Insurance Requirements in Contracts

1. Insurance Requirements in Contracts www.doa.louisiana.gov

2. PURPOSE OF WORKSHOP • Limit State’s liability • Necessity of insurance requirements • L.R.S. 38:2195

3. TYPES OF BIDS OR CONTRACTS • IFB - Invitation for Bids • RFP - Request for Proposals • CONSTRUCTION • PRINTING CONTRACT • SOLE SOURCE • EMERGENCY

4. WHAT’S NEEDED ? • Coverages • Limits • Hold-Harmless Agreement

5. TYPES OF COVERAGE Workers Compensation and Employers Liability Maritime Liability Commercial General Liability Automobile Liability Property Damage Coverage Bond Coverage Crime and Fidelity Wet Marine Coverage Aviation Coverage Medical Malpractice

6. STANDARDIZATION OF FORMS 1. Insurance Services Organization ISO Standard Forms: CG 00 01 [10 01] -- CGL CA 00 01 [10 01] -- Auto 2. Manuscript Forms Company-written

7. ADVANTAGES OF STANDARD POLICY FORMS • Set rates using pooled data • Coverage generalizations • Comparison of policies

8. ADVANTAGES OF STANDARD POLICY FORMS(Continued) • Case law  scope of coverage • Simplified claims-settlement

9. Commercial General Liability Forms • OCCURRENCE • CLAIMS - MADE

10. ISO Occurrence FormCG 00 01 10 01 July 1, 1999 July 1, 2000 Will pay these sums that the insured becomes legally obligated to pay... • DISCOVERY PERIOD • Occurrence during policy period • NO TIME element when claim is reported/paid • Statute of limitations

11. ISO Claims-Made FormCG 00 02 10 01 July 1, 1999 July 1, 2000 Will pay these sums that the insured becomes legally obligated to pay... • DISCOVERY PERIOD • Claim made DURING policy period or extended reporting period.

12. ISO Claims-Made Form (Continued) 1. BASIC EXTENDED REPORTING PERIOD: 60 days - no additional premium 2. SUPPLEMENTAL EXTENDED REPORTING PERIOD: Up to 200% additional premium DOES NOT REINSTATE OR INCREASE LIMITS

13. COMMERCIAL GENERAL LIABILITY 1. Premises Operations 2. Off Premises 3. Products and Completed Operations 4. Contractual 5. Personal Injury and Advertising Liability 6. Broad Form Property Damage 7. Watercraft

14. Coverage BPersonal Injury & Advertising Liability Personal Injury: Other than bodily injury • False arrest • Malicious prosecution • Wrongful entry • Libel or slander • Violation of privacy

15. Coverage CMedical Payments A. Medical expenses for accidents: 1. On premises you own or rent 2. On ways next to premises you own or rent 3. Because of your operations

16. Coverage CMedical Payments(Continued) B. Reasonable expenses for: 1. First aid 2. Medical, surgical, x-ray, dental services 3. Ambulance, hospital, nursing, funeral expenses

17. Common CGL Exclusions • Pollution (Asbestos and hazardous wastes) • Workers compensation, unemployment benefits, etc. • Aircraft and watercraft over 26 feet

18. Common CGL Exclusions (Continued) • Intentional Acts • Automobile Liability • Some Professional Liability • Property Damage to Property • 1. You own, • 2. Loaned to you, • 3. In your care, custody and control

19. PROFESSIONAL LIABILITY(Errors and Omissions Coverage) • ACCOUNTANTS • ARCHITECTS • ENGINEERS • MEDICAL PROFESSIONALS • ATTORNEYS • HAZARDOUS ACTIVITIES

20. BUSINESS AUTOMOBILEPOLICY CODES • Any auto • Owned autos only • Owned private autos only • Owned autos other than private autos • Owned autos subject to no-fault • Owned autos subject to a compulsory uninsured motorists law • Specifically described autos • Hired autos only • Non-owned autos only

21. Owners Protective Liability (OPL) • Protects the employer of an independent contractor • Employer can be liable for contractor’s negligence

22. WORKERS COMPENSATION Per Labor Code of the State of Louisiana Disability Benefits Updated annually in Sept. 9/1/2004 $438 max $117 min 9/1/2004 75% of average salary (from Dept. of Labor)

23. BID BONDS • Guarantee the good faith of the bidder • L.R.S. 38:2241 (A) (2)

24. PERFORMANCE AND PAYMENT BONDS 1. Financial protection 2. Prompt completion upon default 3. Defective work / materials 4. Payment of bills L.R.S. of 1950 Title 38 Chapter 10 Sections 2241 to 2248

25. “ADDITIONAL INSURED” I. BLANKET ADDITIONAL INSURED ENDORSEMENT Example: “The State of Louisiana is added as an additional insured on the above liability policies.”

26. “ADDITIONAL INSURED” CONTINUED II. LIMITED ADDITIONAL INSURED ENDORSEMENT Example: “The State of Louisiana is added as an additional insured as regards the (sole) negligence of XYZ contractor.”

27. “ADDITIONAL INSURED” CONTINUED III. NAMED INSURED ENDORSEMENT (Owners Protective Liability) Example: “The State of Louisiana, as the owner, is added as a namedinsured on the above policy.”

28. WAIVER OF SUBROGATION SUBROGATION: The right of one who has taken over another’s loss to also take over the right to pursue remedies against a third-party NOTE: ORM will NOT accept contract language which allows waiver of subrogation with regard to damage to State-owned property

29. HOLD-HARMLESS AGREEMENTS • Deductibles • Under-insured • Exclusions to insurance policies

30. TYPES OF HOLD-HARMLESS AGREEMENTS All liability, except that arising out of the sole negligence of the agency (State) • All liability without regard to fault • Own negligent acts (Contractor) • Agrees to share responsibility when both parties contribute to a loss

31. COMMON ERRORS • Neglect to review certificates • Using old insurance requirements • NO insurance requirements in bid • Insurance Company Ratings - taking company’s word on it

32. COMMON ERRORS CONTINUED • Neglect to review policies for exclusions • NO hold-harmless agreements • Not enforcing rating requirements • Leaving some insurance requirements out of bid

33. UNACCEPTABLE INSURANCE • Risk retention groups (unless A.M. Best rated) • Self-insurance funds (except WC) • Companies rated below insurance requirements • Claims-made coverage (some exceptions)

34. FINANCIAL RATINGS OF INSURANCE COMPANIES

35. A.M. BEST2003 Property/Casualty Ratings

36. BEST’SFinancial Size Categories

37. BOND COMPANY RATINGS www.fms.treas.gov/c570/c570.html

38. DEPARTMENT OF INSURANCE Regulates insurance companies licensed to do business in Louisiana DOMESTIC COMPANIES - 28 FROM 1978 TO 2002 583 insurance companies under rehabilitation or liquidation

39. CAPITALIZATION REQUIREMENTS Insurance Company Capitalization: $2,000,000  1989  $3,000,000 Premium Limited By Law:  4 times policyholders surplus  Example: $3,000,000 X 4 = $12,000,000 Exposure to company = $100 millions

40. Louisiana Insurance Guaranty Association LIABILITY {CGL & Auto} $150,000 per claim - $100 ded. $300,000 per accident - $100 ded. WORKERS’ COMPENSATION Follows law - limits do not apply PLUS Unearned premium up to $10,000 (in addition to above limits)

41. PROOF OF COVERAGECertificates of Insurance • State’s Form (State Designed) • Accord Form (ISO Designed) • Manuscript Form (Company Designed)

42. BEST’SKey Rating Guide Property/Casualty Edition A.M. BEST COMPANY Oldwick, NJ 08858 Phone: (908) 439-2200 Fax: (908) 439-3296 www.ambest.com

43. ORM Website • www.state.la.us/orm/orm • Click on Underwriting • Click on Procedures Manual for Insurance Requirements in Contracts