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Association of Towns 2006 Annual Conference Advising Your Municipality on Insurance Procurements Rona L. Platt, Esq. Congdon, Flaherty, O’Callaghan Brian Custer and Robert Bambino NY Municipal Insurance Reciprocal
Considerations for Selecting Insurers • Claims Philosophy • Risk Management and Loss Control • Financial Stability • Reinsurance Support
Auto exclusion Contractual liability exclusion EPL excluded Covered under auto policy Exception for mutual aid agreements Covered under POL policy Limits, Exclusions & Other Pitfalls to AvoidLaw Enforcement Liability
Frequently Asked Questions Q: Do I need a Builders Risk Policy? A: Yes, for large renovations and new construction – unless the Gen. Contractor provides it Q: Are volunteers covered in the CGL policy? A: Yes, but only if they are acting within the scope of their approved volunteer activities. Q: Do I have coverage for skateboard parks, pools and snowmobile trails? A: Generally – yes, but you should contact your broker or insurer – might be an additional premium
Frequently Asked Questions Q: Do we need to purchase mold coverage? A: Maybe – its something to check on. There may be coverage under the GL policy; the Property policy only covers if it is a result of a covered loss. Q: Which physical assets should we obtain coverage for? A: Those assets that you can’t afford to lose or those without which you can’t effectively operate your municipality.
Guiding Principles • As with all contracts, ambiguities contained within an insurance policy are construed against the insurer which drafted the policy. Mostow v. State Farm Ins. Co., 88 N.Y.2d 321 (N.Y. 1996) • You don’t get what you deserve, you get what you negotiate Dr. Karras • The big dog usually wins Unknown
Risk Transfer Concerns:What We’ll Cover Why use risk transfers Indemnity agreements Additional insured status Standard ISO endorsements Pitfalls, problems & solutions
Why Use Risk Transfers • Transfers responsibility to do something • Transfers responsibility to pay for something • Compels a third-party to indemnify or hold someone harmless • Compels a third-party to release another …to improve and optimize our subscribers’ ability to reduce risk financing costs
Pros Reduces/stabilizes loss experience Transfers risk Demonstrates a commitment to risk management Cons Time consuming Requires trained staff Creates potential E & O exposure Risk Transfers – Pros and Cons
Indemnity Agreements Why we shouldn't rely solely on indemnity agreements: • It’s a transfer of liability/responsibility – not loss financing • Indemnitor may not be financially responsible • Agreement may be voided by law - e.g., nondelegable duties or unfair advantage • Anti-Subrogation Statutes • Indemnitor’s CGL policy may not cover the agreement
Owners on GCs’ policies GC and owners on sub-contractors’ policies Owners or lessors on tenants or lessees’ policies Owners on facility users’ policies Municipality on school districts’ policies State subdivision on local municipality’s policy Contractual Relationships
Pros Insurance protection – immediate defense Can apply even when indemnity agreement cannot be enforced Courts will enforce AI status Can be direct and primary Can include negligence of AI Cons Reduced aggregate limits Lose control of defense SIR problems Endorsements may not provide expected coverage to AI Additional Insured Status
Anti-Subrogation Doctrines • Insurer can’t subrogate against its own insured • Applies within risk transfer parameters when an entity has additional insured status, and the insurer is providing defense & indemnity • Owner on lessee’s policy; visitor sues lessee. Lessee’s insurer acknowledges AI status of Owner – insurer can’t start a third-party action vs. owner
Most courts interpret the terms of the endorsement to decide the extent of the transfer “Arising out of” often interpreted to mean full coverage for direct as well as vicarious liability ISO AI endorsements have become more restrictive over time Restrict coverage to “on going operations” only Require a written contract Establish a fault-based system for endorsements Additional Insured Endorsements
Additional Insured Endorsements • 1. CG 20 10 Additional Insured – Owners, Lessees or Contractors • 11 85 Edition • WHO IS AN INSURED (Section II) is amended to include as an insured the organization shown in the schedule, but only with respect to “your work” for that insured by or for you. • Includes coverage for products/completed operations • Includes direct negligence of the AI
CG 20 10 – 10 93 & 03 97 Versions Covers the AI for liability arising from “on-going operations” for the insured’s only Includes AI’s direct liability and negligence CG 20 10 – 10 01 Version Covers the AI only for liability arising from “on-going operations” for the insured Specifically excludes products-completed operations exposures Additional Insured Endorsements
Additional Insured Endorsements CG 20 10 – 07 04 • Coverage for the AI is limited to scheduled covered operations • Only covers “on-going” operations at the locations described in the schedule; excludes products- completed operations • Fault-based coverage: only covers damages caused by the insured’s acts or omissions, or those acting on behalf of the insured • If insured not at least partially at fault – no coverage for the AI
Additional Insured Endorsements 2. CG 20 37 07 04 Additional Insured – Owners, Lessees or Contractors – Completed Operations • Coverage for the AI is limited to scheduled completed operation • Fault-based coverage: only covers damages caused by the insured’s “work” for the AI • Used with CG 20 10 (1993 or subsequent versions) to include products-completed operations exposures
Additional Insured Endorsements 3. CG 20 33 – Additional Insured – Owners, Lessees or Contractors – Automatic Status when Required in a Construction Agreement • Blanket automatic endorsement, where additional insured status is required in a written contract • Coverage is for “on-going operations” of the insured • 07 04 version is also “fault based” and it includes a products/completed operations exclusion
Additional Insured Endorsements 4. CG 24 26 07 04 – Amendment of Insured Contract Definition • Restricts definition of “Insured Contract” • Covers: leases, sidetrack agreements, easements, etc. • f. (“That part of any contract or agreement…”) now excludes broad form indemnity agreements by requiring the insured (or those working on the insured’s behalf) to have caused the damages • May leave indemnitors without coverage for some indemnity agreements
Additional Insured Endorsements: Business Automobile 5. CA 20 48 Designated Insured • Possible to list entities (besides lessors) a additional insured on the liability section of the BAP • However, it covers them to the extent they qualify as an "insured" under the Who Is An Insured Provision contained in Section II of the Coverage Form
Amending AIA – Standard Form of Agreement Between Owner & Contractor Supplementary Conditions are used to amend Article 11 in the A.I.A. General Conditions • WC & EL: E.L. limits; entities not otherwise required to provide WC • CGL: limits and aggregates; “per project” requirement; length of time for completed operations, • Auto Liability: coverage symbol; limits
Amending AIA – Standard Form of Agreement Between Owner & Contractor • Excess/Umbrella: underlying coverages; coverage basis; limits • OCP: required or not? Limits • Environmental: for services provided; limits; retro date management • Bonds: types; form; percentage of contract • Other Conditions: additional insured status; cancellation notice, certificates of insurance, primary insurance language, etc.