Transcript Contracts Insurance Requirements

Contract Insurance
Requirements
Joseph C. Risser, CPCU, ARM-P
Director, Risk Management
California Polytechnic State University
Objectives
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Need for Insurance in Contracts
Transferring Risk
Basic & Special Insurance
Proof of Insurance 1 & 2
Special Problems
Caveats
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NOT a lawyer
NOT your legal counsel
NOT your risk manager
Specific details of a situation (contract)
must be identified and addressed to
manage the risks involved.
• General reasons, requirements and
performance
Agenda
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Set the Stage
Review
Present details
Tips
Questions
Simple Roof Repair
Bob, the Roofer
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Leaking roof in golf clubhouse
Just a quick repair, no contract necessary
Drying the roof to apply sealer
FIRE
Structure & Contents loss – TOTAL
• Loss of real and personal property
• Business interruption – Owner & Tennant
• Loss of rent and revenue
Russ, Furniture Systems Vendor
• Contracted for modular furniture and
installation
• 5 years later – Covered shelf unit above
desk falls on employee and equipment
• Employee Injuries
• Equipment Damage
• Facility Damage
• Loss of Work
Tom, the Landscaper
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Transplant “signature” Palm Tree
Large Crane, Large Back Shovel
Tree defect not considered - technique
Top crashes onto to backhoe, pins driver
and control, boom swings and slices wires
• Contractor’s employee injured
• Equipment damaged
• Wires – data and voice (RR & 911)
What Can Go Wrong?
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Damage to/ Loss of University Buildings
Loss of University and Personal property
Loss of Rent & Loss of Revenue
Injury to University Employees
Interruption of Activities & Services
Damage to Contractor Equipment
Injury to Contractor Employee
Damage to Property of Others
Who Pays?
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Replace the building
Replace the equipment
Replace the personal property
Medical expenses, rehabilitation
Repair the equipment
Repair the damage
Compensate for lost service & revenue
And what about the Palm Tree?
When You Hire a Contractor
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Contractor
Service provider
Vendor
When you buy materials
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• When you rent your facilities to others
Transfer the Risks
• Transfer the Risk of doing the “WORK”
– Hire an “expert” & their resources
– Direction and control of the activities and results
– Contractual responsibilities - operations & products
• Transfer the Risk (responsibility) of having to
pay for losses that arise from the “WORK”
– Injury to persons, damage to property
– Interruption of your business activities
– Failure to follow contract requirements
Contractual Transfer of Risk
1. Indemnification – the promise to
pay for any losses of the University
resulting from the “WORK”
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Types
Restrictions
2. Insurance – the financial resource to
pay for losses due to the “WORK”
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Types
Specifications
Contract Indemnification
___(entity)__ shall defend, indemnify, hold harmless and
protect the State of California, the Trustees of the California
State University, ___CAMPUS___, their officers, employees,
representatives, agents, students and volunteers (the
“University”)
from and against any and all liability, loss, damage, expense,
cost (including without limitation to costs and fees of litigation)
of every nature arising out of or in connection with
___(entity’s)__ (any subcontractor, anyone directly or indirectly
employed by anyone for whose acts any of them may be liable)
___(performance of work, use, etc.)___ hereunder or failure to
comply with any of its obligations contained in the agreement,
except such loss or damage which was caused by the sole
negligence or willful misconduct of the University.
Contract Insurance
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Specify products & materials?
Specify design & construction?
Specify access & safety?
Specify insurance!
SPECIFICATIONS for
INSURANCE
– Funding contractual indemnification
• Limitations
– Description of Losses:
• Arising out of the “WORK”
[Operations, Products and Completed Operations]
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Arising out of the ownership and use of vehicles
Arising out of employment of workers
Arising out of damage to property
Arising out of professional services
– Proof of Insurance - Documentation
Basic Insurance for Contracts
ExO 849
Type
Coverage
Limits
General Liability
(Commercial or
Comprehensive) CGL
Injury, damage and
contractual liability
from their “work”
$1 Million / occurrence
$2 Million aggregate
Automobile
Liability
Injury & damage from
their ownership &
operation of autos
$1 Million combined
single limit per
accident
Work related injury or
illness for their
employees
WC - Statutory Limits
EL - $1 Million per
illness and injury
(minimum)
(Commercial or Business
Auto) CA or BA or AL
Workers’ Comp
& Employer’s Liability
WC & EL
Specialized Insurance
ExO 849
Type
Coverage
Limits
Professional
Liability (errors &
Errors and Omissions
in Professional
Services causing injury,
$1 Million / claim
$1 Million aggregate
omissions)
damage, failure to perform
Builder’s Risk
Damage to your
property being
(course of construction or
installation)
Excess or
Umbrella Liability
(minimum)
100% of the value of
the property
constructed, remodeled
and/or installed
Increase limits for
specific insurance
policies (general, auto)
Amount as needed to
meet minimum
required limits
Hazardous Materials
ExO 849
ADDITIONAL
Coverage
Limits
General
Increased limits and
coverage breadth
$5 M / CSL Occ.
$10 / Aggregate
Environmental
Pollution
Pollution of property
$ 5 M / Occurrence
$10 M / Aggregate
*Environmental
Errors & Omissions
Errors in professional
services
$ 1 M / Claim
$ 2 M / Aggregate
*Automobile
(transporters)
Sudden & Accidental
Pollution
$2 M / Occurrence
$2 M / Aggregate
Liability Insurance
*MCS-90 (transporters) Cleanup of pollution
(Federal Requirement)
$ 1 M Occurrence
Proof of Insurance 1.
• Certificate of Insurance
– Broker
– Insured (your contractor)
– Insurance companies (NAIC number)
– Rating (A.M. Best – A:VII or equivalent)
– Type of Insurance
– Basis of coverage and scope
– Policy number, period, $ limits and deductible
Certificate of Insurance
MOST IMPORTANT WORDS
This certificate of insurance is not an
insurance policy and does not amend,
extend or alter the coverage afforded by
the policies below.
Contractor’s Insurance
• Contractor is the INSURED
– Pays for legal defense of the contractor
– Pays claims for which the contractor is found liable
– Pays for investigation of claims against the contractor
• Contractor’s Insurance does not provide
insurance coverage for the University
– “IF” the University has losses it can file against the contractor
and proceed with legal action to enforce the indemnification
– “IF” the University is sued, it can file against the contractor and
proceed with legal action to enforce indemnification
University as Additional
Insured
General and Automobile Liability Insurance Policies
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University is an INSURED
Direct Access to Contractor’s Insurance policy
Report loss and file claim
Doesn’t have to enforce indemnification in the contract
REQUIRES A WRITTEN AMENDMENT TO
THE INSURANCE POLICY BY:
ENDORSEMENT
or such language shall be contained in the policy
Other CSU Endorsements
• Coverage shall not be canceled by either the
contractor or the insurance carrier, except after
30 days prior written notice to University. (ALL)
• Contractor’s coverage is primary as respects the
University. (CPDC CGC)
• University coverage shall be excess of coverage
provided by contractor. (CPDC CGC)
• University shall not by reason of inclusion as an
additional insured incur liability for payment of
premiums for the policy. (CPDC CGC)
Proof of Insurance 2
• Endorsement of Insurance Policies
as required in your Insurance Specifications
• Endorsement Form
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“Endorsement” in title of form (“changes the policy”)
Policy number, Insurer
Type of policy & policy period
Name of insured (YOU) being added
Purpose & scope of endorsement
Identification of project or contract
Authorizing signature
• Copy of Policy if such language is contained therein
Basic Insurance Endorsements
ExO 849
Policy Type
Endorsement
Language
General
Liability
Additional
Insured
Operations, Products,
Completed Operations
their “ WORK”
Automobile Additional
Liability
Insured
ALL
Notice of
Cancellation
Ownership and/or operation of
automobiles (owned, scheduled,
non-owned)
30 days advance written notice
of cancellation of any of the
coverage
Additional Insurance Endorsements
CPDC CGC
Policy Type
Endorsement
Language
General &
Automobile
Liability
General &
Automobile
Liability
Open Form
Insurance coverage shall be
primary as respects the
University
Open Form
University insurance shall be
excess of the contractor’s and
shall not contribute with it
ALL
Open Form
University shall not be reason of
inclusion as additional insureds
incur liability for payment of
premiums
Special Endorsements
Policy Type
Endorsement
Language
General
Amendment of
Liability
Limits
(CPDC CGC)
Policy limits in full apply to
this project or contract (not
all the contractor’s
operations for the year)
Automobile
Liability
(hazmat)
Automobile
Liability
(hazmat)
Reinstates coverage
normally excluded from
automobile policies
Provides funding for
cleanup of pollution
Sudden &
Accidental
Pollution
MCS-90
Special Endorsements
Policy Type
Endorsement
Language
Workers’ Comp
& Employers’
Liability
(ALWAYS)
Waiver of
Subrogation
Insurer waives rights to recover
from YOU for any payments
they make for injury or damage
Builder’s Risk
CPDC CGC
Loss Payee
Insurance will pay University for
loss as respects $ interest
Builder’s Risk
CPDC CGC
Waiver of
Subrogation
Insurer waives rights to recover
from YOU for any payments
they make for injury or damage
Professional Liability Policies
“Errors and Omissions”
• Claims Made basis of coverage (Limited time in
which to report a claim vs. Occurrence basis)
• Critical Information
– Retro Date (when coverage began)
– Extended Claims Reporting Period (policy period plus 30, 60, 90
days)
– Claims reporting procedures (so you can report claim directly within
limited time frame)
• Declaration Sheet
Excess & Umbrella Insurance
• Follow form of underlying coverage?
– Identifies underlying policy
– Exclusions or gaps in coverage
• Provide additional coverage?
• Matching policy period?
• Declaration sheet
Insurance Policy Limits
general liability
• Limits based upon value of the contract
– ExO 849 - $1m/2m
– CPDC CGC - $5m/5m < $5,000,000
• Limits based upon risk of the contract
operations, products, completed operations
HOW MUCH CAN BE LOST?
Questions?
THANK YOU
References
• CSU Executive Order 849
http://www.calstate.edu/eo/EO-849.pdf
• CSU Contract Services and Procurement
http://www.calstate.edu/CSP/crl/crl.shtml
• CSU Capital Planning, Design & Construction
(CPDC)
http://www.calstate.edu/cpdc/CM/CGC.shtml
• CSU Insurance Requirements In Contracts
http://www.csurma.org/___
Joseph C. Risser
• Chartered Property Casualty Underwriter (CPCU)
• Associate of Risk Management – Public Entities (ARM-P)
• Director, Risk Management, California Polytechnic State
University, San Luis Obispo
• Executive Committee, Board of Directors, California
State University Risk Management Authority (CSURMA)
• [email protected]
• 805-756-6755 office
• 805-756-1602 fax