Presented by: George W. Erickson, JD, CPCU, LLM Siver Insurance Consultants Siver Insurance Consultants is not in the practice of law, and the observations made during this presentation are offered solely as laypersons in our capacity as insurance consultants. What we will be covering • General Concepts Limits Deductibles Claims Made vs. Occurrence • Types of Coverage First Party Third Party Combination Specialty Lines PERSPECTIVE • Everything will not apply to everyone. • Focus is primarily on the insurance YOUR organization purchases or may purchase. • What contractors/vendors should purchase and the concerns created by contractors and vendors is another subject for another day. Limits Deductibles Claims Made vs. Occurrence Per Occurrence/Accident
Per Aggregate • For all covered losses under a policy or for all policies during an underwriting period • Liability insurance – aggregate limits usually included • Property insurance – not often used, except for certain catastrophic exposures (e.g., flood)
Per Claim/Claimant Sublimits vs. Additional Limits • Sublimit – limit available to cover a specific type of loss Part of the limit (not in addition to) Maximum amount available to pay for that type of loss How Deductibles Apply • Differs by Coverage Type Coverage limit can apply excess of deductible Deductible can reduce limit Percentage vs. flat dollar amount How Deductibles Apply • Defense Costs (Liability) • Policy Language Governs E.g., property policies Some apply single deductible to total amount of loss Some apply per location (i.e., campus) Some apply deductible separately to each building, contents of each building, etc. Deductibles SIRs - INSURER is responsible to pay loss - NAMED INSURED (or INSURED) (up to limit). NAMED INSURED is must pay SIR before insurance policy responsible to reimburse. will respond to a loss. Why does this matter? • Changes timing of when claim is reported to insurer (if reported at all) • Treatment of defense costs and obligations • Timing of payment SIR payment is made by insured up front • Some Deductibles may reduce policy limits Who is Required to Pay the Deductible/SIR • Named insured • The insured • Can an additional insured pay? When is coverage “triggered”?
Typical Claims Made Occurrence
Coverage for claims [first] made [and Coverage for when wrongful act/bodily reported] during the policy period, injury/property damage occurs during regardless of when the wrongful the policy period, regardless of when act/bodily injury/property damage the claim is made leading to the claim occurs Example: • January 1, 2015 – December 31, 2015 – Company is insured with INSURER A • January 1, 2016 – Company changes to INSURER B • November 30, 2015 – Incident occurred • January 2, 2016 – Company becomes aware of claim
To which Insurer should the Company report the claim?
Claims Made Occurrence Assuming both policies are claims Assuming both policies are occurrence made (assuming no reporting period is purchased) Insurer B Insurer A Additional Issues to Consider: • “Long tail” exposures • Retroactive dates in claims made policies • Potential issues when changing from one insurer to another with claims made policies First Party Third Party (Liability) Combination (First and Third Party Combined) Specialty Lines Commercial Property Insurance • Coverage for physical damage to your organization’s own buildings and contents due to covered causes of loss • Also includes “Time Element” coverages (i.e., business income and extra expense) • Additional coverages may be available (e.g., debris removal, fire department service charges, etc.) Building Property • Buildings & structures • Permanently installed machinery & equipment • Additions Business Personal Property of the Insured • Furniture & fixtures • Machinery & equipment • Stock • Be aware of: Scheduled Coverage vs. Blanket Coverage All Risks vs. Named Perils coverage forms Valuation – replacement cost vs. actual cash value Coinsurance provision vs. Agreed Value Application of deductibles – single vs. deductible for each building, etc. Flood often very limited Earth Movement vs. Earthquake Other Types of Property Policies • Flood • Boiler and Machinery/ Equipment Breakdown Insurance • Fine Arts • Electronic Data Processing • Contractors Equipment • Cargo • Builder’s Risk • Installation Floater Flood • Primary coverage typically provided by National Flood Insurance Program (NFIP) • Be aware of: Per occurrence sublimit Annual aggregate limit Separate deductible FEMA issues Boiler and Machinery/Equipment Breakdown Insurance • Coverage for cost to repair/replace equipment and other property damaged due to mechanical or electrical breakdown of equipment To insured’s own property To property of others in insured’s CCC • Other coverages available, such as: business income, extra expense, utility service interruption Coverage may be offered under your property or package policy, by endorsement, or under separate policy Fine Arts • Major reason for purchase – VALUATION!! • Be aware of: Coverage usually on scheduled basis Property in transit and unscheduled/newly acquired locations Limitations on newly acquired property Excluded property Electronic Data Processing (EDP) • Unendorsed standard commercial property policies usually do not exclude EDP equipment, but usually exclude loss due to: Electrical disturbance Mechanical breakdown Utility service interruption • EDP policies offer all risks coverage for EDP equipment such as computers, software, data Electronic Data Processing (EDP) • Other coverages available, such as: business income, extra expense, expediting expenses • Be aware of: Computers owned by organization but used by employees off-site Difference in limits for scheduled locations vs. property in transit or at temporary locations Coverage forms vary – so do exclusions Sublimits for each category of covered property Equipment
Commercial Property Policy vs. Equipment Floater
Commercial Property Policy Coverage for buildings and contents at a particular location, or within a short distance of that space
Potential coverage gap
Equipment Floater Covers equipment that is often moved place to place • Coverage applies to: Mobile equipment (e.g., construction equipment, lawnmowers, cranes, etc.) Equipment owned by insured Equipment in insured’s CCC, including rented or borrowed Builder’s Risk (BR) • Coverage for property in the course of construction: On the job site At off-site storage locations Property in transit • Key Coverages: Physical damage to covered property Delay in completion coverage plus “soft costs” coverage Builder’s Risk Issue? • Ownership of covered property during various stages of construction is fluid E.g., contractor buys materials and equipment that will be incorporated into project; eventually becomes property of project owner • Property located in different locations during length of construction E.g., on the job site, off-site storage, in transit Builder’s Risk Issues? • Value of construction project increases as it moves towards completion • Incomplete structures more susceptible to damage from elements • Be aware of: All of the right parties need to be covered under BR policy Contractors and subcontractors “Insurable interest” in the property Construction contract governs which party must purchase BR insurance Project owners may prefer to purchase BR to give them greater control over coverage terms Blanket deductibles and specified peril deductibles Sublimits • Be aware of: Coverage termination – when coverage ends varies Need to be sure that insurance policy termination provision satisfies construction contract terms Excludes coverage for damage resulting from: Faulty design Faulty planning Faulty workmanship Faulty materials Crime • Why would my organization need a crime policy? CGL policies exclude most types of theft Money and securities do not qualify as covered property Employee theft of money or other property is usually excluded Commercial Crime Policy • Coverage for: Employee dishonesty Forgery or alteration Money and securities Money order and counterfeit money Computer fraud Funds transfer fraud Employee Dishonesty • Coverage for employee theft of money, securities and other property • ERISA & Employee Benefit Plans May be used to satisfy the ERISA requirements by naming the plans as a named insured • Who is an employee? Not directors or trustees (except while performing duties within scope of an employee’s usual duties) Not independent contractors, agents, brokers, etc. May get coverage for these types of people by endorsement Forgery or Alteration • Coverage for loss resulting from forgery or alteration of checks, bank drafts, promissory notes, etc. drawn on insured’s bank account
Money and Securities • Coverage for loss to money and securities resulting from theft or from destruction by fire, explosion, etc. • “inside the premises” vs. “outside the premises” Money Order and Counterfeit Money • Coverage for direct loss from acceptance of counterfeit paper currency and money orders
Computer Fraud • Coverage for loss of money, securities, and other tangible property caused by use of a computer to fraudulently transfer such from inside the insured’s premises (or a banking premises) to outside Funds Transfer Fraud • Coverage for loss of money and securities resulting from fraudulent use of a bank’s funds transfer system where the thief purports to be insured and instructs that the transfer take place
Computer Fraud and Funds Transfer Fraud coverage may be combined into a single coverage on a crime form Social Engineering (e.g., phishing) • These losses may be covered under either a crime policy or a cyber policy
Public Employee Dishonesty Coverage • Coverage for governmental entities covering loss arising from employee dishonesty Limits can be written per loss or per employee • Commercial General Liability • Umbrella/Excess Liability • Professional Liability • Management Liability • Workers’ Compensation 768.28 Commercial General Liability (CGL) • Provides organizations with defense and indemnity coverage against claims for:
Coverage A Bodily Injury and Property Damage Coverage B Personal Injury and Advertising Injury Coverage C Medical Payments Basics of the CGL Policy: • Each Coverage section has its own: Provisions Exclusions Limits • Coverage A – negligent torts • Coverage B – intentional torts Basics of the CGL Policy: • “Named insureds” and “insureds” under the policies Differences in the duties and rights of these parties • Conditions – some do create “conditions precedent to coverage” E.g., insured’s duties in event of a claim Coverage A: Bodily Injury (BI) and Property Damage (PD) • Covers insured’s liability for BI and PD arising from: Premises and operations Products and completed operations Independent contractors Contractual liability Coverage A: BI and PD • “Bodily injury” and “property damage” are defined terms in the CGL policy • Coverage A has many exclusions, for example: Pollution Aircraft, auto, watercraft or mobile equipment Damage to “Your Product” or “Your Work” Electronic data Coverage B: Personal Injury and Advertising Injury Personal Injury • Libel • Slander • Defamation of character • False arrest • Invasion of privacy Advertising Injury • Libel • Slander • Invasion of privacy • Copyright infringement • Misappropriation Coverage B: Personal Injury and Advertising Injury • Coverage B has many exclusions, for example: Knowing violation of rights of another Criminal acts Contractual liability Breach of contract Infringement of intellectual property Coverage C: Medical Payments • Coverage for accidental BI that occurs on the insured’s premises or, if away from premises, because of insured’s operations • These payments are made regardless of fault • Medical payments coverage is subject to all of the BI exclusions of Coverage A Even though the exclusions overlap in effect, they are separate Umbrella/Excess Liability Policies • Levels of coverage Primary and secondary • “Umbrella insurance policy” and “excess insurance policy” are not synonymous Both extend coverage limits provided by primary (or underlying) policies Both “drop down” to replace exhausted primary coverage Difference umbrella generally provides broader coverage (may provide coverage for losses not insured by underlying policies) Umbrella/Excess Liability Policies • Coverage forms vary • Often have coverage gaps between umbrella/excess policies and underlying policies
Package Policies • Combination policy providing several lines of coverage (usually general liability, property, auto) Professional Liability • Medical Malpractice (Physicians Professional Liability) • Legal Malpractice (Lawyers Professional Liability) • Architects and Engineers Professional Liability • Professional Liability/Errors and Omissions (E&O) Professional Liability • Typically written on “Claims-Made” basis • Often have “per claim” and “annual aggregate” limits • Can have high deductibles/SIRs • Can be very expensive for some professions Professional Liability/Errors and Omissions (E&O) • Coverage against liability for errors and omissions in performing professional duties • Policies generally cover financial losses (rather than BI and PD) Management Liability • Types Directors and Officers (D&O) School Leaders E&O Public Officials Liability • Covers Personal Liability of Individual Officers/Directors Entity Obligation to Indemnify EMPLOYMENT PRACTICES LIABILITY!!!! • Common Types of Claims/Exposures: Securities litigation Federal and state regulatory actions Misrepresentation and breaches of fiduciary duties
• Employment Practices Liability Exposures Wrongful termination Failure to hire/promote Breach of contract Discrimination Sexual harassment School Leaders E&O/School Board Liability • a.k.a. Educators Legal Liability (ELL) Insurance • Coverage against claims alleging errors and omissions in performing duties Covers financial loss, not BI or PD claims But mental injury and emotional distress usually covered Available for all levels of educational institutions, including public schools, private schools, charter schools, and cyber schools • Coverage for the following: Educational institution itself School board members/board of trustees/ administrators Employees Staff members Student teachers/interns Volunteers Common Types of Claims/Exposures
Directors and Officers • Losses caused by financial mismanagement Liability Exposures • Fund-raising improprieties • Negligent management of endowment funds • Antitrust claims
Employment Practices • Wrongful termination Liability Exposures • Failure to hire/promote • Denial of tenure • Discrimination • Sexual harassment Common Types of Claims/Exposures
Educators E&O Liability • Failure to educate Exposures • Negligent counseling (career or academic) • Wrongful dismissal on academic/disciplinary grounds • Discrimination in financial aid grants
Media Liability Exposures • Libel (from school newspapers, • Plagiarism campus radio, etc.) • Copyright or trademark infringement • Typical Exclusions: Intentional acts ERISA obligations Claims by or against affiliated institutions Professional services Outside directorships BI and PD liability (corporal punishment?) Contractual obligations Public Officials Liability • Despite governmental immunities, public officials can be held liable for their actions in carrying out their duties • Coverage for errors and omissions of public officials Covers financial loss, not BI or PD claims Workers’ Compensation • Coverage for claims arising out of employee’s work- related injuries while employee in course and scope of employment Employee gets wage replacement and medical benefits (or death benefits) in exchange for employee giving up right to sue employer • No fault • Statutory in nature Part One – Workers’ Compensation Part Two – Employer’s Liability Covers employer’s statutory liabilities Covers liability arising out of employees’ under the workers’ compensation laws work-related injuries that do not fall under the workers’ compensation statute
Who can sue the employer? • Injured worker (under certain circumstances) • Spouse or family members (e.g., loss of consortium) • Third party (e.g., injured worker sues machine manufacturer, who then sues the employer) No limit on policy amount Monetary limit
Workers’ compensation claims can remain open for decades Vehicle Liability/Physical Damage Pollution/Environmental Liability Cyber/Privacy Liability Liability Coverage (Section II) • Insurer will pay sums that insured becomes legally obligated to pay as damages because of injury or damage resulting from ownership, maintenance, or use of covered auto
• Insurer also has obligation to settle or defend suits Liability Coverage (Section II) • Who is covered? Named insured Permissive users Anyone liable for the conduct of the insured Liability Coverage (Section II) • What is excluded from coverage? Expected/intended injury Contractual liability Workers’ compensation Fellow employee exclusion Racing Physical Damage Coverage (Section III) • Insurer will pay for physical damage loss to a covered auto (or its equipment) from one or more specified set of perils: Collision or Overturn Covered “auto’s” collision with another object or overturn
Comprehensive All risks coverage (other than for collision or overturn), or
Specified Causes of Loss • Fire, lighting or explosion • Theft • Windstorm, hail or earthquake • Flood • Mischief or vandalism • Sinking, burning, collision or derailment of any conveyance transporting covered “auto” Physical Damage Coverage (Section III) • Auto Physical Damage is often: Self-insured or Included in the Property Insurance Physical Damage Coverage (Section III) • What is excluded from coverage? Racing “Wear and tear” Electronic devices/equipment Diminution in value • Be aware of: “Named insureds” and “insureds” under the policy Differences in the duties and rights of these parties Employees using personal vehicles for business Employees using district-owned vehicles for personal purposes Pollution/Environmental Liability • Many policies contain broad pollution exclusions, including CGL, auto, and umbrella liability policies • What is a pollutant? Solid, liquid, gas, thermal irritant, or contaminant (e.g., smoke, vapor, soot, fumes, acid, chemicals, waste) Often includes fungus, mold, and bacteria Environmental Impairment Liability (EIL) Insurance • What coverage may be included? BI PD Cleanup expenses Defense costs (usually within the limit) Additional coverages available (e.g., business interruption) When Should Your Organization Have Pollution Coverage? • Not just for organizations generating or handling hazardous materials • Construction issues • Fueling operations – Storage tanks • Mold Issues • Pre-Existing Pollutants • Changing Laws • EPA – Broad power to name PRPs Issues with Pollution Coverage • Almost always written on claims-made basis • Beware of retroactive dates • Extending reporting period First Party • Malware Attack on Systems Viruses, adware, spyware, worms, trojans, ransomware • Loss of Data Malicious destruction of data Accidental damage to data Failures in IT system Electrical power surges First Party • Fraud Outside fraud (e.g., social engineering such as phishing) Internal fraud (e.g., employee theft) • Business Income/Extra Expense • Public Relations/Goodwill Third Party • Disclosure of Private Information/Breach of Privacy HIPAA • Defamation or Slander • Transmission of Malicious Content Who Needs Cyber/Privacy Liability Insurance? • Nature of losses have changed Range of exposures goes beyond privacy and data breaches • Internet-of-Things (IoT) is changing the landscape of cyber and privacy exposures
Any organization can be impacted! What do Cyber policies cover? • First Party Coverage Theft of property coverage Extortion/ransom threats Data asset coverage and restoration Computer fraud (but not by employees) Funds transfer fraud Social engineering Investigative costs What do Cyber policies cover? • First Party Coverage Post-breach response coverage Crisis management/public relations Notices Credit Monitoring Time element coverage Business interruption Business income/extra expense What do Cyber policies cover? • Third Party Coverage Information security and privacy liability Provides coverage for insured’s liability for breaches of third party’s private information Regulatory defense and penalties Website media content liability PCI fines and assessments Bodily injury and property damage liability Typical Exclusions: • Portable Electronic Devices • Intentional Acts • Terrorism/Cyber Terrorism • Negligent Computer Security Insureds must install software updates and patches BYOD – Bring Your Own Device Student Accident Catastrophic Accident Police Professional/Law Enforcement Fiduciary Liability Read your policies carefully! Questions or Comments? Thank you!
George W. Erickson, JD, CPCU, LLM
(727) 577-2780 [email protected]