30
|
Autos Left With You For Service, Repair, Storage Or Safekeeping
Includes customers' autos, which includes autos of employees and household members who pay for services performed |
|
|
Garage Coverage Symbol 31
|
Dealers Autos (Physical Damage Coverage)
Any autos and interests in autos described on declarations page |
|
|
The Garage form contains two distinct liability insuring agreements:
|
- Garage Operations – Other Than Covered Autos
- Garage Operations – Covered Autos |
|
|
Garage Operations – Other Than Covered Autos insuring agreement (Garage Coverage Form)
|
Covers damages and related defense costs for bodily injury and property damage liability arising out of garage operations other than the ownership, maintenance, or use of covered autos
|
|
|
Garage Operations – Covered Autos insuring agreement (Garage Coverage Form)
|
Covers liability arising out of garage operations involving covered autos and covers both damages for bodily injury and property damage and “covered pollution cost or expense” arising out of the ownership, maintenance, or use of covered autos.
The agreement also covers the cost of defending the insured against suits alleging bodily injury, property damage, or pollution costs covered under the policy. |
|
|
T or F: A narrower range of persons and organizations is insured for garage operations involving covered autos than for garage operations other than covered autos.
|
FALSE. A wider range of persons and organizations is insured for garage operations involving covered autos than for garage operations other than covered autos.
|
|
|
A customer who has no other available insurance is only covered by the Garage Coverage Form up to this amount
|
To the limit required by the state's compulsory insurance or financial responsibility law, even if that is less than the garage liability limit.
|
|
|
Garage liability coverage is restricted to liability arising out of:
|
“Garage operations”.
If the insured opens a new business that is not a garage and is not incidental to the existing garage business, ti will not be covered by garage liability coverage. In contrast, the CGL coverage form automatically covers any additional type of business that the insured may enter into during the policy period. |
|
|
T or F: In most states, the auto is considered a dangerous instrument, and the entity that releases it into the stream of commerce last is responsible.
|
TRUE. As a result, an auto dealer who has done nothing to the vehicle except sell it can be brought into a lawsuit alone or with the manufacturer
|
|
|
T or F: Garage liability coverage does not provide completed operations insurance.
|
FALSE. It DOES provide completed operations insurance, subject to a $100 deductible.
|
|
|
Auto Liability Coverage Exclusion – parts unique to the Garage Coverage Form
|
Eliminates liability coverage for any covered auto while leased or rented to others.
An exception: coverage is allowed when the auto is rented to a customer for use while the customer has left an auto with the insured for service. |
|
|
Watercraft and Aircraft Exclusion – parts unique to the Garage Coverage Form
|
Eliminates coverage for damages arising from watercraft and aircraft.
An exception: watercraft while on share at the premises where the garage operations are conducted. |
|
|
Garagekeepers Coverage (Section III of Garage Coverage Form)
|
Covers the insured's bailee liability for damage by a covered cause of loss to auto sand their equipment while left in the insured's care, custody, or control while the insured is attending, servicing, repairing, parking, or storing the autos in the garage operation.
Section II – Liability Coverage has a specific exclusion for damage to autos in the insured's care, custody, or control; this Section III coverage fills that gap. |
|
|
Garagekeepers Coverage – coverages for customers' autos from which the insured may select:
|
- Comprehensive
- Specified causes of loss - Fire, lightning, or explosion - Theft - Mischief or vandalism - Collision |
|
|
T or F: Garagekeepers coverage, unlike other types of liability insurance, does not pay the cost of defending the insured against suits alleging covered losses.
|
FALSE. Garagekeepers coverage, like other types of liability insurance, also pays the cost of defending the insured against suits alleging covered losses.
|
|
|
Direct coverage (an option in Garagekeepers Coverage)
|
For an additional premium, Garagekeepers Coverage can be extended to cover loss to customers' autos regardless of whether the insured is legally liable. This coverage is known as direct coverage. It allows a garage business to preserve customer goodwill by compensating its customers for their losses even if the garage has no legal obligation to do so.
Two types: direct excess and direct primary |
|
|
Direct excess coverage (an option in Garagekeepers Coverage; a form of direct coverage)
|
Two approaches:
First: Coverage applies, based on legal liability for any collectible insurance applicable to the auto. Second: Excess coverage applies after payment of any other collectible insurance, with no regard for legal liability for the damages. |
|
|
Direct primary coverage (an option in Garagekeepers Coverage; a form of direct coverage)
|
Applies without regard to legal liability and on a primary basis, not as excess coverage.
Minimum deductible of $100 and maximum deductible per occurrence. |
|
|
Garagekeepers Coverage is most appropriate for these types of businesses:
|
- Nondealer auto service operations
- Some restaurants, hospitals, or other organizations that offer valet parking to customers or patients |
|
|
Garage physical damage insurance (Section IV of the Garage Coverage Form)
|
Provides the collision and comprehensive or specified causes of loss coverages that are available under the business auto form.
|
|
|
Specified causes of loss for the Physical Damage Coverage (Section IV) of the Garage Coverage Form:
|
- Fire, lightning, or explosion
- Theft - Windstorm, hail, or earthquake - Flood - Mischief or vandalism - Sinking, burning, collision, or derailment of any conveyance transporting the covered auto. |
|
|
Garage operations have no need for these two coverages:
|
- Towing coverage
- Transportation expenses (They tend to have their own equipment/operations for both.) |
|
|
T or F: Autos held for sale by a dealer are insured in the aggregate, subject to a single overall limit.
|
TRUE. Autos held for sale by a dealer are insured in the aggregate, subject to a single overall limit. Physical damage premiums are based on the total value of covered autos.
|
|
|
Exclusions found in garage physical damage but not in the business auto form:
|
- Loss to a covered auto that is leased or rented to others
- False pretense - The named insured's expected profit (including loss of market or resale value, and diminution in value) - Loss to any auto displayed or stored at a location not shown in the declarations is excluded - Collision for any covered auto while it is being driven or transported from the point of purchase or distribution to its destination (if the two locations are more than 50 road miles apart) |
|
|
Loss to a covered auto that is leased or rented to others exclusion (Garage Coverage – Physical Damage)
|
Excluded, except if the covered auto is rented to a customer whose auto is being serviced or repaired.
|
|
|
False pretense exclusion (Garage Coverage – Physical Damage)
|
Eliminates coverage for loss to a covered auto resulting from someone causing the named insured to voluntarily part with the auto by trick, scheme, or other false pretense. Also, eliminates coverage for an auto that the insured has acquired from a seller who did not have legal title.
|
|
|
Named insured's expected profit exclusion (Garage Coverage – Physical Damage)
|
Eliminates coverage for expected profit, including loss of market or resale value, and diminution in value.
|
|
|
Loss to any auto displayed or stored at a location not shown in the declarations exclusion (Garage Coverage – Physical Damage)
|
Eliminates coverage for loss to any auto displayed or stored at a location not shown in the declarations, if the loss occurs more than 45 days after the named insured began using that location.
|
|
|
Collision coverage for any covered auto while it is being driven or transported...exclusion (Garage Coverage – Physical Damage)
|
Eliminates collision coverage for any covered auto while it is being driven or transported from the point of purchase or distribution to its destination, if the two locations are more than 50 road miles apart.
|
|
|
Section V – Garage Conditions
|
Loss Conditions
- Appraisal - Insured's duties in the event of accident, claim, suit, or loss - Legal action against the insurer - Loss payment for physical damage coverages - Transfer of rights of recovery (subrogation) General Conditions - Bankruptcy - Concealment, misrepresentation, or fraud - Liberalization - No benefit to bailee for physical damage coverages - Other insurance provisions (coordination of benefits) - Premium audit provisions (retrospective rating) - Policy period, coverage territory (with language for covered causes of loss) - Two or more coverage forms or policies issued by the insurer (intra-company coordination of benefits) |
|
|
T or F: “Mobile equipment” is included in the definition of “auto” in the garage form, but not in the business auto or CGL form.
|
TRUE. “Mobile equipment” IS included in the definition of “auto” in the garage form, but not in the business auto or CGL form.
|
|
|
In the garage form, the definition of “loss” is extended to include:
|
Loss of use for Garagekeepers Coverage only
|
|
|
Definition of “garage operations” (Garage Coverage Form)
|
The ownership, maintenance or use of locations for garage business and that portion of the roads or other accesses that adjoin these locations.
“Garage operations” includes the ownership, maintenance or use of the autos indicated in Section I as covered autos. It also includes all operations necessary or incidental to a garage business. |
|
|
Definition of “customers' auto” (Garage Coverage Form)
|
A land motor vehicle, “trailer”, or semitrailer lawfully within your possession for service, repair, storage or safekeeping, with or without the vehicle owner's knowledge or consent. A “customer's auto” also includes any such vehicle left in your care by your “employees” and members of their households, who pay for services performed.
This wording was revised in 2010 to expressly provide coverage for when an auto comes under the care, custody, or control of the garage and the owner of the auto may not have given permission. |
|
|
Broad Form Products Coverage Endorsement (Garage Coverage Form)
|
Deletes the Garage Coverage Form exclusion for defective products. Covers the named insured's liability for property damage to the named insured's products resulting from defects in those products.
Subject to a $250 deductible. |
|
|
Broadened Coverage – Garages Endorsement (Garage Coverage Form)
|
Provides these coverages:
- Personal and advertising injury liability coverage - Host liquor liability coverage - Damage to rented premises coverage - Incidental medical malpractice liability coverage - Nonowned watercraft coverage - Additional persons insured - Automatic liability coverage for newly acquired garage businesses - Limited worldwide liability coverage |
|
|
Personal and advertising injury liability coverage (Part of the Broadened Coverage – Garages Endorsement available for the Garage Coverage Form)
|
Similar to Coverage B of the CGL. Excludes employment practices (including malicious prosecution) and employment-related claims for personal injury occurring before or after, as well as during, employment
|
|
|
Host liquor liability coverage (Part of the Broadened Coverage – Garages Endorsement available for the Garage Coverage Form)
|
As long as the named insured is not engaged in an alcoholic beverage business, coverage applies to bodily injury or property damage arising out of the serving of alcoholic beverages at functions incidental to the garage business.
|
|
|
Damage to rented premises coverage (Part of the Broadened Coverage – Garages Endorsement available for the Garage Coverage Form)
|
Provides coverage comparable to the legal liability coverage of the CGL form for fire damage to rented premises, not including contents.
|
|
|
Incidental medical malpractice liability coverage (Part of the Broadened Coverage – Garages Endorsement available for the Garage Coverage Form)
|
Expands the definition of bodily injury to include injury resulting from providing or failing to provide any medical or professional healthcare services, furnishing food or drink in connection with such services, or furnishing or dispensing drugs or medical supplies. (Excludes any insured in the business or occupation of providing any of the listed services or goods.)
|
|
|
Nonowned watercraft coverage (Part of the Broadened Coverage – Garages Endorsement available for the Garage Coverage Form)
|
Provides coverage for a watercraft less than 26 feet long that is not owned by the named insured or being used to carry persons or property for a charge.
|
|
|
Additional persons insured (Part of the Broadened Coverage – Garages Endorsement available for the Garage Coverage Form)
|
If the named insured is a partnership, this provision grants insured status to the spouse of any partner of the named insured.
|
|
|
Automatic liability coverage for newly acquired garage businesses (Part of the Broadened Coverage – Garages Endorsement available for the Garage Coverage Form)
|
This provision automatically grants named insured status to any garage business that is acquired or formed by the named insured, and over which the named insured maintains ownership or majority interest. Expires after 90 days.
|
|
|
Limited worldwide liability coverage (Part of the Broadened Coverage – Garages Endorsement available for the Garage Coverage Form)
|
Broadens the Garage Coverage Form's coverage territory to include injury or damage that occurs anywhere in the world if caused by an insured who resides within the United States, its territories or possessions, Puerto Rico, or Canada, but is temporarily outside any of those places. To be covered, the original suit must be brought within the U.S., one of its territories or possessions, Puerto Rico, or Canada.
|
|
|
Garage Locations and Operations Medical Payments Coverage endorsement (Garage Coverage Form)
|
Adds medical payments coverage to the Garage Coverage Form. May be appropriate for most garage businesses because customers are ordinarily on their premises, either shopping for autos or waiting for repair or maintenance work to be completed.
|
|
|
False Pretense Coverage Endorsement (Garage Coverage Form)
|
Provides coverage for losses excluded by the false pretense exclusion. Deletes the false pretense exclusion and states that the insurer will pay for loss of any covered auto under these circumstances:
- Someone causes the named insured to voluntarily part with a covered auto by false pretenses. - The named insured acquires an auto from a seller who did not have legal title |
|
|
Exclusions in the False Pretense Coverage Endorsement
|
States that coverage does not apply unless the named insured had legal title to, or consignment papers for, the covered auto before the loss occurred; also, the insured must make every effort to recover the covered auto when it is located.
The legal title requirement does not apply if the named insured acquired an auto from a seller who did not have legal title. There is also an exclusion for any loss that results from the failure of a bank or other drawee to pay funds for any reason. |
|
|
Limit of insurance – False Pretense Coverage Endorsement
|
Limit of insurance is $25,000 per loss caused by any one person within any one year of the policy period (unless another limit is shown in the policy)
|
|
|
Dealers Driveway Collision Coverage Endorsement (Garage Coverage Form)
|
Deletes the exclusion related to collision damage to any covered auto while being driven or transported from a point of purchase or distribution to its destination (if such points are more than 50 road miles apart)
The endorsement requires the named insured to include, in its monthly or quarterly reports of values, a statement of the point of origin, the destination, and the factory price for each of the covered autos for delivery trips in excess of 50 road miles |
|
|
Audio, Visual and Data Electronic Equipment Coverage Added Limits Endorsement (Garage Coverage Form)
|
In 2010, the Garage Coverage Form was modified to provide coverage for all types of electronic equipment that are permanently installed in covered autos. The limit of coverage is $1000. The Audio, Visual, and Data Electronic Equipment Coverage Added Limits endorsement can increase the coverage limits for an additional premium.
|
|
|
Motor Carrier Coverage Form
|
The coverage form, filed by ISO, that covers businesses using autos to transport property of others or, in some cases, their own property.
|
|
|
Areas in which the Motor Carrier Coverage Form differs from the Business Auto coverage:
|
- Eligibility
- Motor carriers' use of owner-operators - Trailer interchange coverage - Trailer interchange exclusion - MCS 90 endorsement |
|
|
Definition of “motor carrier”
|
Any person or organization providing transportation by auto in the furtherance of a commercial enterprise.
|
|
|
Owner-operators
|
Individuals who lease themselves and their owned trucks to motor carriers to transport property for the motor carrier.
Owner-operators furnish their own truck-tractors (also called 'power units' or simply 'rigs') to haul cargo in trailers provided by either the owner-operator or the motor carrier. |
|
|
Symbols for Motor Carrier Coverage Form
|
61 – Any Auto
62 – Owned Autos Only 63 – Owned Private Passenger Type Autos Only 64 – Owned Commercial Autos Only 65 – Owned Autos Subject to No-Fault 66 – Owned Autos Subject to a Compulsory Uninsured Motorists Law 67 – Specifically Described Autos 68 – Hired Autos Only 69 – Trailers In Your Possession Under A Written Trailer Or Equipment Interchange Agreement 70 – Your Trailers In the Possession Of Anyone Else Under A Written Trailer Interchange Agreement 71 – Nonowned Autos Only 79 – Mobile Equipment Subject To Compulsory Or Financial Responsibility or Other Motor Vehicle Insurance Law Only |
|
|
Motor Carrier Coverage Form – Symbol 61
|
Any Auto
|
|
|
Motor Carrier Coverage Form – Symbol 62
|
Owned Autos Only
Only the autos you own (and for Liability Coverage any trailers you don't own while connected to a power unit you own). This includes those autos you acquire ownership of after the policy begins. |
|
|
Motor Carrier Coverage Form – Symbol 63
|
Owned Private Passenger Type Autos Only
Only the private passenger type autos you own. This includes those private passenger type autos that you acquire ownership of after the policy begins. |
|
|
Motor Carrier Coverage Form – Symbol 64
|
Owned Commercial Autos Only
Only those trucks, tractors and trailers you own (and for Liability Coverage any trailers you don't own while connected to a power unit you own). This includes those trucks, tractors and trailers you acquire ownership of after the policy begins. |
|
|
Motor Carrier Coverage Form – Symbol 65
|
Owned Autos Subject to No-Fault
Only those autos you own that are are required to have No-Fault benefits in the state where they are licensed or principally garaged. This includes those autos you acquire ownership of after the policy begins provided they are subject to the No-Fault law in the state where they are licensed or principally garaged. |
|
|
Motor Carrier Coverage Form – Symbol 66
|
Owned Autos Subject To a Compulsory Uninsured Motorists Law
Only those autos you own that, because of the law in the state where they are licensed or principally garaged, are required to have and cannot reject Uninsured Motorists Coverage. This includes those autos you acquire ownership of after the policy begins provided they are subject to the same uninsured motorists requirement. |
|
|
Motor Carrier Coverage Form – Symbol 67
|
Specifically Described Autos
Only those autos described in Item Three of the Declarations for which a premium charge is shown (and for Liability Coverage any “trailers” you don't own while attached to any power unit described in Item Three) |
|
|
Motor Carrier Coverage Form – Symbol 68
|
Hired Autos Only
Only those autos you lease, hire, rent or borrow. This does not include any private passenger type auto you lease, hire, rent or borrow from any member of your household, any of your employees, partners (if you are a partnership), members (if you are a limited liability company), or agents or members of their households. |
|
|
Motor Carrier Coverage Form – Symbol 69
|
Trailers In Your Possession Under A Written Trailer Or Equipment Interchange Agreement
Only those trailers you do not own while in your possession under a written trailer or equipment interchange agreement in which you assume liability for loss to the trailers while in your possession |
|
|
Motor Carrier Coverage Form – Symbol 70
|
Your Trailers In The Possession of Anyone Else Under A Written Trailer Interchange Agreement
Only those trailers you own or hire while in the possession of anyone else under a written trailer interchange agreement. When Symbol “70” is entered next to a Physical Damage Coverage in Item Two of the Declarations, the Physical Damage Coverage exclusion relating to “loss” to a “trailer” in the possession of anyone else does not apply to that coverage |
|
|
Motor Carrier Coverage Form – Symbol 71
|
Nonowned Autos Only
Only those autos you do not own, lease, hire, rent or borrow that are used in connection with your business. This includes private passenger type autos owned by your employees or partners (if you are a partnership), members (if you are a limited liability company) or members o ftheir households but only while used in your business or your personal affairs. |
|
|
Motor Carrier Coverage Form – Symbol 79
|
Mobile Equipment Subject To Compulsory Or Financial Responsibility or Other Motor Vehicle Insurance Law Only
Only those autos that are land vehicles and that would qualify under the definition of mobile equipment under this policy if they were not subject to a compulsory or financial responsibility law or other motor vehicle insurance law where they are licensed or principally garaged. |
|
|
T or F: Liability for the owner-operator's negligence can be imputed to the motor carrier whenever the owner-operator is held to have been acting within the terms of the lease.
|
TRUE. Liability for the owner-operator's negligence CAN be imputed to the motor carrier whenever the owner-operator is held to have been acting within the terms of the lease.
Customarily, the auto liability insurance of motor carriers covers owner-operators while hauling for the insured motor carrier. |
|
|
Deadheading
|
Returning with an empty trailer.
|
|
|
Bobtailing
|
Operating without a trailer.
|
|
|
Backhauling
|
The practice in which a owner-operator enters into a trip lease with another motor carrier to haul a return load.
In this case, the owner-operator should be protected by the insurance of the motor carrier that hires the owner-operator for the backhaul and not by the insurance of the motor carrier that hired the owner-operator for the initial trip. |
|
|
The owner or anyone else from whom the named insured hires or borrows a covered trailer is an insured while the trailer is connected to _______ or while the trailer is being used exclusively ______
|
- a power unit that is a covered auto
- in the named insured's business |
|
|
These two conditions must be met in order for the owner-operator (as well as any employee, agent, or driver of the owner-operator) to be an insured under the lessee's Motor Carrier Coverage Form:
|
- The vehicle must be leased to the named insured under a written agreement that does not require the lessor (owner-operator) to hold the named insured (motor carrier) harmless
- The lessor is covered only while the leased auto is used in the named insured's business as a motor carrier for hire |
|
|
When backhauling, the owner-operator should remove all identification of the first motor carrier from the truck and replace it with that of the second motor carrier, because ignoring such a precaution could...
|
...could make the first carrier legally liable if an accident occurs int eh course of the return trip
|
|
|
Trailer interchange agreement
|
A contract under which two motor carriers agree to swap trailers and to indemnify each other for any damage that occurs to the other's trailer while it is in the borrowing motor carrier's possession.
|
|
|
Trailer interchange coverage
|
Coverage for a motor carrier's liability for damage to trailers in its possession under a written trailer interchange agreement
|
|
|
A difference between the Business Auto Coverage Form and the Motor Carrier Coverage Form is that physical damage coverage under the Motor Carrier Coverage Form excludes loss to a covered auto while ___________________
|
While in someone else's possession under a written trailer interchange agreement
|
|
|
Determining Coverage During Trailer Interchange example, p. 5.28
|
Review it! You won't regret it.
|
|
|
MCS 90 endorsement
|
The commercial auto endorsement required by the Motor Carrier Act of 1980, in which the insurer agrees to pay, up to specified limits, damages that the insured becomes legally obligated to pay for liability resulting from negligence
The insurer's obligation is nearly absolute. However, the insurer has the right to proceed against its own insured for reimbursement of damages paid solely because of the endorsement. |
|
|
Motor Carrier Act of 1980 requires that certain minimum liability insurance limits be maintained on these types of vehicles:
|
- All trucks of 10,000 pounds or more gross weight used to transport certain hazardous cargos in bulk
- Trucks for hire used for interstate transportation of any type of material - All trucks that transport hazardous cargo in bulk that do not come within item two in this list |
|
|
Workers compensation statutes – what they do
|
Provide defined benefits to employees or their dependents for occupational injuries.
|
|
|
Occupational injury
|
Injury or disease arising out of and in the course of the injured person’s employment
|
|
|
T or F: Prior to the enactment of workers compensation statutes, employees could not sue their employers for occupational injury allegedly resulting from their employers’ negligent acts or omissions.
|
FALSE. Prior to the enactment of workers compensation statutes, employees COULD sue their employers for occupational injury allegedly resulting from their employers’ negligent acts or omissions.
However, in the early years of the industrial age, most employee lawsuits against employers were unsuccessful. |
|
|
3 common-law defenses that USED to protect employers against employee suits, back prior to the workers compensation statutes.
|
- The assumption-of-risk defense
- The contributory negligence defense - The fellow-servant rule |
|
|
Assumption-of-risk defense
|
(antiquated)
prevented injured employees from recovering damages for occupational injuries resulting from risks or dangers to which the employees knowingly and voluntarily exposed themselves |
|
|
Contributory negligence defense
|
(antiquated)
Prevented injured employees from recovering damages for occupational injuries resulting in part from the employees’ own negligence |
|
|
Fellow-servant rule
|
Prevented injured employees from recovering damages for occupational injuries caused by the negligence of fellow employees.
|
|
|
T or F: The workers compensation system evolved because the previous system was not meeting employees’ needs for prompt and adequate compensation for their occupational injuries.
|
TRUE. The workers compensation system DID evolve because the previous system was not meeting employees’ needs for prompt and adequate compensation for their occupational injuries.
|
|
|
The first workers compensation statutes where enacted where and when?
|
Europe, in the late 1800s
|
|
|
Individual states in the U.S. began to enact workers compensation statutes when?
|
In 1902
Early statutes were eventually declared unconstitutional by the Supreme Court as a deprivation of property without due process. Accordingly, the states began passing elective laws. |
|
|
Elective laws
|
Gave employers the choice of participating in workers compensation, but employers that chose not to participate are denied the common-law defenses that had previously protected them
|
|
|
Beginning in 1917, a Supreme Court ruling about work comp in New York produced the following result:
|
All fifty states, plus D.C., Puerto Rico, Guam, and the U.S. Virgin Islands now have workers compensation statutes. Except for the Texas statute, all state workers compensation statutes are now effectively compulsory.
|
|
|
Goals of the U.S. workers compensation system
|
- Promptly paying adequate income and medical benefits, according to a fixed and predetermined schedule, to injured employees or their dependents regardless of fault
- Eliminating the delays and costs of litigation to the employee and to society - Establishing a guarantee of benefit payment, secured by insurance - Promoting industrial safety and hygiene |
|
|
Exclusive Remedy
|
Receiving the benefits provided by the applicable workers compensation statute is frequently called an employee’s exclusive remedy or sole remedy for occupational injury, meaning that the employee cannot also sue the employer. (However, these laws do not prohibit employees from suing their employers for occupational injury in every instance.)
|
|
|
T or F: When workers are outside the scope of the relevant workers compensation statute, they retain the right to sue their employers under tort principles.
|
TRUE. When workers are outside the scope of the relevant workers compensation statute, they retain the right to sue their employers under tort principles.
|
|
|
Individual states’ workers’ compensation statutes must address issues regarding ________
|
Eligibility
|
|
|
These three issues are also important in determining the persons for whom an employer might be required to provide workers compensation benefits:
|
- Distinction between employee and independent contractor
- Statutory employees - Temporary employees and leased employees |
|
|
T or F: Generally, an employer’s legal obligations under the applicable workers compensation statute extend to employees AND independent contractors.
|
FALSE. Generally, an employer’s legal obligations under the applicable workers compensation statute extend to employees only, not to independent contractors.
|
|
|
Essential distinction between employees and independent contractors
|
Employer has the right to control and direct the activities of an employee, not only as to the result to be accomplished but also as to the methods and means by which the result is obtained
|
|
|
Statutory employee
|
An independent contractor’s employee who, because the independent contractor has not maintained workers compensation insurance, is considered to be an employee of principal employing the independent contractor
|
|
|
T or F: After paying benefits to a statutory employee, the principal ordinarily has the right to seek reimbursement from the independent contractor.
|
TRUE. After paying benefits to a statutory employee, the principal ordinarily has the right to seek reimbursement from the independent contractor.
|
|
|
Categories – IRS Factors for Determining Whether a Worker is an Employee or an Independent Contractor
|
- Behavioral control
- Financial control - Type of relationship |
|
|
Behavioral control factors – IRS factors for determining whether a worker is an employee or an independent contractor
|
- Instructions that the business gives to the worker. (An employee is generally subject to the business’s instructions.)
- Training that the business gives to the worker. (An employee may be trained to perform services in a particular manner.) |
|
|
Financial control factors - IRS factors for determining whether a worker is an employee or an independent contractor
|
- The extent to which the worker has unreimbursed business expenses. (Independent contractors are more likely to have these.)
- The extent of the worker’s investment. (An independent contractor often has a significant investment in the facilities.) - The extent to which the worker makes his or her services available to the relevant market. (An independent contractor is generally free to seek out business opportunities.) - How the business pays the worker. (An employee is generally guaranteed a regular wage.) - The extent to which the worker can realize a profit or loss. (An independent contractor can make a profit or loss.) |
|
|
Type of relationship factors - IRS factors for determining whether a worker is an employee or an independent contractor
|
- Written contracts describing the relationship the parties intended to create.
- Whether or not the business provides the worker with employee-type benefits (such as insurance, a pension plan, vacation pay, or sick pay) - The permanency of the relationship. - The extent to which the services performed by the worker are a key aspect of the regular business of the company. |
|
|
T or F: If a principal does not have evidence that its contractors carry workers compensation insurance, the principal’s workers compensation insurer is entitled to charge a premium for the work the independent contractor performed.
|
TRUE. If a principal does not have evidence that its contractors carry workers compensation insurance, the principal’s workers compensation insurer is entitled to charge a premium for the work the independent contractor performed.
|
|
|
Temporary employees
|
Employees hired for short-term assignments to cope with peak workloads or to replace an employee who is on sick leave or vacation.
Temporary employees are considered to be regular employees of the providing firm, not of the firm using the temporary employees’ services. |
|
|
Leased employees
|
Work continuously for the same firm and are subject to control by the firm just as they would be if they were the firm’s regular employees; however, they are also co-employees of the leasing contractor, sometimes called a professional employer organization (PEO), and of the client company.
|
|
|
The most prevalent occupational injuries are those caused by
|
Industrial accidents
|
|
|
Normally, an injury must meet three criteria to be compensable under workers compensation:
|
- Accidental
- Arising from employment - In the course of employment |
|
|
Definition of “accident”
|
An injurious occurrence that is unforeseen and unintended
|
|
|
T or F: Today, injuries that are not specific to date or time and that are not necessarily physical can qualify for workers compensation benefits.
|
TRUE. But this was not always the case. Because such injuries may take months or years to manifest, most state workers compensation statutes accommodate an extended period for filing a claim.
|
|
|
Compensable v. Noncompensable Injuries in Workers Compensation
|
Compensable:
- Specified occupational diseases (e.g., black lung) - Allergic reactions (e.g., latex sensitivity) - Cumulative trauma injuries (e.g., carpal tunnel syndrome) - Mental illness caused by physical trauma Compensable in some states: - Physical symptoms resulting from mental causes that are job related (such as unusual job-related tension and stress that leads to a heart attack) - Mental injuries unaccompanied by any physical manifestation (such as witnessing a fellow employee being seriously injured) Noncompensable: - Intentionally self-inflicted injuries - Certain accidental injuries (such as intoxication or willful failure to use a safety appliance or observe safety regulations) |
|
|
“In the course of employment” requires two elements:
|
- The employee must have been doing something for which he or she was employed
- The employer must have set the time and place of employment |
|
|
Positional risk doctrine
|
Adopted by some states
Specifies than an injury is considered to have arisen out of a workers’ employment if the injury would not have occurred but for the fact that the conditions and obligations of the employment placed the claimant in the position where he or she was injured. |
|
|
A general rule is that employees are not compensated for injuries that occur while:
|
Commuting to and from work.
(With some minor exceptions, such as when an employee is conducting a work-related function during the travel to and from work, or when traveling on the employer’s premises) |
|
|
Second Injury Fund
|
A state-operated or mandated fund that pays a portion of the workers compensation benefits of an injured employee whose disability is aggravated by a prior disability. In most cases, the initial injury does not have to be work related. It can result from injury, birth defect, or even a debilitating illness.
It is intended to encourage the employment of employees with disabilities. |
|
|
The first Second Injury Fund was created when and where?
|
New York in 1916
By the 1940s, all states had them, partly as a result of the National Model Code to encourage hiring of World War II veterans |
|
|
Second Injury Fund benefits
|
Depend on the state. For example, may pay the excess over what the award would have been for an employee with no prior disability or assume payments once the amount reaches a certain level.
|
|
|
Method of funding Second Injury Funds
|
States assess employers and/or insurers yearly a percentage of losses paid or premiums written the previous year. The percentage can vary depending on the financial needs of the fund.
|
|
|
Some argue that the passage of this act eliminated the need for Second Injury Funds.
|
The Americans with Disabilities Act (ADA), in 1990.
As a result of the ADA, only about 30 states currently have Second Injury Funds. |
|
|
Four categories of workers compensation benefits
|
- Medical benefits
- Disability benefits - Rehabilitation benefits - Death benefits |
|
|
Three criteria that medical care must meet in order to be covered under workers compensation:
|
- It must be related to the injury
- It must be reasonable in the amount of care given and the amount charged - It must be necessary to cure or relieve the injury |
|
|
T or F: The employer (and therefore its workers compensation insurer) generally does not have the right to have the injured worker examined.
|
FALSE. The employer (and therefore its workers compensation insurer) generally has the right to have the injured worker examined by an independent medical examiner (IME) of its choice.
|
|
|
Independent medical examiner (IME)
|
A healthcare provider who has agreed to evaluate an injured worker for a fee and who is not involved in the injured worker’s treatment.
|
|
|
Four types of disability benefits:
|
- Temporary total disability (TTD)
- Permanent total disability (PTD) - Temporary partial disability (TPD) - Permanent partial disability (PPD) |
|
|
Temporary total disability (TTD)
|
A disability caused by a work-related injury or disease that temporarily renders an injured worker unable to perform any job duties for a period of time; the worker eventually makes a full recovery and can resume all job duties
|
|
|
Benefits for TTD
|
Regardless of the employee’s actual work week, benefits are paid at the rate of one-seventh of the average weekly wage for each day.
|
|
|
Permanent total disability (PTD)
|
A disability caused by a work-related injury or disease that renders an injured employee unable to ever return to gainful employment
|
|
|
Benefits for PTD
|
A percentage of the employee’s average weekly wage, subject to weekly maximums and minimums. Payable for life or the duration of the disability.
|
|
|
Temporary partial disability (TPD)
|
A disability caused by a work-related injury or disease that temporarily limits the extent to which a worker can perform job duties; the worker is eventually able to return to full duties and hours
|
|
|
Benefits for TPD
|
Percentage (typically 66.67 %) of the difference between the weekly wage that the employee would have earned had no injury occurred and the weekly wage that the employee actually earned during the recovery period, subject to minimums and maximums.
|
|
|
Permanent partial disability (PPD)
|
A disability caused by a work-related injury or disease that impairs the injured employee’s earning capacity for life, but the employee is able to work at reduced efficiency.
|
|
|
Insurers and employers have found that encouraging employees to _____________________ is an important risk control measure that benefits both the employer and the employee.
|
Return to work on a light-duty basis
|
|
|
Maximum medical improvement
|
(MMI). For a person with PPD, the degree of permanent partial disability is not measurable until the maximum medical improvement has been reached. Therefore, an injured employee may receive TTD benefits starting at the time of the injury (after satisfying any waiting period) and then receive a PPD benefit when it is determined that a certain degree of disability is permanent.
|
|
|
Benefits for PPD
|
Most states calculate the benefit for PPD according to a schedule that allots a certain number of weeks of benefits to loss of use of a particular bodily member. The number of weeks is multiplied by the weekly TTD benefit.
|
|
|
Rehabilitation benefits
|
Include both physical and vocational rehabilitation services. Rehabilitation reduces the seriousness and, therefore, the cost of disabling injuries.
|
|
|
T or F: Vocational training or training to drive a specially equipped car are types of rehabilitation.
|
TRUE. They are classified as such.
|
|
|
Death benefits
|
Consist of income replacement to the deceased employee’s surviving spouse and dependents, and a burial allowance.
|
|
|
Most workers compensation statutes require employers to demonstrate:
|
Security, or financial ability, to pay any claims for which an employer is responsible under the statute
|
|
|
Penalties for employers that do not demonstrate financial security in compliance with statutes include:
|
- Fines
- Imprisonment of company officers - Civil penalties - Prohibition of the employer to conduct business until the requirement is met - Allowing injured employees to sue the employer without the employer’s common-law defenses being available |
|
|
Some methods by which to demonstrate security under workers compensation statutes:
|
- Obtain insurance from the voluntary market
- Obtain insurance from an assigned risk plan - Obtain insurance from a state fund - Have a qualified self-insurance plan - Participate in a self-insured group |
|
|
The amount of workers compensation business assigned to each licensed insurer in an assigned risk plan is in proportion to:
|
To the insurer’s share of the voluntary workers compensation market
|
|
|
State fund
|
A workers compensation insurer that is set up by the state in which it operates either as an agency of the state government or as a mutual or not-for-profit insurer
|
|
|
Competitive fund
|
A state fund that sells workers compensation insurance in competition with private insurers
|
|
|
Monopolistic state fund (exclusive state fund)
|
A facility, owned and operated by a state government, that provides workers compensation insurance and that does not permit any other insurers to sell workers compensation insurance in that state
|
|
|
T or F: Some state funds have created subsidiaries that operate in neighboring states.
|
TRUE. Some state funds HAVE created subsidiaries that operate in neighboring states. This is to meet the insurance needs of insureds with multistate operations.
|
|
|
Fronting
|
An arrangement in which the private (“fronting”) insurer issues a policy in its name but the state fund agrees to reimburse the fronting insurer for losses it pays under the policy.
|
|
|
T or F: State funds accept all applicants for workers compensation insurance in the state.
|
FALSE (mostly). State funds accept any good-faith applicant for workers compensation insurance in the state. Consequently, no assigned risk plan is necessary in the states that have state funds.
|
|
|
Employers’ mutual
|
Not part of the voluntary market. It’s a type of state fund authorized to operate as a domestic mutual insurer but with continued oversight by the state. They must also accept all good-faith applicants.
|
|
|
To qualify as a self-insurer, an employer must:
|
- Post a surety bond or other collateral with the workers compensation administrative agency of the state to guarantee the security of benefit payments.
In addition, most states require evidence of an ability to administer the benefit payments and services mandated by law. |
|
|
Two types of excess insurance that are commonly written in conjunction with self-insured workers compensation programs are:
|
- Specific excess
- Aggregate excess |
|
|
Self-insured group (pool or trust)
|
A group of employers in the same industry that jointly (as a whole) and severally (individually) guarantee payment of workers compensation benefits to the employees of the group’s members. A not-for-profit association or corporation is typically formed to which they pay premiums for self-insurance purposes.
The group retains an administrator to run the day-to-day operations and a third-party administrator (TPA) to manage claim administration. (Sometimes one firm provides both services.) |
|
|
T of F: Self-insured group members are subject to assessments to fund shortages.
|
TRUE. This is in contrast to insurance from a private insurer. If a private insurer becomes insolvent, each of its policyholders is responsible only for its own losses.
|
|
|
T or F: The workers compensation statutes of only one state can apply even if the circumstances of employment occur in different states.
|
FALSE. In any given case of an employment-related injury, the workers compensation statutes of two or more states may apply if the circumstances of employment occur in different states.
|
|
|
Examples of circumstances of employment that could provide a basis for an injured employee to choose the statute that applies to a particular incident:
|
- Place of injury
- Place of hire - Place of employment - Location of the employer - Residence of the employee - Whether the employee and the employer have agreed to abide by the workers compensation statute of a particular state |
|
|
T or F: In circumstances where multiple states’ statutes apply, an employee will generally choose the statute that provides the most advantageous benefits
|
TRUE. In circumstances where multiple states’ statutes apply, an employee WILL generally choose the statute that provides the most advantageous benefits
|
|
|
Extraterritorial provision
|
A provision of a workers compensation statute that extends protection to an employee who is injured while temporarily working in a state other than the state of hire.
(For example: a roofing contractor domiciled in State A contracts work in State B and sends its regular employees there to work. An employee who lives and regularly works in State A is injured while temporarily working in State B. The extraterritorial provision in the State A’s workers compensation law entitles the employee to benefits under State A’s law. Even though the accident occurred in State B and State B is not listed in the insured’s policy declarations, coverage is provided by the insurer covering State A locations.) |
|
|
An employee who lives in State A agrees to work for an employer domiciled in State B and the employee is injured while working in State C. The workers compensation laws of which states will apply?
|
The workers compensation laws of all three states might apply, and, if so, the employee can select among the applicable state laws. The employee cannot receive duplicate benefits but can select the state law with the most advantageous benefits.
|
|
|
T or F: Very few states have reciprocal agreements with other states that permit the extraterritorial coverage of the home state policy to meet the coverage requirements of another state for injured employees temporarily working in the second state.
|
FALSE. MANY states have reciprocal agreements with other states that permit the extraterritorial coverage of the home state policy to meet the coverage requirements of another state for injured employees temporarily working in the second state.
|
|
|
Federal statutes that provide for no-fault benefits in the same manner as state workers compensation laws
|
(Apply to groups such as federal employees and maritime employees)
- Longshore and Harbor Workers Compensation Act - Defense Base Act - War Hazards Compensation Act - Outer Continental Shelf Lands Act - Nonappropriated Fund Instrumentalities Act - Federal Black Lung Benefits Act - Federal Employees’ Compensation Act |
|
|
Federal statutes that give certain employees the right to sue their employers for occupational injury allegedly caused by their employers’ negligence
|
(Apply to groups such as employees of interstate railroads and crew members of vessels)
- Migrant and Seasonal Agricultural Worker Protection Act - Federal Employers’ Liability Act - Jones Act - Death on the High Seas Act |
|
|
Third category of federal laws that provide remedies for occupational injury of employees who may or may not be covered by workers compensation statutes
|
Includes aspects of general maritime law that provide remedies for crew members of vessels
|
|
|
U.S. Longshore and Harbor Workers’ Compensation Act (LHWCA)
|
Provides for the payment of benefits for employment-related accidental injury, occupational disease, or death of a covered maritime employee.
Benefits tend to be more liberal than similar work comp provisions. Supreme Court has ruled that coverage under the LHWCA is meant to supplement, rather than supplant, coverage for injuries that might also be covered under a state workers compensation statute. |
|
|
Situs test
|
A test that a claimant must satisfy to be covered under the U.S. Longshore and Harbor Workers Compensation Act; it requires that, at the time of injury, the claimant must have been on navigable waters or on adjoining areas such as piers, wharves, dry docks, terminals, building ways, marine railways, or other areas customarily used in loading, unloading, repairing, dismantling, or building vessels.
|
|
|
To be covered under the LHWCA, a claimant must satisfy both a _____ test and a _____ test.
|
Situs, status
|
|
|
Navigable waters
|
Any waters that, by themselves or by uniting with other waters, form a continuous highway over which commerce may be carried out with other states or foreign countries. (Includes the ‘high seas’.)
|
|
|
Status Test
|
A test that a claimant must satisfy to be covered under the U.S. Longshore and Harbor Workers’ Compensation Act; it requires that, at the time of injury, the claimant must have been engaged in maritime employment.
Introduced in 1972. |
|
|
Defense Base Act
|
Employees Subject to Statute:
(1) Civilian employees at U.S. military bases acquired from foreign governments, and (2) Civilian employees working overseas under contracts with agencies of the U.S. government Nature of Remedy: Eligible employees are entitled to the same types of benefits defined by the LHWCA, but the minimum compensation rates of the LHWCA do not apply Introduced in 1941 |
|
|
War Hazards Compensation Act
|
Employee Subject to Statute:
Same employees covered by Defense Base Act, while in a war zone and injured by a war-risk hazard Nature of Remedy: Eligible employees can collect the same benefit as under the Defense Base Act for injury occurring at any time; injury need not occur in the course of employment No reimbursement is allowed for the WHCA if the Defense Base Act insurer has charged additional premium for the war hazard. |
|
|
Outer Continental Shelf Lands Act
|
Employees Subject to Statute:
Employees on fixed offshore drilling and production platforms on the Outer Continental Shelf of the U.S. Nature of Remedy: Eligible employees are entitled to the same benefits as defined by the LHWCA. |
|
|
Nonappropriated Fund Instrumentalities Act
|
Employees Subject to Statute:
Civilian employees of “non-appropriated fund instrumentalities” on U.S. military bases, such as stores and theaters Nature of Remedy: Eligible employees are entitled to the same benefits as defined by the LHWCA |
|
|
Federal Black Lung Benefits Act
|
Employees Subject to Statute:
Coal miners who have suffered or are suffering from black lung disease and were or are employed in one or more underground coal mines for ten years or more Nature of Remedy: Eligible employees are entitled to collect disability and death benefits as defined by statute Passed as Title IV of the Federal Coal Mine Health and Safety Act of 1969; then as part of the revised/renamed Federal Mine Safety and Health Act of 1977 |
|
|
Federal Employees Compensation Act
|
Employees Subject to Statute:
Nonmilitary employees of the U.S. government Nature of Remedy: Eligible employees are entitled to collect benefits as defined by the statute. |
|
|
Five types of maritime activity
|
- Loading vessels
- Unloading vessels - Repairing vessels - Building vessels - Dismantling vessels |
|
|
Excluded types of persons under the LHWCA
|
- Masters or crew members of a vessel
- Persons engaged to load, unload, or repair small vessels less than 18 tons net - Officers or employees of the U.S. government or agencies or foreign governments |
|
|
Pneumoconiosis
|
Black lung disease
|
|
|
Rebuttable presumption
|
An inference drawn from certain facts that establish a prima facie case, which may be overcome by the introduction of contrary evidence.
(In other words, those provisions of Title IV shift the usual burden of proof so that the miner does not have to prove that the disease resulted from mine employment. However, the employer has the right to present evidence that overcomes the presumption.) |
|
|
Irrebuttable presumption
|
A presumption that cannot be overcome by any additional evidence or argument. Thus, the employer cannot present evidence that overcomes the presumption just described.
|
|
|
Mirgrant and Seasonal Agricultural Worker Protection Act
|
Employees Subject to Statute:
Migrant and seasonal farm workers Nature of Remedy: If not covered by workers compensation insurance, eligible employees can sue their employers for negligence |
|
|
Federal Employers’ Liability Act
|
Employees Subject to Statute:
Employees of interstate railroads Nature of Remedy: Eligible Employees can sue their employers for negligence |
|
|
Jones Act
|
a.k.a., the Merchant Marine Act of 1920
Employees Subject to Statute: Members of a vessel’s crew Nature of Remedy: Eligible employees can sue their employers for negligence. |
|
|
Death on the High Seas Act
|
Employees Subject to Statute:
Members of a vessel’s crew Nature of Remedy: Survivors of eligible employees may sue crew members’ employers for death caused by “wrongful act, neglect, or default”, occurring beyond a marine league from the shore of any U.S. state or territory |
|
|
Marine league
|
Three nautical miles
|
|
|
Migrant worker
|
A person who is employed in agricultural work of a seasonal or other temporary nature who is required to be absent overnight from his or her permanent place of residence
|
|
|
Seasonal agricultural worker
|
Differ from migrant workers only in that they are not required to be absent overnight from their permanent place of residence
|
|
|
Three remedies for injured crew members or the survivors of deceased crew members are based on general maritime law rather than on statutes:
|
- Maintenance and cure
- Vessel owner’s warranty of seaworthiness - Liability for death under the Moragne remedy |
|
|
General maritime law
|
A branch of the federal common law, consisting of precedents and doctrines developed through federal case law in maritime litigation.
Because crew members are not subject to state workers compensation laws or the LHWCA, their common-law right to sue for occupational injuries has not been eliminated as it has for most other types of employees. |
|
|
Maintenance and cure (remedy under general maritime law)
|
An employer is legally obligated to pay the costs of providing maintenance and cure for any person who is injured or who becomes ill while serving as a member of the vessel’s crew
“Maintenance” – includes the costs of loding and food for the crew member until maximum medical cure is achieved “Cure” – covers the costs of medical care |
|
|
Vessel owner’s warranty of seaworthiness (remedy under general maritime law)
|
The vessel owner is liable for damages resulting from injuries sustained by crew members because of the vessel’s unseaworthiness or a failure to supply and keep the vessel’s appurtenances, gear, and equipment in proper working order.
|
|
|
Liability for death under the Moragne remedy (remedy under general maritime law)
|
The “Moragne remedy” (defined by the U.S. Supreme Court in “Moragne v. States Marine Lines, Inc.) provides for recovery for deaths occurring within territorial waters or on the high seas that are caused by either negligence or unseaworthiness of the vessel.
|
|
|
Workers compensation insurance
|
Insurance that provides coverage for benefits an employer is obligated to pay under workers compensation laws.
Typically provided under a standard form known as the Workers Compensation and Employers Liability Insurance Policy (WC&EL policy) |
|
|
National Council on Compensation Insurance
|
An insurance advisory organization for insurers writing workers compensation insurance.
|
|
|
WC & EL policy combines coverage for both of these
|
- The insured’s obligation to pay benefits required by a workers compensation law
- The insured’s legal liability to pay damages because of occupational injury to the insured’s employees as a result of a claim or suit based on legal grounds other than a workers compensation law or a similar law. |
|
|
T or F: a WC&EL policy begins with a declarations page.
|
FALSE. Instead of a dec page, the WC&EL policy begins with an Information page. It is, however, equivalent to the dec page of other policies.
|
|
|
Six parts of WC&EL coverage
|
Part One – Workers Compensation Insurance
Part Two – Employers Liability Insurance Part Three – Other States Insurance Part Four – Your Duties If Injury Occurs Part Five – Premium Part Six – Conditions |
|
|
Information Page of the WC&EL: Item 1
|
Provides essential information about the insured, including the insured’s name and mailing address, the insured’s type of legal entity, and the workplaces other than the insured’s mailing address
|
|
|
Information Page of the WC&EL: Item 2
|
Shows the coverage period.
|
|
|
Information Page of the WC&EL: Item 3
|
Summarizes the coverage provided by the policy under parts A-D (i.e., Parts One through Four)
|
|
|
Information Page of the WC&EL: Item 4
|
Contains the information necessary to calculate the estimated policy premium. It includes a description of the classification(s) and the corresponding code number assigned to the types of employees working in the insured’s business, which are taken from the applicable workers compensation manual.
|
|
|
Experience modification factor
|
A factor that tailors manual rates to an insured’s experience based on the insured’s payroll and loss record of certain prior years.
Each employer is assigned an experience modification factor based upon the last three complete years of that employer’s loss history. |
|
|
Calculation for estimated premium (workers comp information page)
|
(Estimated annual remuneration divided by $100) x Rate per $100 of remuneration = Estimated annual premium
The Estimated Annual premium is then multiplied by an experience modification applied to those insureds that meet premium eligibility requirements. Then, any estimated discounts are deducted. |
|
|
WC&EL policy definition of “state”
|
Any of the 50 states or the District of Columbia. Coverage can be provided for the work comp law of a U.S. territory by naming the territory in Item 3 on the Information Page.
|
|
|
If the policy and the applicable workers compensation law conflict, the policy will conform to
|
The law
|
|
|
WC&EL policy covers all of the insured’s workplaces listed in Items __ or ___ of the Information Page, as well as all the insured’s workplaces in states listed in Item 3.A., unless the insured has other insurance or is self-insrued for such workplaces.
|
Items 1 or 4
|
|
|
The WC&EL – Insurer’s Duty to Defend
|
The WC&EL policy expresses the insurer’s right and duty to defend the insured against any claim, proceeding, or suit for benefits payable by the policy.
The insurer also agrees to pay additional costs as part of any claim, proceeding, or suit that the insurer defends. |
|
|
Examples of situations in which the insurer, because of the insured’s misconduct, may have to make workers compensation payments in excess of the benefits ordinarily provided by the workers compensation law:
|
- The insured engages in serious and willful misconduct
- The insured knowingly hires an employee in violation of law - The insured fails to comply with a health or safety law or regulation - The insured discharges, coerces, or otherwise discriminates against an employee in violation of the workers compensation law |
|
|
Recovery From Others provision – Workers Compensation
|
Reaffirms the insurer’s subrogation rights. When the insurer pays workers compensation benefits on an insured’s behalf, any right of recovery the insured or the injured employee may have against a third party becomes the right of the insurer.
|
|
|
Employers liability insurance
|
Insurance that protects an employer against employee injury claims that are not covered by workers compensation laws
|
|
|
Four types of claims covered by employers liability insurance
|
- Third-party-over claims
- Claims for care and loss of services - Claims for consequential bodily injury - Dual-capacity claims |
|
|
Third-party-over claims (employers liability insurance)
|
If an employee of the insured sues a third party (such as a machine manufacturer) for an occupational injury, the third party can sue the employer.
|
|
|
Claims for care and loss of services (employers liability insurance)
|
Damages that the spouse of an injured or a deceased person can obtain from the liable party, also known as loss of consortium.
|
|
|
Claims for consequential bodily injury (employers liability insurance)
|
Suffered by family members of an injured employee as a consequence of injury to the employee. (For example, AIDS contracted by the spouse of a healthcare worker who contracted AIDS as a result of negligence imputed to the worker’s employer.)
|
|
|
Dual-capacity claims (employers liability insurance)
|
Occur when an injured employee sues his or her employer for damages resulting from the employer having acted in some capacity other than as an employer. (Typically, these involve products liability.)
|
|
|
Employers Liability Insuring Agreement
|
The insurer agrees to pay damages that the insured becomes legally obligated to pay because of bodily injury by accident or disease to an employer.
The bodily injury must arise out of and in the course of employment, and the legal obligation must not be covered under a state or federal workers compensation or disability benefits law. The insurer also agrees to defend the insured against claims or suits seeking covered damages. |
|
|
Requirements for employers liability insurance to be triggered under a policy:
|
- For bodily injury caused by accident, the policy that is in effect when the injury occurs is the policy that applies.
- For bodily injury caused by disease, the policy that is in effect on the employee’s last day of last exposure to the conditions causing or aggravating the injury is the policy that applies. |
|
|
Employers Liability Exclusions
|
- Claims that would be covered under:
* Any work comp and occupation disease benefits law * LHWCA * The Federal Employers’ Liability Act * The Migrant and Seasonal Agricultural Worker Protection Act * Any other federal workers compensation or occupational disease law - Bodily injury that occurs outside the U.S. + territories & possessions, and Canada - Liability assumed under a contact - Punitive or exemplary damages for injury or death of any illegally employed person - Bodily injury to employees employed in violation of the law with the knowledge of the insured or any executive officers of the insured - Bodily injury intentionally caused by the insured - Damages arising out of employment practices, including (but not limited to) demotion, evaluation, harassment, discrimination, and termination - Fines or penalties imposed for violation of federal or state law |
|
|
Employers liability coverage is subject to these 3 monetary limits of liability:
|
- Bodily injury by accident limit
- Bodily injury by disease – policy limit - Bodily injury by disease – each employee limit |
|
|
Bodily injury by accident limit (employers liability insurance)
|
The most the insurer will pay for bodily injury resulting from any one accident, regardless of the number of employees injured
|
|
|
Bodily injury by disease – policy limit (employers liability insurance)
|
The most that the insurer will pay for all bodily injury by disease, regardless of the number of employees who sustain disease
|
|
|
Bodily injury by disease – each employee limit (employers liability insurance)
|
The most the insurer will pay for bodily injury by disease to any one employee
|
|
|
Other states insurance
|
Insurance that automatically extends coverage to the insured’s operations in any state listed in Item 3.C of the WC&EL Information Page
|
|
|
Four monopolistic work comp states:
|
North Dakota, Ohio, Washington, and Wyoming
Employers liability coverage is not provided by the state monopolistic work comp funds, but can be provided by insurance companies. |
|
|
Stopgap insurance
|
Employers liability coverage provided by insurance companies when in a monopolistic state where the monopolistic fund provides the work comp coverage
|
|
|
T or F: When a state is listed in Item 3.C. of the Information Page, the policy will cover the named insured’s obligations under the workers compensation law of that state just as if that state were listed in Item 3.A.
|
TRUE. When a state is listed in Item 3.C. of the Information Page, the policy WILL cover the named insured’s obligations under the workers compensation law of that state just as if that state were listed in Item 3.A.
|
|
|
If the insured has operations in a particular state on the effective date of the WC&EL policy but that state is not listed in Item 3.A., the insured must notify the insurer within ____ days or else no coverage will apply for that state.
|
30 days
|
|
|
T or F: The WC&EL policy requires that the injury occur in a state listed in Item 3.A. or 3.C.
|
FALSE. The WC&EL policy does NOT require that the injury occur in a state listed in Item 3.A. or 3.C.
|
|
|
Duties of the insured as expressed by the WC&EL policy:
|
- Provide for immediate medical and other services required by the work comp law
- Provide the insurer with the names and addresses of the injured person and of witnesses, and other information as needed - Promptly provide all notices, demands, and legal papers related to the injury, claim, proceeding, or suit - Cooperate with and assist the insurer, as they request, in the investigation, settlement, or defense of any claim, proceeding, or suit - Do nothing after an injury occurs that would interfere with the insurer’s right to recover from others - Do not voluntarily make payments, assume obligations or incur expenses, except at the insured’s own cost |
|
|
Part Six of the WC&EL: Conditions
|
- Inspection
- Long-Term Policy - Transfer of Your Rights and Duties - Cancellation - Sole Representative |
|
|
Inspection Condition (WC&EL)
|
The insurer has the right, but is not obligated, to inspect a policyholder’s workplaces and operations to determine that safe practices are used and proper precautions taken for the safety of employees, and to recommend changes.
|
|
|
Long-Term Policy Condition (WC&EL)
|
If the policy period is longer than one year and sixteen days, each year is considered separate as far as policy provisions are concern, and premium is computed in accordance with the manual rules and rates in effect for that year.
|
|
|
Transfer of Your Rights and Duties Condition (WC&EL)
|
The named insured’s rights and duties under the policy cannot be transferred, or assigned, to another party unless the insurer provides its written consent
|
|
|
Cancellation Condition (WC&EL)
|
The insurer’s cancellation rights are outlined, and the insurer is subject in all cases to any requirements of the applicable workers compensation law.
Unless subject to a different requirement under the applicable statute, the insurer must provide at least 10 days’ written notice before cancellation becomes effective; the insured need only give advance written notice of cancellation. |
|
|
Sole Representative Condition (WC&EL)
|
The first named insured acts on behalf of all insureds for premium payment, refund, cancellation, and other rights and duties under the policy.
|
|
|
Workers Compensation Endorsements filed by the NCCI
|
- Voluntary compensation and Employers Liability Coverage Endorsement
- Foreign voluntary compensation coverage - Longshore and Harbor Workers’ Compensation Act Coverage Endorsement - Maritime Coverage Endorsement - Waiver of Our Right to Recover From Others Endorsement - Alternate Employer Endorsement |
|
|
Voluntary Compensation and Employers Liability Coverage Endorsement
|
Endorsement that amends the WC&EL policy to cover employees who are not subject to a workers compensation statute.
Obligates the insurer to pay, on behalf of the insured, an amount equal to the compensation benefits that would be payable to such employees fi they were subject to the workers compensation law designated in the endorsement. |
|
|
Most common types of employment exempted from statutory workers compensation benefits:
|
- Farm
- Domestic - Casual labor These can be covered, however, using the Voluntary Compensation and Employers Liability Coverage Endorsement |
|
|
True volunteers who are not compensated for their services do not, strictly speaking, come under the Voluntary Compensation and Employers Liability Coverage Endorsement unless the state’s workers compensation law specifically includes them. Nevertheless, some insurers use the endorsement for nonmandated coverage, make a charge based on what the payroll would be for employees performing the same functions, and pay any claims that occur. An alternative approach is to purchase:
|
Accidental death and dismemberment coverage for volunteers
|
|
|
Foreign Voluntary Compensation Coverage – Employees Temporarily Outside the U.S.
|
Foreign voluntary workers compensation coverage provides “home-state” coverage or, for U.S. employees who are working outside the country with no time limit, coverage equal to that required by the Defense Base Act or the LHWCA. These endorsements often include coverage for repatriation expense and endemic disease.
|
|
|
Foreign voluntary workers compensation coverage
|
Coverage that insures employees who are working outside the U.S. and who are not subject to a workers compensation law for benefits equal to those provided under either the workers compensation statute of a specified state or a specified federal compensation act.
|
|
|
T or F: Workers compensation laws in the U.S. provide coverage for transporting ill or deceased employees home and for disease that is prevalent in a particular country that an employee contracts as a consequence of his or her employment (e.g., malaria).
|
FALSE. Workers compensation laws in the U.S. do NOT provide coverage for transporting ill or deceased employees home, or coverage for disease that is prevalent in a particular country that an employee contracts as a consequence of his or her employment – for example, malaria in tropical countries.
|
|
|
Employees who are temporarily outside the U.S. are generally covered by
|
The extraterritorial provision of the workers compensation statute of the state in which they regularly work, provided they have not been out of the U.S. for longer than the time limit specified in the statute. That time limit can be as much as six months in some states but as little as 30 days in others.
|
|
|
For employees regularly outside the U.S., coverage for employee injuries and occupational disease can be very different and complicated. No workers compensation insurance is available in those countries, in most cases, but there is this remedy:
|
Employees retain the right to sue their employers.
(Therefore, employers need employers liability insurance.) |
|
|
United States Longshore and Harbor Workers Compensation Act Endorsement
|
An endorsement that amends the Workers Compensation and Employers Liability Insurance Policy to cover the insured’s obligations under the U.S. Longshore and Harbor Workers Compensation Act
|
|
|
Maritime Coverage Endorsement
|
Endorsement that amends the Workers Compensation and Employers Liability Insurance Policy to cover an employers liability for injury or death of crew members.
An alternative to P&I for covering an employers liability for injury or death of crew members. It changes how insurance is provided by Part Two (Employers Liability Insurance) to those employers required to provide maritime benefits under the Jones Act. |
|
|
Protection and indemnity (P&I)
|
A type of marine insurance that covers a variety of liability loss exposures of shipowners, and which may or may not include coverage for the shipowner’s liability for death or injury to crew members.
|
|
|
3 restrictions applying to the Maritime Coverage Endorsement:
|
- The bodily injury must occur within the territorial limits of, or in the operation of a vessel sailing directly between the ports of, the continental U.S., Alaska, Hawaii, or Canada
- The endorsement does not cover bodily injury covered by a P&I policy issued to the insured or for the insured’s benefit, even if the P&I policy does not apply because of another insurance clause, a deductible, or a similar provision - Does not cover the insured’s duty to provide maintenance and cure |
|
|
Voluntary Compensation Maritime Coverage Endorsement
|
Obligates the insurer to pay benefits to crew members in the same manner as the Voluntary Compensation and Employers Liability Coverage Endorsement
|
|
|
Waiver of Our Right to Recover From Others Endorsement
|
The endorsement in which a workers compensation insurer agrees not to enforce its right of subrogation against any organization listed in the endorsement’s schedule.
Sometimes required by insured’s contracts (particularly construction contracts). Insurers generally charge additional premium for providing this waiver. |
|
|
Alternate Employer Endorsement
|
The endorsement that extends workers compensation and employers liability coverage to an additional organization named in the endorsement.
|
|
|
National Workers Compensation Reinsurance Pool
|
An NCCI-administered pool that provides reinsurance on coverage provided under these specialty endorsements, as well as standard workers compensation coverage.
|
|
|
Experience rating plan
|
A rating plan that increases or reduces the premium for a future period based on the insured’s own loss experience for a period in the recent past.
Experience rating plans encourage using risk control to the greatest extent practicable to prevent or reduce workers compensation losses. Experience rating uses a formula that compares an insured’s actual losses with the losses expected for an average insured in the same classification and adjusts future rates up or down based on the result. |
|
|
Safety experts estimate that the indirect costs of a workers’ injury can be ______ times the direct costs that are covered by insurance
|
4 or more
|
|
|
Experience rating can reduce workers compensation rates as much as ___ percent for insureds with excellent loss experience and increase rates up to ___ percent for those with poor experience
|
70 percent, 350 percent
|
|
|
T or F: Claim frequency is higher in workers compensation than in most other types of commercial insurance
|
TRUE. Claim frequency IS higher in workers compensation than in most other types of commercial insurance
|
|
|
Retrospective rating
|
Determines the premium for a policy period based on the insured’s actual loss experience during that same policy period.
An alternative to experience rating. |
|
|
Unique characteristics of experience rating plans
|
- Depend on statistically meaningful data to appropriately estimate losses
- Apply only to employers whose average premiums for prior periods exceed a certain amount (levels vary by state; common is an average of $5000 in premium for more than two years, or $10000 total for two years or less) - Use three years’ experience as the basis for the modification (An experience-rated premium effective 1/1/2011 would be based on the insured’s loss experience in the policy periods for 2007, 2008, and 2009) - Do not depend entirely on the insured’s own loss experience (credibility factors, industry averages, etc.) - Give more weight to small losses than to large losses because small losses occur more frequently than large losses (because of their greater frequency, small losses are more credible than large losses for predicting future losses) - They cap the maximum surcharge that can be applied |
|
|
Review the Workers Compensation Experience Modification Example on p. 6.51
|
It’ll be good for you!
|
|
|
When an entity’s losses reflect the expected losses for its type of industry, the entity’s experience modification will be:
|
1.00
|
|
|
Possible sources of errors in an experience modification calculation include:
|
- Using incorrect classification codes or payroll allocations
- Failing to include all payroll data when calculating expected losses - Incorrectly reporting loss reserves - Failing to remove the reserves for closed claims from the rating data - Failing to revise claim values to reflect subrogation recoveries, second injury fund recoveries, and loss apportionment among different insurers |
|
|
Contingent-fee firms
|
Numerous firms specialize in analyzing experience modification calculations on a contingent-fee basis. Such firms are paid only if they find errors that produce a reduction for the insured. Contingent fees may be as high as 50 percent of the insured’s savings. Insureds, their advisers, and insurers should carefully review experience modification calculations for errors.
|
|
|
Corporation
|
Owned by its stockholders but controlled by its board of directors.
|
|
|
Directors
|
(sometimes called trustees)
May be major stockholders and executive officers of the corporation, but directors also usually include outside business or social leaders who often have little financial stake in the corporation. A corporation’s directors are elected by its stockholders in accordance with the corporation’s bylaws. The board of directors establishes corporate policy, makes major business and financial decisions, and appoints the corporation’s executive officers to manage the corporation’s daily operations. |
|
|
Bylaws
|
The rules by which a corporation governs itself
|
|
|
Major responsibilities of corporate directors
|
- Establishing the corporation’s basic goals and broad policies
- Electing or appointing the corporate officers, advising them, approving their actions, and auditing their performance - Safeguarding and approving changes in the corporation’s assets - Approving important financial matters and ensuring that proper annual and interim reports are given to stockholders - Delegating special powers to others to sign contracts, open bank accounts, sign checks, issue stock, obtain loans, and conduct any activities that may require board approval - Maintaining, revising, and enforcing the corporate charter and bylaws - Perpetuating a competent board by conducting regular elections and filling interim vacancies with qualified persons. - Fulfilling their fiduciary duties to the corporation and its stockholders |
|
|
Most important aspect of the corporation in analyzing D&O liability loss exposures
|
The fiduciary relationship
Breach of fiduciary duty is a common basis for claims against directors and officers. |
|
|
Fiduciary duty
|
The duty to act in the best interests of another.
|
|
|
Directors’ and officers’ fiduciary duties
|
- Duty of care
- Duty of loyalty - Duty of disclosure - Duty of obedience |
|
|
Duty of care
|
a.k.a., duty of diligence
Includes meeting these two standards: - Act in good faith and in a manner they reasonably believe to be in the corporation’s best interests - Discharge their responsibilities with informed judgment and a degree of care that a person in a similar position would believe to be reasonable under similar circumstances |
|
|
Business judgment rule
|
A legal rule that provides that a director will not be personally liable for a decision involving business judgment, provided the director made an informed decision and acted in good faith
|
|
|
T or F: Directors and officers have a duty to keep themselves informed of the facts and other matters required to make prudent business decisions
|
TRUE. Directors and officers DO have a duty to keep themselves informed of the facts and other matters required to make prudent business decisions
|
|
|
Duty of Loyalty
|
Directors and officers have a general duty of undivided loyalty to the corporations they serve.
|
|
|
Under the common law and the Securities and Exchange Act of 1934, no director or officer (or any other person) may use
|
“inside information” to buy or sell stock of the corporation, whether the information was obtained directly or from others
|
|
|
T or F: The Securities and Exchange Act of 1934 also requires directors and officers of a corporation to disgorge back to the company any profit realized from sale of the corporation’s stock within 6 months, whether or not they had insider information.
|
TRUE. The Securities and Exchange Act of 1934 also requires directors and officers of a corporation to disgorge back to the company any profit realized from sale of the corporation’s stock within 6 months, whether or not they had insider information.
|
|
|
Duty of Disclosure
|
Directors and officers have the general duty to disclose material facts to all persons who have a right to know such facts and would not otherwise be able to obtain them.
|
|
|
T or F: Directors are authorized to act as spokespersons for the corporation.
|
FALSE. Directors are NOT authorized to act as spokespersons for the corporation.
In addition, directors and officers must refrain from discussing confidential or market-sensitive matters with others, including family members and colleagues |
|
|
Duty of obedience
|
Obedience to the law; directors and officers are required to perform their duties according to federal and state law as well as the terms of the corporate charter
|
|
|
Derivative suit
|
A lawsuit brought by one or more shareholders in the name of the corporation.
|
|
|
To be successful in a derivative suit, the plaintiff-stockholders normally must establish:
|
That the defendants’ conduct was outside the permissible boundaries of sound management practice, including the business judgment rule.
|
|
|
Nonderivative suits
|
Suits not made in the name of the corporation.
Customers, competitors, employees, creditors, governmental entities, or other persons outside the corporation may initiate such suits. |
|
|
The plaintiff in a nonderivative suit must show that
|
An injury or injustice resulted from wrongful acts or omissions of directors and/or officers.
|
|
|
Examples of common allegations made against directors and officers in nonderivative suits:
|
- Providing false or inadequate disclosure in connection with stock issuance
- Making or permitting false entries in the corporate books and records - Preparing and signing false documents filed with regulatory authorities - Failing to correct inaccurate statements within a prospectus issued by the corporation - Failing to review annual financial statements and monitor corporate affairs - Missing an opportunity for expansion, acquisition, or sale of the corporation |
|
|
Class action lawsuit
|
One in which one person or a small group of people represents the interests of an entire class of people in litigation.
(Many class actions against directors and officers are based on wrongful acts related to securities, such as material misrepresentations in the corporation’s public statements; those misrepresentations inflating the stock price; while inflated, the insiders sold their stock.) |
|
|
Class-Action Fairness Act of 2005
|
Expanded federal jurisdiction over class actions with additional oversight of attorney fees in this type of suit.
|
|
|
Ultra vires
|
An act of a corporation that exceeds its chartered powers
Some early cases denied indemnification for successful defense because the expenditure of corporate funds would not benefit the corporation and would therefore be ultra vires |
|
|
T or F: Under the common law, corporate directors and officers who have successfully defended against a derivative suit have the right to indemnification from the corporation to reimburse them for expenses they have paid to defend against the suit.
|
TRUE: Under the common law, corporate directors and officers who have successfully defended against a derivative suit have the right to indemnification from the corporation to reimburse them for expenses they have paid to defend against the suit.
|
|
|
T or F: Most statutes provide that corporations may include provisions for advancing expenses to directors and officers
|
TRUE. Most statutes DO provide that corporations may include provisions for advancing expenses to directors and officers
|
|
|
A provision of the Sarbanes-Oxley Act of 2002 prohibits corporations from
|
Making most kinds of loans to officers or directors. (Some authorities view advancing defense costs as a prohibited loan under Sarbanes-Oxley.)
|
|
|
Loss of a corporation’s reputation can result in these issues:
|
- Damage to customer relationships
- Hindered access to the capital markets - Make it difficult to attract highly qualified executives |
|
|
Pillars for a risk control program for an organization’s D&O liability loss exposures:
|
- Adhere to the requirements of the Sarbanes-Oxley Public Company Reform and Investor Protection Act of 2002 (Sarbanes-Oxley)
- Establishing the independence of a corporation’s board of directors - Providing opportunities that encourage open, clear, and concise communication among directors and officers - Ensuring that directors and officers fully understand the organization’s operations, corporate charter and bylaws, and securities and antitrust laws |
|
|
Directors and officers (D&O liability insurance)
|
Insurance that covers a corporation’s directors and officers against liability for their wrongful acts covered by the policy and also covers the sums that the insured corporation is required or permitted by law to pay to the directors and officers as indemnification.
Covers a gap left by CGL and commercial auto policies, for harm that does not qualify as bodily injury, property damage, personal injury, or advertising injury. |
|
|
T or F: D&O liability policies are standardized.
|
FALSE. The lack of standardization complicates the task of analyzing D&O policies, but it enables insurers to tailor coverage to a client’s needs
|
|
|
Analyzing D&O liability insurance involves sound knowledge of these five components:
|
- Insuring agreements
- Claims-made provisions - Persons and organizations insured - Exclusions - Other D&O policy provisions |
|
|
Two insuring agreements for most D&O policies:
|
Coverage A: Direct Coverage for the Directors and Officers (sometimes called “Side A”)
Coverage B: Indemnification coverage for the corporation (sometimes called “Side B”) (Some policies provide coverage for the corporation itself, called “entity coverage” or “Coverage C”) |
|
|
Coverage A (D&O)
|
“Side A”
Insures the individual directors and officers for covered claims only when such indemnification is not required by law, is not permitted by law, or is financially prohibited because of lack of funds or bankruptcy |
|
|
Coverage B (D&O)
|
“Side B”
Insures the corporation for the amounts that it is lawfully permitted or required to pay to defend or settle claims against the directors or officers. |
|
|
T or F: Carriers may have to pay for the defense of corporations in a D&O case, but if there is a finding of fraud, insurers are typically not liable for indemnification.
|
TRUE. Carriers may have to pay for the defense of corporations in a D&O case, but if there is a finding of fraud, insurers are typically not liable for indemnification. Companies can get the defense, but it stops there. Insurers aren’t going to pick up the tab once fraud has been determined.
|
|
|
Limits (D&O)
|
- Each loss limit of liability
AND - Aggregate limit of liability |
|
|
Each loss limit (D&O)
|
The most that the insurer will pay for any one loss under Coverage A or Coverage B or both.
|
|
|
Aggregate limit (D&O)
|
The most that the insurer will pay for all claims first made during the policy period or the extended reporting period (unless the extended reporting provision provides an additional aggregate limit).
|
|
|
Entity coverage
|
aka “Coverage C”
Makes the corporation itself (the “entity”) an insured for claims made against it because of wrongful acts covered by the policy. (Without entity coverage, a D&O liability policy (under Coverage B) covers the corporation only for indemnification of its directors or officers. It does not cover any loss attributable to the entity’s wrongful acts.) |
|
|
Entity coverage helps to avoid conflicts about:
|
How much the corporation should contribute to the settlement
|
|
|
To avoid problems related to Entity Coverage these days, producers tend to recommend the following mix of coverage:
|
- A D&O policy with separate Side A limits and a difference in conditions (DIC) provision
- An employment liability policy - A fiduciary liability policy |
|
|
T or F: D&O policies are almost without exception written on an occurrence basis.
|
FALSE. D&O policies are almost without exception written on a claims-made basis. As a result, the definition of “claim” is extremely important.
|
|
|
Definition of “claim” (D&O policy)
|
Any of these actions taken against a director or an officer for a wrongful act:
- A written demand for monetary or nonmonetary relief - A civil proceeding commenced by serving a complaint or similar pleading - A formal administrative or regulatory proceeding commenced by filing a notice of charges, formal investigative order, or similar document |
|
|
Definition of “loss” (D&O policy)
|
Includes all damages that the directors and officers become legally obligated to pay, subject to certain exclusions and limitations.
Includes defense costs. (As a result, the per loss limit of liability and the annual aggregate limit apply to the sum of damages and defense costs combined. This contrasts with the CGL and other liability policies.) Excludes taxes, criminal or civil fines or penalties, punitive or exemplary damages, or the multiplied portion of any damages. |
|
|
Most-Favorable-Jurisdiction provision
|
States that coverage for punitive damages will be determined based on the law of the most favorable jurisdiction that can apply to policy interpretation.
|
|
|
Definition of “wrongful act” (D&O policy)
|
Any error, misstatement, misleading statement, act, omission, neglect or breach of duty actually or allegedly committed or attempted by the directors and officers, individually or collectively, in their respective capacities as such, or any matter claimed against them solely by reason of their status as directors and officers.
|
|
|
T or F: All claims arising out of the same or any related wrongful act will be treated as a single claim.
|
TRUE. All claims arising out of the same or any related wrongful act will be treated as a single claim.
|
|
|
Claims-made coverage trigger
|
The event that triggers coverage under a claims-made coverage form; the first making of a claim against any insured during either the policy period or an extended reporting period.
|
|
|
When covered under a claims-made policy (as most D&O policies are), insured must consider that:
|
Only one policy will apply when determining appropriate limits of insurance.
|
|
|
Ways in which the claims-made features of D&O policies (and other management liability policies) differ from the characteristics of the ISO claims-made general liability forms:
|
- Extended reporting periods
- Retroactive date provisions and prior acts coverage - Reporting of known wrongful acts |
|
|
Variations that apply to extended reporting periods in D&O
|
(it is typically called “tail coverage” in D&O)
- 30 to 60 day automatic tail coverage - Option to add one to five years of coverage after automatic tail - Possible separate limit of liability for tail coverage (liability limit may be greater for tail coverage, less for tail coverage, or the same as coverage during the policy period for tail coverage) |
|
|
Optional tail coverage is usually available on a bilateral basis, meaning that
|
The insured may purchase the optional tail when either the insured or the insurer decides not to renew the expiring policy.
|
|
|
Prior acts coverage
|
Many D&O policies cover claims made during the policy period for wrongful acts that occurred either during the policy period or at any time before the policy period, known as prior acts coverage.
This coverage is subject to a warranty, made in the insurance application, that none of the directors or officers knows of any circumstances that might result in a claim. |
|
|
T or F: Prior acts coverage cannot be provided when the policy contains a retroactive date provision that precedes the current policy’s inception date.
|
FALSE. Prior acts coverage CAN be provided when the policy contains a retroactive date provision that precedes the current policy’s inception date.
In this provision, only prior acts that occurred after the retroactive date would be covered. |
|
|
Many D&O policies contain a discovery provision for wrongful acts that occur after the policy period. Under this provision:
|
If the insured becomes aware of a wrongful act that is reasonably expected to result in a covered claim and provides written information on the act to the insurer during the policy period, then any subsequent claim arising out of that wrongful act will be covered.
|
|
|
Typical D&O exclusion categories
|
- Loss exposures better covered by other insurance
- Claims covered or reported under prior policies - Failure to effect or maintain insurance - Insured-versus-insured exclusion - Loss exposures that are difficult to insure |
|
|
D&O exclusions for claims that are better covered by other insurance policies:
|
- Bodily injury
- Property damage - Personal injury - Advertising injury - Fiduciary liability under ERISA - Mental anguish and emotional distress - Injury associated with employment practices - Pollution |
|
|
Exceptions to the insured-versus-insured type exclusions (D&O)
|
Coverage is allowed for these types of claims:
- A derivative action brought on behalf of the insured corporation by one or more persons who are not insured directors or officers - A claim brought by an insured director or officer for wrongful termination of the director or officer - An action in which an insured director or officer seeks indemnity or contribution from another director or officer for a claim covered under the policy - Actions against directors or officers made by bankruptcy trustees in the event of the firm’s insolvency – knowledgeable insurance practitioners allow this exception |
|
|
D&O exclusions for exposures that are difficult to insure, require special underwriting, or are uninsurable
|
- Acts resulting in personal profit or advantage to which a director or an officer is not legally entitled
- Fraudulent or dishonest acts that are uninsurable (only when acts are determined to be fraudulent or dishonest by judgment or other final adjudication that is adverse to the director of officer) - Violations of securities acts |
|
|
Securities Act of 1933
|
Often called the “truth in securities” law, it requires that investors receive financial and other significant information concerning securities being offered for public sale, and it prohibits deceit, misrepresentation, and other fraud in the sale of securities.
|
|
|
Securities Exchange Act of 1934
|
Created the SEC. The act gives the SC broad regulatory authority over all aspects of the securities industry. It identifies and prohibits certain types of conduct in the markets and provides the SEC with disciplinary powers over regulated entities and persons associated with them. The SEC requires periodic reporting of information by publicly traded corporations. The Sarbanes-Oxley Act is an amendment to the 1934 Act.
|
|
|
“Short-swing” sales
|
Profits on sales of the corporation’s stock that directors or officers held for less than six months.
These types of stock transactions are outlawed by the Securities Exchange Act of 1934. Coverage for them is almost always excluded; however, defense coverage is usually provided if the charges are successfully defended. |
|
|
Important differences in D&O provisions (compared to those in other liability policies)
|
Those that address:
- Duty to defend - Allocation of loss - Consent to settle claims - Severability of interests - Deductibles and coinsurance - Insured’s duties to report claims - Arbitration |
|
|
Difference in D&O version of the provision: Duty to Defend
|
Large corporations often prefer the right to control their own defense in D&O actions, so, under a D&O policy, the insured typically selects and pays the defense lawyers and pays the other defense expenses.
|
|
|
Because D&O cases can require years to resolve and can involve substantial defense expenses,
|
Most policies require the insurer to make payments for defense expenses as they are incurred, to the extent that the expenses are covered under the policy.
|
|
|
Difference in D&O version of the provision: Allocation of Loss
|
Lawsuits frequently involve charges that the policy may not cover. Loss expenses must be allocated between covered and noncovered elements of the loss. To prevent disputes over whether the insurer was entitled to reimbursement from the insured for defense costs, provisions that detail the handling of defense costs are often included in D&O policies.
|
|
|
Difference in D&O version of the provision: Consent to Settle Claims
|
Because professional or business reputations might be at stake in claims against directors and officers, many D&O policies give the named insured the right to participate in the decision to settle a claim.
|
|
|
Absolute consent-to-settle provision
|
Some D&O policies contain this. States that the insurer cannot settle a claim without the insured’s consent. In such a policy, if the insured does not consent to a proposed settlement that is acceptable to the claimant, the insurer, at its expense, must continue to defined the insured and pay any judgment that the court awards until the limit of its coverage has been exhausted.
|
|
|
Hammer clause
|
To avoid substantial defense expenses, some D&O policies provide that the insured must take over the defense and pay any further defense expenses, plus the part of any judgment or settlement that exceeds the amount for which the insurer could have settled the claim. This provision is sometimes informally called a “hammer clause” because the insured usually feels compelled or “hammered” to agree to the proposed settlement.
|
|
|
Difference in D&O version of the provision: Severability of interests
|
Some D&O insurers have either narrowed their severability of interests provisions or eliminated them entirely.
|
|
|
Difference in D&O version of the provision: Deductibles and coinsurance
|
D&O liability insurance is almost always subject to a deductible, also called a retention. D&O deductibles apply to both defense costs and judgments or settlements.U
|
|
|
Under a D&O coinsurance provision, the insured is responsible for paying:
|
a certain percentage of the loss. For example, if the policy contains a 95 percent coinsurance provision, the insured retains 5 percent of the loss above the deductible.
|
|
|
Difference in D&O version of the provision: Insured’s duties to report claims
|
Some D&O policies include a requirement that the claim be reported within a specified number of days (such as 30) after receipt of claim or after policy expiration.
|
|
|
Difference in D&O version of the provision: Arbitration
|
Recent D&O policy conditions include a binding arbitration provision for disputes between the insured and the insurer
|
|
|
Specialty D&O policies that are D&O policies but do not sound like D&O policies (by their title)
|
- Educators’ Legal Liability
- Educators’ Professional Liability - School Board Legal Liability - Public Officials’ Legal Liability - Public Officials’ Errors and Omissions Liability - Not-for-Profit D&O Liability - Nonprofit Management Liability |
|
|
Outside directors liability policy
|
A policy covering the liability of a corporation’s directors while they serve as outside directors for another corporation.
Is almost always excess to any D&O coverage available to the outside entity or any indemnification available from the outside entity itself. |
|
|
An alternative to an outside directors liability policy
|
Cover outside directors in the insured corporation’s D&O policy.
The advantage of the separate Outside directors liability policy is that claims payable under the separate policy will not reduce the aggregate limit of liability under the insured corporation’s regular D&O policy. |
|
|
Separate coverages for directors and officers
|
- Side A-Only Coverage
- Coverage for independent directors |
|
|
Side A-Only Coverage
|
Directors and officers liability insurance that covers only the individual liability of the insured directors and officers
These types of policies are advantageous to directors in bankruptcy coverage disputes because the corporation is not an insured, and so the policy is not regarded as a corporate asset that can be frozen by the bankruptcy court. |
|
|
Enhanced Side A-Only DIC
|
Provide excess coverage, plus broader wording/fewer exclusions. (Examples include:
- No ERISA exclusion - No previous litigation exclusion - No pollution exclusion - No exclusion for some violations of the Securities Exchange Act of 1934 - A more limited insured-versus-insured exclusion - A more limited exclusion of bodily injury and property damage claims - A broader definition of what constitutes a claim) |
|
|
Independent directors liability policy
|
A D&O liability policy that insures on the independent director(s) named in the policy.
Coverage is triggered when the corporation does not indemnify the named director for a loss or the corporation’s D&O policy is inadequate, invalid, or nonexistent. |
|
|
Independent directors
|
Those not otherwise affiliated with the corporation they serve. That is, they are not corporate officers, nor do they have a preexisting business relationship with the corporation (such as being its accountant).
|
|
|
The first significant law in the employment practices liability area
|
The Civil Rights Act of 1964, which prohibits discrimination by employers. (The act was amended in 1991 to include additional recoveries and to allow jury trial in discrimination cases.)
|
|
|
Major types of EPL claims:
|
- Discrimination claims
- Wrongful termination claims - Sexual harassment claims - Retaliation claims - Other types of EPL claims |
|
|
T or F: Discrimination has to be intentional to be unlawful.
|
FALSE. Discrimination does NOT have to be intentional to be unlawful.
|
|
|
Overt discrimination
|
(sometimes called intentional discrimination)
A specific observable action that discriminates against a person or class of persons. |
|
|
Disparate treatment
|
(sometimes called unequal or differential treatment)
Unfavorable or unfair treatment of someone in comparison to how similar individuals are treated. |
|
|
Disparate impact
|
(also called discrimination by effect or adverse impact)
The application of personnel policies to all applicants or employees that have the effect of denying employment or advancement to members of protected classes. (For example, requiring that all employees be more than 5 feet, 10 inches tall will have a disparate impact because many more men than women exceed that height.) |
|
|
Title VII of the Civil Rights Act of 1964
|
Prohibits discrimination by employers based on color, race, religion, sex, or national origin. In 1978, the law was amended to bar discrimination on the basis of pregnancy, childbirth, or related medical conditions. The law applies to all employers with 15 or more employees.
|
|
|
Civil Rights Act of 1991
|
Amends Title VII of the Civil Rights Act of 1964. Depending on the size of the employer, the law authorizes damage awards up to $300,000 in lawsuits for intentional gender discrimination and racial discrimination in employment and allows a claimant the right to demand a jury trial.
|
|
|
Age Discrimination in Employment Act (ADEA)
|
Prohibits discrimination against individuals age 40 or older based solely on their age. ADEA applies to employers with 20 or more employees. Amended in 1990 by the Older Workers benefit Protection Act.
|
|
|
Older Workers Benefit Protection Act (OWBPA)
|
Prohibits employers from denying benefits to older employees.
|
|
|
Americans with Disabilities Act (ADA)
|
Prohibits discrimination against disabled persons and requires an employer to make reasonable accommodations in the workplace for disabled employees. This law currently applies to employers with 15 or more employees.
|
|
|
Family and Medical Leave Act (FMLA)
|
Requires that all employers with 50 or more employees provide up to 12 weeks of unpaid leave in any 12-month period to care for a newborn, adopted, or fostered child or to care for themselves or a child, spouse, or parent with a serious illness. Amended in 1998 by the National Defense Authorization Act to provide new military family leave entitlements.
|
|
|
Fair Labor Standards Act (FLSA)
|
Establishes minimum wage and overtime rates and regulates the employment of children. This law applies to employers with at least two employees engaged in interstate commerce and a business volume of over $500,000 per year.
|
|
|
Worker Adjustment and Retraining Notification Act (WARN)
|
Requires employers to provide 60 days in advance of covered plant closings and mass layoffs
|
|
|
Consolidated Omnibus Budget Reconciliation Act (COBRA)
|
Gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods of time under certain circumstances
|
|
|
Employee Retirement Income Security Act (ERISA)
|
Sets minimum standards for most voluntarily established pension and benefit plans.
|
|
|
This accounts for the majority of cases of alleged wrongful employment practice
|
Wrongful termination
|
|
|
Constructive discharge
|
Employees who resign because of unendurable conditions.
(Included in wrongful termination.) |
|
|
Equal Employment Opportunity Commission (EEOC)
|
An independent commission that plays an important role in workplace discrimination claims. Created by the Civil Rights Act of 1964. Persons who believe that their employment rights have been violated may file charges of discrimination with the EEOC. EEOC can investigate and file suits.
|
|
|
Traditionally, the legal doctrine of ________ has allowed employers or employees to terminate the private employment relationship with or without cause at any time.
|
Employment at will
|
|
|
Theory of implied contract
|
An employer’s oral or written representations to employees regarding job security or disciplinary procedures are held to create a contract of employment even though no written contract exists.
(Serves as an exception to ‘employment at will’) |
|
|
Covenant of good faith
|
Under this doctrine, just cause for discharge is required even when the employer has made no specific promise to limit discharges to just-cause circumstances.
Terminations made in bad faith or motivated by malice are also prohibited. (Courts in a minority of states hold that employment at will is subject to a covenant of good faith.) |
|
|
Guidelines on Discrimination Because of Sex
|
Issued in 1980 by the EEOC; defines sexual harassment as “unwelcome sexual advances…when submission to such conduct is made either explicitly or implicitly a term or condition of an individual’s employment.”
|
|
|
Hostile work environment
|
Exists when an employee is subjected to sexual harassment that is so severe or pervasive that it alters the conditions of his or her employment and creates an abusive working environment
Isolated incidents are insufficient to establish a hostile work environment. |
|
|
To prevail in a claim of hostile work environment, an employee generally must prove all of these facts:
|
- The employee is a member of a protected class
- The employee was subjected to unwelcome harassment based on the protected characteristic - The harassment affected a term or condition of employment - The employer knew or should have known about the harassment and failed to take prompt remedial action |
|
|
In determining whether a workplace is a hostile work environment, courts consider such relevant factors as:
|
- Frequency of the discriminatory conduct
- Its severity - Whether it unreasonably interferes with the employee’s work performance |
|
|
How to reduce the frequency and severity of potential EPL claims:
|
- Establish hiring practices that comply with standards set forth by federal, state, and local regulations and laws
- Word employee handbooks clearly and concisely to document the company’s policies and procedures, including employment-at-will status - Provide all employees with a formal policy regarding sexual harassment and discrimination, and document their receipt. Review the policy and update it as needed. - Permanently post and distribute all EEOC documents, as well as state and local compliance documents. - Conduct employee performance reviews at least annually, and initiate interim reviews to correct unacceptable behavior. - Follow a carefully documented termination procedure, and exercise special care when handling terminations. - Conduct exit interviews and carefully document them. - Promptly investigate all allegations of harassment or discrimination. |
|
|
T or F: EPL claims can arise from an employer’s alleged retaliation for an employee’s legitimate act.
|
TRUE. EPL claims CAN arise from an employer’s alleged retaliation for an employee’s legitimate act.
|
|
|
Exempt employee
|
Supervisory or management-level employee, not entitled to overtime wages.
|
|
|
Employment practices liability (EPL) insurance
|
Insurance that covers an organization, its directors and officers, and its employees against claims alleging damages because of wrongful employment practices such as sexual harassment, wrongful termination, and unlawful discrimination. Includes indemnity and defense costs.
|
|
|
T or F: Most EPL policies are written on standardized ISO or AAIS forms.
|
FALSE. Most EPL policies are written on independently developed forms with crucial differences in wording.
|
|
|
EPL policies most closely resemble this type of policy:
|
D&O
|
|
|
Areas in which EPL policies differ from D&O:
|
- Insuring agreement
- Exclusions - Persons and organizations insured - D&O/EPL combination policies - Added coverages and services |
|
|
T or F: EPL claims are excluded outright from the CGL policy.
|
FALSE. It is done by endorsement. Although the endorsement is optional, many insurers attach this exclusion endorsement to every CGL policy they write.
|
|
|
EPL policy insuring agreement
|
The insurer agrees to pay, on behalf of the insured, loss resulting from claims first made during the policy period for a wrongful act.
|
|
|
EPL definition of “wrongful act”
|
Defined broadly, in general terms – a “broad form” approach, or by listing specific types of acts – a “named perils” approach.
|
|
|
When the terms are not defined (in a broad form definition of “wrongful acts”), the coverage for these offenses is defined in
|
The laws of the jurisdiction governing the claim.
|
|
|
Offenses that are among many that may be included in the (named perils) definition of a “wrongful act”
|
- Wrongful refusal to employ
- Wrongful termination, whether active or constructive - Wrongful demotion, reassignment, discipline, or failure to promote - Wrongful negative evaluation - Breach of employment contract - Employment-related retaliatory action - Workplace harassment; unwelcome sexual advances; or other verbal, visual, or physical conduct of a sexual nature - Employment-related libel, slander, invasion of privacy, defamation, or humiliation - Employment discrimination of any kind in violation of federal, state, or local law |
|
|
T or F: An EPL policy that does not specifically mention independent contractors would likely provide no coverage for claims made by independent contractors.
|
TRUE. An EPL policy that does not specifically mention independent contractors WOULD likely provide NO coverage for claims made by independent contractors.
|
|
|
EPL exclusions might eliminate coverage for any of these:
|
- Claims arising out of circumstances reported under a prior EPL policy
- Deliberate fraud or intentional violation of statutes, rules, or regulations (applies only to the insured actually found responsible for the act through appropriate legal process) - Liability assumed under a contract or an agreement, other than an employment contract (but coverage is provided to the extent that the insured would have been liable without such contract or agreement) - Bodily injury or property damage other than emotional distress, mental anguish, or humiliation - Actual or alleged violation of the ERISA, FLSA, NLRA, WARN, COBRA, and OSHA - Obligations under work comp, disability benefits, unemployment compensation, social security, and similar laws - Costs incurred to provide accommodations required by the ADA or any similar federal, state, or local statute |
|
|
Back pay
|
Income that the employee lost before a judgment was awarded or a settlement was made.
(Some EPL policies exclude claim awards that include back pay or cover back pay for certain types of claims, such as discrimination.) |
|
|
Front pay
|
Front pay is income a plaintiff would have earned between the time of judgment and reinstatement or (if the employee is not reinstated) an award to compensate the employee for lost future income.
(Typically, both front pay and back pay are claimed in wrongful termination actions.) |
|
|
Unlike many D&O policies, stand-alone EPL policies always include the _______ as an insured
|
Named employer
|
|
|
T or F: Past and present directors, officers, partners, members of a LLC, and so forth are all included as insureds in the EPL definition of who is an insured.
|
TRUE. Past and present directors, officers, partners, members of a LLC, and so forth are all included as insureds in the EPL definition of who is an insured.
|
|
|
T or F: EPL policies generally cover newly formed or acquired organizations under certain circumstances.
|
TRUE. EPL policies generally cover newly formed or acquired organizations under certain circumstances. Such coverage may be limited in time, such as 90 days from the date of formation or acquisition.
|
|
|
T or F: If a D&O policy has no specific exclusion of employment practices, the policy will provide some coverage for EPL claims.
|
TRUE. If a D&O policy has no specific exclusion of employment practices, the policy will provide some coverage for EPL claims. However, it doesn’t cover claims against persons who are not directors or officers.
|
|
|
Two principal advantages to obtaining a policy that combines EPL coverage with a D&O policy:
|
- Lower cost
- Avoidance of conflicts about which policy applies to a particular claim |
|
|
Disadvantages of combination D&O/EPL policies:
|
- EPL coverage is sometimes not as broad in the combo policies
- Only one set of limits may be provided for both coverages (meaning that EPL claims can reduce or exhaust the aggregate limit applicable to D&O claims, and vice versa - In bankruptcy, the court may freeze the policy, leaving defendants in EPL cases without coverage |
|
|
Additional coverages offered by EPL insurers
|
- Third-party discrimination coverage
- Workplace violence coverage - Coverage for reputation management costs |
|
|
Third-Party Discrimination Coverage
|
Addresses the loss exposure posed by discrimination claims made by third parties, as opposed to employees or applicants for employment. (Example of the Secret Service agents at Denny’s, 7.37). Customers, suppliers, independent contractors, or any other nonemployees who interact with the firm can all make third-party discrimination claims.
The coverage generally applies to harassment or discrimination, and in most cases premiums increase by 10 to 15 percent, although the loss exposures facing some insureds may warrant much larger increases |
|
|
Workplace Violence Coverage
|
Can indemnify the insured for the costs of obtaining independent consulting services to help cope with the turmoil resulting from a workplace violence incident and public relations assistance to minimize the damage to the firm’s reputation. It may also cover some of the resulting business income loss, and it often provides death and dismemberment benefits.
|
|
|
Reputation Management Costs
|
Policy to minimize or repair damage to the insured’s reputation resulting from certain EPL claims.
|
|
|
When insurers offer comprehensive risk control services to their EPL insureds, these services are usually aimed at their _________ firms.
|
Small to medium sized.
Larger firms generally have in-house capabilities. |
|
|
EPL risk control services that insurers offer
|
- Training programs to help understand HR management responsibilities
- Specimen employee handbooks - Review of existing handbooks - Telephone access to experienced attorneys or consultants to discuss a particular problem, such as a complaint from an employee - Confidential EPL audits - Consultants to help the insured prepare its response and to represent the insured at hearings before the EEOC or similar state or local agencies |
|
|
ERISA
|
The federal law that governs retirement and other benefit plans. It was enacted in response to abuses and underfunding in many benefit plans uncovered by Congressional hearings following the insolvency of several leading corporations.
|
|
|
T or F: ERISA applies to only the insured person(s) named specifically in the policy.
|
FALSE. ERISA applies, with only a few exceptions, to everyone involved with the employee benefit plans of employers engaged in interstate commerce or subject to federal minimum wage law.
|
|
|
These groups are specially exempted from ERISA
|
Federal, state and local governmental bodies.
Religious organizations are exempted from some of the provisions of the law. |
|
|
T or F: ERISA applies only to retirement plans.
|
FALSE. ERISA applies to all types and sizes of employee benefit plans.
|
|
|
Fiduciary duty
|
The duty to act for someone else’s benefit.
|
|
|
General duties of fiduciaries
|
- To act solely in the interest of plan participants
- To abide by the relevant dictates of plan documents - To avoid acting in ways that are expressly prohibited by ERISA |
|
|
Specific duties of fiduciaries
|
- Loyalty
- Prudence - Diversification - Adherence |
|
|
Loyalty – duty of fiduciaries
|
A fiduciary’s actions must be solely in the best interests of the plan and all of its participants and beneficiaries
|
|
|
Prudence – duty of fiduciaries
|
A fiduciary must carry out his or her duties with the care, skill, prudence and diligence of a prudent person familiar with such matters.
|
|
|
Diversification – duty of fiduciaries
|
A fiduciary must ensure that he plan’s investments are sufficiently diversified to minimize the risk of large losses
|
|
|
Adherence – duty of fiduciaries
|
A fiduciary must act according to the plan documents and applicable law. If the plan document is not in compliance with the law, the fiduciaries must follow the law and bring the plan document into compliance.
|
|
|
Fiduciary duties imply a relatively ____ standard of care.
|
High
|
|
|
If a fiduciary breaches a duty and the breach causes loss to a benefit plan...
|
…the fiduciary is personally liable to the plan for the full amount of the loss
|
|
|
T or F: A fiduciary may be liable for the breach of a duty by another fiduciary if the first fiduciary knowingly participates in the breach, conceals it, or makes no attempt to correct it.
|
TRUE. A fiduciary may be liable for the breach of a duty by another fiduciary if the first fiduciary knowingly participates in the breach, conceals it, or makes no attempt to correct it.
|
|
|
T or F: An employer cannot be held vicariously liable for breaches of fiduciary duty committed by its employees or agents.
|
FALSE. An employer CAN be held vicariously liable for breaches of fiduciary duty committed by its employees or agents.
|
|
|
Health Insurance Portability and Accountability Act of 1996
|
HIPAA. Plans sponsored by employers with more than 50 employees are subject to HIPAA.
It accomplishes four major objectives: - Sets standards for health insurance “portability” by reducing exclusionary periods in employers’ group health plans for preexisting conditions for those individuals who had health coverage (“creditable coverage”) with a previous employer or another health plan - Limits exclusions for preexisting medical conditions - Prohibits discrimination in enrollment and in premiums charged to employees and their dependents based on health-related factors - Improves disclosure about group health plans |
|
|
Of particular concern from an insurance point of view, HIPAA calls for the
|
Protection of employee medical information, and subjects the employer and fiduciaries to penalties for failure to comply
|
|
|
Fiduciary liability insurance
|
Insurance that covers the fiduciaries of an employee benefit plan against liability claims alleging breach of their fiduciary duties involving discretionary judgment.
|
|
|
Fiduciary liability loss exposures
|
- Breach of fiduciary duty resulting in financial loss or other harm to a benefit plan or beneficiary
- Vicarious liability for breaches of fiduciary duty by an employee or agent - Negligent counseling in connection with an employee benefit plan - Negligent administrating of an employee benefit plan |
|
|
Ways in which fiduciary liability policies closely resemble both D&O and EPL policies:
|
- Coverage, normally on a claims-made basis, applies to loss resulting from a claim for a wrongful act first reported during the policy period or an extended reporting period
- Options for extended reporting periods are comparable to those for D&O policies - Defense coverage can be on either a duty-to-defend or reimbursement basis, and the same approaches to consent-to-settle clauses are generally found in fiduciary liability policies - Covered defense expenses are usually included within the overall limit instead of being payable in addition to the limit. |
|
|
Retention (in fiduciary liability policies)
|
Deductible
Applies to both defense costs and damages paid on behalf of the insured. (Policies written for insureds with smaller sized exposures, however, are often not subject to any deductible.) |
|
|
Definition of “wrongful act” in a fiduciary liability policy:
|
Includes these elements:
- Breach of the responsibilities, obligations, or duties imposed on fiduciaries of an insured plan by ERISA or by the common or statutory law of the United States or another jurisdiction - Any other matter claimed against insureds solely because of their service as fiduciaries of any insured plan - A negligent act, error, or omission solely in the administration of any insured plan |
|
|
3 fiduciary liability policy exclusions that differ from those in D&O and EPL policies:
|
- The exclusion of obligations under workers compensation, disability benefits, unemployment, or similar law usually contains an exception that covers claims arising under COBRA
- The exclusion of fines and penalties often contains an exception that will cover certain penalties imposed by ERISA - Fiduciary liability policies typically exclude any loss resulting from an insured’s failure to collect required employee contributions or to properly fund the plan |
|
|
Tor F: The criminal penalties that can be imposed under HIPAA are insurable.
|
FALSE. The criminal penalties that can be imposed under HIPAA are NOT insurable.
However, some insurers offer endorsements to cover the civil fines that HIPAA can impose if an employer does not properly protect employee medical information. Coverage for these is generally limited to $25,000 (the maximum annual civil fine that can be imposed under HIPAA for each calendar year for each provision that is violated) |
|
|
Employee benefits liability coverage (EBL)
|
Provides coverage for administrative errors or omissions, such as an employer inadvertently neglecting to add a new employee to a group health insurance plan.
|
|
|
T or F: ERISA requires all fiduciaries to be bonded.
|
TRUE. It does require that.
|
|
|
Fiduciary bonds provide coverage only in the event of:
|
Dishonesty, such as a plan trustee appropriating plan funds for personal use. These bonds do nto provide coverage for any other breach of fiduciary duty or for administrative errors.
|
|
|
T or F: The terms “professional liability”, “malpractice”, and “errors and omissions liability” are used interchangeably.
|
TRUE. The terms “professional liability”, “malpractice”, and “errors and omissions liability” are used interchangeably. Current industry usage usually includes all of them under the general heading of “professional liability.”
|
|
|
A distinguishing characteristic of tort actions against professionals is that
|
Testimony of expert witnesses often is needed for purposes of establishing the professional’s duties.
|
|
|
Two duties of a professional
|
- Perform the services for which they were hired (a contractual duty)
- Perform those services in accordance with the appropriate standards of conduct (a tort duty) |
|
|
If a client suffers harm as a result of a breach of contract, the client is entitled to
|
Be restored, as nearly as practical, to the position that he or she would have occupied had the contract been performed as promised.
|
|
|
Damages recoverable for breach of contract:
|
- Compensatory damages
- Consequential damages - Liquidated damages - Nominal damages |
|
|
Compensatory damages
|
Intended to indemnify a person for injury or damage sustained.
(Unlike compensatory damages in negligence actions, compensatory damages in breach-of-contract actions do not normally include amounts for intangible general damages such as pain and suffering. Compensatory damages in contract actions are generally limited to the monetary loss sustained by the party alleging a breach of contract.) |
|
|
Consequential damages
|
A payment awarded by a court to indemnify an injured party for losses that result indirectly from a wrong such as a breach of contract or a tort.
|
|
|
Liquidated damages
|
A reasonable estimation of actual damages, agreed to by contracting parties and included in the contract, to be paid in the event of a breach or for negligence.
|
|
|
Nominal damages
|
An award that indicates that, while the plaintiff has sustained some harm, the injury is not one warranting substantial monetary relief.
|
|
|
The injured party must make a reasonable effort to
|
Avoid or minimize damages
|
|
|
To recover compensatory damages, the injured party must prove
|
The amount of loss that he or she suffered as a direct result of the breach of contract.
|
|
|
Under tort principles of law, members of a skilled profession are liable for injury resulting from
|
Their failure to perform with reasonable professional care and competence.
A professional is not liable merely because of any unfavorable outcome. |
|
|
Difference between contract and tort claims.
|
In a contract claim, the allegation is that the defendant failed to do something that was required by the contract.
A tort claim rests on allegations that the performance of the contract did not meet the standards of reasonable professional care. |
|
|
T or F: An injured party can only establish the professional’s liability on one basis: either contract or tort principles.
|
FALSE. In many cases, the injured party will be able to establish the professional’s liability on either contract or tort principles, or both.
|
|
|
If a professional’s performance causes bodily injury, a _______ is more likely to result because, in general, the injured party cannot sue for emotional damages or other pain and suffering in a breach of contract action.
|
Tort action
|
|
|
T or F: Sometimes different statutes of limitations may apply to contract and tort actions, making one preferable to the other.
|
TRUE. For example, in Pennsylvania, there is a two-year statute of limitations in tort actions but a four-year limitation in contract cases.
|
|
|
Racketeer Influence and Corrupt Organizations (RICO) Act – Definition of “racketeering”
|
A statute that defines racketeering to include such offenses as mail fraud, wire fraud, and certain securities laws violations. As a result, attorneys, accountants, and stockbrokers have been charged under the act for misdeeds that would not commonly be considered racketeering.
|
|
|
In professional liability suits, the ________ bears the burden of proof that ________ breached a duty by failing to meet the applicable standards of professional conduct
|
The plaintiff; the defendant
|
|
|
T or F: An expert witness is allowed to state his or her opinions.
|
TRUE. An expert witness IS allowed to state his or her opinions.
|
|
|
Daubert v. Merrell Dow Pharmaceuticals (1993 SCOTUS)
|
Instructed trial courts to act as gatekeepers for scientific testimony. To ensure that scientific testimony was not only relevant but also reliable, the court provided four factors for evaluating reliability: testing; peer review; error rates; acceptability in the relevant scientific community.
The Daubert decision has enabled lawyers to challenge the testimony of some so-called experts and have their testimony excluded from the case. |
|
|
Four factors for evaluating expert witness reliability:
|
- Testing
- Peer review - Error rates - Acceptability in the relevant scientific community |
|
|
The doctrine of res ipsa loquitur
|
“the thing speaks for itself”
This doctrine (often abbreviated “res ipsa”) applies when injury results that could not have occurred without negligence and without the object causing the injury being within the defendant’s exclusive control. (Presents a situation in which expert testimony might not be needed.) |
|
|
Examples of classifications that require professional services exclusions to the CGL (according to the ISO Commercial Lines Manual)
|
- Ambulance service, first aid, or rescue squad
- Barber shops - Beauty parlors and hair styling salons - Computer consulting or programming - Engineers, architects, or surveyors - Insurance agents - Internet service providers and Internet access providers - Medical offices - Tattoo parlors - Web site designers - Health or exercise |
|
|
T or F: Even without a professional services exclusion, a CGL policy does not cover many professional liability losses.
|
TRUE. Even without a professional services exclusion, a CGL policy does not cover many professional liability losses.
|
|
|
Professional liability policies usually vary on these common characteristics:
|
- Covered acts and consequences
- Persons and organizations insured - Defense coverage - Claims-made provisions - Coverage territory - Exclusions |
|
|
Many professional liability policies limit their coverage to ____, ____ or ____.
|
Negligent acts, errors, or omissions
This is different from a “true” professional liability policy. |
|
|
“True” professional liability policies do not require:
|
Negligence
|
|
|
A professional liability policy that does not limit coverage to negligent acts, errors, or omissions is (all other policy provisions being equal) _____ to one that contains that limitation.
|
Superior.
However, the absence of the term “negligence” does not mean that all professional liability claims will be covered. |
|
|
T or F: A physician’s professional liability policy would cover a sexual abuse claim made by a patient.
|
FALSE. Professional liability policies generally apply to rendering or failing to render professional services in the conduct of a specific occupation.
|
|
|
Professional liability coverage for the organization can usually be added by endorsement, which is generally a good procedure because
|
The organization is commonly named as a defendant along with the individual professionals.
|
|
|
In addition to paying claims or settling suits on behalf of the insured, professional liability policies ordinarily pay
|
The costs of defending against claims or suits alleging loss covered under the policy.
|
|
|
Defense coverage (professional liability) typically includes
|
Supplementary payments like those associated with other commercial liability policies.
|
|
|
A provision requiring [this] is common in professional liability policies.
|
That the insurer obtain the insured’s consent to a settlement.
The rationale being that this would allow a professional to protect his or her reputation. Under a consent-to-settle provision, the insured can, in effect, require the insurer to take what may be the more costly route of defending against a lawsuit rather than settling the claim out of court. |
|
|
Settlement opportunity clauses
|
Also called “hammer clauses”; these clauses apply some pressure on the insured to be reasonable in settling a valid claim.
Many policies that contain a consent-to-settle clause also include one of these clauses, in order to discourage insureds from refusing to let the insurer settle a claim. |
|
|
An arbitration committee has these three members:
|
One selected by the insurer, one selected by the insured, and a third selected by the two other members, who acts as umpire.
A decision of a majority of the committee is binding and cannot be appealed. |
|
|
Majority (age concept)
|
The age of 18 years
|
|
|
T or F: Insurers prefer to use occurrence-basis policies.
|
FALSE. Insurers prefer to use claims-made professional liability policies to more closely match claims with policies currently in force. (There can be some LONG-tail claims…for example, for an obstetrician who injures a newborn; the time limit does not start running until that person reaches majority (18 years old))
|
|
|
Common difference between independently developed claims-made forms and the ISO claims-made CGL form:
|
The extended reporting period (or tail coverage) provisions.
The ISO form automatically includes a basic 5-year extended reporting period and an optional supplemental extended reporting period. The supplemental extended reporting period provides an unlimited time period to report claims that occurred during the policy period. By contrast, some professional liability claims-made policies do not contain an automatic extended reporting period. |
|
|
T or F: Few (if any) policies offer an unlimited extended reporting period.
|
TRUE. One to three years is more common.
|
|
|
Provision unique to professional liability policies
|
Automatic retirement tail coverage
A provision that provides an automatic extended reporting period when the insured retires, becomes disabled, or dies (provided, in some policies, that the insured is at least 55 years of age and has been insured with the insurer for a given period, such as 3, 5, or 10 years) |
|
|
From the insurer’s point of view, including automatic retirement tail coverage for policies that remain in force for five or ten years is a way to:
|
Improve policyholder retention.
However, to write this type of coverage profitability, the insurer must include an adequate charge in the preceding policy premiums to fund the retirement tail coverage. |
|
|
Most professional liability policies provide coverage for acts committed anywhere in the world, so long as:
|
The suit is brought in the U.S. or Canada.
|
|
|
Exclusions common to most liability insurance policies that are also found in professional liability policies
|
- Intentional injury
- Employers liability - Workers compensation - Pollution |
|
|
Duties associated with exercise of reasonable care and skill for a healthcare provider:
|
- Conducting a complete and thorough examination
- Using appropriate diagnostic methods - Providing appropriate follow-up care - Not abandoning the patient - Using reasonable care during surgical procedures - Consulting with or referring the patient to other specialists on a timely basis - Prescribing or administering appropriate medications |
|
|
T or F: A hospital can be held liability for the acts of nonemployee physicians based on the physicians’ apparent authority to act on the hospital’s behalf.
|
TRUE. A hospital can be held liability for the acts of nonemployee physicians based on the physicians’ apparent authority to act on the hospital’s behalf.
|
|
|
A plaintiff in a healthcare professional liability case must establish:
|
- The standard of care applicable to the medical treatment at issue
- A causal connection between the defendant’s failure to provide care to that standard - The injury suffered Most courts require expert testimony to establish the appropriate standard of care. |
|
|
Locality rule
|
Requires expert witnesses in healthcare professional liability suits to have local experience.
Most states have withdrawn from or abolished the use of this rule. |
|
|
Implications of the ‘national standard of care’
|
Implies that rural practitioners have the same training and exercise the same level of judgment and diligence as urban practitioners. Patients must be informed of the limitations of the available facilities, and prompt transfer must be recommended when necessary.
|
|
|
“Captain of the ship” theory
|
Aka “borrowed servant theory”
Hospital employees are considered temporary servants of the operating surgeon, and surgeons may be liable for failures that occur under their implied direction and supervision. |
|
|
Sovereign immunity
|
Can provide governmental entities from liability claims
|
|
|
Charitable immunity
|
Historically extended the same immunity (as sovereign immunity) to not-for-profit hospitals and other charities.
|
|
|
T or F: In many jurisdictions, the idea of sovereign or charitable immunity has been almost totally abandoned.
|
TRUE. In many jurisdictions, the idea of sovereign or charitable immunity has been almost totally abandoned.
|
|
|
Good Samaritan laws
|
Protect from liability those who, without compensation, render assistance at the scene of an accident or emergency. This protection does not extend to acts of gross negligence that cause injury during the rendering of assistance.
|
|
|
Except under emergency conditions or in unanticipated situations, a physician must obtain ________ before performing surgery.
|
The consent of the patient (or someone legally authorized to give consent)
|
|
|
This is a common secondary allegation in claims that involve surgery and diagnostic studies
|
The failure to obtain informed consent
|
|
|
To obtain informed consent, a physician is generally required to disclose information to the patient about five topics:
|
- The nature of the patient’s condition or problem
- The nature or purpose of the proposed procedure or treatment - The risks associated with the proposed procedure or treatment - The anticipated benefits (results) of the proposed procedure or treatment - Alternatives to the proposed procedure or treatment and the risks associated with them |
|
|
Statute of limitations
|
A federal or state law setting the maximum time period for commencing suit or enforcing rights.
Protect defendants against the perpetual threat of a lawsuit. |
|
|
Typically, medical malpractice actions have _____ statutes of limitations than other actions.
|
Shorter
|
|
|
Discovery rule
|
A statutory period in some states; says the limit runs from the time the injured party discovers or should have discovered the injury
|
|
|
Typical hybrid rule for statutory liability
|
Sets a limitation period at two years from the date on which the patient knew or should have known of the injury, but not more than six years after the date the injury occurred.
Medical professional liability cases tend to be subject to the discovery rule or to a hybrid rule. |
|
|
The majority of medical errors result from
|
Faulty systems, processes, and conditions that lead people to make mistakes or fail to prevent them.
|
|
|
Root-cause analysis
|
Focuses on systems and processes, not individual performance, in order to identify improvements that will decrease the likelihood of such occurrences in the future.
|
|
|
Healthcare organizations adopt a variety of risk management techniques, including:
|
- Safety programs
- Performance improvement related to high-risk activities - Information management to identify risk and risk-reduction strategies - Emphasis on patient safety, including patient rights, education, and information |
|
|
Some healthcare professionals and organizations use ______ as a risk-control technique by choosing not to engage in high-risk fields of practice.
|
Avoidance
|
|
|
Healthcare professional liability policies
|
Cover liability for injury resulting from the insured’s rendering of, or failure to render, professional services.
|
|
|
Medical incident
|
Encompasses any act or omission in furnishing medications, appliances, food, or beverages in connection with providing professional services.
|
|
|
Professional services (healthcare professional liability insurance):
|
- Acts performed in the course of treatment
- Postmortem procedures - Service as a director or chief of a hospital - Service on a formal accreditation board or committee - Good-faith reporting of improper conduct on the part of any healthcare professional as required by state regulations |
|
|
Healthcare professional liability policies, particularly those for physicians, split coverage into two insuring agreements:
|
- One that covers the individual healthcare professional(s) named in the policy
- One that covers the professional entity (the corporation, partnership, or LLC) |
|
|
Coverage for the professional entity (in healthcare professional liability insurance) is provided only when
|
The claim against the entity arises out of the professional acts or omissions of the individual practitioners covered by the first insuring agreement
|
|
|
T of F: Healthcare professional liability policies generally include only per medical incident or per person limits.
|
FALSE. Healthcare professional liability policies generally include per medical incident or per person limits as well as aggregate limits.
|
|
|
It is common for the aggregate limit in professional liability policies to be ___ times the per incident or per person limit
|
Three
|
|
|
The coverage territory for healthcare professional liability policies is usually _______
|
Worldwide, provided that the claim is made and suit is brought within the coverage territory
|
|
|
Financial and legal professionals have professional liability loss exposures that are often ______ in nature
|
Contractual
|
|
|
Financial and legal professional liability policies
|
Cover liability for financial harm (rather than bodily or psychological injury) resulting from the insured’s errors or omissions in rendering professional services.
|
|
|
Professional liability claims against financial and legal professionals and the firms to which they belong can be based on:
|
- Breach of contract
- Tort principles - Statutes |
|
|
Fundamental concepts to the legal foundations for financial and legal professional liability
|
- Statutory liability
- Third-party claims - Multidisciplinary practices - Bad faith - Special relationships |
|
|
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
|
(aka the Dodd-Frank Act or the Financial Reform Act)
Introduced comprehensive regulation of financial markets and extensive consumer protection measures. Demands transparency and accountability for financial derivatives, among other provisions. If financial statements are erroneous, negatively affecting the market or misleading investors, then investors may try to recoup their losses by asserting claims against those who prepared the statements. |
|
|
Provisions of major significance in the Dodd-Frank Act
|
- Increased regulation of the trading and reporting of hedge funds and other derivatives
- Increased the Federal Deposit Insurance Corporation (FDIC) requirement to $250,000 - Created a Consumer Financial Protection Bureau to prevent credit card and mortgage lending abuses - Abolished the Troubled Asset Relief Program (TARP), which provided for government bailouts - Established free credit scores for consumers |
|
|
Sarbanes-Oxley Act (SOX)
|
Imposes additional requirements on accountants, auditors, and attorneys; these requirements create liability loss exposures. In theory, SOX should actually reduce the number of professional liability loss exposures.
|
|
|
__________________ created products for which Sarbanes Oxley had no oversight and that created great liability exposure for many financial service professionals.
|
The securitization of mortgage loans
|
|
|
Sarbanes Oxley’s requirements are intended to ensure the credibility of financial requirements and include these provisions:
|
- Creation of the Public Company Accounting Oversight Board to establish and oversee standards for auditors of public companies
- Independence of the audit committee of a public company’s board of directors - Certification of corporate financial reports by the company’s chief executive and chief financial officers - Rapid, current, and transparent reporting |
|
|
T or F: Under certain circumstances, a third party (someone other than the professional and the client that have entered into a contract) can assert breach of contract or a tort claim.
|
TRUE. This is true if the third party can prove he or she was an intended beneficiary of the contract between the professional and the client.
|
|
|
Privity of contract
|
Historically, a claim by someone who is not a party to the contract was disallowed based on the legal concept known as privity of contract. This was true until a 1931 NY court case.
|
|
|
Bad faith
|
An insurer’s denial of coverage without cause, which can result in extracontractual damages, punitive damages, or both.
|
|
|
In many states, an insurer that declines to accept a reasonable offer to settle a liability lawsuit might be found guilty of _______
|
Bad faith
In the event of this, the insurer might be required to pay the entire court award even if it exceeds the policy’s limit of liability |
|
|
Extracontractual damages
|
Describes the part of an award that exceeds the policy limit.
|
|
|
After a court awards extracontractual damages, the plaintiff can release the insured from liability for the amount in excess of the policy limit in exchange for
|
The right to pursue a bad-faith claim against the insurer.
In such cases, the plaintiff then sues the insurer for bad faith in dealing with the insured. A bad-faith claim can establish grounds for a claim for punitive damages. |
|
|
A special relationship can arise when
|
An agent of broker receives additional compensation above the usual commissions for advice or added services, when the agent or broker is asked for and gives advice, or when the agent or broker advertises special qualifications and the insured relies on the agent’s or broker’s expertise.
|
|
|
T or F: The courts of all states hold that the agent or broker has no duty to provide advice or continuing counsel, absent a special relationship with the insured.
|
FALSE. The courts of SOME states hold that the agent or broker has no duty to provide advice or continuing counsel, absent a special relationship with the insured.
|
|
|
A new risk for estate attorneys is one which exposes them to professional liability risk by allowing:
|
An executor to sue the attorney for malpractice.
(Originate in the NY Court of Appeals) Demonstrates that professional liability risks can change with the times. Insurers must be vigilant to court decisions that modify a risk and that might prompt a change in the premiums charged for professional liability insurance. |
|
|
Risk control methods for financial and legal professionals:
|
- Use of general risk control measures
- Adherence to industry standards - Use of arbitration instead of litigation - Avoidance of bad faith and punitive damages awards |
|
|
General risk control measures (financial and legal professionals)
|
- Screen clients to avoid those inclined toward litigious behavior and to examine their personal character, reputation, professional experience, and financial stability
- Develop a written, signed agreement that clearly describes the purpose, nature, and terms of the services to be provided and the parties to whom any report will be distributed - Negotiate and explain fees when services begin and include alternate dispute resolution requirements in service contracts - Respond promptly to clients’ requests […and about 10 other things, page 8.26] |
|
|
A good risk management technique for accounts is to follow these sets of standards and principles:
|
- Generally accepted accounting principles (GAAP)
- Generally accepted auditing standards (GAAS) - Other applicable standards - Document compliance in the course of their work |
|
|
These organizations set standards for lawyers:
|
- Bar associations
- Courts - Regulatory agencies |
|
|
SOX standards for the SEC to enforce upon attorneys
|
Require an attorney to report evidence of a material breach of securities laws or fiduciary duty by the issuer of securities to the chief legal officer (CLO) or the chief executive officer (CEO) of the company.
If the CLO or CEO does not take appropriate action, the attorney is required to report the evidence to a committee of independent directors or to the full board of directors. |
|
|
National Association of Securities Dealers (NASD) Rules of Fair Practice
|
The NASD is a private-sector organization that licenses securities brokers and firms, writes rules to govern their behavior, examines them for regulatory compliance, and disciplines those who fail to comply. It oversees and regulates trading in stocks, bonds, and securities futures and options.
|
|
|
Which group of firms in particular has attempted to reduce their professional liability loss exposures by requiring that their clients agree to arbitrate any dispute?
|
Stock brokerage firms
|
|
|
Methods of avoiding bad-faith and punitive damages awards:
|
- Do not misrepresent any policy terms or coverages
- Respond promptly to all correspondence from claimants and their attorneys - Thoroughly investigate all claims and reject claims only when the investigation shows a legitimate basis for doing so - Outline carefully all the reasons why a claim is being rejected - Evaluate claims thoroughly and promptly and, where appropriate, attempt settlement quickly - Document what is important in evaluating a claim, but avoid pejorative comments about claimants and their attorneys - Advise the insured as soon as possible about the possibility of a judgment in excess of policy limits. |
|
|
Professional liability policies for financial and legal professionals almost always:
|
- Have a claims-made trigger
- Include covered defense costs within the policy limits |
|
|
Financial and legal professional liability insurance
|
Covers all sums that the insured becomes legally obligated to pay for damages resulting from the insured’s professional services.
|
|
|
Exclusions typically found in professional liability policies for financial and legal professionals include:
|
- Bodily injury and property damage
- Dishonest, fraudulent, or criminal acts - Other exclusions |
|
|
Most financial and legal professional liability policies exclude claims for bodily injury or damage to tangible property, for at least two reasons:
|
- The usual consequence of a financial or legal professional error is financial harm to the client or another party
- Excluding bodily injury and property damage eliminates coverage for claims that are covered under other commercial insurance policies such as the CGL and business auto policies |
|
|
Some professional liability policies contain an exception to the bodily injury exclusion that
|
Restores coverage for a claim for bodily injury or property damage that is based on any act, error, or omission that arises out of the rendering of, or failing to render, professional services covered by the policy
|
|
|
The dishonest, fraudulent, or criminal acts exclusion (professional liability) will apply only when
|
The act is established to be dishonest, fraudulent, or criminal by a final judgment adverse to the insured.
(This is favorable language for an insured because most claims are settled before a final judgment is rendered.) |
|
|
Professional liability policies for financial and legal professionals can contain exclusions eliminating coverage for any of these situations:
|
- Claims for liability under ERISA or any securities laws.
- Punitive damages, fines, and the multiplied portion of any damage award. - Claims made by or against a business enterprise not named in the policy, which is or was wholly or partially owned, operated, or managed by the insured. - Liability assumed under a contract (other than liability that would exist in the absence of the contract) - Claims made by one insured against another insured - Loss resulting from investment performance or insurer insolvency - Gaining any profit or advantage to which the insured was not legally entiteled. |
|
|
Disgorged
|
Returned or refunded
|
|
|
Financial institutions (in the context of ‘Professional liability policies for financial institutions’)
|
- Banks
- Securities brokers and dealers - Insurers |
|
|
Financial institutions also have professional liability loss exposures arising out of their:
|
- Trust departments
- Selling and handling of securities - Functioning as travel agents or insurance agents |
|
|
T or F: In some cases, bankers professional liability coverage is combined in one policy with EPL and other coverages using shared limits.
|
FALSE. In some cases, bankers professional liability coverage is combined in one policy with directors and officers (D&O) and other coverages using shared limits.
|
|
|
Securities Brokers Professional Liability Insurance
|
Insure the firm (including directors, officers, and employees) and registered representatives for claims alleging negligence, errors, or omissions committed by an individual acting on the firm’s behalf in trading securities; providing investment advice; and, if so licensed, selling life insurance products.
|
|
|
T or F: Securities Brokers Professional Liability policies also typically cover the firm’s liability for selecting products for sale, the oversight of its registered representatives, and the implementation of compliance and supervisory procedures.
|
TRUE. Securities Brokers Professional Liability policies also typically cover the firm’s liability for selecting products for sale, the oversight of its registered representatives, and the implementation of compliance and supervisory procedures.
|
|
|
Registered representative
|
Account executive.
An individual who is licensed to sell securities and has the legal power of an agent. |
|
|
Professional liability insurance for insurers is often referred to as
|
Insurance company errors and omissions (E&O) liability coverage
|
|
|
Insurance company E&O liability coverage
|
Provides bad faith / extra contractual payments coverage plus coverage for claims for liability arising from professional services such as claim handling, safety inspections, loss control/safety engineering, premium financing, credit and investigation services, and physical rehabilitation.
Coverage generally includes damages arising out of civil proceedings or from administrative or regulatory proceedings. Many insurer E&O liability policies include coverage for punitive and exemplary damages, if insurable under applicable state law. |
|
|
Design professionals
|
Architects and engineers
|
|
|
T or F: Professional liability claims against architects and engineers can be asserted by members of the public, not just the entity with whom the architect or engineer contracted.
|
TRUE. Securities Brokers Professional Liability policies also typically cover the firm’s liability for selecting products for sale, the oversight of its registered representatives, and the implementation of compliance and supervisory procedures.
|
|
|
This item is required when plans are filed to obtain building permits.
|
The professional seal and signature of a registered design professional, usually architect or engineer
|
|
|
Building codes
|
Detailed construction specifications covering the depth of the foundations, the load capacity of the roof and walls, and everything in between.
|
|
|
Architects and engineers can be liable for:
|
- The actual construction and design of a building (if the structure proves unsafe or unsound)
- Negligent review of a building under construction or remodeling |
|
|
Unlike those of many other professionals, the services provided by architects and engineers are almost always governed by
|
A contract between the parties
As a result, the claims against architects and engineers can hinge more on the interpretation of contracts than on the application of common-law principles. |
|
|
Common allegations against architects and engineers
|
- Practicing beyond the scope of the license
- Breach of contract - Conflict of interest - Negligent preparation of plans or designs - Negligent selection of materials/equipment - Negligent supervision of construction - Liability to other parties |
|
|
The American Institute of Architects (AIA) and engineering societies all publish these
|
Model contracts, which are used as a standard.
|
|
|
When an architect or engineer is hired, this type of relationship is established.
|
Agent-principal relationship
|
|
|
If the architect or engineer has a financial interest in a contractor or supplier for a project, and does not disclose that to the client/project owner, that would be known as a
|
Conflict of interest
An architect with a conflicting interest could be held liable to the principal for damages based, at least in part, on the architect’s profit |
|
|
Architects are obligated to prepare plans and drawings that conform to
|
The ordinary expertise and skill of architects. (This does not require they draft a ‘perfect plan’.)
|
|
|
In many cases, a statute of limitations does not begin to run until
|
The negligence is discovered or the actual injury takes place
|
|
|
Statues of repose
|
Aka Completion statutes
Requires a plaintiff to file a lawsuit within a specific time period after a wrongful act by a defendant, such as improper construction of a building, regardless of when the injury occurred or was discovered. (The time limit in these statutes varies from state to state. Some time limits are as short as four years, and others as long as fifteen or twenty years.) |
|
|
This type of risk control is common in the fields of architecture and engineering
|
Noninsurance risk transfers
Other techniques include quality control techniques and clear communication with clients |
|
|
T or F: Hold-harmless agreements are almost universally used as a noninsurance risk transfer technique by architects and engineers
|
TRUE. Hold-harmless agreements are almost universally used as a noninsurance risk transfer technique by architects and engineers.
|
|
|
An important risk control component is:
|
Thoughtful review of the language in all contracts.
|
|
|
It is also important to include a contract provision stating that the firm will not be responsible for
|
Delays or default in the performance of design services that are beyond the firm’s control.
|
|
|
Computerized modeling and optimization techniques used to assist in project design management are examples of
|
Quality control
|
|
|
Examples of effective client communication
|
- Clear contract language
- Reasonable performance schedules with clearly written reports to clients as the work progresses - Refusal of oral changes to contracts or orders - Completion statements from clients when work is finished |
|
|
AIA Best Practices
|
The AIA website provides best practices for architects including risk control and risk transfer recommendations. These best practices include checklists for each phase of a project.
The website also includes information on emerging risks such as these: - Service delivery methods including blending and bundling of services - Project confidentiality - Digital practice, including integration of the design process with a computer project database |
|
|
Architects and Engineers Professional Liability Insurance
|
The insurer agrees to pay on behalf of the insured all sums that the insured becomes legally obligated to pay as damages because of liability arising out of the insured’s rendering or failing to render professional services as an architect or engineer
|
|
|
In some cases, Architects and Engineers Professional Liability Insurance also specifically covers the insured for professional acts, errors, or omissions committed by
|
The insured’s subcontractors
The extension usually does not protect the subcontractor unless the subcontractor has been named as an additional insured |
|
|
Virtually all architects and engineers professional liability policies have these two aspects:
|
- Written on a claims-made basis
- Defense costs are payable within the limits of liability |
|
|
T or F: An architects and engineers professional liability policy typically covers an architect employed by the named insured for his or her liability arising out of work performed as an independent contractor.
|
FALSE. An architects and engineers professional liability policy typically DOES NOT cover an architect employed by the named insured for his or her liability arising out of work performed as an independent contractor.
|
|
|
Insurers generally exclude professional services performed by the insured as part of a ______ that is not named in the policy.
|
Joint venture.
A separate policy or an endorsement can be obtained for a joint venture. |
|
|
Unlike some professional liability policies, architects and engineers professional liability policies do not contain a flat exclusion of claims for
|
Bodily injury and property damage.
This is because an architect’s or engineer’s professional negligence can result in structural defects that injure people or damage property. |
|
|
Coverage is excluded for the __________ by the insured
|
Design of goods sold
|
|
|
Coverage is also excluded for the advising, requiring, or maintaining of _______, or failure to do so.
|
Any type of insurance or bond
|
|
|
This type of exclusion is becoming common in policies covering professional liability for architects and engineers
|
An exclusion of claims based on fungus or mold
|
|
|
Architects and engineers professional liability policies are ordinarily subject to these two limits:
|
- A per-claim limit
- An annual aggregate limit |
|
|
Many architects and engineers policies provide that disputes between the insured and insurer be settled by
|
Binding arbitration
|
|
|
The combined approach (“design-build”)
|
Also called “turnkey”, “design/construct”, or “single source responsibility”
When a firm performs both the design and build functions and contracts to provide their clients with a completed structure. Has become more common recently. Usually led by a contractor that has in-house architects and engineers or contracts with independent firms for these services. Do not fit neatly into standard insurance policy coverage |
|
|
Typically the best option for design-build insurance:
|
Project-specific policies that combine professional and general liability coverage in one policy.
|
|
|
Environmental loss exposures can entail these consequences of pollutants:
|
- Liability for bodily injury to others or damage to their property
- The cost of cleaning up, or remediating, pollutants, either on the insured’s own property or on the property of others |
|
|
An organization can incur environmental liability under these 3 types of law:
|
- Tort
- Contract - Statutory |
|
|
Tort liability for pollution can be based on these 3 things:
|
- Negligence
- Intentional torts - Strict liability |
|
|
Two things required for an organization to be held legally liable to pay the claimant’s pollution damages:
|
- Prove that the organization breached its duty of care owed to the claimant
- Prove that the breach of duty was the proximate cause of the claimant’s injury |
|
|
Intentional torts most commonly alleged in environmental claims
|
- Nuisance
- Trespass |
|
|
A property owner is entitled to:
|
The peaceful enjoyment of his or her property.
|
|
|
Nuisance
|
If a neighbor or another third party engages in an activity that interferes with the owner’s right of enjoyment of the property.
|
|
|
Examples of environmental liability exposures alleging nuisance:
|
- Loud noises
- Noxious odors - Bright lights - Fog generation - Electrical waves - Electromagnetic fields |
|
|
Trespass
|
Involves the physical deposition of pollutants on the property of the claimant alleging injury. (Does not have to be a toxic substance, but can be.)
|
|
|
T or F: Trespass claims have resulted from releases or deposits of water, sand, and clean soil that are objectionable to the property owner.
|
TRUE. Trespass claims have resulted from releases or deposits of water, sand, and clean soil that are objectionable to the property owner.
|
|
|
When manufacturing operations use inherently hazardous materials or processes, courts may impose
|
Strict liability
|
|
|
Strict liability
|
Eliminates the common-law defenses normally available to the defendant in a negligence suit. No degree of care is considered to be adequate for ultrahazardous activities or materials.
|
|
|
An organization can assume liability for environmental losses under a contract that contains a:
|
Hold-harmless agreement
|
|
|
National Environmental Policy Act (NEPA) of 1969
|
Started a new era of environmental legislation.
Resulted from the efforts of conservationists to compel the federal government to consider the environmental ramifications of proposals for new highways, dams, and other public projects capable of affecting wildlife or scenic areas. |
|
|
Clean Water Act
|
To improve the quality of surface waters by prohibiting or regulating the discharge of pollutants into navigable waters and restoring them to fishable or swimmable quality.
|
|
|
Clean Air Act
|
To improve the quality of ambient air by regulating emissions from both mobile and stationary sources of air pollution.
Parties that intend to construct or operate sources of air emissions are required to obtain permits to do so. |
|
|
Motor Carrier Act of 1980
|
To protect the environment from releases of harmful materials during transportation of such materials by motor carriers in interstate or intrastate commerce.
Established minimum levels of financial responsibility for both private and for-hire carriers of hazardous materials. |
|
|
Toxic Substance Control Act of 1976
|
To regulate the chemical manufacturing industry and prevent the importation or manufacture of dangerous chemical substances without adequate safeguards.
|
|
|
Resource Conservation and Recovery Act (RCRA) of 1976
|
To provide “cradle-to-grave” regulation of hazardous waste. Imposes strict waste management requirements on generators and transporters of hazardous wastes and on hazardous waste treatment, storage and disposal facilities. Also regulates underground storage tanks, medical wastes, and nonhazardous solid wastes. Includes proof of financial responsibility requirements for permit holders.
|
|
|
Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) of 1980
|
Aka Superfund
To facilitate the cleanup of any abandoned or uncontrolled sites containing hazardous substances. Imposes strict liability for cleanup costs on potentially responsible parties. |
|
|
A common thread that runs through most pollution laws is the principle that the party that caused the pollution…
|
Is responsible for paying for the cleanup of that pollution in the case of a spill or release.
Referred to as a “let the polluter pay” funding scheme. |
|
|
T or F: Federal government is able to establish pollution standards that are more restrictive than the local standards.
|
FALSE. Local governments are able to establish standards that are more restrictive than the federal standard. This legislative freedom and the public interest in laws protecting the environment lead to a profusion of environmental regulations that vary geographically.
|
|
|
The majority of environmental statutes regulate materials that have one of these four qualities:
|
- Reactive
- Corrosive - Toxic - Flammable |
|
|
For insurance practitioners, the two most common and significant risk management implications of environmental statutes are:
|
- The cost recovery provisions for cleanup expenses
- The proof of financial responsibility requirements |
|
|
T or F: Mold is a regulated hazardous material under environmental statutes as of early 2008.
|
FALSE. Mold is NOT a regulated hazardous material under environmental statutes as of early 2008.
|
|
|
These days, an evaluation of compliance not only includes a review of the physical facilities, but it also considers management systems and control of the processes that pose a threat to the environment. Such an evaluation reviews these items:
|
- The accountability of the board of directors for environmental matters
- The assignment of environmental responsibility within senior management ranks - The effective dispersion of responsibility through all levels of the organization - The day-to-day operation of the system in controlling activities that involve hazardous materials. |
|
|
Components of a corporate environmental risk management program
|
- Begins with a written corporate environmental policy (implemented by written procedures and carried out by executives responsible for the management of day-to-day activities)
- Should be adequately funded - Should have a reporting system |
|
|
Current trend for regulators:
|
To focus on the responsibility of management in assessing environmental compliance.
|
|
|
Nonattainment Areas
|
Zones around cities where ambient air quality fails to meet Clean Air Act requirements; in these areas, regulators can curtail new industrial or commercial development by denying the required air permits.
|
|
|
MCS 90 Endorsement
|
When attached to a commercial auto policy, this endorsement promises that the insurer will pay any claims or judgments made against the transporter for public liability (bodily injury, property damage, or environmental restoration costs) resulting from operation of a covered auto.
Is essentially a surety bond in that it requires the insured to reimburse the insurer for any payments made under the provisions of the MCS 90 that would not have been paid under the insurance policy in the absence of the endorsement. Is an insurance mechanism that meets the Motor Carrier Act of 1980’s requirements. |
|
|
Under the Toxic Substance Control Act, manufacturers of chemical substances must provide extensive information to the EPA regarding:
|
The formulation, use, and risks of each substance they manufacture or import
Includes any information on known or suspected adverse health or environmental effects. |
|
|
Proof of financial responsibility requirements for permit holders
|
Under these provisions, the owners of hazardous waste treatment or storage facilities, landfills, and underground storage tanks are required to provide evidence that they have the financial resources to clean up any material from the facility that causes environmental damage and to compensate victims for bodily injury and property damage.
Concept first adopted by the RCRA |
|
|
PRPs
|
Potentially responsible parties
The persons or entitles that are legally responsible for the costs of remediating a Superfund site. Parties involved with a Superfund site are referred to as PRPs until liability under the act is established. At that point, they become responsible parties (RPs) |
|
|
RPs
|
Responsible parties. They are responsible for all costs associated with cleaning up a Superfund site, include the costs of identifying and evaluating contaminants and developing a plan for remediation.
(Follows the “let the polluter pay” principle.) |
|
|
PRPs can include any of these individuals:
|
- Current owners and operators of a site (even if they had no involvement with the original waste disposal activities)
- Prior owners and operators who may or may not have been involved with the site during the disposal of hazardous materials - Generators of the waste materials disposed of at the site - Transporters who hauled waste to the site - Anyone who arranged for the disposal of materials at the site |
|
|
“Piercing the corporate veil”
|
Invalidating the legal protections of the corporate entity and suing the owners individually
Can generally be applied during cost recovery efforts by the government. (e.g., with the Superfund) |
|
|
T or F: Superfund liability considers fault (i.e., is not strict) and is retroactive
|
FALSE. Superfund liability is strict (without regard to fault) and is retroactive.
This is a significant deviation from traditional theories of recovery under the common law, which normally require negligence on the part of the defendant in order for the plaintiff to recover damages. In fact, many of the disposal sites that ultimately become Superfund sites were permitted legal operations at the time the sites were actively accepting waste. |
|
|
Joint and several
|
Means any liable party may be responsible for the entire amount, regardless of its fair share, if, as is usually the case, the harm is indivisible.
Superfund liability is joint and several. |
|
|
T or F: The contributor of large volumes of nonhazardous materials to a Superfund site could be responsible for a large part of the cleanup cost even though it contributed only nonhazardous waste to the site.
|
TRUE. The contributor of large volumes of nonhazardous materials to a Superfund site COULD be responsible for a large part of the cleanup cost even though it contributed only nonhazardous waste to the site.
|
|
|
The passage of ___________ and the resulting flood of claims by responsible parties under general liability policies were largely responsible for the proliferation of pollution exclusions in U.S. commercial insurance policies, beginning in 1986.
|
CERCLA (Superfund)
|
|
|
Oil Pollution Act (OPA) of 1990
|
Seeks to reduce the risk of spills of petroleum or hazardous materials into U.S. coastal or navigable waters by mandating technical standards for facilities and vessels operating in or near such waters. Also imposes requirements on owners of facilities and vessels to prevent releases and to pay for the costs of releases that are not prevented.
|
|
|
T or F: OPA mandates that each party responsible for a vessel or facility from which oil is discharged (or is threatening to be discharged) into or upon navigable waters, adjoining shorelines, or the exclusive economic zone of the U.S. is liable for removal costs and damages.
|
TRUE. OPA DOES mandate that each party responsible for a vessel or facility from which oil is discharged (or is threatening to be discharged) into or upon navigable waters, adjoining shorelines, or the exclusive economic zone of the U.S. is liable for removal costs and damages.
|
|
|
For RCRA and OPA, the methods that can be used to meet ‘proof of financial responsibility’ requirements include:
|
- Specially endorsed insurance
- A surety bond - A letter of credit - Qualification as a self-insurer |
|
|
3 Step Process for identifying environmental loss exposures:
|
1. Identify what materials are present, the quantities of those materials, and the potentially harmful properties of the materials at the locations in question.
2. Identify the potential routes those materials could take if they were released form or within the facility. (Air, groundwater, surface water, sewers, and air ducts are examples of routes that contaminants can follow.) 3. Identify the target populations of living entities that could be affected if the identified materials followed the potential routes. |
|
|
T or F: Materials need to be hazardous or waste to create an environmental liability exposure.
|
FALSE. Materials do NOT need to be hazardous or waste to create an environmental liability exposure.
|
|
|
Unique characteristics of environmental loss exposures
|
- Environmental loss exposures are difficult to identify
- Environmental loss exposures tend to elude traditional exposure identification methods - The amount of loss may be difficult to measure at a particular point in time - Environmental liability claims may result from a perceived, rather than real, exposure to a toxic material or from a fear of future injury resulting from an actual exposure - Environmental losses are often very severe - Many environmental remediation laws are funded in accordance with a “let the polluter pay” funding concept - Advances in technology can change the loss exposure - The amount of the loss can increase substantially over time as the contamination migrates farther from its source |
|
|
A proliferation of mold claims resulted from the water damage caused by
|
Hurricane Alicia (in TX)
Insurers quickly responded to the unanticipated claims by adding a series of mold exclusions and limitations to virtually all the insurance policies sold in North America. With the insurers’ risk avoidance strategy in place, risk mangers found themselves unable to obtain insurance for future mold claims. |
|
|
When mold became a pollutant in the social consciousness, window manufacturers suddenly faced __________ damage claims arising from their allegedly defective windows that leaked water and led to mold growth.
|
Environmental toxic tort
|
|
|
The difficulty of identifying environmental loss exposures can sometimes be overcome by
|
The effective use of internal and external resources
|
|
|
Examples of internal and external resources that can be used to help identify environmental loss exposures
|
- Environmental compliance personnel within the firm
- Legal counsel - Operational personnel who work in their employer’s facilities on a daily basis - Environmental consultants - Employees of the EPA |
|
|
To effectively manage environmental loss exposures, the risk manager should attempt to distinguish between
|
Loss exposures resulting from prior activities and those that could result from ongoing and future operations.
(Few risk management options are available if the activity that created the loss exposure has already been conducted.) |
|
|
Potential losses from water accumulation in buildings can be avoided by selecting the proper:
|
- Building materials
- Air handling systems - Construction techniques |
|
|
An essential element in controlling environmental losses is to have a __________ plan in place.
|
Contingency.
This plan should address the procedures to follow in the event of an environmental contamination incident. |
|
|
T or F: Environmental insurance policies tend to be standardized.
|
FALSE. They are NOT standardized.
|
|
|
Major categories of environmental insurance policies:
|
- Site-specific
- Operations-specific - Professional liability |
|
|
Types of site-specific environmental insurance policies
|
- Site-specific environmental impairment liability (EIL) policies
- CGL/EIL combination policies - Underground storage tank (UST) compliance policies - Property transfer policies - Remediation stop-loss policies - Secured creditor policies |
|
|
Types of operations-specific environmental insurance policies
|
- Contractors pollution liability (CPL) policies
- CGL/CPL combination policies - Asbestos and lead abatement contractors general liability policies |
|
|
Types of professional liability environmental insurance policies
|
- Environmental professional errors and omissions (E&O) liability policies
- Professional liability/CGL/CPL combination policies |
|
|
Site-specific environmental impairment liability (EIL) policy
|
An insurance policy that covers third-party claims arising from either sudden or gradual releases of pollutants from specified locations.
Commonly sold to factories, waste disposal sites, golf courses, farms, municipalities, warehouses and oil refineries. |
|
|
Insuring agreement – site-specific EIL policy
|
Obligates the insurer to pay on behalf of the insured a loss, in excess of any deductible, for bodily injury, property damage, cleanup costs, and defense expenses.
The loss may result from pollution conditions that exist beyond the boundaries of the site(s) listed in the policy declarations. |
|
|
Two notable qualifications of the policy definitions of “bodily injury” and “property damage” in a site-specific EIL policy
|
- For environmental coverage to apply, the bodily injury or property damage must result from pollutants emanating from an insured site
- Some of the policy forms require physical injury or actual exposure to pollutants to trigger coverage for bodily injury claims |
|
|
T or F: The definition of the term “loss” often excludes the cost to defends against pollution claims.
|
FALSE. The definition of the term “loss” often includes the cost to defend against pollution claims within the scope of the policy.
|
|
|
Typical minimum definition of “cleanup costs”
|
Expenses that the insured incurs in the removal or remediation of soil, surface water, groundwater, or other contamination in responding to a covered pollution liability loss
|
|
|
The definition of pollution conditions does NOT include the words
|
- Hazardous waste
- Hazardous material The definition is much broader than hazardous waste. |
|
|
The standard policy definition of pollutant also does not address a normally occurring substance like ____, which may or may not be considered a pollutant, depending on the applicable case law of the state in which the loss occurs.
|
Mold
|
|
|
Story example on page 9.20
|
Read it. It’s a good example of the application of the EIL limit and deductible.
|
|
|
Site-specific EIL policies provide coverage on a _________ basis.
|
Claims-made
|
|
|
3 noteworthy characteristics of site-specific policies, with regard to the claims-made trigger:
|
- They often have no retroactive date (although when prior use or current conditions at the site make the loss exposure unacceptable, the underwriter can impose a retroactive date on an EIL policy to limit the time period for coverage of prior acts)
- They contain extended reporting period provisions that obligate the insurer to provide an extended reporting period (typically one to three years) for a specified additional premium after the policy period ends - All claims arising from a pollution incident (release) are treated as a single loss subject to one limit of liability and one deductible. |
|
|
Site-specific EIL policies typically contain all of most of these exclusions:
|
- Known preexisting conditions (the exclusion usually limits the list of employees who must have knowledge of preexisting pollution conditions to those directly responsible for environmental affairs and senior managers)
- Deliberate noncompliance with environmental laws - Punitive damages - Sold or leased premises - Nuclear liability - Acid rain - War - Contractual liability - Damage to the insured site - Products and completed operations - Workers compensation and employers liability - Transportation loss exposures - Terrorism |
|
|
Limits – site-specific EIL policies
|
Typically subject to a per-loss limit of liability, which is the most that the insurer will pay for bodily injury, property damage, cleanup costs, and defense expenses resulting from each release of pollutants.
EIL policies also typically contain an aggregate limit of liability. |
|
|
An important difference between the CGL policy and EIL policy
|
The inclusion of defense expenses within EIL policy limits
The CGL pays defense costs in addition to the applicable limit of liability until the limit is used up by the payment of damages. |
|
|
Defense expenses in an environmental damage claim can be substantial because of
|
The normal requirement for technical experts and testing of materials.
|
|
|
The total amount of insurance that an insured can obtain from multiple insurers to cover environmental loss exposures exceeds _______ per loss.
|
$400 million
|
|
|
CGL/EIL Combination Policy
|
An insurance policy that includes both commercial general liability (CGL) coverage and environmental impairment liability (EIL) coverage.
An alternative to a site-specific EIL policy Combining these into a single policy produces seamless coverage, often for a lower premium than for separate CGL and EIL policies. |
|
|
CGL/EIL policies are commonly sold to these two types of firms:
|
- Chemical companies
- Waste disposal firms |
|
|
CGL/EIL policies are written with EIL coverage on a _________ basis and CGL on either an _____ or a _________ basis
|
EIL: Claims-made
CGL: Either occurrence or claims-made |
|
|
In a CGL/EIL policy, both coverages are subject to a ________ limit and typically a single _____.
|
- Single aggregate limit
- Single deductible |
|
|
Policies that combine environmental and other coverages have at least two advantages over buying separate CGL and EIL policies:
|
- Combination policies can eliminate coverage disputes that might otherwise occur if the coverages were provided by two different insurers
- A combination policy is typically less expensive than if the two or more coverage forms were purchased separately. (This is true primarily because the coverages in a combination policy are subject to a single aggregate limit.) |
|
|
Underground storage tank (UST) compliance policy
|
An insurance policy that provides proof of financial responsibility under governmental regulations that apply to the owners and operators of underground storage tanks containing fuels or other hazardous materials.
Core coverage is an EIL policy. Worded to provide the full financial responsibility compliance required by federal regulation. |
|
|
Resource Conservation and Recovery Act (RCRA)
|
Requires the owners or operators of underground storage tanks to demonstrate proof of their ability to pay claims resulting from the release of fuels or hazardous materials from the tank. (Can be accomplished by purchasing a UST compliance policy.)
|
|
|
Additional policy provisions in a UST compliance policy include a separate limit for defense costs, usually equal to ___ percent of the policy limit.
|
25 percent
|
|
|
For most tank owners, the required limit of insurance is
|
$1 million per claim.
|
|
|
T or F: A number of insurers also insure aboveground tanks on the same policies used for underground tanks.
|
TRUE. A number of them do.
|
|
|
T or F: Most UST compliance policies provide the full scope of coverage granted by full EIL policies.
|
FALSE. Most UST compliance policies do not provide the full scope of coverage granted by full EIL policies. One restriction of coverage in a UST compliance policy is that it does not insure all releases of contaminants from the insured site. Some UST compliance policies respond only to a “corrective action” as defined in RCRA, and not to other environmental damage claims.
|
|
|
Property transfer policy
|
An insurance policy purchased in connection with a sale of property in order to transfer the potential pollutant cleanup liability and third-party damages to the insurer.
Is essentially an EIL policy that has been amended to cover on-site cleanup on a first-party basis. |
|
|
T or F: Property Transfer Policies are usually worded to be assignable to subsequent owners of the property and are commonly written for policy terms of seven to ten years.
|
TRUE. Property Transfer Policies are usually worded to be assignable to subsequent owners of the property and are commonly written for policy terms of seven to ten years.
|
|
|
T or F: Property Transfer Policies can be a valuable tool in managing the loss exposures associated with the sale and purchase of property that is not known to be contaminated but that could be.
|
TRUE. Also, a valuable tool for managing the environmental loss exposures of new construction, including the loss exposures related to mold in a completed building.
|
|
|
The environmental loss exposures of the developer, contractor, and project owner are all covered under this type of insurance policy
|
Property Transfer Policy
|
|
|
Property transfer policies typically define “remediation expenses” as
|
Expenses incurred for the investigation, removal, or treatment of pollution conditions only to the extent required by specified environmental regulations such as the CERCLA.
Thus, coverage under the policy is triggered when the insured discovers levels of contamination that the environmental laws in the policy are broadly defined and usually incorporate any federal, state, or local environmental protection law. |
|
|
Nearly all property transfer policies exclude loss resulting from these exposures:
|
- Known preexisting conditions
- Intentional or illegal acts - Liability assumed by contract - Products and completed operations - Asbestos - Lead-based paint - Off-site transportation - Bodily injury to an employee of the insured - Workers compensation obligations |
|
|
T or F: Policy periods of up to 15 years are common with property transfer policies.
|
FALSE. Policy periods of up to ten years are common.
|
|
|
T or F: Multiple deductibles may apply to a property transfer policy.
|
FALSE. Regardless of the number of the same or related pollution releases from a covered location, only one deductible and one per-loss limit will apply.
|
|
|
Remediation stop-loss policy (cost cap policy)
|
An insurance policy purchased to insure remediation costs that exceed the projected or anticipated costs of performing an environmental cleanup of a specific location that is being sold.
Designed to facilitate real estate sales, remediation stop-loss policies (aka cost cap policies) are principally used when a property is known to be contaminated but the cost of remediation is uncertain. |
|
|
Insuring agreement – remediation stop-loss policy
|
Agree to pay on behalf of the named insured the expenses (in excess of the deductible) that the insured incurs in completing an approved remedial action work plan at a specified location.
|
|
|
Common remediation stop-loss exclusions are:
|
- Willful noncompliance with environmental regulations
- Bodily injury - Contractual liability - War |
|
|
Example on p. 9.27
|
Review it! Good application of remediation stop-loss coverage
|
|
|
Remediation stop-loss policies actually insure
|
The completion of the contractor’s remedial work plan, which is made part of the policy through the application process.
|
|
|
Unlike other forms of environmental insurance, a remediation stop-loss policy is triggered
|
The day the work at the site begins
|
|
|
Secured creditor policy
|
An insurance policy that protects a lender’s security interest in property having environmental loss exposures that are not severe enough to require true EIL insurance.
Policy pays for environmental cleanup that a borrower is unable to perform on its own without the involvement of the lender to manage the cleanup on a loan workout (a re-structuring of an overdue loan) or foreclosure on the property, activities that both expose the lender to Superfund liability. |
|
|
T or F: A secured creditor policy is essentially a property transfer EIL policy that has been stripped down to save significant premium dollars.
|
TRUE. A secured creditor policy IS essentially a property transfer EIL policy that has been stripped down to save significant premium dollars.
|
|
|
Major differences between a secured creditor policy and a site-specific EIL or property transfer policy:
|
- The secured creditor policy has a dual coverage trigger. First, an environmental condition must be associated with the property. Second the insured must be in default on the loan. (Traditional EIL insurance does not have the second coverage trigger.)
- The borrower receives no protection under the policy because the borrower is already in default before the policy applies to an environmental loss - The unamended policy form provides no coverage for bodily injury or property damage liability claims - The policy gives the insurer the right to pay the lesser of the cleanup costs or the loan balance |
|
|
Contractors pollution liability (CPL) policy
|
An insurance policy that covers the pollution-related loss exposures of a contractor.
Introduced in 1987 to address the environmental insurance needs of contractors performing environmental remediation services on contaminated sites. |
|
|
This type of business often buys CPL policies
|
Environmental services vendors, and a wide range of contractors
|
|
|
CPL policy is designed to cover
|
- A contractor’s operations and activities at project sites
- The contractor’s completed operatiosn and contractual liability exposures. |
|
|
The emergence of __ as a potential contaminant in the indoor environment has dramatically expanded the need for CPL coverage across a broad range of service providers.
|
Mold
|
|
|
Unlike site-specific EIL polciies, CPL policies provide coverage for loss arising from
|
The described operations of the named insured.
The obligation of the insurer to pay a loss on behalf of the insured has the same meaning in the contractors policy as in the EIL policy, which is to cover claims arising out of a pollution incident for bodily injury, property damage, cleanup costs, and defense expenses. |
|
|
CPL policies are available with either a _____ or an ___ coverage trigger
|
Claims-made; occurrence
|
|
|
Claims-made CPL policies often contain a
|
Retroactive date
|
|
|
Prior acts coverage is available in a CPL policy, but it has to be _______ and added to the policy.
|
Negotiated
|
|
|
A CPL policy omits certain exclusions of the site-specific EIL policies so that it will cover
|
- Completed operations
- Damage to the insured site - The cost of remediating the job site for a loss created by the contractor’s operations |
|
|
CPL policies often exclude these exposures (in addition to the common site-specific EIL policy exclusions):
|
- Asbestos abatement operations
- Radioactive matter - Claims arising out of the insured’s products - Damage to sites owned by or leased to the insured - Professional liability |
|
|
CGL/CPL combination policy
|
Combines a CGL policy with a claims-made or an occurrence-based CPL policy.
Originally designed to provide seamless CGL and environmental coverage for environmental remediation contractors, these policies are becoming increasingly popular with other types of contractors that have environmental loss exposures associated with their operations. |
|
|
Asbestos and lead abatement contractors general liability policy
|
Essentially a CGL policy that contains an amendment to the pollution exclusion deleting asbestos (or lead) from the policy definition of pollutants.
Covers a contractor’s insurance needs in a single policy. |
|
|
T or F: The asbestos or lead abatement contractors general liability policy typically does not include defense costs within the general aggregate limit.
|
FALSE. The asbestos or lead abatement contractors general liability policy typically DOES include defense costs within the general aggregate limit.
|
|
|
Environmental Professional E&O Liability Policies
|
Resemble the coverage grants of traditional engineers’ professional liability policies and do not contain pollution exclusions.
|
|
|
Likely users of environmental professional E&O liability policies
|
- Environmental engineers
- Testing labs - Tank testers - Environmental consultants |
|
|
Environmental professional E&O liability policies are written on a ________ basis.
|
Claims-made
Usually subject to a retroactive date and a substantial deductible |
|
|
Insured-versus-insured exclusion (Environmental professional E&O liability policy)
|
Eliminates coverage for claims in which one insured sues another insured for damages arising out of a professional error, act, or omission.
Most professional liability underwriters believe that such suits are a business risk that should be assumed by the affiliated entities and therefore should not be insured. |
|
|
Other exclusions found in environmental professional E&O insurance:
|
- Contractual liability
- Nuclear risks - Warranties and guarantees - Fiduciary liability |
|
|
Professional liability/CGL/CPL Combination Policies
|
All those coverages combined into a single policy. Insureds benefit from this approach because a combination policy can eliminate potential coverage gaps between the component coverages. The combination policies can also save the insured premium dollars because the insured does not have to buy the components as separate policies with separate limits of liability.
|
|
|
The application for environmental insurance ordinarily includes certain _______ that become part of the policy.
|
Warranties
The warranties include a statement that the applicant knows of no existing pollution conditions that are likely to lead to a claim against the applicant. They also verify the truthfulness of the information submitted to the underwriter. |
|
|
One of the difficulties faced by potential applicants for environmental insurance has been that the information required in the applications is
|
Not common to other forms of insurance.
(Much more detailed information on the applicant’s environmental loss exposures is usually required to underwrite the policy. The underwriter can use a number of resources to assist in the application process, including specialized insurance producers and wholesalers and environmental engineers and consultants.) |
|
|
Vessels
|
Any type of watercraft
|
|
|
Principal marine liability loss exposures include these (3):
|
- Liability for injury, illness, or death of members of the vessel’s crew, other persons on board the vessel, and persons not on board the vessel
- Liability for property damage to other vessels and their cargoes, cargo owned by others on board the vessel, and other structures (including bridges, piers, docks, and navigational locks) - Liability for pollution |
|
|
A vessel owner’s liability in most cases is based on a specialized branch of federal law known as
|
Admiralty law (aka general maritime law)
|
|
|
Liability for _____________ is the most significant bodily injury liability loss exposure for most vessels (other than those that carry large numbers of passengers)
|
Injury or death of crew members
|
|
|
A vessel owner’s or operator’s liability for injury or death of crew members can be based on any of several factors (5):
|
- Obligation to provide maintenance and cure
- Vessel owner’s warranty of seaworthiness - Merchant Marine Act of 1920 - Death on the High Seas Act - General maritime law |
|
|
Maintenance and cure
|
Medical care, food, and lodging during the time a crew member is ill or recovering
|
|
|
Warranty of seaworthiness
|
Promise that the vessel is safe and fit for a sea voyage
|
|
|
Merchant Marine Act of 1920
|
Commonly called the Jones Act
Gives crew members the right to sue their employers for damages for injuries resulting from the employer’s negligence |
|
|
Death on the High Seas Act
|
Allows survivors of deceased crew members to sue for damages resulting from a crew member’s death caused by negligence on the high seas
|
|
|
In addition to crew members, vessel owners and operators owe a duty of care to other persons who may come on board a vessel:
|
- Longshore workers, who load or discharge cargo
- Passengers on ferries, cruise ships, casino vessels, day excursion vessels, sport fishing vessels, or any other vessel that carries passengers - Various other visitors (such as harbor pilots, employees of ship repairers, cargo surveyors, vessel inspectors, or social guests) |
|
|
The vessel owner and crew must exercise __________ to provide a safe work environment and warn longshore workers of hazards
|
Reasonable care
|
|
|
A vessel owner who invites a passenger on board has the same duty of care as a ____________
|
Common carrier; basically, they must exercise extreme care for the passenger’s safety.
|
|
|
In general, a vessel owner owes this duty to all who are aboard for purposes not adverse to the owner’s legitimate interests
|
A reasonable duty of care under the circumstances
|
|
|
T or F: A vessel owner cannot be held liable for injury to persons who are not aboard the owner’s vessel.
|
FALSE. A significant loss exposure in this category is injury to others on another vessel as the result of a collision with the owner’s vessel. But it can also apply to persons who are not on board any vessel but are injured as the result of a vessel’s navigation.
|
|
|
A vessel owner or operator may be liable for damage to:
|
- Other vessels and their cargoes
- Cargo owned by others on board the vessel - Other structures |
|
|
One of the most significant sources of property damage liability for a vessel owner or operator is negligent collision of the owner’s vessel with ___________.
|
Another vessel
|
|
|
Property not considered cargo could be, for example:
|
Baggage belonging to passengers.
|
|
|
Freight
|
The money earned for transporting cargo
|
|
|
Carrier
|
A vessel owner or operator that transports property of others to earn freight
|
|
|
Common carrier
|
Offers its services to the general public; is required by law to enter into a contract of carriage with parties that use its services
|
|
|
Contract of carriage
|
Aka “liner service”
The carrier’s vessels sail predetermined trade routes on a regular, published schedule |
|
|
A common carrier’s liability for ocean cargo being transported to or from the U.S. in foreign trade is governed by
|
COGSA
(U.S. Carriage of Goods by Sea Act) |
|
|
COGSA imposes cargo liability only if losses result from a carrier’s failure to
|
Have made its vessel seaworthy and suitable for carrying the cargo when the voyage began.
|
|
|
COGSA limits recovery to _____ per package or customary freight unit.
|
$500
|
|
|
Domestic shipments (such as a shipment from one city to another on a navigable river) by common carrier are subject to this U.S. statute:
|
The Harter Act
(Unless the carrier and shipper agree to be subject to COGSA) |
|
|
Under the Harter Act, the carrier is liable for cargo loss if it failed to make the vessel seaworthy when the voyage began – even if…
|
…the cargo loss was not caused by the unseaworthy condition.
|
|
|
Tramp shipping
|
Ocean shipping by cargo vessels (called “tramps”) that have no fixed schedule of sailings
|
|
|
Voyage charterer
|
A shipper that charters a vessel for a particular voyage
|
|
|
Time charterer
|
A shipper that charters a vessel for a specified time period
|
|
|
Charter party
|
The contract of carriage used for tramp shipping.
Contract carriers and their charterers often agree to follow the rules of COGSA. |
|
|
In contrast to common carriers, contract carriers engage in
|
Tramp shipping, scheduling each voyage separately to meet the needs of the particular shipper.
|
|
|
Tramp shipping is principally used by shippers of bulk cargoes such as
|
Oil and grain
|
|
|
The shipper leasing cargo space on board a vessel may be either:
|
- A voyage charterer
- A time charterer |
|
|
T or F: The vessel and its crew remain under the control of the charterer.
|
FALSE. The vessel and its crew remain under the control of the carrier, not the charterer.
|
|
|
T or F: If damage to other structures results from the negligence of the owner (or operator) or the vessel’s crew, the vessel owner (or operator) can be held liable.
|
TRUE. If damage to other structures results from the negligence of the owner (or operator) or the vessel’s crew, the vessel owner (or operator) CAN be held liable.
|
|
|
Many countries’ marine pollution laws conform to an international standard known as
|
The Convention on Civil Liability for Oil Pollution Damage
|
|
|
T or F: The U.S. has ratified all international conventions on oil pollution liability.
|
FALSE. The U.S. has NOT ratified any international conventions on oil pollution liability and instead has its own laws relating to oil spills.
|
|
|
Oil Pollution Act of 1990 (OPA)
|
Followed the Exxon Valdez spill; greatly increased the potential liability of vessel owners beyond that established in previous federal statutes.
OPA prohibits the discharge of oil into the navigable waters of the U.S. and adjoining shorelines, and it imposes liability on any responsible party (including either the owner or the nonowner operator of a vessel) for cleanup costs and damages, including damage to property, damage to natural resources, and loss of earnings. |
|
|
Only defenses for OPA are (3):
|
- “Act of God”
- Act of war - Act or omission of a third party |
|
|
Limitation of liability under OPA does not apply if the incident was proximately caused by either:
|
(1) Gross negligence or willful misconduct of or
(2) The violation of an applicable federal safety regulation by the responsible party, an agent or employee of the responsible party, or a person acting pursuant to a contractual relationship with the responsible party. |
|
|
T or F: The limits of OPA supersede the laws of several U.S. states that impose unlimited liability on polluters.
|
FALSE. The limits of OPA do NOT supersede the laws of several U.S. states that impose unlimited liability on polluters. Consequently, a shipowner could face unlimited liability for oil spills in U.S. waters.
|
|
|
Perils of the seas
|
Mishaps that are unique to vessels at sea, such as heavy weather (unusually strong action of wind or waves), running aground, or collision with another vessel or object.
|
|
|
A commercial vessel’s purpose is to
|
Earn revenue
|
|
|
Freight
|
The compensation a carrier receives for transporting cargo
|
|
|
Passage money
|
The revenue a passenger vessel earns
|
|
|
When a cargo vessel or passenger vessel is inoperable during repair or replacement, its owner loses:
|
The revenue that would have been earned minus any operating expenses that were suspended during the period in which the vessel was inoperable
|
|
|
In most cases, ocean cargo insurance is bought by businesses that
|
Do not own vessels
|
|
|
General average
|
Partial loss that must, according to maritime law, be shared by all parties to a voyage (cargo owners and vessel owner); originated as a way for all parties to a maritime venture to share, in a fair manner, any losses incurred by some of the parties to the venture in order to save the venture.
|
|
|
Particular average
|
Partial loss that is borne by only one party to a voyage (such as a cargo owner)
|
|
|
Today, an international code, known as the _______________, governs general average losses.
|
York-Antwerp Rules
These rules do not have the force of law but are voluntarily included by reference in contracts of ocean carriage between vessel owners and cargo interests. |
|
|
T or F: General average sacrifices include not only sacrifices of cargo but also sacrificial damage to the vessel.
|
TRUE. General average sacrifices include not only sacrifices of cargo but also sacrificial damage to the vessel. (An example of sacrificial damage is water damage resulting from flooding the vessel’s holds in order to extinguish a fire. Another example is overworking and damaging the vessel’s engines in order to get the vessel off a sandbar.)
|
|
|
Each party’s share of the total of sacrifices and expenditures in a general average can be calculated in this manner:
|
Each party’s share =
((The value of each party’s property, i.e., the contributory value) / (Contributory values of all property)) x Total value of the general average (see p. 10.9 for how it lays out) |
|
|
The process of spreading the general average among all parties is called the
|
Apportionment of the general average
|
|
|
Average adjuster
|
A professional who specializes in handling general average adjustments
|
|
|
Simplified apportionment of general average
|
See example, p. 10.9
|
|
|
Protection and indemnity (P&I insurance)
|
Insurance that covers shipowners against various liability claims due to operating the insured vessel
|
|
|
Hull insurance
|
Insurance that covers physical damage to vessels, including their machinery and fuel but not their cargo
|
|
|
Two main types of insurance that most vessel owners or operators needs are:
|
- P&I Insurance
- Hull insurance |
|
|
In general, P&I insurance parallels __________ insurance and hull insurance parallels ___________ coverages.
|
Auto liability insurance; auto physical damage coverages
|
|
|
Assured
|
Marine insurance generally refers to the person or organization insured as the “assured” rather than the “insured”, and to the insurer as the “underwriter”
|
|
|
U.S. companies that write P&I for inland/coastal vessels tend to provide coverage mainly for
|
Smaller vessels, such as tugs, barges, fishing vessels, and excursion vessels. They usually use standardized forms.
|
|
|
Three P&I insurance forms most commonly used:
|
- Form SP-23
- Form SP-28 - American Institute of Marine Underwriters (AIMU) Protection and Indemnity Clauses |
|
|
Main providers of P&I for vessels used in international trade are
|
P&I Clubs
|
|
|
P&I Club
|
Mutual insurer (controlled by the owners of the insured vessels) that insure their members for extremely high limits of liability. The clubs pool members’ losses and have the strength to obtain favorable reinsurance.
As assessment mutuals, they can assess their members for unexpected losses. P&I clubs do not use standardized forms; each club develops its own forms. |
|
|
The P&I coverage is confined to such loss, damage, or expenses that the assured shall become liable to pay and shall pay. The words “shall pay” indicate that the P&I policy is
|
An indemnity policy.
Technically, the assured must first pay the loss and then is reimbursed by the insurer. |
|
|
T or F: With a P&I policy, the insurer may not be obligated to pay third-party claimants on the assured’s behalf if the vessel owner goes bankrupt before paying the claimants.
|
TRUE. With a P&I policy, the insurer may not be obligated to pay third-party claimants on the assured’s behalf if the vessel owner goes bankrupt before paying the claimants.
|
|
|
General exclusions for P&I forms
|
- War or any type of seizure or detention of the vessel (for example, maintenance and cure for a crew member injured by a missile attack on the insured vessel)
- Towage of any other vessel, unless the purpose is to assist a vessel in distress. - Liability exceeding the liability that would be imposed on the assured by law in absence of a contract - Pollution liability is excluded under AIMU and usually by endorsement under SP-23 and SP-38. |
|
|
P&I Coverages: Bodily Injury-Type Coverages
|
- Loss of life, injury, and illness
- Repatriation expenses |
|
|
P&I Coverages: Property Damage-Type Coverages
|
- Damage to other vessels caused by collision
- Damage to other vessels not caused by collision - Damage to property other than vessels - Wreck removal expenses - Damage to cargo of others |
|
|
P&I Coverages: Unique Coverages
|
- Fines and penalties
- Cost of resisting mutiny or misconduct - Quarantine expenses - Putting-in expenses - Cargo’s proportion of general average |
|
|
P&I Coverages: Other Costs
|
- Defense costs
|
|
|
P&I Coverages – Bodily Injury-Type Coverages: Loss of life, injury, and illness
|
Applies to crew members, the vessel’s own passengers, and other vessels’ passengers. (Corresponds to the legal remedies for injury or death set out in general maritime law (maintenance and cure and warranty of seaworthiness) and federal statutes (Jones Act and Death on the High Seas Act))
|
|
|
P&I Coverages – Bodily Injury-Type Coverages: Repatriation Expenses
|
Reasonable and necessary expenses incurred by the assured to return (repatriate) crew members to their sign-on port because of illness, injury, or an accident that results in termination of the voyage
|
|
|
P&I Coverages – Property Damage-Type Coverages: Damage to other vessels caused by collision
|
Sometimes offered in P&I policy as excess coverage to hull policy’s optional coverage
|
|
|
P&I Coverages – Property Damage-Type Coverages: Damage to other vessels not caused by collision
|
Damage to other vessels due to the assured’s negligence resulting, for example, from dropping of cargo on a barge alongside the insured vessel or from negligent navigation of the insured vessel that forces another vessel to take evasive action
|
|
|
P&I Coverages – Property Damage-Type Coverages: Damage to property other than vessels
|
Covers property such as bridges, piers, buoys, breakwaters, and cables. Does not cover cargo but covers more than collision damage. For example, if the assured negligently starts a fire on the vessel that spreads to a pier, damage to the pier would be covered.
|
|
|
P&I Coverages – Property Damage-Type Coverages: Wreck removal expenses
|
Covered when a vessel owner is required by law to remove the wreckage of a vessel due to the vessel owner’s negligence. The sunken vessel may be the assured’s or another owner’s
|
|
|
P&I Coverages – Property Damage-Type Coverages: Damage to cargo of others
|
Covers only cargo of other vessels damaged due to the assured’s negligence
|
|
|
P&I Coverages – Unique coverages: Fines and penalties
|
Generally covers the assured’s liability for fines or penalties for violating U.S. federal or state laws or the laws of any country. Excludes liability for damages resulting from the assured’s failure to exercise the highest degree of diligence to prevent a violation of law
|
|
|
P&I Coverages – Unique coverages: Cost of resisting mutiny or misconduct
|
Expenses incurred in resisting nay unfounded claim by persons employed on board the vessel or in prosecuting such persons in case of mutiny or other misconduct.
|
|
|
P&I Coverages – Unique coverages: Quarantine expenses
|
Expenses incurred when authorities place a vessel in isolation to prevent the spread of a suspected contagious disease carried by the vessel or crew members.
|
|
|
P&I Coverages – Unique coverages: Putting-in expenses
|
Expenses of deviating from a stated route to deliver a sick or an injured crew member or passenger to a port for medical care
|
|
|
P&I Coverages – Unique coverages: Cargo’s proportion of general average
|
Pays the portion of a general average that the assured is unable to collect from the owners of cargo aboard the insured vessel
|
|
|
P&I Coverages – Other costs: Defense costs
|
Ordinarily covers the reasonable cost of defending against covered claims. Unlike the commercial general liability (CGL) policy or auto policies, P&I policies included defense costs in the limit of insurance.
|
|
|
P&I cargo coverage is usually subject ot many additional exclusions and special conditions, which can include these (4):
|
- Valuable property such as jewelry, furs, and bullion unless they are accepted for shipment under a contract approved by the insurer.
- Refrigerated cargo when the assured does not meet certain conditions that a prudent ship owner would meet to prevent losses to such cargo. - Liability expanded by contract (that is, the insurer’s liability will not be greater than the liability that would be imposed on the assured by law; the insurer may be willing to insure expanded cargo liability before a loss has occurred in return for an additional premium that reflects the additional loss exposure - Cargo on land or on other vessels; (in addition to excluding property while it is being transported on land or on another vessel, this exclusion may also extend to property before it is loaded on or after it is discharged from an insured vessel) |
|
|
Hull insurance
|
Is essentially property insurance for a vessel plus collision liability coverage.
|
|
|
Most commonly used hull insurance form
|
American Institute Hull Clauses (AIHC), developed by the American Institute of Marine Underwriters
|
|
|
Taylor Hull Form
|
Another hull insurance form often used for insuring vessels used on rivers and coastal waters
|
|
|
Hull insurance can cover the interests of these parties or organizations:
|
- Vessel owners
- Agents who manage or operate vessels on behalf of the owners - Bareboat charterers of vessels |
|
|
Bareboat charterer
|
A charterer that agrees to be responsible for actually operating and insuring the vessel.
|
|
|
Hull policies ordinarily exclude these properties, which are normally covered under other policies:
|
- Cargo
- Cargo containers - Passengers’ property - Crews’ property - Barges or lighters |
|
|
Perils clause
|
A hull policy contains a Perils clause that covers loss caused by basic perils.
Most policies also include the Additional perils clause. |
|
|
Basic hull insurance forms generally exclude coverage for these perils:
|
- War and its aftereffects (e.g., any resulting loss to the vessel from a mine, bomb, or torpedo not carried as cargo)
- Piracy - Strikes and other labor disturbances - Riot - Any taking or hindering of the vessel by another party |
|
|
Piracy
|
Illegal acts of violence, detention, or depredation occurring on the high seas
|
|
|
American Institute Hull War Risks and Strikes Clauses Endorsement
|
Modifies the hull policy to cover loss caused by war, strike, riot, piracy, seizure, or related perils.
(However, does not cover all war risks. Hostile detonation of nuclear weapons, war between any of the countries named in the endorsement that possess nuclear weapons, and acts perpetrated by terrorists are all eliminated coverages.) |
|
|
Perils generally covered under hull insurance
|
Basic Perils Clause
- Perils of the seas - Fire, lightning, earthquake - Assailing thieves - Jettison - Barratry - All other like perils Additional perils clause Liner Negligence clause - Broadens additional perils coverage - Provides “all-risks” type coverage |
|
|
Perils of the seas
|
Abnormally rough seas, strandings, groundings, and collisions with other vessels or objects
|
|
|
Fire, lightning, earthquake (hull insurance)
|
Covered when vessel is at sea and also while docked (not considered perils of the seas)
|
|
|
Assailing thieves
|
Those who steal or attempt to steal property by violence or force; passengers and crew members are excluded
|
|
|
Jettison
|
Voluntary throwing overboard of some part of the vessel when the vessel is in danger. Hull insurance does not cover cargo that is jettisoned.
|
|
|
Barratry
|
Serious misconduct by a vessel’s master or crew that is contrary to the owner’s interest
|
|
|
All other like perils
|
Similar in kind or class to the perils specifically listed in the policy, such as windstorm damage (perils of the seas) to the vessel when in dry-dock
|
|
|
Additional Perils Clause
|
Includes coverage for losses resulting from electrical breakdown, bursting of boilers, breakage of shafts, and latent defects, among others; covers resulting losses but not loss to the item that broke down or was defective unless breakdown or defect was caused by another covered peril
|
|
|
Liner Negligence Clause – Broadens additional perils coverage
|
Deletes additional perils and replaces it with broader provisions. For example, it covers the damage to items that have failed or broken or have latent defects along with the resulting damage.
|
|
|
Liner Negligence Clause – Provides “all-risks” type coverage
|
Covers any losses except those that are specifically excluded
|
|
|
Standby hull war risk binders
|
Bring government war risk coverage into effect as soon as commercial hull war risk insurance automatically terminates.
(Ensure the continuation of war risk coverage in the vent of automatic termination.) |
|
|
For total losses under hull insurance, the amount payable is based on
|
An agreed value determined at the time the policy was issued.
|
|
|
For partial losses under hull insurance, the amount payable is limited to
|
The reasonable cost to repair the vessel using new materials, not to exceed the amount of insurance.
|
|
|
The following types of expenses are also payable under hull insurance:
|
- Towing and pilotage to and from the repair yard
- Drydock dues and expenses - Compensation and expenses of the vessel owner’s superintendent - Air freight to expedite delivery of needed parts |
|
|
The hull policy allows the insurer to take certain measures to control repair costs:
|
- Appoint its own surveyor to appraise the damage
- Determine the place where repairs will be made - Veto any repairer proposed by the assured - Require bidding on the repairs |
|
|
Most hull policies are issued for this length of time
|
One year; though some are issued for a specific voyage
|
|
|
“Held covered”
|
Most insurers allow the assured to have the insured vessel “held covered” past the policy expiration date if the vessel is at sea, in distress, or at a port of refuge or port of call on that date. (Costs an additional premium, must notify insurer)
|
|
|
3 events that trigger automatic termination of hull coverage on the vessel:
|
- Change in ownership, management or vessel’s flag that designates the country in which it is registered
- Charter/requisition of vessel on a bareboat basis - Any change in the vessel’s classification society. |
|
|
Classification society
|
Establishes and administers standards for the design, construction, and periodic survey of merchant ships
|
|
|
Two exceptions that can suspend the automatic termination on hull coverage
|
- If one of the automatic termination events occurs while the vessel is at sea, coverage continues until the vessel arrives at the final port of discharge
- If the vessel is requisitioned by authorities without prior execution of a written agreement by the assured, termination is deferred until 15 days after the transfer |
|
|
Sue and labor clause
|
In the event of loss to the insured vessel, the sue and labor clause requires the assured to take reasonable measures to protect the vessel from further damage.
It also states that the insurer will pay these expenses, in addition to any sums paid for physical damage to the vessel, up to the policy limit. |
|
|
Salvage (hull coverage)
|
The service rendered by those who rescue a ship or cargo from peril and restore it to its rightful owners
|
|
|
T or F: Most hull policies agree to pay the assured’s contributions to general average and to pay for salvage.
|
TRUE. Most hull policies DO agree to pay the assured’s contributions to general average and to pay for salvage.
|
|
|
Salvors
|
Those who render salvage service.
|
|
|
No cure, no pay
|
If the rescue attempt is not successful, the salvor does not get paid. Salvors generally act under this expressed or implied contract.
|
|
|
Running down clause
|
Most hull policies contain this, which is also called a “collision liability clause”.
Collision liability claims are payable subject to a separate amount of insurance that is equal to the policy limit. (Which is the vessel’s agreed value.) |
|
|
T or F: Under the hull policy, defense costs are covered in addition to the limit of insurance.
|
TRUE. Under the hull policy, defense costs are covered in addition to the limit of insurance.
|
|
|
Collision liability coverage (hull insurance) is usually eliminated for these types of loss:
|
- Expense of removing the wreckage of vessels or their cargoes
- Damage to property other than vessels and property on them - Discharge of oil or other pollutants - Cargo aboard the insured vessel or loss of use of the insured vessel - Loss of life, bodily injury, or illness |
|
|
Towers Liability Clause
|
Applies to those who operate vessels that tow, propel cargo barges, and assist larger vessels.
A tower specializes in providing towing services under a towage contract. |
|
|
Towers Liability Coverage broadens the collision liability clause to cover these types of loss:
|
- Damage to other vessels or structures (such as bridges or a dock) resulting from collision by the insured vessel or a barge being propelled by the insured vessel
- Damage to the barges and their cargoes being propelled by the insured tug |
|
|
T or F: Towers liability coverage covers loss of life, bodily injury, and illness.
|
FALSE. Towers liability coverage does NOT cover loss of life, bodily injury, OR illness.
|
|
|
Marine builders risk policies
|
- Property coverage for a vessel under construction
- Property and liability coverage for a completed vessel during trial trips and/or delivery Covers the builder or owner (or both) |
|
|
Ship repairers liability policies
|
- Liability coverage for vessels under repair
- Liability coverage for the operation of customers’ vessels |
|
|
Terminal operators liability policies
|
- Bailee coverage for vessels and cargo
|
|
|
Marina operators liability
|
- Liability coverage for customers’ boats in the care, custody, and control of a marina operator
- Can also cover additional property and liability loss exposures of a marina operator, such as liability for injuries to marina customers |
|
|
Boat dealers policies
|
- Property coverage for pleasure craft held for sale
- Protection and indemnity (P&I) coverage |
|
|
Charterers liability
|
- Liability coverage for voyage and time charterers
|
|
|
Marine policies for offshore oil and gas facilities
|
- Builders risk
- Physical damage - Loss of business income - Wreck removal - Costs of controlling well blowouts - Seepage, pollution, and contamination liability - P&I and other liability coverages |
|
|
Bailment
|
The temporary possession by one party (the bailee) of personal property owned by another party (the bailor) for a specific purpose, such as cleaning or repair
|
|
|
Terminal operator
|
An owner or manager of a facility for docking, loading, and unloading vessels and storing cargo.
|
|
|
Stevedores
|
Independent contractors that provide loading and unloading services for vessels.
|
|
|
Wharfingers
|
Facilities that provide docking space and services for vessels.
|
|
|
Stevedores and wharfingers can be insured under marine policies that are similar to
|
Terminal Operators Liability Policies
|
|
|
Slips
|
Dock space for lease or rent
|
|
|
Bareboat charters usually are required to obtain these 3 types of insurance coverage:
|
P&I, collision liability, and hull insurance
|
|
|
The ___________ market provides marine policies for offshore oil and gas facilities
|
Energy market
The limits of insurance needed can be so high – more than $1 billion for a production platform – that no single insurer provides them. |
|
|
Subscription basis
|
Offshore oil and gas facilities are usually insured on a subscription basis. Using this approach, several insurers each agree to accept a share of the total amount of insurance. These subscription transactions are handled by insurance brokers who negotiate with underwriters recognized as specialists in the energy insurance field.
|
|
|
Common elements of aviation loss exposures (3):
|
- The potential for catastrophic loss
- A limited spread of risk - Diversifying factors that distinguish the loss exposures of each individual aircraft and pilot |
|
|
Of the many reasons for the catastrophic loss potential of aircraft, the most significant is the
|
Physical properties of the aircraft
Aircraft must be of relatively light construction and intricate design. They cannot be engineered in the same manner as trucks or trains, which are made to accommodate the impacts of collision and other stresses and strains. |
|
|
T or F: Aircraft are considerably more susceptible to substantial damage or total loss than any other type of vehicle.
|
TRUE. Aircraft ARE considerably more susceptible to substantial damage or total loss than any other type of vehicle.
|
|
|
Limited spread of risk – aircraft
|
There are just fewer of them. 223,877 civil aircraft in 2009 compared to 256 million registered U.S. vehicles
|
|
|
Diversifying factors – aircraft
|
Two aircraft of identical make and model may present diverse insuring problems that make it impossible to rate them by class.
|
|
|
Four major criteria that can be used to evaluate, select, and rate applicants for aircraft insurance include:
|
- The type of aircraft to be insured
- The pilot - The geographic considerations - The purpose for which the aircraft is to be used |
|
|
An aircraft’s susceptibility to loss can be influenced by numerous factors related to these three general concerns:
|
- Age (reliability is less for older aircraft)
- Construction (it changes as technology improves) - General configuration (some can restrict visibility or cause difficulties in landing) |
|
|
In the U.S., the ___________ supervises an intricate pilot licensing and rating system.
|
Federal Aviation Administration (FAA)
|
|
|
Additional underwriting consideration for pilots
|
- Age
- Medical condition - Experience - Accident record |
|
|
Biennial Flight Review (BFR)
|
A proficiency exam that increases the likelihood that the pilot’s skills are current.
|
|
|
Airport location is a particularly significant type of
|
Geographic consideration
The minimum required runway length for a given aircraft is based on the elevation of the geographic area it is located in and the runway temperature. As the elevation of the field and/or the temperature increases, engine efficiency decreases and the required runway length increases. Airports in Denver (increased elevation) need increased runway lengths for the same aircraft to take off. |
|
|
Seven ‘purpose of use’ categories:
|
- Airline
- Business and pleasure - Industrial aid - Commercial use - Special use - Instruction and rental - Sales demonstration |
|
|
Purpose of use categorization: Airline
|
International, national, and regional air carriers
|
|
|
Purpose of use categorization: Business and pleasure
|
Individually owned aircraft used for owner’s personal purposes. (No charge is made or direct profit derived from use.)
|
|
|
Purpose of use categorization: Industrial aid
|
Corporate-owned aircraft that are used for transporting employees, associates, and executives and flown by full-time professional pilots.
|
|
|
Purpose of use categorization: Commercial use
|
Charter operators, air taxi operators, and other profit-seeking operators
|
|
|
Purpose of use categorization: Special use
|
Crop dusting, banner towing, law enforcement, pipeline patrol, hunting, and so forth
|
|
|
Purpose of use categorization: Instruction and rental
|
Flight schools that instruct potential pilots and rent aircraft to students for solo flight experience
|
|
|
Purpose of use categorization: Sales demonstration
|
Dealers and brokers who demonstrate planes to potential buyers
|
|
|
The only purpose of use categorization that provides insurers with fairly credible statistics with which they can make reasonably accurate loss projections
|
Airline
|
|
|
Some of the loss exposure variables for airlines are:
|
- Inexperienced pilots
- Poor maintenance - Inadequate airports Controls in place effectively reduce the FREQUENCY of airlines losses but not the SEVERITY |
|
|
The business and pleasure category is exposed to a number of common hazards:
|
- Pilots with limited experience
- Flying clubs, which entail multiple ownership of aircraft - Marginally equipped, low-value aircraft - Use of airfields with limited facilities |
|
|
Industrial aid is considered a preferred type of business in aviation insurance because
|
Pilots are normally well qualified, commercial rated, and at the controls many hours every month
|
|
|
Limited commercial use
|
Rental of aircraft to pilots and flight instructors to student pilots and others.
|
|
|
T or F: Rates for aircraft in the commercial use category are generally lower than rates for aircraft in other categories.
|
FALSE. Rates for aircraft in the commercial use category are generally HIGHER than rates for aircraft in other categories.
|
|
|
The only common denominator among aircraft in the ‘special use’ category is that
|
Each represents exposure to some of aviation’s most unique hazards
|
|
|
Aircraft in this category are used by the least-experienced pilots and potential pilots, creating high loss exposures
|
Instruction and rental
|
|
|
As a general rule, the liability of an aircraft owner or operator for bodily injury or property damage is determined in accordance with the law of ___________.
|
The state where an aircraft accident occurs
|
|
|
T or F: Many states require the plaintiff to establish that the negligence of the owner or pilot was the proximate cause of the plaintiff’s damages.
|
TRUE. Many states require the plantiff to establish that the negligence of the owner or pilot was the proximate cause of the plaintiff’s damages.
|
|
|
The degree of care owed by a pilot is the care that would have been exercised, under similar circumstances, by a _________ with similar qualifications.
|
Pilot
|
|
|
T or F: The owner can be held vicariously liable for the negligence of a pilot.
|
TRUE. The owner can be held vicariously liable for the negligence of a pilot.
|
|
|
Providers of aviation insurance can be categorized as (3):
|
- Pools
- Individual insurers - Lloyd’s correspondents |
|
|
Pools (aviation insurance)
|
Underwrite aviation business on behalf of their member insurers
|
|
|
Lloyd’s correspondents (aviation insurance)
|
People who place insurance at Lloyd’s of London
|
|
|
Buyers of aviation insurance
|
- General aviation (all civil aviation except that carried out by airlines)
- Airlines - Manufacturers and distributors of aviation products - Airports - Fixed base operators (FBOs) |
|
|
Two multi-company aviation pools that handle the largest share of the domestic aviation market:
|
- United States Aircraft Insurance Group
- Associated Aviation Underwriters |
|
|
Typically, the members of aviation pools are
|
Commercial insurers that want to write aviation insurance but do not want to commit the resources that would be necessary to write aviation insurance on their own
|
|
|
T or F: The facilities of each pool are automatically available to any agent of an airline
|
FALSE. The facilities of each pool are automatically available to any agent of each member company.
|
|
|
Individual insurers – aviation insurance
|
These insurers tend to be larger companies or groups that have the necessary capacity and underwriting expertise
|
|
|
Lloyd’s correspondents
|
These facilities operate either nationally or regionally and act as intermediaries for aviation insurance, particularly for accounts that do not fall into homogenous classes, are hard to place because they have been turned down by other aviation underwriters, or are presented by agents who do not have any other entry to the domestic market.
|
|
|
Many special hazard risks (aerial applicators, e.g., crop dusters, homebuilt aircraft, antique aircraft, and helicopters) are accepted in the _____ market
|
Lloyd’s
|
|
|
General aviation
|
All civil aviation except that carried out by airlines
More than 97 percent of active U.S. civil aircraft are classified as general aviation |
|
|
Airports usually purchase a specialized type of general liability insurance called
|
Airport liability insurance
|
|
|
Fixed base operator (FBO)
|
A business that performs any of a wide range of aircraft-related operations, including these activities:
- Aircraft sales, repairs, and maintenance - Aircraft charter or rental flying instruction - Transportation of cargo - Sale of aircraft parts and fuel - Rental of hangar space |
|
|
Airport liability policies
|
CGL policies that have been modified to address airport-specific loss exposures.
|
|
|
Airport liability policy – modification from CGL: Limitation to airport operations
|
Under the standard CGL policy, liability arising out of a new and unrelated business, such as a new motor truck freight terminal, would automatically be covered. However, the definition of “airport operations” in the insuring agreement of an airport liability policy is too limited to include coverage for the new terminal
|
|
|
Airport liability policy – modification from CGL: Additional exclusions
|
In addition to the usual CGL exclusions are exclusions that address airport-specific loss exposures that are difficult to insure or that are insurable for additional premium, such as an air meet, an air race, parachute jumping, aircraft noise or interference with the quiet enjoyment of property by overflight, and aircraft traffic control operations
|
|
|
Airport liability policy – modification from CGL: Hangarkeepers liability coverage
|
This coverage is available for an airport-specific loss exposure. It insures against liability resulting from physical damage to aircraft in the insured’s care, custody, or control for safekeeping, storage, service, or repair
|
|
|
Airport liability policy – modification from CGL: Air meet liability coverage
|
This is another coverage that is available for an airport-specific loss exposure. It insures the sponsor of an air meet against liability arising out of a hazardous activity such as stunt flying near a crowd of spectators.
|
|
|
Coverage for aircraft includes these coverages:
|
- Aircraft liability insurance
- Aircraft hull insurance - Other coverages |
|
|
The aircraft liability insurance covers aircraft owners and operators against
|
Third-party claims for bodily injury or property damage arising out of the ownership, maintenance, or use of aircraft
|
|
|
Aircraft hull insurance
|
Designed to protect the owner or a secured creditor against loss resulting from physical damage to the insured aircraft; applies on an all-risks basis
|
|
|
All-risks basis
|
Covers direct physical loss caused by any peril except those that are specifically excluded.
|
|
|
In addition to liability and physical damage coverage, aircraft liability policies often provide:
|
- Medical payments coverage
- Passenger voluntary settlement coverage |
|
|
Passenger voluntary settlement coverage
|
Aka “admitted liability coverage”
A supporting coverage that insurers make available to selected noncommercial corporate accounts. Designed to avoid litigation by making prompt settlements for passenger injury or death. |
|
|
The liability section of a typical aircraft policy provides 3 different coverages, each of which is generally subject to its own limit of liability:
|
- Bodily injury excluding passengers liability coverage
- Passenger bodily injury liability coverage - Property damage liability coverage |
|
|
Bodily injury excluding passengers liability coverage
|
Protects the insured from liability for damages resulting from bodily injury, sickness, disease, mental anguish, or death suffered by anyone other than a passenger
|
|
|
Passenger bodily injury liability coverage
|
Applies only for claims made by passengers. (Does not include crew members)
|
|
|
Property damage liability coverage
|
Insures against liability because of damage to or destruction of property, including loss of use of the property
|
|
|
Definition of “insured” in an aircraft liability policy
|
- The named insured
- Any other person while using or riding in the described aircraft with the permission of the named insured - Any person or organization legally responsible for the described aircraft’s use, provided such use is with the permission of the named insured |
|
|
Definition of persons insured for liability coverages typically excludes these parties:
|
- Owner or lessor of any aircraft that is subject to the extended insurance provisions of Temporary Use of Substitute Aircraft or Special Non-ownership Coverage
- Any employee who injures a fellow employee of the same employer in the course of their employment and arising out of the maintenance or use of the aircraft or premises - Any person or organization (other than employees of the named insured) engaged in the manufacture, maintenance, repair, or sale of aircraft, engines, or components, or in the operation of any airport or flight school |
|
|
The exclusions applicable to the aircraft liability coverages are similar to those found in other liability policies. Major ones include these (8):
|
- Any obligation under a workers compensation law, an unemployment compensation law, a disability benefits law, or any similar law
- Bodily injury to any employee of the insured arising out of and in the course of employment by the insured - Liability assumed by the insured, except that some insurers agree to pay for liability assumed in an incidental airport contract for the use of an airport - Damage to property owned, leased, occupied, or in the care, custody, or control of the insured. A number of policies, however, provide a limited amount of insurance for baggage of passengers and damage to a hangar or its contents. - Claims caused by war in any of its forms, strikes, riots, labor disturbances, terrorism, sabotage, confiscation (and many related perils), hijacking, and any unlawful seizure or wrongful exercise of control of the aircraft or crew in flight - Bodily injury or property damage resulting from the release of pollutants, as well as the cost of cleaning up pollutants (these exclusions typically do not apply to bodily injury or property damage caused by the release of pollutants resulting from an aircraft crash, fire, explosion, collision, or in-flight emergency - Bodily injury or property damage resulting from noise or interference with the quiet enjoyment of property caused by the operation of any aircraft - Intentional injury, except to prevent a hijacking or interfere with safe operation |
|
|
Temporary Substitute and Newly Acquired Aircraft
|
A typical aircraft insurance policy extends its liability provisions to cover another aircraft, if not owned in whole or in part by the named insured, while used as a substitute for an insured (scheduled) aircraft that is temporarily out of use because of its breakdown, repair, servicing, loss or destruction.
(This provision does not apply to aircraft hull insurance.) |
|
|
Aircraft Nonownership Liability Coverage
|
Many aircraft policies extend their liability insurance to cover the named insured, if an individual, and his or her spouse, for the operation of an aircraft that is not owned in whole or in part by the named insured or furnished for the named insured’s regular use.
(If for example an individual named insured borrowed a friend’s airplance fo ruse other than as a temporary substitute, the nonownership liability coverage would apply.) |
|
|
Typical Limits of Liability Coverage for Single-Engine Aircraft Operator: Coverage A – Bodily injury excluding passengers
|
$250,000 each person
$500,000 each occurrence |
|
|
Typical Limits of Liability Coverage for Single-Engine Aircraft Operator: Coverage B – Passenger bodily injury
|
$250,000 each person
$750,000 each occurrence |
|
|
Typical Limits of Liability Coverage for Single-Engine Aircraft Operator: Coverage C – Property damage
|
$500,000 each occurrence
|
|
|
An alternative to separate limits for each coverage is
|
A combined single limit of insurance for all three coverages.
The single limit represents the insurer’s maximum liability for one claim or for any combination of claims that arise from one occurrence. |
|
|
Generally, all three coverages are included, but occasionally a single limit will be written for these 2 coverages alone:
|
A & C
This is true if the insured has no need for passenger bodily injury coverage or if coverage B is purchased as a separate coverage in addition to a single limit for coverages A and C. |
|
|
A typical corporate aircraft operator generally purchases at least _______ of coverage
|
$20 million
|
|
|
A major air carrier will typically have up to _______ of coverage
|
$750 million
|
|
|
It is sufficient for many insureds to have a fairly standard coverage territory that includes
|
The U.S., Canada, Mexico, the Islands of the Bahamas, and being en route between any of these places
|
|
|
Certain aspects of aircraft physical damage insurance, such as ____________, demonstrate a distinct marine influence.
|
Agreed value coverage for total loss.
|
|
|
Aviation insurers use the _________ approach for hull coverage
|
All-risks
In which the policy covers “all risks of direct physical loss” except those that the policy specifically excludes. Many policies still use the traditional “all-risks” language (which does not include wording to avoid the possibility of adverse court decisions) |
|
|
Three types of “all-risks” aircraft hull coverage
|
- “All risks” – ground and flight coverage
- “All risks” – not in motion coverage - “All risks” – not in flight coverage |
|
|
“All risks” – ground and flight coverage
|
A type of aircraft hull insurance that provides “all risks” coverage whether or not the aircraft is in flight at the time of loss
|
|
|
“All risks” – not in motion coverage
|
A type of aircraft hull insurance that provides “all risks” coverage only while the aircraft is on the ground and not moving under its own power or from any resulting momentum
|
|
|
“All risks” – not in flight coverage
|
A type of aircraft hull insurance that provides the same coverage as “all risks” – not in motion plus coverage while the aircraft is taxiing.
|
|
|
Which coverage(s) would apply if: the insured aircraft collided with another aircraft while taxiing?
|
- “All risks” – ground and flight
- “All risks” – not in flight |
|
|
Which coverage(s) would apply if: The insured aircraft collided with another aircraft during takeoff while still on the runway?
|
Only “all risks” – ground and flight
Taking off is within the definition of “in flight” |
|
|
Which coverage(s) would apply if: The insured aircraft was destroyed by fire while parked in a hangar
|
- “All risks” – ground and flight
- “All risks” – not in motion coverage - “All risks” – not in flight coverage |
|
|
Which coverage(s) would apply if: The insured aircraft, while being towed by a tractor, was struck by a service vehicle.
|
- “All risks” – ground and flight
- “All risks” – not in motion coverage* - “All risks” – not in flight coverage *This applies because the definition of “in motion” limits that term to situations in which the aircraft is moving under its own power. Here, the aircraft was being towed and was therefore not “in motion” |
|
|
Which coverage(s) would apply if: While warming up in preparation for takeoff, the insured helicopter was struck by an airplane. The helicopter’s rotors were rotating when the collision occurred.
|
“All risks” – ground and flight only.
“In flight” and “in motion” both include situations in which the rotors are rotating. |
|
|
Covered aircraft
|
The aircraft or rotor craft described in the declarations
|
|
|
The aircraft’s propulsion system and installed equipment (such as operating, navigating, or radio equipment) is covered in any of these 3 circumstances:
|
- While it is installed in the aircraft
- While it is temporarily removed from the aircraft - While it is removed from the aircraft for replacement until replacement with a similar item begins |
|
|
Aircraft hull coverage typically excludes loss or damage to the insured aircraft that is due to causes of loss that are either:
|
- Nonfortuitous (i.e., expected to occur over time)
- That can often be prevented through regular maintenance of the aircraft |
|
|
Aircraft hull coverage – Damage to tires is typically eliminated unless caused by:
|
- Fire
- Theft - Vandalism - Malicious mischief - Other physical damage covered under the policy |
|
|
Either of two approaches to valuation may apply to insured aircraft:
|
Agreed value or cash value
|
|
|
Constructive total loss
|
Occurs when the cost of repairing the insured aircraft would exceed the amount payable for a total loss. (In some cases, the cost of repairing an old aircraft for which parts are no longer available would also exceed the value of a total loss.)
|
|
|
Very old aircraft and those of relatively low value are often difficult or impossible to repair. In such situations, the underwriters may insert a ______________ into the policy
|
Component parts schedule
|
|
|
Component parts schedule
|
A schedule, attached to an aircraft policy, that limits the insured’s recovery for each specified part of the aircraft to a stipulated percentage of the aircraft’s total insured value.
For example, a figure of 15 percetn for the engine means that the insurer will not pay more than 15 percent of the total insured value of the aircraft for a total loss to the aircraft’s engine. |
|
|
T or F: Generally, the deductibles for aircraft in the commercial purpose-of-use category are lower than those for aircraft in the business and pleasure category.
|
FALSE. Generally, the deductibles for aircraft in the commercial purpose-of-use category are HIGHER than those for aircraft in the business and pleasure category.
|
|
|
T or F: Multi-engine aircraft flown by corporations with full-time pilots (industrial aid category) are often subject to no deductibles.
|
TRUE. Multi-engine aircraft flown by corporations with full-time pilots (industrial aid category) are often subject to no deductibles.
|
|
|
Because so many aircraft are financed, underwriters make coverage available for the financial protection of ___________.
|
Lienholders
|
|
|
A common way of covering lienholders’ interests is to
|
Attach a loss payable and breach of warranty endorsement to the owner’s aircraft policy. The endorsement provides that losses will be payable to the named insured and the lienholder in the amount of their respective interests in the aircraft. Additionally, the policy will not be invalidated by any act or neglect of the named insured.
|
|
|
Medical payments coverage – aircraft insurance policies
|
The insurer is obligated to pay medical payments claims regardless of whether the insured is legally liable. Valuable to insurers because injured persons who have their medical bills paid promptly and in full are less likely to sue the insured, triggering a potentially larger claim under the policy’s liability coverage.
Provides payment for all reasonable medical, surgical, ambulance, hospital, nursing, and related expenses. In the event of death, pays for reasonable funeral expenses on behalf of parties killed while riding in the insured aircraft. |
|
|
Passenger voluntary settlement coverage (admitted liability coverage)
|
The coverage, available under aircraft insurance policies, that provides scheduled benefits if a passenger suffers death, dismemberment, or loss of sight.
|
|
|
Under passenger voluntary settlement coverage, the insurer will offer a sum subject to these conditions:
|
- The named insured asks the insurer to offer the settlement
- The recipient fully releases the insured from liability for all bodily injury |
|
|
Passenger voluntary settlement coverage is designed to
|
Make it unnecessary for passengers to resort to legal action to secure compensation for injury.
|
|
|
Weekly indemnity coverage
|
Provides that if an injured passenger is totally unable to perform all duties pertaining to his or her occupation, the insurer will reimburse the named insured for payment made for loss of earnings up to a stated sum per week, not to exceed a maximum number of weeks.
|
|
|
Example on p. 10.46: Application of Aircraft Coverages to Crash
|
Review this, dammit! Almost assured to show up on the test.
|
|
|
The need for excess or umbrella liability insurance is closely related to three basic issues involved in the use of liability insurance:
|
- Difficulty in estimating maximum possible loss (MPL) for liability loss exposures
- Layering of liability coverages - Effect of aggregate limits |
|
|
MPL
|
Maximum possible loss
|
|
|
The MPL for a building that would cost $2 million to rebuild is
|
$2 million; no loss to the building could exceed the amount of money necessary to rebuild it. (There is no comparable way to estimate the MPL for most liability loss exposures.)
|
|
|
Underlying insurance
|
Insurance that applies below an excess or umbrella liability policy.
|
|
|
Insurers that provide primary liability insurance are often unwilling to provide a limit greater than
|
$1 million per occurrence
|
|
|
A primary liability policy and corresponding excess or umbrella liability policies are referred to as __________ of insurance
|
“Layers”
|
|
|
In stacking displays, the primary layer is on the _____
|
Bottom; Subsequent layers are stacked above
|
|
|
T or F: Ordinarily, the coverage provided by the primary insurer must be exhausted before the next layer of insurance makes any payment.
|
TRUE. Ordinarily, the coverage provided by the primary insurer MUST be exhausted before the next layer of insurance makes any payment.
|
|
|
T or F: The primary layer in an insurance program is always financed through insurance.
|
FALSE. Or, at least, not always. Some organizations that are financially able to pay sizable losses out of their own funds prefer to retain (self-insure) the first layer.
|
|
|
Excess liability policies and umbrella liability policies can be used to insure liability losses that are
|
Too severe to be adequately covered under primary liability policies.
|
|
|
Excess liability policy
|
A policy that covers liability claims in excess of the limits of an underlying policy or a stated retention amount.
|
|
|
Basic distinction between excess liability insurance and umbrella liability insurance:
|
- An excess policy provides no broader protection than that provided by the underlying coverage.
- An umbrella policy not only provides additional limits but also coverage not available in the underlying coverages (subject to the insured’s assumption of a self-insured retention, or retained limit) |
|
|
How do excess and umbrella liability policies differ in terms of defense coverage?
|
An excess liability policy may not provide defense coverage; most umbrella liability policies DO provide defense coverage
|
|
|
T or F: In practice, the distinction between excess and umbrella liability coverage is often unclear AND the names are often used interchangeably.
|
TRUE. One insurer’s “excess” is another’s “umbrella”
|
|
|
An excess liability insurance policy may take any of these three basic forms:
|
- A following-form policy subject to the same provisions as the underlying policy
- A self-contained policy subject to its own provisions only - A combination of these two types |
|
|
When excess liability insurance applies above a retained primary layer instead of underlying insurance, these two additional types of excess liability insurance are often used (and particularly in connection with self-insured workers compensation obligations):
|
- Specific excess
- Aggregate excess |
|
|
Following-form excess liability policy
|
An excess liability policy that covers a claim in excess of the underlying limits only if the loss is covered by the underlying insurance.
|
|
|
Although many excess liability policies are called following-form policies, most follow the provisions of the underlying policy only to the extent that
|
The provisions of the underlying policy do not conflict with those of the excess liability policy.
The result is that the coverage provided by an underlying policy and the coverage provided by a following-form excess liability policy are likely to differ. |
|
|
Self-contained excess liability policy
|
An excess liability policy that is subject to its own provisions only and does not depend on the provisions of the underlying policies for determining the scope of its coverage.
|
|
|
A self-contained excess liability policy applies to a loss that exceeds the limits of the underlying policy ONLY IF…
|
The loss is also covered under the provisions of the self-contained excess liability policy.
|
|
|
One exception to the usual approach of a self-contained excess liability policy occurs when the excess liability policy provides
|
Coverage in excess of a reduced or an exhausted underlying aggregate limit.
Some excess liability policies provide this coverage subject to their own provisions, but others specifically state that they will provide this coverage subject to the provisions of the underlying coverage. This approach can work to the insured’s benefit when the excess liability policy contains exclusions or other restrictions that are not present in the underlying policy. |
|
|
T or F: An excess liability policy may combine the following-form and self-contained approaches
|
TRUE. It does so by incorporating the provisions of the underlying policy and then modifying those provisions with additional conditions or exclusions in the excess liability policy.
|
|
|
“Drop down”
|
Provide primary coverage
|
|
|
Combination excess liability policies do not…
|
Drop down (except to replace depleted aggregate limits)
|
|
|
One distinguishing feature of a true umbrella liability policy:
|
A provision stating that the policy applies over a self-insured retention if the underlying policy does not cover a loss covered by the umbrella. (In the absence of this provision, the policy is probably not a true umbrella liability policy.)
|
|
|
Specific excess liability insurance and aggregate excess liability insurance are designed to apply over a
|
Self-insured layer (instead of a primary layer of commercial insurance)
|
|
|
Specific excess liability policy
|
Requires the insured to retain a stipulated amount of loss from the first dollar for all losses resulting from each single occurrence.
(The insurer then pays losses from that occurrence in excess of the retention, up to the policy limit. For example, if the policy required a retention of $100,000 the insurer would pay all loss resulting from a single occurrence in excess of $100,000 up to the policy limit of $1 million.) |
|
|
Aggregate excess liability policy
|
Aka “stop loss excess liability policy”
An excess liability policy that requires the insured to retain a specified amount of loss from the first dollar during a specified period of time, usually one year; the insurer then pays all loss for that period that exceeds the retention, up to the policy limit. |
|
|
Example on p. 11.10
|
Review it if you want some clarification on aggregate v. specific. Pretty damn helpful.
|
|
|
Example on p. 11.11
|
Review it! You should understand how a combo application would work.
|
|
|
Characteristics of Umbrella Liability Insurance
|
- Drop-down coverage
- Required underlying coverages - Aggregate umbrella limits - Insuring agreement - Coverage triggers - Exclusions - Conditions |
|
|
Drop-down coverage
|
Coverage provided by many umbrella liability policies for (1) claims not covered at all by the underlying policies and (2) claims that are not covered by an underlying policy only because the underlying policy’s aggregate limits have been depleted.
|
|
|
Self-insured retention (SIR)
|
An amount that is deducted from claims that are payable under an umbrella liability policy and that are not covered at all by any primary policy.
|
|
|
When a claim covered by the umbrella policy is not covered at all by any primary policy, the drop-down coverage is usually subject to
|
A self-insured retention (SIR)
|
|
|
T or F: Under the usual definition of SIR, the umbrella insurer is responsible for adjusting and settling claims up to the SIR limit.
|
FALSE. Under the usual definition of SIR, the INSURED is responsible for adjusting and settling claims up to the SIR limit.
|
|
|
T or F: The SIR does not apply to defense costs
|
TRUE, at least in many policies. Such a provision is often referred to as “first-dollar defense coverage” – typically included in policies for smaller businesses.
|
|
|
Almost all umbrella policies contain ____________
|
Aggregate limits. These operate like the aggregate limits in the primary insurance. (In some cases, the aggregate limit applies to all claims under the umbrella; in other cases, the aggregate limit applies only to coverages that are subject to an aggregate in the underlying policies.)
|
|
|
Insuring agreement – Umbrella policies
|
The insurer promises to pay the amount in excess of the underlying limit that the insured becomes legally obligated to pay as damages for bodily injury, property damage, personal injury, or advertising injury arising out of an occurrence to which the policy applies, subject to the umbrella policy’s limit.
|
|
|
When umbrella policies use two insuring agreements, those agreements are called:
|
- Insuring agreement A: An excess coverage applying over the underlying policies
- Insuring agreement B: Applies to occurrences for which coverage is available under the umbrella but not in the underlying policies (Sometimes known as E and U, respectively) |
|
|
Umbrella policies usually have this kind of coverage trigger:
|
Occurrence (rather than claims-made)
|
|
|
To avoid coverage gaps when underlying coverage is based on a different coverage trigger, some insurers
|
Provide both occurrence and claims-made coverage triggers in their umbrella policies. (These policies provide that the trigger for the umbrella coverage will be the same as that used for the underlying coverage.)
|
|
|
When an umbrella policy provides broadened coverage, it is typically achieved by
|
Using exclusions in the umbrella policy that have narrower application than the exclusions of the underlying policies
|
|
|
The principal differences between the general conditions of primary liability policies and umbrella policies involve
|
Maintenance of underlying insurance and the coverage territory.
|
|
|
Maintenance of underlying insurance condition
|
An umbrella liability policy condition that obligates the insured to maintain all required underlying coverages in full force and effect during the policy period.
|
|
|
The insured is also responsible for notifying the insurer promptly if
|
Any underlying policy is changed or replaced by a policy issued by another insurer
|
|
|
T or F: If the underlying insurance is not maintained, the umbrella policy will apply as though the underlying insurance had been maintained.
|
TRUE. If the underlying insurance is not maintained, the umbrella policy will apply as though the underlying insurance had been maintained.
|
|
|
Most umbrella policies provide coverage where?
|
Worldwide. In contrast with more limited coverage territories ordinarily found in primary policies.
Some umbrella policies require that suit be brought in the U.S. or Canada |
|
|
Each occurrence limits in a primary policy tend to range between
|
$500,000 and $2 million
|
|
|
Working layers
|
The layers of coverage in an organization’s insurance program that are most often called on to pay claims.
|
|
|
Buffer layer
|
A level of excess insurance coverage between a primary layer and an umbrella policy.
In some cases, an insured must purchase a buffer layer of excess insurance between the primary layer and the umbrella policy. This approach is used when the umbrella insurer will not provide coverage unless the insured has underlying coverage limits higher than those that the primary insurer is willing to provide. (Example on p. 11.17) |
|
|
Primary and umbrella layers are generally referred to as the
|
Working layers, because they are the layers most often called on to pay claims.
|
|
|
Issues that can occur in layering coverage
|
- Aggregate limits may vary with the umbrella and excess layers
- Excess liability policies may differ as to the insurer’s obligations concerning defense - Whenever excess liability layers are to apply over the first umbrella layer, the excess layers should follow the provisions of the umbrella policy exactly; however, excess liability policies are seldom true following-form policies in every aspect of coverage |
|
|
To accommodate the potential inadequacy of excess liability limits, risk managers of large corporations commonly buy
|
The highest limits they can obtain and hope that those limits will be adequate.
|
|
|
Given the following problems, organizations must coordinate their insurance-buying decisions with careful consideration of all available alternatives
|
- Growing loss severity
- Insurance availability - Price |
|
|
T or F: Retention and effective risk control can put an organization in a much better position to obtain protection against catastrophic liability losses at feasible costs.
|
TRUE. Obviously.
|
|
|
An organization can get the most risk management value from insurance only when it is properly combined with
|
Noninsurance techniques.
|
|
|
The use of technology-based systems (which can be damaged and their security unintentionally or intentionally compromised) increases an organization’s exposure to these three types of losses:
|
Property, net income, and liability
|
|
|
Cyber risk
|
The high-tech risk posed to organizations that conduct their operations electronically and/or digitally. Includes property, net income, and liability loss exposures.
Aka e-commerce, cyber liability, Internet liability, cyber coverage (or insurance), and cyber security. But cyber risk is the industry standard. |
|
|
Tangible property
|
Property that has a physical form.
|
|
|
Intangible property
|
Property that has no physical form.
|
|
|
The distinction between tangible and intangible property is important because many commercial liability coverage forms define property damage to mean damage to
|
Tangible property
They state that electronic data are not tangible property for coverage purposes. |
|
|
In the context of cyber risk, tangible property exposed to loss or damage can include
|
- Computer equipment
- Related media (such as software and computer hardware) - (In some cases,) money and securities as well |
|
|
Loss exposures to tangible property:
|
- Network server damage and theft
- Software damage or corruption - Destruction of or damage to hardware because of security breaches / unauthorized use |
|
|
In the context of cyber risk, intangible property exposed to loss or damage can include
|
- Electronic data
- Goodwill - Intellectual property |
|
|
Intellectual property
|
A type of intangible property; it is the product of human intelligence that has economic value
|
|
|
Trade secret
|
A practice, process, or other information used confidentially by an organization to maintain a competitive advantage in the marketplace.
|
|
|
Loss exposures to intangible property:
|
- Cyber extortion of trade secrets
- Trademark infringement - Copyright infringement - Malicious code attack (e.g., Trojan horses or computer viruses) |
|
|
Business interruptions
|
Reductions or cessations of normal business oeprations
|
|
|
Two factors in net income exposures:
|
- Loss of business income (including contingent business income)
- Extra expenses |
|
|
Cyber risk contingent business income loss exposures relate to an organization’s income that is
|
“Contingent” (or dependent) on a location that is not owned or operated by the primary organization.
For example, a key customer of an electronics components manufacturer typically places its orders to the components manufacturer through the Internet. If the key customer’s computer network is attacked (for example, through a virus, a denial-of-service attack, or sabotage) and cannot be used to place orders, the resulting loss in revenue, if it cannot be replaced, is a contingent business income loss. |
|
|
Cyber risk contingent business income exposures can apply to an organization’s
|
- Suppliers
- Utilities - Third-party outsourcers (including a utility’s off-site power failure or the failure of a third party to properly manage and secure data (possibly resulting in identity theft); Web site defacement; and abuse of wireless networks) |
|
|
T or F: Normal operating expenses exclude payroll
|
FALSE. They INCLUDE payroll
|
|
|
Extra expenses
|
Incurred expenses (in excess of normal expenses) needed to minimize the effects of the business interruption or to continue operations
|
|
|
An organization may have cyber risk extra expenses loss exposures if, as a consequence of a cyber loss, it has to purchase items such as:
|
- Software
- Hardware - Other electronic media - Hired labor to recreate lost or stolen electronic data |
|
|
Cyber risk liability loss exposures
|
- Using email
- Maintaining websites - Developing software - Conducting daily business operations (sales and service) on the Internet |
|
|
Categories of cyber risk liability loss exposures
|
- Bodily injury and property damage liability
- Personal and advertising injury liability - Intellectual property liability - Errors and omissions (E&O liability) |
|
|
A software developer develops a program for physicians and pharmacists regarding the potential adverse interactions of different prescription medications. Because of a formulary error in the program, physicians and pharmacists conclude that a particular combination of prescription drugs is safe when the combination actually produces a serious or fatal reaction in a number of patients. This would be an example of
|
A cyber risk bodily injury liability loss exposure
|
|
|
An individual obtains information from a superstore retailer’s web site regarding common home health care treatment tips but the information excludes or incorrectly states an important step, causing injury. This would be an example of
|
A cyber risk bodily injury liability loss exposure
|
|
|
An insurance industry software provider issues an updated version of its software to an insurance brokerage. However, because of a security failure that occurred when the software upgrade was developed and transmitted to the brokerage, upon installation the upgrade renders the brokerage’s computer network inoperable, causing significant property damage to the system. This would be an example of
|
A cyber risk property damage liability loss exposure
|
|
|
Typical cyber risk personal and advertising injury liability loss exposures:
|
Liability resulting from offenses such as malicious prosecution, slander, libel, defamation, disparagement, or false advertising
|
|
|
An organization is responsible for any loss exposures and related liability that is assumed by
|
Contract.
For example, consider an online tire retailer that contracts to advertise and sell a particular manufacturer’s tires. The online retailer advertises “Tires last for 50,000 miles!” However, in reality, the manufacturer’s tires wear out after only 15,000 miles. Customers sue the online tire retailer for false advertising relating to the representations made about the manufacturer’s tires. |
|
|
A major political blog site’s owner posts on the blog copyrighted articles, in their entirety, from a well-known newspaper. If the site owner refuses to accede to the newspaper’s demand that the blog stop posting the articles, the newspaper can sue the blog for copyright infringement. This is an example of a
|
Cyber risk intellectual property liability loss exposure
|
|
|
A new social networking web site could have as its logo a distinctive design that soon becomes very popular. However, if the logo is identical to one that belongs to a long-established real estate firm, that also does business on the Internet, the firm could sue the website owners for trademark infringement. This is an example of a
|
Cyber risk intellectual property liability loss exposure
|
|
|
Cyber risk E&O liability loss exposures
|
- Design errors
- Manufacturing errors - Service errors |
|
|
A high-tech company that specializes in software design sells a software program to an Internet-based company that offers music and video downloads for purchase. Because of a design error in the software company’s program, thousands of customers were unable to complete the download process over a long holiday weekend, causing them to pay for music and video downloads they did not receive. This is an example of a
|
Cyber risk errors and omissions liability loss exposure
|
|
|
A programmer creates a website for a retail client and neglects to include security safeguards to protect the site. This is an example of a
|
Cyber risk errors and omissions liability loss exposure
(The client could incur significant damages because of a business interruption if the website is hacked.) |
|
|
Cyber risk loss exposures have the potential to damage an organization’s
|
- Assets
- Reputation - Market standing - Customer and supplier relationships |
|
|
As technology becomes more widely used and more complex, cyber risk loss exposures increase in both
|
Frequency and severity.
In response, new companies and products enter the insurance market to provide coverage. |
|
|
A cyber risk security strategy should incorporate
|
- The organization’s business objectives
- Available budget - An assessment of the appropriateness of the risk control measures for the loss exposures that are being addressed |
|
|
Specific risk control measures to prevent, deter, or mitigate cyber risk include these:
|
- Physical controls
- Procedural controls - Personnel controls - Managerial controls - Investigation and prosecution of cyber crimes - Post-cyber incident rapid recovery program |
|
|
Physical controls
|
Place barriers between cyber criminals and their targets
Examples: guards, locked doors, central security alarms, automatic devices to detect intruders, surveillance, badges, biometrics |
|
|
Biometrics
|
Biological identification of an individual using anatomy or physiology
|
|
|
Procedural controls
|
Specify that tasks be performed in secure ways that prevent or reduce losses
Examples: security policies with authorization requirements, levels of system access, system response measures to unauthorized access, monitoring procedures, testing of programs before they are used, establishing a privacy policy |
|
|
Malware
|
Malicious software or codes designed to deliberately and noticeably disrupt operations
|
|
|
Procedural controls that organizations use to thwart hackers include
|
- Passwords
- Antivirus software - Data encryption for stored data and data in transit - Firewalls |
|
|
Personnel controls
|
Designed to mitigate the cyber risk loss exposures presented by employees.
Examples: pre-employment screening, training, outlining unacceptable cyber behavior with associated consequences, and termination procedures that include revoking access and passwords. |
|
|
Denial-of-service attack
|
An attempt to overwhelm a computer system or network with excessive communications in order to deny users access.
|
|
|
T or F: Personnel controls can also extend to how the organization deals with its customers, suppliers and neighbors.
|
TRUE. In accordance, the organization and its employees should try to maintain positive relationships with customers and other stakeholders and report any threat or suspicion of a cyber attack (such as a D.O.S. attack)
|
|
|
Managerial controls
|
Reduce cyber loss exposures by establishing an environment that prevents cyber losses or assists in their detection.
Examples: Centralizing responsibility for cyber security (by having a CIO or CRO who oversee such things); ensuring systems and procedures are monitored and followed |
|
|
Often, organizations do not report cyber crimes to authorities because they:
|
- Fear negative publicity
- Worry that competitors could take advantage of an incident - Believe authorities cannot assist them in prosecuting cyber crimes |
|
|
An organization may receive this benefit by voluntarily releasing the news regarding a cyber crime
|
A public relations benefit; particularly if it is an innocent victim. The organization can describe the measures it is taking to prevent such an incident from recurring, thereby restoring consumer confidence and neutralizing any advantage competitors might gain from initial negative publicity.
|
|
|
Organizations that vigilantly investigate and prosecute cyber criminals are less likely to be viewed as
|
An “easy target” by cyber criminals
|
|
|
Most states now require organizations to disclose to authorities and affected individuals instances when
|
Data security breaches occur that expose personal information to identity theft or other types of cyber crime
|
|
|
Post-cyber incident rapid recovery program
|
Aids in reducing the severity of an organization’s cyber losses and in restoring operational functionality as soon as possible.
Implementing a rapid recovery program focuses on the organization’s ability to preserve and sustain its net income in the vent of a cyber loss. |
|
|
Risk control measures the organization can use as part of a post-cyber incident rapid recovery program:
|
- Maintaining full backups of the computer system (operational website, email, and internet links) at an alternate location
- Sure all vital legal and tech docs and copies of computer storage media in a fire-resistive, off-site repository |
|
|
A rapid recovery program should also include a _________ component so that, if necessary, the organization’s public image, as well as customer and supplier relationships, can be preserved in the aftermath of a cyber loss.
|
Public relations
|
|
|
Top Ten Most Effective Technologies to Use Against Cyber Criminals (as of 2007):
|
1. Stateful firewalls
2. Access controls 3. Electronic access controls 4. Application layer firewalls 5. Host-based anti-virus programs 6. Password complexity 7. Encryption 8. Heuristics-based spam filtering 9. Network-based policy enforcement 10. Network-based anti-virus programs |
|
|
Stateful firewalls
|
Firewalls that identify and monitor the state of network connections or communications crossing them
|
|
|
Heuristics-based spam filtering
|
Filters with header or content sensitivity
|
|
|
T or F: Sources of risk financing can be arranged before or after a loss occurs.
|
TRUE. Before is known as pre-loss financing; after is known as post-loss financing.
|
|
|
Risk financing measures:
|
- Insurance
- Noninsurance risk transfer - Retention |
|
|
_________ is an important technique for organizations to use to manage their property, net income, or liability losses and the cost of compliance as a consequence of cyber risk loss exposures.
|
Insurance
|
|
|
Hold-harmless agreement
|
Aka indemnity agreement
A type of noninsurance risk transfer that organizations can use to receive reimbursement for cyber risk losses or to transfer their cyber risk loss exposures. |
|
|
Requesting to be named an additional insured under the indemnitor’s insurance policy is a form of
|
Hold-harmless agreement / noninsurance risk transfer
|
|
|
Liability disclaimers
|
Can be used to limit the scope of liability. Can be posted on websites to fully inform customers of how their personal information may be used and the extent of the organization’s liability should the information be illegally disclosed. (Can also require electronic signatures form the customers to indicate consent.) This is a form of noninsurance risk transfer.
|
|
|
Retention
|
A risk financing technique by which losses are retained by generating funds within the organization to pay for the losses.
|
|
|
One advantage of retention
|
It encourages risk control
|
|
|
One disadvantage of retention
|
When an organization decides to retain its cyber risk loss exposures, the associated uncertainty of loss outcomes can negatively affect its financial position
|
|
|
Insurers typically offer cyber risk policies containing one of these three options:
|
- First-party-only coverage (property and theft)
- Third-party-only coverage (liability) - Both of the above in a combination policy format |
|
|
Insuring agreements that are commonly found in cyber risk insurance policies fall into these categories:
|
- Electronic data protection
- Cyber extortion - Cyber crime - Notification or remediation - Business interruption - Network security liability - Privacy liability - Electronic media liability - Technology errors and omissions liability - Intellectual property liability - Terrorism coverage (These are coverages that are available, not necessarily representative of any single insurer’s insuring agreements or options.) |
|
|
Electronic data protection insuring agreement
|
Typically provides coverage for costs to recover or restore electronic data that have been altered, destroyed, deleted or damaged.
|
|
|
Cyber extortion insuring agreement
|
Provides coverage for expenses related to computer network kidnap and/or ransom events.
|
|
|
Cyber crime insuring agreement
|
Covers theft of money and securities and, depending on the insurer’s form, intangible property. (Cyber crime losses typically result from computer attack or computer fraud.)
|
|
|
Notification or remediation insuring agreement
|
Provides coverage for expenses related to crisis management during and after a cyber risk loss (typically related to a security breach).
Coverage can include crisis management-related expenses such as costs to notify customers of a security breach and costs to develop and execute a public relations campaign to manage any negative publicity surrounding the breach and to maintain the insured’s reputation. |
|
|
Business interruption insuring agreement
|
Provides coverage for loss of business income, loss of contingent business income, and payment of extra expenses incurred as a consequence of a business interruption or suspension of the insured’s computer system (or dependent system).
|
|
|
Network security liability insuring agreement
|
Provides coverage for liability arising from security breaches to an insured’s computer network. (e.g., criminal attempts to gain access, a random malware transmission, or a denial-of-service attack)
|
|
|
Malware
|
Malicious software, such as a virus, that is transmitted from one computer to another to exploit system vulnerabilities in the targeted computer.
|
|
|
Privacy liability insuring agreement
|
Provides coverage for liability arising from unauthorized disclosure or use of the private information of others or, depending on the insuring agreement, liability arising out of an insured’s failure to comply with privacy provisions contained in laws such as HIPAA, the GLBA, or any anti-identity theft legislation.
|
|
|
Electronic media liability insuring agreement
|
Provides coverage for liability arising from the insured’s electronic content.
(Can include email communications; website content; and message board or discussion forum content that results in actual or alleged acts of defamation, disparagement, libel, slander, or false advertising. Electronic media liability also can be categorized as errors and omissions in the written or spoken word resulting claims alleging financial loss or damage.) |
|
|
Technology errors and omissions liability insuring agreement
|
Provides coverage for liability arising from any negligent act, error, or omission relating to an insured’s products or services provided others.
|
|
|
Intellectual property liability insuring agreement
|
Provides an insured with coverage for any copyright, trade secrets, trademark, or patent infringement claims arising out of the use of the insured’s protected ideas or works (or infringing on the protected ideas or works of another.)
|
|
|
Terrorism coverage insuring agreement
|
An insurer writing cyber risk coverage must include coverage against “certified acts of terrorism” as defined in the Terrorism Risk Insurance Act (TRIA) of 2002/2005/2007, unless the insured declines the coverage.
|
|
|
T or F: TRIA prohibits the insurer from excluding terroristic acts other than “certified acts of terrorism”.
|
FALSE. TRIA does NOT prohibit the insurer from excluding terroristic acts other than “certified acts of terrorism”
|
|
|
Cyber risk insurance policies are usually subject to this type of coverage trigger
|
Claims-made
|
|
|
A claim is typically made when the insured
|
First becomes aware of facts that could cause a reasonable person to assume that a loss of a type covered by the policy has occurred
|
|
|
Some insurers that provide these types of policies may offer forms with an occurrence coverage trigger.
|
Policies focusing more on media liability, intellectual property liability, and technology-related coverages
Because there is typically a provision in these policies that the trigger for coverage is the date of publication of the content that allegedly violates a trademark, patent, or copyright, an occurrence coverage form usually is more appropriate than a claims-made policy |
|
|
Cyber risk policy exclusions can be grouped into these categories:
|
- General insurance exclusions
- Product-related exclusions - Service-related and security-related exclusions - Cyber risk-related exclusions |
|
|
General insurance exclusions
|
Those found in cyber risk policies that may also be found in other types of policies that provide professional insurance coverage or related E&O-type coverage (such as mgmt. liability insurance or professional liability insurance)
|
|
|
Examples of general insurance exclusions:
|
- Losses due to dishonest, fraudulent, criminal, or malicious acts
- Intentional acts - SEC violations - Unfair competition - Punitive damages |
|
|
Product-related exclusions
|
Examples:
- Product recall - Defects in design - Bodily injury - Property damage - Breach of warranty |
|
|
Service-related and security-related exclusions
|
Typically in policies purchased by technology services and support providers.
Examples: - Contractual liability - Performance delay - Security breach - Failure to prevent a computer virus from spreading - Theft of data |
|
|
Cyber risk-related exclusions
|
Typically in policies purchased by technology-oriented organizations that have website ownership and operations as a primary focus of their business operations.
Examples: - Personal injury - Advertising injury - Intellectual property (including patent and copyright infringement) - Adverse effect on goodwill |
|
|
Goodwill
|
The value an organization has attained beyond the value of its tangible assets because of its favorable reputation
|
|
|
If a cyber risk policy does not have a policy annual aggregate, as in most package or modular policies, the insuring agreements…
|
Work independently, each with its own limit of insurance
|
|
|
Policy aggregate limit of insurance
|
The maximum amount an insurer will pay during the policy period for the sum of all losses that occur.
If a cyber risk policy is written with an annual aggregate, each of the policy’s accompanying insuring agreement will have an insuring agreement aggregate limit of insurance. |
|
|
Insuring agreement aggregate limit of insurance
|
The maximum amount an insurer will pay for the sum of all losses that occur during the policy period related to that specific insuring agreement. Subject to the policy aggregate.
|
|
|
T or F: Policy retentions and/or deductibles apply to each insuring agreement.
|
TRUE. They apply to each insuring agreement, per loss, and are often packaged with specific limits, particularly if the cyber risk policy is modular.
|
|
|
How defense expenses apply to cyber risk limits
|
Defense expenses are payable within the policy limits, thereby reducing the limit of insurance.
|
|
|
Virtually all cyber risk insurers provide this type of coverage territory.
|
Worldwide.
|
|
|
Insurers responded to 9/11 by excluding terrorism losses from commercial property policies, especially for risks in ___________
|
Central business districts
|
|
|
Terrorism Risk Insurance Act (TRIA) of 2002
|
Enacted to help alleviate the urban economic instability, lack of growth, and job loss that occurred after 9/11. Created a backstop intended to satisfy market concerns over future terrorist acts by providing federal reinsurance for terrorism losses.
|
|
|
Terrorism Risk Insurance Extension Act (TRIEA)
|
Extended the TRIA act two years prior to its expiration at the end of 2005
|
|
|
Terrorism Risk Insurance Program Reauthorization Extension Act (TRIPRA)
|
2007; further modified and extended TRIA for seven additional years with certain changes.
|
|
|
Why are insurers deterred from offering terrorism coverage?
|
The potential costs of a terrorist attack are too unpredictable for insurers to properly price the exposure.
|
|
|
TRIPRA is scheduled to expire on
|
December 31, 2014
|
|
|
To qualify for reinsurance coverage under TRIA, an act of terrorism must be certified by
|
The Secretary of the Treasury, in concurrence with the Secretary of State and the U.S. Attorney General.
The Treasury Secretary cannot delegate this responsibility to any other party. |
|
|
Requirements for an act to be a “certified act of terrorism”
|
- It must be a violent act or an act that is dangerous to human life, property, or infrastructure
- It must result in damage within the U.S. (including its territories and possessions and Puerto Rico; certain air carriers or vessels; or the premises of a U.S. mission) - It must be committed by individual(s) in an effort to coerce the U.S. civilian population, to influence U.S. policy, or to affect U.S. government conduct by coercion. - It must result in aggregate property-casualty insurance losses that meet or exceed $5 million. |
|
|
An important change to TRIA in 2007 (via the TRIEA extension) did this:
|
Expanded the program to include domestic terrorism as well as foreign acts of terrorism in the U.S. (e.g., the Oklahoma City bombing)
|
|
|
Except for workers compensation coverage, an act may not be certified as an act of terrorism if it is committed in connection with
|
A war that Congress has declared.
|
|
|
TRIA also does not require that insurers offer coverage for
|
Nuclear, biological, chemical, or radiological (NBCR) acts of terrorism IF the policy would not cover such losses if caused by a non-terrorism event.
|
|
|
Insurers cannot accurately estimate losses and price coverage for NBCR attacks because
|
Of the unpredictability of their long-term effects.
The TRIPRA modifications contain a requirement for further study of NBCR terrorism. |
|
|
TRIA applies to all commercial liens of business except:
|
- Commercial auto
- Professional liability (other than D&O) - Burglary and theft - Farmowners multi-peril - Crop - Private mortgage - Medical malpractice - Financial guarantee - Life and health - Flood coverage provided under the NFIP - Reinsurance - Surety |
|
|
Make-available provision
|
TRIA provision that requires insurers to offer coverage for certified acts of terrorism on the same terms that the insurer offers non-terrorism coverage. (Must be offered at the time of the initial offer, purchase, or renewal of insurance)
|
|
|
Insurers must also provide clear and conspicuous disclosure to their policyholders of the _______ of coverage for certified acts of terrorism
|
Premium
|
|
|
They must also clearly state that the aggregate liability of insurers and the federal government for damages from certified acts of terrorism will not exceed a __________ mandated annual cap.
|
$100 billion
|
|
|
Under TRIA, the federal government will not make any payment for certified acts of terrorism until the aggregate industry insured losses in a single calendar year resulting from the certified act meet or exceed __________
|
$100 million (the federal participation trigger)
For example, although an event causing aggregate losses between $5 million and $100 million could be certified as an act of terrorism, insurers would not receive any federal reinsurance for losses from that event because its associated aggregate losses did not meet the $100 million trigger level. |
|
|
Insurers must meet a ______ before any federal reimbursement will occur.
|
Deductible
|
|
|
After the deductible is met, remaining losses up to an annual aggregate program cap are shared between the insurer and the federal government on a ________ basis.
|
Quote-share (proportional) basis
|
|
|
TRIA loss-sharing provisions include:
|
- An insurer’s deductible is 20 percent of its prior year’s direct earned premiums
- The insurer pays 15 percent of losses that exceed its deductible - The federal government pays 85 percent of losses that exceed the insurer’s deductible - The annual aggregate program cap of $100 billion applies for insurer and government liability for payments under the program. - The Treasury Secretary must develop a process for determining the allocation of pro rata shares of insured losses (below the cap) when the $100 billion program cap is exceeded - The insurance marketplace aggregate retention is $27.5 billion |
|
|
TRIA loss-sharing provision: An insurer’s deductible is ____ percent of its prior year’s direct earned premiums
|
20 percent
|
|
|
TRIA loss-sharing provision: The insurer pays ___ percent of losses that exceed its deductible
|
15 percent
|
|
|
TRIA loss-sharing provision: The federal government pays ___ percent of losses that exceed the insurer’s deductible
|
85 percent
|
|
|
TRIA loss-sharing provision: The annual aggregate program cap of ________ applies for insurer and government liability for payments under the program.
|
$100 billion
|
|
|
TRIA loss-sharing provision: The Treasury Secretary must develop a process for determining the allocation of pro rata shares of insured losses (below the cap) when the ________ program cap is exceeded
|
$100 billion
|
|
|
TRIA loss-sharing provision: - The insurance marketplace aggregate retention is __________
|
$27.5 billion
|
|
|
The 2007 passage of TRIPRA strengthened the $100 billion cap by eliminating wording in the original act stating that the aggregate applied until
|
Congress acted otherwise regarding such losses
|
|
|
The Treasury Secretary must now notify Congress within ______ days of an act of terrorism if insured losses are expect to exceed $100 billion.
|
15 days
|
|
|
If the federal payments made for losses incurred in a calendar year ultimately are less than the insurance marketplace aggregate retention, insurers must begin
|
mandatory recoupment of at least some part of the federal share of losses through policyholders’ surcharges according to the time schedule described in TRIA.
|
|
|
See p. 12.27 for a model of how the whole loss-sharing thing works
|
Do it, for clarity’s sake, dammit.
|
|
|
The ______ offers endorsements that address TRIA-related issues in workers compensation policies
|
NCCI (National Council on Compensation Insurance)
|
|
|
Three required TRIA disclosures:
|
- The portion of the policy premium that is attributed to certified acts of terrorism (and the coverages to which that premium applies)
- The federal share of compensation for certified acts of terrorism under the program - The amount of the program cap ($100 billion); must explain what happens if exceeded |
|
|
Disclosure endorsements
|
Explain the required disclosures of TRIA
|
|
|
Cap endorsements
|
When a policyholder accepts certified acts of terrorism coverage, the ISO Commercial Lines Manual requires the insurer to attach a cap endorsement developed for the specific line of business and coverage provided.
Explains the cap and defines ‘certified acts of terrorism’, and that the cap does not apply to any acts that are not certified acts of terrorism. |
|
|
Certified Acts Exclusion Endorsements
|
Exclude coverage for certified acts of terrorism when the insured has declined the insurer’s offer of TRIA coverage.
May be attached for each line of business and coverage to which TRIA applies. |
|
|
Some states require that any policy insuring property loss caused by fire provide coverage that is at least equal to the coverage provided under a
|
Standard Fire Policy (SFP).
In these states, fire losses caused by terrorist action cannot be excluded. Certified acts exclusion endorsements contain an exception for these SFP states indicating that coverage is not excluded for direct loss or damage by fire to covered property when the fire results from a certified act of terrorism. The exception further states that these fire losses are limited by the program cap. |
|
|
NBCR Exclusion Endorsements
|
Exclude losses caused directly or indirectly by nuclear, biological, chemical, or radiological materials/acts.
These endorsements may be offered, at the insurer’s option, only when the insured initially rejects certified acts of terrorism coverage. |
|
|
Limitations Endorsements
|
Insurers can offer more limited terrorism coverage amounts in return for a reduced premium, if a policyholder initially declines certified acts of terrorism coverage.
Example: An insurer writes the coverage for a sublimit that is lower than the limit applicable to other exposures. Such a sublimit could apply to a subsequent certified act of terrorism that occurs within an annual policy period of the limits are not exhausted by the prior act of terrorism. ISO has developed limitations endorsements for certified acts of terrorism that include a schedule of sublimits that apply to each coverage form, coverage part, or policy to which the endorsement is attached. |
|
|
Aggregate Limit Endorsements
|
Available for use with certain commercial liability coverage forms. These limit the insurer’s exposure and provide limited liability coverage for certified acts for a reduced premium.
The insurer may offer the aggregate limit endorsements only when the insured initially rejects certified acts of terrorism coverage. |
|
|
When used with commercial general liability and farm liability coverage forms, the Certified Acts of Terrorism Aggregate Limit applies to
|
- Bodily injury
- Property damage - Personal and advertising injury - Medical payments arising out of certified acts of terrorism |
|
|
When used with Products/Completed Operations Liability Coverage Form, the Certified Acts of Terrorism Aggregate Limit applies to
|
Bodily injury and property damage only
|
|
|
Punitive damages exclusion endorsements
|
Exclude coverage for punitive damages awarded against a policyholder that arise directly or indirectly out of certified acts of terrorism as defined by TRIA
|
|
|
Other Acts Exclusion Endorsements
|
Exclude noncertified acts of terrorism occurring outside the United States (including its territories and possessions and Puerto Rico). Available only for use with commercial liability coverages, because those coverages insure some exposures outside the jurisdictional boundaries of TRIA.
|
|
|
Other Acts Exclusion Endorsements exclude other acts of terrorism committed outside the U.S. only when one or more these situations exist:
|
- The total of all damages (including business interruption) to all types of property from terrorism exceeds $25 million (in U.S. dollars)
- Fifty or more people sustain serious physical injury or death - The act of terrorism involves the use, release, or escape of nuclear materials or results in nuclear reaction, radiation, or radioactive contamination - The act of terrorism is carried out by means of the dispersal or application of pathogenic or poisonous biological or chemical materials - Pathogenic or poisonous biological or chemical materials are released when one purpose of the terrorist act appears to be the release of such materials |
|
|
Auto Coverage Endorsements
|
Cover or exclude acts of terrorism with respect to auto liability exposures, regardless of whether coverage for terrorism is provided or excluded for exposures other than auto
|
|
|
Workers Compensation Endorsements
|
Work comp is subject to TRIA; the workers compensation endorsement states that an insured loss means any loss resulting from an act of terrorism, including an act of war, for purposes of workers compensation. This endorsement also describes the insurer’s deductible under the program (20 percent of direct premium earned during the prior year).
|
