NUT & BOLTS OF INSURANCE

8/14/2019 NUT & BOLTS OF INSURANCE

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The Nuts andBolts of Insurance

Ronda Hollis, CPCU

Risk Management Consultant 3/10/05DAS Risk Management


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Where Does Insurance, Bondingand Indemnification Fit in the

Contracting Process?

At the inception of an idea.


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Important Principles That

Apply to Any StateContract


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Principle #1

Contractually transfer theappropriate risks relatingto the contract to thecontractor.

Ask for appropriateinsurance and bonds tocover the risk.


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Principle #2

Do not indemnify an independentcontractor.The state is subject to the Oregon

Tort Claims Act (OTCA). OTCA limitsstate liability.

Contractors have unlimited liability.

Indemnifying a contractor may harmthe states defense against a claim andmake the state subject to unlimitedliability.


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Principle #3 Dont rely on insurance or bonds

to cover all of the risksassociated with your contract. Many times outcome based

statements of work, contract

administration, and supervisionare far better risk controlmeasures to protect the statesinterests than insurance orbonds.

Insurance and bonds should bethought of as the safety netthat catches us when everythingelse goes wrong.


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Asking for Insurance CoverageAlone Does Not Protect YourAgency From All the Risks of

Contracting


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Indemnity/Hold Harmless

A method of contractually transferringthe risk.

States that the contractor or service

provider will not hold us responsible forany claims arising out of their negligentacts and that the contractor will payassociated claim costs.

Provides the state with claims protection.Most effective when used in conjunction

with the appropriate insurance clauses.


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Other Contract ComponentsProtecting the States Interests

Statement of Work. Independent Contractor.

Insurance and Bonds. Representations. Warranties.

Consideration.Retention.Payment schedule.


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How Does Insurance Work? Insurance policies tend not to overlap with

other types of policies. There are some perils that insurance policies

just dont cover: Intentional Harm or wrongdoing, other

than self-defense. Crimes, other than defense coverage until

found guilty.

Specialty markets exist for those perils thatare too risky, too small, unpredictable, or notprofitable for traditional insurance markets: Pollution Liability

Professional Liability


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Common Policy Parts & Pieces

Coverages The Insuring Agreement.Exclusions What isnt covered.

Who is an Insured Who is covered by the

policy. Limits of Insurance How much theinsurance company will pay.

Policy Conditions Restrictions, duties,responsibilities.

Definitions

What the terms mean.


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What Does Claims Made orOccurrence Mean?

Insurance policies are written on aclaims made or occurrence basis.

These terms address claimsreporting time periods.


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A Claims Made policy covers all

claims reported and filedduring the policy period.


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An Occurrence policy covers allclaims arising out of incidentsoccurring during the policy

period, regardless of whetheror not the policy is still in

effect at the time that theclaim is made.


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Coverage Assessment

What kindof insuranceor bonds?


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What Does Insurance ReallyCover?


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Your World has changed!

9-11-01


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Common Types ofInsurance Coverage

Commercial GeneralLiability

Automobile Liability Professional Liability

Workers Compensation


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Less Common Types ofInsurance Coverage

Crime Excess or Umbrella Liability

Pollution Liability Various Inland Marine Policies Aircraft

Garage and Garagekeepers LegalLiability Tail Coverage


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Commercial General Liability(CGL)


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Commercial General Liability(CGL)

Insurance covering Third Party:Bodily injury.

Property damage.Limited Contractual liability.Products and completed

operations.May also cover personal and

advertising injury liability.


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General Liability Insurance Myths General Liability insurance covers

the indemnification provided in thecontract.

FALSE

General Liability insurance will coveryour entity if the contractors work isdone negligently.

FALSE

There is contractual liabilitycoverage in a General Liability policy.

MOSTLY FALSE


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CGL Policy Definitions

Bodily Injury: The injury of physicaltissue by an outside force, bodily harm,sickness, or disease.

Personal Injury: Libel, slander, falsearrest, and invasion of privacy.


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"Property damage means:a. Physical injury to tangible

property, including all

resulting loss of use ofthat property. All such lossof use shall be deemed to

occur at the time of thephysical injury that causedit; or


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"Property damage means:b. Loss of use of tangible property that

is not physically injured. All such loss ofuse shall be deemed to occur at the

time of the "occurrence that causedit.

For the purposes of this insurance,electronic data is not tangible

property.


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"Property damage means:As used in this definition, electronic datameans information, facts or programsstored as or on, created or used on, ortransmitted to or from computer software,including systems and applications software,hard or floppy disks, CD-ROMS, tapes,

drives, cells, data processing devices or anyother media which are used withelectronically controlled equipment.


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What Does This Really Mean?

A CGL Policy will not payfor losses due to a

contractors work on ordamage to your agencyselectronic data!


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"Products-completed operationshazard means:a) Includes all "bodily injury" and

"property damage occurring awayfrom premises you own or rent andarising out of "your product" or"your work."


CGL P li D fi iti


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Except:

(1) Products that arestill in your physicalpossession; or(2) Work that has notyet been completed orabandoned.

CGL Policy Definitions"Products-completed operations hazard

(continued)


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l f


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(c) When that part of the work done at ajob site has been put to its intendeduse by any person or organization

other than another contractor orsubcontractor working on the sameproject.

Work that may need service, maintenance,correction, repair or replacement, but

which is otherwise complete, will be

treated as completed.


(Continued)


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(Continued)

Does not include "bodily injury" or "propertydamage" arising out of:(2) The transportation of property, unless the

injury or damage arises out of a conditionin or on a vehicle not owned or operated byyou, and that condition was created by the

"loading or unloading" of that vehicle by anyinsured;(8) The existence of tools, uninstalled

equipment or abandoned or unused

materials; or


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(1) Products or operations for which the

classification, listed in theDeclarations or in a policy schedule,states that products completedoperations are subject to theGeneral Aggregate Limit.


(Continued)


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What Does This Really Mean?

Products and completed operationscoverage pays claims on behalf of the

contractor for damage or injury to third

parties resulting from something thecontractor made, repaired, or installed.

The bodily injury or property damage tothird parties resulting from the service

would be covered not the contractorsactual product.


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CGL Policy Definitions(Continued)

Contractual Liability: A portion ofCommercial General Liability coverage thatallows limited coverage for liability

assumed under the contract. The coverageallowed by Contractual Liability includes:

Liability assumed under an insured

contract.Liability that the insured would have inthe absence of the contract oragreement.

h d


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What is an Insured Contract?

Per the CGL Policy Definitions, an Insured

Contract means:A contract for a lease of premises.

A sidetrack agreement (a railroad term).

Easements.Agreements required by municipalities as aresult of ordinances (not for work done for

municipalities).Elevator maintenance agreements.

Liabilities that would be imposed by law in

the absence of any contract or agreement.


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ImportantCGL Exclusions

1) Personal property in the care, custodyor control of the insured;

What Does This Mean? CGL will not cover property left in the

care, custody or control of acontractor. This exposure should becovered with an Inland Marine Policy

for the Goods of Bailees Customers.

Important


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1) That particular part of real property onwhich you or any contractors orsubcontractors working directly or

indirectly on your behalf are performingoperations, if the "property damagearises out of those operations; or


What Does This Mean? CGL will cover property damaged by the

contractor, except for the particular

part they are performing work to.


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Particular Part Example

A plumbing subcontractor working ona DAS owned building accidentallystarts the building on fire while

soldering copper pipes, and the entirestructure is burned down. If DASsues the builder for the loss, the

exclusion in question will apply only tothat particular part of thestructure on which the plumber was

working.


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Important


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1) That particular part of any propertythat must be restored, repaired orreplaced because "your work" was

incorrectly performed on it.


What Does This Mean? CGL will not cover a contractors faulty

work. This exposure can be coveredthrough a Performance Bond as long asthe project has a specific time frame

and specifications for the work

Important


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Pollution(1) "Bodily injury" or "property damage"

arising out of the actual, alleged orthreatened discharge, dispersal, seepage,

migration, release or escape of "pollutants.What Does This Mean? CGL will not cover any type of pollution,

except under very limited circumstances.If your agency needs to remediate pollutionor has a pollution exposure, PollutionLiability coverage is needed.


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Important Exceptions to theCGL Pollution Exclusion

"Bodily injury" if sustained within abuilding and caused by smoke,

fumes, vapor or soot fromequipment used to heat thatbuilding;

"Bodily injury" or "propertydamage arising out of heat, smokeor fumes from a "hostile fire";

E h


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"Bodily injury" or "property damagearising out of the escape of fuels,lubricants or other operating fluids

which are needed to perform thenormal electrical, hydraulic ormechanical functions necessary for

the operation of "mobile equipment"or its parts, if such fuels, lubricantsor other operating fluids escape froma vehicle part designed to hold, store

or receive them.

Important Exceptions to theCGL Pollution Exclusion


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Current Case Law

Id. at 479. A tort claim, where there is acontract between parties, may onlyproceed where there is some kind ofobligation owned by one party to the other

beyond the duties that the contractimposes.

Id. at 477. Examples of such relationshipsare those between lawyers and clients,

doctors and patients, or trustees andbeneficiaries. The court has called thesespecial relationships.

Jones v. Emerald Pacific Homes, 188 Or App 471, id at 477 & 479

l l


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Special Relationships

Only Exist When:

One party has relinquished controlover the subject matter of therelationship to the other party; and

Has placed its potential monetaryliability in the others hands.


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Automobile Liability

Insurance that provides coveragefor third party bodily injury or

property damage arising out of theuse of an insured vehicle.


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When Do you NeedAutomobile Insurance Coverage?

When the contractor needs touse an automobile to provide

the services.

C i l A t bil C


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Commercial Automobile Coveragevs. Personal Automobile Coverage?

Commercial Automobile Coverage is neededwhenever the contractor will be transportingthe states employees, clients, etc. or thestates property.

Use of Personal Automobile coverage insteadof Commercial or Business Automobilecoverage may be appropriate for soleproprietors. Note: The sole proprietor musteither carry a Business Use Endorsement orinsure that business use is covered undertheir personal auto policy.

Personal Automobile coverage will not namethe state as an Additional Insured.

Automobile Liability Coverage


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Automobile Liability CoverageConsiderations

Ask questions, such as, but not limited to: Will the Contractor transport groups ofpeople for the state?

Use vehicles or carry cargo that couldmake an accident severe?

Have multiple vehicles on the road at anygiven time?

Travel out-of-state to do contract work? Bring heavy equipment or trucks onto your

property?

b l L b l C


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Will driving be only a small part ofthe contractual activities?

Is there little or no chance thatthe state could be held responsiblefor the Contractor's actions whiledriving?

Automobile Liability Coverage


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Use whenever a Contractor transports mobileequipment to the work site:

CGL insurance does not cover the transport ofmobile equipment.

Ensure automobile liability includes coveragefor owned, non-owned or hired vehicles.

Require CGL coverage for the liability exposurearising from the Contractor's operation of the

mobile equipment. Note: Mobile equipment is notconsidered to be an automobile, therefore anautomobile liability policy provides no coveragefor the operation of this equipment.



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Professional Liability or

Errors and OmissionsCoverage


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Who Should Have Professional


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Who Should Have ProfessionalLiability or Errors and Omissions

Coverage?Licensed and accredited specialists suchas:

Doctors or medical practitioners.Engineers.Information technology specialists

(computer programmers, etc).And non-licensed professionals suchas interpreters, recorders, testingfacilities, and research laboratories.

Wh t D P f i l Li bilit


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What Does Professional Liability orErrors and Omissions Cover?

Pays the financial loss of the state,when the covered person fails toperform their professional duty.

The coverage is specific to thenature of the profession.

Covers malpractice, misconduct,negligence, errors, omissions, orincompetence in the performance of acovered act.


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Workers Compensation

Insurance covering employee injuries,disability or death.

The policy protects the employer

from being sued by the employee forinjuries.

Oregon law requires all employers,

unless exempt, provide this coveragefor all subject employees working inOregon.


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When Should I Ask QuestionsAbout Oregon SpecificWorkers Compensation?

When the contractor has one ormore employees performing

services under the contract in

Oregon.

Specific questions about


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Specific questions aboutWorkers Compensation?

Call the Department of Consumer& Business Services, Workers

Compensation, Employer Sectionat (503) 947-7815.


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CRIME COVERAGE

Employee Dishonesty Third


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Employee Dishonesty, ThirdParty Fidelity and

(when applicable)Money and Securities

Insurance covering loss to money,securities, and other property(other than money) caused directly

by employee dishonesty.


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Third Party Fidelity Bond


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Third Party Fidelity Bond

If the Employee Dishonesty coverage

is not specifically endorsed to includea Third Party Fidelity/Crime Bond, inmost cases, it will not be

comprehensive enough to providecoverage for a claim for theft byyour contractor or their employeesthat results in a loss for your agency.


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What is the DifferenceBetween an Umbrella Policy

and Excess Coverage?


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Umbrella Policies

Provide excess coverage overanother underlying liability policy.

Many times provides broader

coverage than the primary(underlying) liability policy.


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Pollution Liability Coverage

Contractors Pollution Liability


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Contractors Pollution LiabilityCoverage (CPL) & (CPO)

Contractors PollutionLiability (CPL) and (CPO)protects contractors against

claims for third-party bodilyinjury, property damage orcleanup costs/environmentaldamages arising from

pollution conditions caused inthe performance of coveredoperations.



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The coverage applies to sudden andgradual pollution events and responds tocleanup costs, both on and off the worksite.

CPL provides coverage for damages due topollution arising from the performance ofcovered operations by the Insured ortheir subcontractors, claims alleging

improper supervision of subcontractorsagainst the Insured, and coverage forclaims arising out of environmental workperformed by the Insured or their

subcontractor.

yCoverage (CPL) & (CPO)



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CPL provides this coverage in a claims made basisand Contractors Pollution Occurrence (CPO)provides this coverage on an occurrence basis.

CPL and CPO can have a Professional Liabilitycomponent added. This coverage would likely beneeded for Environmental Consultants.

If the contractor will be transporting hazardous

materials or pollution that has been removedthrough remediation, check the policy to makesure that the transportation exposure isincluded in the coverage.

yCoverage (CPL) & (CPO)


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What is Inland Marine Coverage?

Coverage for property which involves anelement of transportation.

Either the property is:

Actually in transit, Held by a bailee, At a fixed location which is an important

instrument of transportation, Or is a movable type of goods which is

often in different locations.


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Various Inland Marine Coverages


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Goods in Transit


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Goods in Transit

Types of Carriers:

Common carriers are airlines, railroads, ortrucking companies that furnishtransportation to any member of the public

seeking their services. Contract carriers do not hold themselves

out to the general public but rather

furnish transportation for certain shippersfor which they have contracts.

Private carriers haul their own goods orgoods entrusted to them.

Goods in Transit


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Goods in TransitCommon Carriers

Are regulated by the InterstateCommerce Commission or a state publicutilities commission and are liable to

shippers for the safe delivery offreight entrusted to them. The amount of liability to the common

carrier may be limited by the bill oflading, which is the contract betweenthe shipper and carrier.

Goods in Transit


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Goo s n rans tCommon Carrier - Bill of Lading

A straight bill of lading fixes no limit on theamount of recovery.

A released bill of lading does limit recovery toa specified amount.

Generally low and usually are quoted as dollaramounts per pound or parcel.

The shipper generally has the option to pay an

insurance charge and declare a value for theshipment thereby increasing the limit of thecarriers liability and obtaining broadercoverage.


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Goods in Transit


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Goods in TransitPrivate Carriers

Private carriers usually are carryingtheir own goods and are exposed forthe full value of those goods if they

are damaged or destroyed, subjectto the Terms of Merchandise Sale.

Goods in Transit


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F.O.B means free on board and indicates thepoint at which ownership and exposure to lossshift from the seller to the buyer. For example: F.O.B.shippers loading dock means that

the transit exposure would be the buyersonce the goods are on the shippers loadingdock.

F.O.B. destination means that the transitexposure would be the sellers until the goodsreach the buyers destination.

Goods in TransitPrivate Carriers

Terms of Merchandise Sale

Goods of Bailees Customers


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Goods of Bailee s Customers A bailment exists when goods are left to be held

in trust for a specific purpose and returnedwhen that purpose has ended.

The bailoris the owner of the goods. The baileeis the one in possession of the goods. Almost any person or enterprise that accepts

the property of the state for storage, service,repair, or processing needs to carry an InlandMarine Policy for the Goods of BaileesCustomers in order for this property to be

covered for loss or damage while in the baileespossession.

Inland Marine Coveragel f


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Instrumentalities of Communicationand Transportation

Exposures related totransportation (rolling stock,bridges, and tunnels) can be

insured using inland marineinsurance.

Inland marine insurance can alsobe provided on instrumentalitiesof communication such astelevision towers andtransmission equipment.

Other Types ofl d M i C


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Inland Marine Coverage Tractors, mobile equipment, cranes, and

backhoes. Computer equipment. Livestock.

Fine arts. Patterns, molds, and dies. Partially completed products that are

sent to another location for completion or

processing. Valuable papers, records, records of

accounts receivable.

Goods on exhibition


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Builders Risk Coverage


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Builder s Risk Coverage

Inland Marine Insurance that providesdirect damage coverage to buildings orstructures under construction.

Also covers foundations, fixtures,machinery, and equipment used to servicethe building, materials, and supplies usedin the course of construction.

Fire, theft, and vandalism are the mostfrequent claims.


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When Your Agency Doesnt


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g yNeed to Ask for

Builders Risk Coverage For construction to an existing building

that does not involve structuralmodifications, or substantial alterationof the building.

For construction of structures otherthan buildings e.g. tunnels, bridges,roads, culverts, etc.

Builders Risk Installation Floater


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Builder s Risk Installation Floater

Usually an add-on to a Builders RiskPolicy, but may be purchasedseparately by subcontractors on theproject.

Insurance that covers machinery andequipment of all kinds during transit,installation, and testing at the

purchasers premises.Theft and vandalism are covered.

Wh Sh ld Y R i


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When Should You Require a

Builders RiskInstallation FloaterWhen a building is being constructed,

repaired, or remodeled and there willbe:More than $10,000 in building

materials and supplies at a storagelocation, or in transit that areintended to become a permanent part

of the building

Builders Risk Occupancy Clause


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An add-on to a Builders Risk Policy. Allows Builders Risk coverage tocontinue once the owner or tenants

occupy a building under constructionprior to substantial completion of thebuilding.

If not purchased, Builders Riskcoverage ends once the building isoccupied by the owner or tenants.

Builder s Risk Occupancy Clause

Aircraft Liability


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y

Covers liability for bodily injury and

property damage to others (i.e., injuryto, or death of persons outside theaircraft as well as property damage or

destruction done with the aircraft),arising out of the ownership,maintenance, or operation of anaircraft.


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When Do You Need

Aircraft Liability Coverage?When the contractor is using an

airplane to provide the contractedservice.

Aircraft LiabilityCoverage


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If the contract involves the aerial application ofany chemical, fertilizer, seed, or baitadd Aircraft Aerial Application LiabilityCoverage.

Check the qualifications and certifications ofthe pilot. If carrying state passengers on behalf of the

state, make sure that:

(1) The pilot is certified to carry passengersand

(2) The Aircraft Liability provides coverage

for the passengers on a per seat limit

y gConsiderations

Garage and Garagekeepers


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Garage and GaragekeepersLegal Liability Coverage

Garage Liability Coverage


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Garage Liability Coverage

Covers garage operators for liability,medical payments, and automobilephysical damage arising out of the

operations of auto dealers, servicestations, auto repair shops, andparking lots.

Includes General Liability coveragefor garage operations.

Garagekeepers Legal Liability


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g p g yCoverage

Coverage for autos left for service,repair, storage, or Safekeeping.

The limits of coverage should behigh enough to cover the total valueof any autos left for safekeeping

(yours and others) at any time.

What About Self Insurance?


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What About Self-Insurance?

Before Accepting Self-Insurance


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p g

Make sure the contractor has the

financial stability to be self-insured. Askfor: Audited financial statements of their

self-insurance fund. Assurance that funds have been setaside in a funded reserve to pay claims.

Ask for policies, procedures, or otheradequate documentation demonstratingthe contractors ability to adjust, process,settle, litigate, and pay claims.

Tail Coverage


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Tail Coverage

Can be purchased to extend theperiod of time a claim can bereported for a claims made policy.

Should be required when acontractor provides insurancecoverage that is on a claims madebasis.


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What is a Bond?


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What is a Bond?


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A Surety Bond is a risk transfer

mechanism that performs the followingfunctions:Guarantees that the bonded project will be

completed according to the terms of the

contract and at the determined contractprice.Guarantees that the laborers, suppliers, and

subcontractors will be paid even if the

contractor defaults.Relieves the owner from the risk of financial

loss arising from liens filed by unpaidlaborers, suppliers, and subcontractors.

What is a Bond?


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What is a Bond?(Continued)

Reduces the possibility of acontractor diverting funds from theproject.

Provides an intermediary (the surety)to whom the owner can air complaintsand grievances.

Lowers the cost of construction insome cases by facilitating the use ofcompetitive bids.

Bonds?


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Bonds?

Bonds are different from insurance.A bond is a simple guarantee.If there is a loss, the bonding company

(Surety) will pay but will seek fullreimbursement from the contractor.

Premium is based on the contractors

loss experience, assets, and finances.

Why Require Insurance


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and Bonds?

You can contractually make the providerof the good or service responsible fortheir negligence.

However, if the contractor does nothave a way to pay for these losses,

then the contract alone will notprotect the state. Insurance andbonds are ways to backup contractindemnity statements.


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What Are The Typical Kinds

of Bonds Used in Contracts?

Bid Bond


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Bid Bond

Provides financial assurance that thebid is submitted in good faith and thatthe contractor intends to enter into the

contract at the bid price and if statedin the bid, provide the requiredperformance and payment bonds.

Performance Bond


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Performance Bond

Protects the state from financialloss should the contractor fail to

perform the contract in accordance

with contract terms and conditions.

Payment Bond


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Payment Bond

(Labor & Materials Bond)Guarantees that the contractor will pay

certain subcontractors, laborers and

material suppliers associated with theproject.


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Additional Bond Information


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Additional Bond Information

Bond terms are usually 12 24months.

The bond amount requesteddepends on the risk of thecontract.

In most cases, bonds cost about 1%- 3% of the contract amount.

Coverage Assessment


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Coverage Assessment

How muchinsurance?

Two Schools of Thought


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Two Schools of Thought

Traditional Contractk


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Risk Assessment

What is the activity? Who could be harmed?

What could go wrong?

How bad could it be?

How much could it cost?

Assignment of insurance amounts basedon the Risk Rating.

Use the risk rating to set


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ginsurance and bonding limits.

HHMLLRARE

EHMLLUNLIKELY

EEHMLPOSSIBLE

EEHMMLIKELY

EEEHMALMOS

TCERTAIN

CRITICAL

MAJORMODERATE

MINOR

INSIGNIFICANTL

ik

elihood

Severity


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E = Extreme Risk: First, consider not doing

the activity.

If you must, you will needto decide how much apotential loss could cost?

In general, risks at thislevel warrant more than$1 million in coverage.

H = High Risk:


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Could a potential loss cost in

excess of $1 million? If so,ask for more coverage. Make sure your assessment

considers all costs ofpotential losses.

Risk Management would notrecommend limits of less

than $1 million for Highrated risks.

M = Moderate Risk:


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Standard limit ofinsurance is $1 million.

Assessment shouldconsider all costs of

potential losses. If assessment reveals

potential loss in excess of

$1 million, your risk mayactually be high (see H forHigh Risk.)

L = Low Risk:If isk is minim l this is th h


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If risk is minimal, this is the area wherecoverage and limits may potentially be

flexible. Standard limit is still $1 million. In the case of minimal risks, the agency

could make a business decision to lower thelimits of coverage.

Risk Management would not generallyrecommend insurance limits of less than$500,000.

If the risk assessment reveals onlyminute risk, agency could make abusiness decision to waive coverage.


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OR

Try Backing Into theC A t


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Coverage Amount

Coverage Assessment


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Coverage Assessment

Analyze the perilscovered by the type ofinsurance you will berequiring.

Looking at the perils,and analyze if theseperils exist in the

performance of thecontracted work.

Coverage Assessment


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For each peril that exists in thecontracted work, perform a riskassessment of:

Who could be harmed? What could go wrong? How bad could it be? How much could it cost?

Rate the perils and assign insuranceamounts based on the Risk Rating.

Coverage Assessment

Supplemental Clauses


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Supplemental Clauses

ICING ON THE CAKE

Additional Insured


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Protects the state when named in anaction that is not its responsibility orfault.

Ensures that the contractor orservice providers insurance companywill expend funds to have the states

name removed.The state benefits by not having to

use its assets for litigation purposes.

Additional Insured


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Should be issued as anendorsement to the contractorsinsurance coverage.

The endorsement to thecontractors insurance coveragemay be issued on a blanket basis

that applies to any entity thecontractor enters into a contractwith.

Notice of CancellationCh


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or Change

Requires the contractor or serviceproviders insurance company tonotify us if:

There is a possibility of the policylimits being exhausted.

The policy is cancelled or non-renewed.

Certificates of Insurance


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r f f n ur n

Certificate(s) of Insurance


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( )

Requires the contractor to prove tothe state that it has met theinsurance requirements of the

contract.One way to prove this request is by

submitting a Certificate of Insurance

stating the coverage and policy limits.

What Does SIR Mean? d f lf d R


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Stands for Self-Insured Retention.

Works like a deductible.If you see this on a Certificate of

Insurance, it means the contractor

will perform all the functionsnormally undertaken by an insurancecompany for claims within the SIR.

Any losses must exceed the SIRamount before the insurancecompany will handle the claim.

What Document(s) areA pt bl t V if


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Acceptable to Verify

Insurance Coverage?Certificate of Insurance.Letter from corporation stating they

are self-insured. This should beaccompanied by a financial statement,unless you are certain about the entitysfinancial stability.

Letter from bank stating the amountheld in reserves to pay claims andlawsuits.

Make sure the coverage and policy limitsmatch the contract requirements


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match the contract requirements.Look at the policy effective date and

expiration dates to make sure they coincidewith the contract term. If not, requestanother certificate several months beforethe policy expires.

The State of Oregon or your agency isnamed as the certificate holder andadditional insured.

What do the comments in the description

section say? Contact the agent with anyquestions.Is there an SIR (self-insured retention)

listed?

Reading Certificates of Insurance


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Acrobat Document

Contractual


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Risk Assessment ExampleLottery Purchase ofPoker/Slot Machines

What is the scope of thecontractual activity?


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contractual activity?

What is the overall activity?

Procurement of 325 Video Poker/Slot

Machines

What are the activitycomponents?


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components?

Design and development ofspecifications for themachines.

Manufacture of the machines. Quality control and testing. Transportation of the

machines to the LotteryWarehouse.

When and where does the activity


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When and where does the activity

take place(s)? Victoria B.C. 5/26/05 through 11/30/05

Who will be performing theactivities? Victoria Games, Inc. ABC Trucking, Inc. a Common Carrier,

F.O.B. Shippers Dock

Will the contractor interact with

the public, staff, vendors, etc.?


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the public, staff, vendors, etc.?

There will be interaction between themanufacturer and various Lottery employeesduring design, development, manufacturing,and quality control.

The Common Carrier will have interactionwith Lottery employees during the deliveryof the machines to the Lottery Warehouse

Will there be any hazardous materials


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yinvolved?

Only at the manufacturing site and related toproperty disposal of the machines when theyare no longer useable. The manufacturer hasall appropriate premises coverage for the on-

site pollution exposure and maintainsregulatory compliance. Lottery has madearrangements for appropriate disposal ofmachines.


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What could go wrong?Who could be harmed?


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Who could be harmed?

Machines could be damaged at themanufacturers location or during

transport. Machines could be defective and

cause a fire at the vendors location.

Machines could be stolen while intransit.

Machines could improperly pay outcausing financial loss.

Property Damage:



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It is unlikely that theLottery would be heldresponsible for pollution

exposures during themanufacturing process ortransportation.

The Lottery has already

made arrangements forappropriate disposal ofmachines.

Environmental Damage:



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Faulty manufacturing due toimproper design.

Dangerous conditions inmachines due to faulty design.

Payouts of machines could be

defective, causing financialloss to the Lottery andvendors.

Design Flaws:



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Bodily injury and/or illness to thevendor or patrons using the machines.

Damage to property of vendor or near

or adjacent property owners due toconditions in machines that causes fire. Financial loss to vendors if machines

are defective an cause improper

payouts. Financial loss to patrons if machines are

defective and dont pay out as much asthey should.

Liability:

Is there any impact on workload ordamage to our systems?


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damage to our systems?

- Delay in installation andimplementation of marketingprogram for machines in vendorlocations.

- Additional costs for repair or re-design of machines.

What are the potentiall i t d


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loss exposures associatedwith this activity?

Bodily injury

Property damage

Design flaw

Liability

Rate the Severity of EachPotential Loss Exposure.


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Potential Loss Exposure.

How bad can each loss be?What could it cost? Bodily Injury:Minor, Hundreds to

Thousands Property Damage: Major, Thousands to

Millions

Design Flaw: Critical, Thousands toMillions

Liability: Major, Thousands to Millions

What is the Likelihood ThatEach of These Potential


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Each of hese otent al

Losses Will Happen?

Bodily Injury - Unlikely

Property Damage - Possible Design Flaw Possible

Liability Possible

Use the Risk Rating to SetInsurance Limits


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Insurance Limits

HHMLLRARE

EHMLLUNLIKELY

EEHMLPOSSIBLE

EEHMMLIKELY

EEEHMALMOSTCERTAIN

CRITICAL

MAJORMODERATE

MINOR

INSIGNIFICANTL

ik

elihood

Severity

Determine the Risk Rating


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Determine the Risk Rating

or Level of Risk for EachLoss Exposure.

Bodily Injury:Low Risk Property Damage: Extreme Risk Design Flaw: Extreme Risk

Liability: Extreme

Weighing the Value of OpportunitiesDescription (Opportunity)ValueRatin


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Huge budgetary, funding, or resourcegain; Excellent public and/or clientrelations.

Critical5

Major budgetary, funding, orresource gain; Good public and/orclient relations.

Major4

Moderate budgetary, funding, orresource gain; Adequate publicand/or client relations.

Moderate3

Low budgetary, funding, or resourcegain; Some gain in public and/or

client relations.

Minor2

Minor budgetary, funding, orresource gain; Little or no gain inpublic and/or client relations.

Insignificant1

p pp yg

What Could Be The OpportunitiesOn This Project?


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Funding for government. Good public perception for the

effective negotiation with vendors,

effective installation of machines. Good vendor relations for effectivelymanaging implementation of the

machines. Economic stimulation from additionalfunding sources.

Determine Non-InsuranceRisk Control Measures


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Include safety protocols and trainingrequirements in the contract.

Verify that all of the contractors employeesare properly trained and/or certified asrequired for the scope of work.

Verify that all Lottery employees going to themanufacturers location are properly trainedand/or certified as required for the duties

they will perform. Require the contractor to log all incidents and

to include mitigation strategies for preventingthe incident in the future.

M

Bodily Injury:



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Contractual terms that hold the contractorresponsible for damage to the machines whileon their premises.

Contractual terms that hold the contractorresponsible for defects in the product thatare not discovered during quality control or

testing. Negotiation of contract with manufacturerand/or common carrier for responsibility formachines during transit and security protocol.

Property Damage:



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Lottery review of manufacturers design workprior to production.

Use of best practices in design work.

Require high levels of knowledge, skills, andexperience of manufacturers design staff.

Lottery oversight of design work andmanufacturing application during all phases ofproject.

Contractual warranty of design work andretention of manufacturer compensation untilwork is inspected and found to be satisfactory.

Design Flaws:


Li bilit


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In depth review and supervision ofmanufacturers quality control andtesting of machines for electrical

components and other parts that couldcause bodily injury, property damage, orfinancial loss to vendors, patrons, orothers (as appropriate).

Warranties on the machines that coverpotential defects found afterinstallation.

Liability:

Assignment ofInsurance Coverage


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Insurance Coverage

Bodily Injury: Low Risk CGL. Property Damage: Extreme Risk CGL,

Truckers Coverage, Inland Marine

coverage for Domestic Goods inTransit and Goods of BaileesCustomers.

Design Flaw: Extreme Risk Professional Liability

Liability: Extreme Risk - CGL

Assignment ofInsurance Amounts


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Commercial General Liability (CGL): $2 millionper occurrence with $5 million aggregate.

Truckers Coverage: $2 million per accident.

Inland Marine: Domestic Goods in Transit: The value of theshipment.

Goods of Bailees Customers: The value of the

product at completion. Professional Liability: $1 million peroccurrence with $2 million aggregate.

Did We Forget Something?


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Doesnt this project have a pre-determined timeframe forcompletion and detailedspecifications?

Lottery should consider requiringPerformance Bond for the

amount of the contract or theirmaximum probable loss if thecontractor does not perform.

Bonding Related Questions to Ask

How much will it cost to find another


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m fcontractor e.g. RFP, staff time, etc. andcomplete the project if this contractor doesnot complete?

If the contractor does not complete the

project within the specified timeframe, howmuch will it cost the Lottery and/orvendors?

If the product is completed, but not asspecified, how much could it cost theLottery if another vendor has to fix themachines?


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The End

Documents

NUT & BOLTS OF INSURANCE