Risk Report: September 2012

risk report with Henriott Group, Inc.

“Sea Victim” by FreeDigitalPhotos.net

SEPTEMBER 2012

Workplace and Risk Management topics aimed at business owners, managers and other organizational leaders.

“Nothing will ever be attempted, if all possible objections must be first

overcome.” Samuel Johnson

More definitions…Really?!  A look at key insurance terms

Five Work Comp Facts to Know

Henriott News & Updates

 Valuable tips and/or facts

 New photography display

Image courtesy of Dr. David Schmidt

I promise this will be the last Risk Report that focuses on the definitions of key insurance terms. There’s no easy way to make this topic very interesting, but in this edition we’re going to at least focus on specific terminology that is actually pretty relevant to most insurance programs. I also know that most of you don’t want to know “how the watch is built”, so to speak, when it comes to insurance. After all, that’s what you hire us for! So with that in mind, I’ll do my best to hone in on those terms and phrases that I think anyone responsible for their organization’s insurance program should be aware of.

By Rick Davis , CIC, CRM CEO at Henriott Group, Inc.

Special Forms Perils •this is the type of property insurance you want – one that insures against loss to covered property from all perils except those that are excluded. This used to be called “all risks” coverage. Some forms can be “named perils” which is much narrower and only covers losses against covered property caused by specific types of losses, i.e., fire, theft, etc.

Agreed Amount Endorsement •again, ideally this is a provision you want in your program as it suspends the coinsurance clause until a specified date. To get this, the insurance company will typically require a statement of property values signed by the insured.

Coinsurance •this is a provision that penalizes an insured’s loss recovery if the limit of insurance purchased by the insured is not at least equal to a specified percentage (usually 80%) of the value of the insured property. The coinsurance clause also applies to business interruption. If coinsurance applies to a loss, the recovery calculation is the amount of the loss multiplied by the ratio of the amount of insurance purchased over the amount of insurance required, less the deductible.

Protective Safeguard Warrenty •I always love this one. Usually when you have a “warranty” on something, that’s a good thing, right?! Well, not so this time. If you have this on your policy, it means that, as a condition of coverage, the safeguards listed in the endorsement (i.e., sprinklers, night watchman, etc.) must be in operation at all times unless you’ve notified the insurer. Failure to do so can mean no coverage if a loss occurs during the time these safeguards are not in operation!!

Utility Service Interruption •Probably one of the least understood property coverages and also referred to as “off-premised power coverage.” Provides for losses (both property and business interruption) due to lack of electricity, water, internet, etc. that is caused by damage from a covered cause of loss to property away from the insured’s premises (utility station for example.) Typically damage to Overhead Power Lines is excluded – why – because that’s where a lot of losses come from! If you need that coverage, you need to add it by endorsement!

Protection Class •Do you know what Protection Class your facilities are located in? First one to reply to this with the answer for their location wins the Starbucks coffee card! Protection class refers to the 10 categories used by Insurance Services Office to rank cities and towns according to the availability of water and quality/access to firefighting resources. 1 is the best and you got it, 10 is the “worst”. These rankings have an impact on your property rate, availability of insurance carriers, etc.

Equipment Breakdown •This is another little known coverage (previously referred to as Boiler and Machinery) that is present in most insurance programs but often forgotten about when claims occur. This coverage provides protection for loss (again, both for property damage and business income) due to mechanical or electrical breakdown of almost any type of equipment, including manufacturing equipment, HVAC systems, etc. This isn’t a warranty or maintenance coverage, but if something breaks (“sudden and accidental”), this coverage will potentially respond.

Loss Sustained / Discovery Forms These are the two types of coverage “triggers” that Crime policies are written on.

They are similar, although not identical, to the “claims-made vs. occurrence” triggers in most liability policies on the market. In short, a policy written on a Loss Discovery basis will respond to claims that are discovered and reported within the policy reporting guidelines, regardless of when the loss “occurred”. A Loss Sustained policy will respond to claims that occurred during the policy period or any extensions granted by the policy. These are important distinctions, especially when it comes to embezzlement claims that occur over a long period of time.

Image courtesy of renjith krishnan / FreeDigitalPhotos.net

Computer Fraud Please pull out your policy and make sure you have this coverage! We’ve covered this in prior Risk Reports, but the prevalence of third parties hacking into a company’s computer system and fraudulently moving money from their bank accounts is clearly on the rise! Without this coverage, you’ll be relying on your bank to retrieve the stolen money or reimburse you…both risky propositions considering the relatively low cost of this coverage.

Image courtesy of Ventrilock / FreeDigitalPhotos.net

ERISA endorsement ERISA requires companies to bond or insure your benefit plans from employee dishonesty in the lesser of $500k or 10% of all plan assets. Adding this endorsement to your crime policy fulfills that requirement.

Image courtesy of cooldesign / FreeDigitalPhotos.net

Also known as Fire Legal Liability, this covers a tenant’s liability for damage caused by fire to the rented premises the tenant occupies. The typical limit is $100k but if you need more, you can get it by endorsement.

This provides coverage for medical expenses to a third party, regardless of the insured’s liability, as a result of bodily injury sustained by an accident under the terms of the policy.

An endorsement added to the General Liability policy which extends separate liability limits for each location as opposed to sharing one limit.

The relinquishment by an insurer of the right to collect from another party for damages paid on behalf of the insured. It’s also referred to as “transfer of rights of recovery.” We’ll get into this more when we cover Risk Transfer in an upcoming Risk Report.

Coverage for the cost of getting a defective product back under the control of the manufacturer or merchandiser that would be responsible for Bodily Injury or Property Damage if not recalled. NOTE – Standard product liability policies exclude this coverage and it must be added by endorsement or a separate policy.

A form of insurance that protects the insured against liability for committing an error or omission in performance of professional duties and that is typically excluded in standard general liability forms.

Generally, these endorsements or policies are intended to cover financial losses of a third party, not bodily injury or property damage.

Employer Liability Limits

Other States Insurance

Repatriation Endorsement

Alternate Employer Endorsement

Although work comp is a “no-fault” remedy and provides for statutory benefits, it is possible for an employee to sue the employer for gross negligence that led to an injury. Employer Liability limits provides coverage for this exposure.

This coverage applies to an insured’s employees traveling through or temporarily working in states other than the insured’s home state. The endorsement expands the workers comp policy so that an injured worker can receive compensation benefits as prescribed by the other states listed on the endorsement.

Coverage that can be added to your work comp policy to bring an injured worker back to his or her home country in an expedited fashion to receive medical care.

An endorsement that companies who use temporary staffing firms should request from the staffing firm in order to protect the company from claims filed by the staffing employees.

Image courtesy of Davis Castillo Dominici / FreeDigitalPhotos.net

Duty to Defend vs. Reimburse

Retroactive Date

Prior & Pending Date

Consent to Settle

• Policies containing Duty to Defend language requires the insurer to assume control of a claim from the outset, assuming there is at least a potential for coverage to apply, including selecting defense counsel and paying legal bills. Duty to Reimburse, on the other hand, requires only that the insurer reimburse the insured for funds spent to defend a claim.

• A provision in many claims-made policies that eliminates coverage for injuries or damages that occurred prior to a specified date even if the claim is first reported during the policy period.

• This exclusion found primarily in D&O and EPLI policies precludes coverage for claims from litigation that was pending prior to the inception of the policy.

• Also known as the “hammer” clause, this provision introduces a “co-pay” in the event the insurer has the ability to settle a claim but the insured doesn’t give their authorization and the claim ultimately settles for a higher amount. The excess is shared between the insured and insurer at some percentage.

As the workers comp market continues to tighten, here are some valuable tips and/or facts presented by Business Insurance Magazine that can help minimize this growing cost of doing business:

1. Robust safety programs cut work comp costs by 30%

2. Accidents occur as a result of UNEXPECTED DEVIATIONS FROM THE NORM

3. Medical claims costs per 100 workers with normal BMI are about $7,500 vs. $51,000 per 100 severely obese workers

4. Primary losses are reduced 70% if a worker’s return to work occurs before indemnity begins

5. Frequent contact with injured employee and medical providers is essential to getting employees back to work as soon as possible

We have new art in our office thanks to a photographer we featured back in the March edition. Dr. David Schmidt has taken his hobby and made it his main focus after retiring from Cardiology in June. If you have a chance to stop by and say “Hi”, please also take a moment to look at his awesome display he just finished putting up this week.

The focus of his work is Lafayette and the surrounding area.

We are also starting our 2012 United Way campaign and we are teaming up with an excellent downtown restaurant, RedSeven.

Stay tuned for the date(s) when 10% of RedSeven’s proceeds will be donated to United Way and if you’re in the area, stop by!

Bell Tower Purdue University

Check out our website blog series for real-life claims or lawsuits that we hear about in our work and make us sit back and say…C’Mon Man…Really?!

Did you know that we also issue monthly reports for Employee Benefits and Personal Insurance?

For a preview of these, click the following links!  Live Well, Work Well  inSIGHTS: Summer 2012 Installment

If you would like to subscribe to either of these, simple send an email to info@henriott.com and specify which you are interested in receiving!

Henriott Group’s Milestone Risk Management program is aimed at helping your company lower its Total Cost of Risk. Talk to your Henriott professional for more information about this proprietary process.

Client Focused. Results Driven.