Since January 2011, California law has required that a broker of construction trucking services post a surety bond to ensure payment to a dump truck operator whose services were brokered. The driver is also required to provide certification of his operator’s permit to the broker.

The brokers must secure a surety bond of at least $15,000 to ensure payment for the operators and the failure to do so is a misdemeanor and could result in up to a $5,000 fine.

The new legislation before the Senate Transportation and Housing Committee would require construction trucking brokers to disclose a copy of their surety bond.

Sen. Kevin de Leon, D-Los Angeles, told panel members that the change that would improve transparency in notification requirements.

“There still are very unscrupulous brokers out there that continue to dodge their bonding responsibilities under the law by either never attaining a bond or refusing to provide access to the bond to subhaulers,” de Leon testified. He noted as well that existing law does not include the requirement that brokers notify others of the bond information.

The result will be that if the work has been completed and the broker has not made payment, the dump truck operator can easily access the bond information to file a claim.

Are contractors required to purchase liability insurance?
Oregon law requires building contractors to carry general liability insurance, which includes products and completed operations coverage. The state Construction Contractors Board (CCB) will not issue or renew a contractor license without proof of insurance. Coverage limit requirements vary depending on the license category. Many contractors carry coverage in excess of CCB’s requirements.

What does general liability insurance cover?
General liability insurance covers property damage and bodily injury losses caused by the contractor that occur as a result of his or her work. It does not provide coverage for poor workmanship or construction defects. Limitations on these insurance contracts vary from insurer to insurer. Exclusions in a policy for specific exposures such as multi-family dwellings, tract home projects, condominium construction, and exterior insulation finishing systems are common. Every policy is different, so it is especially important for the policyholder to understand his or her coverage.

General liability can be written on an occurrence or a claims-made basis:

Occurrence policies provide coverage for liability that occurs while the policy is in force, regardless of when the claim is reported. Occurrence policies can also be issued with a manifestation trigger, providing coverage only when the first manifestation of bodily injury or property damage occurs during the policy period. Under current Oregon law a claim can be brought for up to 10 years after completion of a project.

Claims-made policies provide coverage for claims that are reported while the policy is in force. Often the claims-made coverage is subject to a “retroactive date” and will not cover claims that are made while the policy is in force that are due to occurrences that were before the retroactive date. Claims reported after the policy is cancelled or replaced are not covered unless the contractor purchases an “extended reporting” option, sometimes known as “tail coverage.” Policies for contractors written on or after January 1, 2008 must include products and completed operations coverage “according to the terms of the policy and subject to applicable policy exclusions.” The certificate of insurance or electronic proof of coverage provided to the CCB is required to document that the products and completed operations coverage is included.

What are the current issues surrounding contractor liability insurance?
Premium rates for contractor liability insurance have increased in recent years. At the same time insurers’ criteria for issuing policies are tighter. Many contractors find that they either face premium hikes, or their policies are canceled or non-renewed. It may be difficult to obtain new coverage. Contractors who work on the envelope of the structure, such as residential builders, framers, siders, roofers, and window and door installers, have been particularly hard-hit. In some cases contractors find that while they may be able to obtain or renew coverage, the contract is more limited than it was previously. This leaves the contractor with increased exposure to uninsured liability risk.

How much has the cost of this insurance increased?
The rating bureau loss costs which insurers use to determine their final premiums for contractor classes have increased an average of 18 percent for products and completed operations liability coverage. Changes in payroll or gross sales are other factors that affect contractor liability premiums. Often the more dramatic rate changes experienced by individual contractors stem less from rate
increases by their existing carrier than from situations where their coverage is cancelled and they are unable to find a new policy at a similar price. Upon moving to a new insurer, the premium is typically higher. The new coverage may also be less extensive.

Why have costs increased so sharply?
The insurance industry and others frequently cite a variety of factors that contribute to increased premiums and tighter underwriting standards, including:

• ƒ Increased claims and losses stemming from the introduction of new building products or construction methods that result in water damage, mold, and other problems,
• ƒ Increased litigation stemming from contractor performance issues, and
• ƒ Lower than expected investment returns due to changes in the interest rate environment.

Photo credit: mrpuen

Fleet insurance has pretty much the same legal requirements as personal auto insurance. However there are exceptions because states do have different rules. Statewide can help you with this.  It is especially important  if your vehicles operate across state lines.

If you have trailers, liability insurance isn’t needed for them because they are not vehicles. Generally, the liability insurance of the vehicle towing also covers the trailer. It is important to note that comprehensive and collision coverage for the trailers generally need to be written separately though.

Here are some other important points:

• make sure all drivers are listed under the fleet policy. If a driver is not listed, there is no coverage if they get into an accident;
• most fleet policies will not cover drivers under the age of 25;
• the drivers must be properly trained and licensed on the vehicle they are driving; and,
• the drivers must have good driving records.
• that your equipment and goods inside the vehicles must have separate coverage for theft and vandalism and this is usually covered by “inland marine” coverage which is a separate policy.

Statewide Insurance will help you find the right insurance coverage for you and your vehicles. Whether you have a large fleet or a small one, we have the experience and knowledge to help you get the coverage you need at the price you can afford.

As of 2010, in a survey conducted by the Texas Department of Insurance, fifteen percent of Texas businesses with more than 500 employees do not carry state workers’ compensation coverage.

Daniel Morales, a spokesman for Wal-Mart, said the company is “sort of late to the game” in switching to its own program.

The Texas Tribune reported that under Wal-Mart’s in-house plan, total medical coverage is capped at $300,000 for individual injuries, compared with lifetime coverage for the injury under state workers’ compensation. The Wal-Mart plan provides 90 percent of lost wages for injured employees for up to 120 weeks, compared with 70 percent of lost wages for up to 401 weeks under the state system. That is a maximum of $54,000 in lost wages provided under Wal-Mart’s policy, and $140,350 under state workers’ compensation.

Industry watchers are wondering how this will all play out. The AFL-CIO is now lobbying the state to make the state-run worker’s compensation program mandatory. The current opt-out option, they say, is endangering the system for injured workers and not providing as good benefits. Businesses obviously wish to keep their costs lower and some analysts speculate that enforcing the state-run system may bankrupt some who can’t afford it. Also whether increased litigation exposure on injured worker claims will eventually make the private plans nonviable.

Photo credit: David Castillo Dominici

It is important for contractors to know that surety bonds are not insurance but an extension of credit in lieu of putting up cash for the terms required by the owner or named third party.  The  surety company which issues the bond is there to ensure collection if the contractor  breaches the terms of the bond.  Any financial penalty for failure to meet the bond’s terms will be borne by the contractor not by the surety company which will collect that penalty on behalf of the named obligee.

There are basically three types of surety bonds in construction.

1. Bid Bond - These surety bonds relate to the bidding process and guarantee that if the contractor is awarded the contract based on his bid, he will perform the job for the approved price.  Generally, if the bid winner refuses to take on the job, a surety bond in such case will force the defaulting contractor to reimburse the bid issuer with the difference between the next lowest bid and his, along with any penalty as stated in the bond.
2. Performance Bond – This type of surety bond is there to ensure that the contractor performs the work as agreed to in the construction contract.  This protects the obligee or owner from financial losses should the contractor not live up to his agreements as stated in the bond.  Again the amount will depend on the wording of the bond.
3. Payment Bond – A payment bond is there to protect the owner or obligee from liens placed on the project from unpaid suppliers and sub-contractors should the contractor not pay them.  Again, the contractor will be penalized as per the terms of the bond.

Statewide Insurance is there to handle your surety bond needs in Texas, California, Oregon, Minnesota, Virginia and Nevada.  Give us a call today to find out what we can do for you.

Photo credit: pixbox77

As reported by IFAwebnews.com, the law “defines and clarifies what a certificate is; prohibits any person from issuing or demanding the issuance of a certificate that includes false or misleading information; affirms that certificates are not insurance policies and cannot be used to alter, revise, or modify and insurance policy; and most importantly, authorizes the Bureau of Insurance to enforce the act.”

The bill was introduced as a response to hundreds of agent complaints to the Independent Insurance Agents of Virginia (IIAV) who had been pressured to falsify certificates.

Similar efforts are being undertaken in more than half the states in the country. The National Association of Insurance Commissioners and the National Council of Insurance Legislators are formulating model laws for states to consider.

“Simply put, this legislation is broad in scope and will address egregious efforts by third-party certificate holders to coerce agents in committing fraud at the worst and misrepresentation of insurance policies at the very least,” John Watson, IIAV board chairman, said in a statement.

Last year, the Virginia State Corporation Commission Bureau of Insurance issued an administrative letter indicating it could not regulate certificates of insurance, leaving insurance agents in a precarious position.

Photo credit: Simon Howden

What is a Premium Audit?

Most CGL policies are auditable policies and contain a condition commonly called “Premium Audit.” The premium that is paid at the inception of the policy is a deposit (estimated) premium. Auditable policies usually use estimated payroll, sales, or units sold as the premium base to calculate the deposit (estimated) premium.

The insurer is entitled to examine your books and records to determine whether the actual payroll, sales, or units sold are greater or less than what was estimated. This is usually done after the expiration of the policy, but may also be done during the policy period. If the actual payroll, sales, or units sold is greater than was estimated, you may owe additional premium. If the actual payroll, sales or units sold is less than what was estimated, you may be due a return premium. Therefore, it is important to provide an estimate of the payroll, sales, or units to be sold that is as accurate as possible to avoid having to pay an additional premium.

What Kinds of Insurers Offer CGL Insurance?

The Texas Department of Insurance (TDI) recognizes the following four types of insurers that may offer commercial general liability insurance in Texas. To check on whether a carrier is licensed, eligible, or registered in Texas, call TDI’s Consumer Help Line at 1.800.252.3439 , or use the Company Lookup feature on the TDI website at https://apps.tdi.state.tx.us/pcci/pcci_search.jsp .

Licensed Insurers

TDI regulates the policy forms and rates of licensed insurers.
CGL policies offered by licensed insurers must contain the following legislatively mandated provisions:

• Coverage may not be cancelled by the insurer after 60 days from the effective date of the policy except for the following reasons:

1. fraud in obtaining coverage;
2. failure to pay premiums when due;
3. an increase in hazard within your control that would produce a rate increase;
4. loss of the insurer’s reinsurance covering all or part of the risk covered by your policy; or
5. at any time if the insurer is placed in supervision, conservatorship, or receivership and the cancellation or nonrenewal is approved or directed by the supervisor, conservator, or receiver.

• The insurer must provide at least 60 days notice of nonrenewal and must tell you in writing why it will not renew your policy.

Policyholders obtaining insurance from licensed insurers are protected by the Texas Property and Casualty Insurance Guaranty Association for up to $300,000 per claim if the insurer becomes insolvent.

Surplus Lines Insurers

Insurance not available through licensed insurers may be placed with eligible surplus lines insurers. To be eligible to write surplus lines coverage in Texas, the insurer must meet certain requirements and be on TDI’s “eligible list.” Before selling a surplus lines policy, an agent must make a diligent effort to find a licensed insurer to issue the policy.

• It is common for surplus lines insurers to retain a significant portion of the premium in the event the insured cancels the policy midterm.
• Texas laws regarding notice of cancellation and nonrenewal do not apply to surplus lines insurers.
• Defense costs could be included within the limit of liability, and prior acts or run-off coverage may not be available.
• In some cases, a surplus lines insurer can cancel before a policy’s renewal date.
• Surplus lines insurers are not required to file rates and policy forms with TDI. Policy forms may be more restrictive than those that are subject to TDI review.
• TDI does not audit the finances of surplus lines insurers.
• If a surplus lines insurer becomes insolvent, its policyholders are not protected by the Texas Property and Casualty Insurance Guaranty Association.

Risk Purchasing and Risk Retention Groups

Risk purchasing groups are formed under the provisions of the federal Liability Risk Retention Act (LRRA) of 1986. A purchasing group consists of individuals or firms of like characteristics who share similar insurance needs. The eligibility criteria for members of a purchasing group are set by LRRA. Once formed and registered with the State of Texas, the group may use its purchasing power to obtain liability insurance and benefits at prices that may be lower than individuals or businesses could negotiate separately.

If a purchasing group buys insurance from a licensed insurer, it may be protected by the Texas Property and Casualty Insurance Guaranty Association if the insurer has capital and surplus of $25 million or more. If the purchasing group is not protected by the Texas Property and Casualty Insurance Guaranty Association, then it must disclose this to its members.

Policy forms offered to purchasing groups by licensed insurers are currently not required to be filed with TDI. However, the policies must contain the legislatively mandated provisions required to be in policies issued by licensed insurers.

Policy forms offered to purchasing groups by surplus lines insurers are not regulated as to rates or forms and are not protected by the Texas Property and Casualty Insurance Guaranty Association.

Risk Retention Groups also are formed under the provisions of the federal Liability Risk Retention Act (LRRA) for the purpose of providing insurance. These groups do not buy commercial insurance policies, but “retain” the risk within the group. In effect, the members insure each other against liability claims and lawsuits. However, because a risk retention group is an insurer, it may purchase reinsurance. Reinsurance is a form of insurance that insurance companies buy for their own protection.

The rates and policy forms of risk retention groups are not regulated, and policyholders are not protected by the Texas Property and Casualty Insurance Guaranty Association in the event the risk retention group becomes insolvent.

Shopping for CGL Coverage

• Be proactive. Provide your agent or insurance markets with claims history, coverage choices, and risk management efforts four months in advance.
• Respond quickly to requests for information from your agent. Be sure to document all communication with your agent. Especially note key items such as policy limits, deductibles, requested effective date, prior acts coverage if applicable, etc.
• Get your claims history (loss runs) up to date. You may request claims history from your insurer. Businesses of any size should be prepared to address claims history.
• Update and document all loss control/risk management measures, including training accomplished. Be prepared to show why your business currently is and will continue to be a good risk.
• Get quotes from several companies. When comparing prices, make sure you’re comparing policies with similar coverage. A less expensive policy might also provide less coverage.
• Keep shopping if an insurer declines to cover your business. Insurers have different underwriting criteria. If one company turns you down or is too expensive, another may be willing to issue coverage or offer a lower premium.
• Review your limits of insurance and make any necessary adjustments. For example, if your business is growing you may consider increasing your limits.
• Consider a higher deductible. Assuming more risk in the form of higher deductibles or lower policy limits may help reduce your premium.
• Allow for premium increases. When preparing your budget, allow for premium increases or additional premium charges resulting from an audit.
• Verify your agent’s and insurer’s licenses. Agents and insurers must be licensed to sell commercial property insurance in Texas. An unlicensed insurer may not meet the state’s minimum financial and regulatory requirements, meaning the company may not have the financial resources to pay your claim. To learn an agent’s or insurer’s license status, call TDI’s toll-free Consumer Help Line or use the Agent Lookup or Company Lookup features on our website.  1.800.252.3439,  463.6515  in Austin.
• Access Market Connection. Access the Market Connection feature of Helpinsure.com at the Texas Department of Insurance Website.  This feature will allow you to search for insurers and agents offering various types of commercial insurance.

Photo credit: fotographic1980

Here are the facts:

Examples of Exclusions in a CGL Policy

Following are some examples of exclusions commonly contained in a CGL policy. Coverage varies by insurer and will include additional exclusions other than the examples below. You should carefully review your policy and any endorsements to know exactly what your policy does – and doesn’t — cover. Talk to your agent if you have any questions about your policy, its coverages, or policy limits.

Damage to Your Work – Generally, CGL policies exclude coverage for property damage to your work (see Example No. 1 below). There is an exception to the exclusion for damaged work if a subcontractor working for you caused the damage (see Example No. 2 below).

Example 1: You own a homebuilding business that recently constructed a new residence with a garage. After the home is sold and the homeowner moves in and parks her vehicle in the garage, the roof on the garage collapses because of faulty construction. The collapsed roof damages the homeowner’s vehicle. The policy may provide coverage for the repair or replacement of the vehicle but may not pay to repair the collapsed roof because the roof is your work.

Example 2: The situation is the same as in Example 1, except the work to construct the roof was performed by subcontractors working on your behalf. The policy may cover the damage to the vehicle and also may pay to repair or replace the roof constructed by your subcontractor.

Damage to Your Product – CGL policies don’t cover property damage to your product arising out of the product or any part of the product.

Example: If you install a propane-powered appliance that malfunctions and causes a fire that damages a home, your CGL policy may pay to repair the home. It will not pay to repair or replace the appliance if the malfunction was caused because the appliance was faulty.

Contractual Liability – CGL policies exclude coverage for bodily injury or property damage that you are obligated to pay because you assumed liability in a contract or agreement. The exclusion contains the following two exceptions:

1. Liability for damages that you would have assumed in the absence of the contract or agreement; and

2. Liability assumed in a contract or agreement defined in the policy as an insured contract, if the bodily injury or property damage occurs after the contract or agreement is executed.

Example 1: You sign a contract to complete the construction of a building within a specified amount of time. The contract requires you to pay damages if you breach the contract. Your CGL policy will not provide coverage for any damages you have to pay because you failed to meet the deadline.

Example 2: You sign a contract to hold harmless and indemnify another party for the other party’s negligence if that negligence results in bodily injury or property damage. Your CGL policy may provide coverage to indemnify the other party depending on the wording of the indemnity agreement.

Recall of Products, Work, or Impaired Property – CGL policies will not pay the cost to recall faulty products, work, or impaired property. However, this coverage may be added to the policy by endorsement for an additional premium charge.

Workers’ Compensation and Employer’s Liability – CGL policies are not intended to provide coverage for workers’ compensation or employer’s liability. This exclusion prohibits such coverage.

Pollution Exclusions in the CGL Policy

The pollution exclusion eliminates coverage for injuries or damages to a third party resulting from a pollution event arising from your business operations. The exclusion applies to the actual, alleged, or threatened discharge, dispersal, seepage, migration, release, or escape of pollutants.

A pollutant is typically defined as any solid, liquid, gaseous, or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. Waste includes materials to be recycled, reconditioned, or reclaimed.

The pollution exclusion included in most general liability policies may contain some of the following exceptions that could provide limited coverage for:

• Injuries sustained within a building and caused by smoke, fumes, or vapors produced by equipment that is used to heat, cool, or dehumidify the building or equipment used to heat water for personal use.
• Your products or completed operations.
• Injuries or damage arising out of heat, smoke, or fumes from a hostile fire. (Hostile fire is defined as a fire that becomes uncontrollable or breaks out from where it was intended to be.)
• Injuries or damage that an insured contractor may be held liable for if the owner of the premises has been added as an additional insured to the contractor’s policy.
• Injuries or damage arising out of the escape of fuels or lubricants necessary for the operation of mobile equipment.
• Injuries or damage sustained within a building and caused by the release of gases, fumes, or vapors from materials
• brought into the building in connection with operations performed by you or a contractor or subcontractor working on your behalf.
• Total pollution exclusions eliminate all coverage, including coverage for premises/operations and products/completed operations.

If your businesses has a significant pollution exposure, you may choose, in conjunction with your insurer, to include a total pollution exclusion and purchase a separate pollution liability policy that may provide coverage better suited to the risk and is easier to rate based on the nature of your business.

We will continue next week.

Photo credit: renjith krishnan

What Is Commercial General Liability Insurance?
Commercial General Liability (CGL) insurance protects business owners against claims of liability for bodily injury, property damage, and personal and advertising injury (slander and false advertising). Premises/operations coverage pays for bodily injury or property damage that occurs on your premises or as a result of your business operations. Products/completed operations coverage pays for bodily injury and property damage that occurs away from your business premises and is caused by your products or completed work.

Excess liability insurance pays for covered losses that exceed your CGL policy’s dollar limit.

Umbrella liability insurance is excess liability insurance coverage above the limits of automobile liability and CGL policies. The umbrella policy also provides liability coverage for exposures not covered under the primary CGL insurance policies and not excluded by the umbrella liability insurance policy.

Claims-Made Versus Occurrence Policies
Occurrence policies cover claims arising from injury or damage occurring while the policy is in force, regardless of when the claim is first made.

Claims-made policies cover claims that arise from injury or damage occurring during the policy period and reported to the insurer during the policy period. Claims arising from events outside the policy period or claims reported to the insurer outside the policy period are not covered unless special coverage is purchased or arranged with the insurer. This special coverage comes in two forms:

Prior acts (“nose”) coverage covers claims that arise from injury or damage occurring before the policy period, but reported to the insurer after the policy period begins.

Prior acts coverage is provided by establishing a “retroactive date” covering injury or damage occurring after the retroactive date. The retroactive date usually appears in the declarations page accompanying your policy. It may be the effective date of the policy or an earlier date. Prior acts coverage does not cover claims that were known at the time your policy began.

Run-off (“tail”) coverage, also called extended reporting period, pays for residual claims made after your policy expires. A typical claims-made policy provides a short reporting period of 30 or 60 days after the policy’s expiration date to file claims that arose too late to report before the policy expired. Run-off coverage starts when the 30- or 60-day period ends and is provided for an additional premium. The extended reporting period may be one, three, or five years, or even unlimited.

If a claims-made policy does not continue (expires, cancels, or nonrenews), you should purchase either run-off coverage from your previous insurer or prior acts coverage from your new insurer to prevent coverage gaps. Generally, claims-made policies may be less expensive in their early years as the potential for claims increases as policy years accumulate.

The differences between claims-made and occurrence policies are best illustrated by the following examples:

Assume you operate a business located in a building that you own. Your customers may enter the building and shop for merchandise in a showroom. On April 15, 2010, a customer slips and falls in your showroom. The customer reports the incident to you but says he does not believe he is injured. On December 15, however, you receive notice that the customer has filed a claim for injuries sustained in the fall.

Occurrence Policy: An occurrence policy with a policy period from June 1, 2009, to May 31, 2010, will cover the claim because the incident occurred during the policy period.

Claims-Made Policy: A claims-made policy with a policy period from June 1, 2009, to May 31, 2010, will not provide coverage because the claim was made after the policy expired. If, however, you purchased an extended reporting period from your insurer when your policy expired, the claim may be covered.

More next week…

Photo credit: David Castillo Dominici

Downtown Austin

The Texas Department of Insurance is sponsoring the 16th Annual Workplace Safety & Health Conference being held in Austin on April 10, 11, & 12, 2012 at the Doubletree Hotel.

This Year’s Line-Up

• Pre-Conference Session – Basic Workers’ Compensation for Employers and Return to Work – Danny Taylor
• General Session I – Technology in Collision Reconstruction – Clifford McCarter
• General Session II – OSHA Region VI Update – John Hermanson
• General Session III – Demographic Change in the United States – Dr. Richard Lewis
• General Session IV – Personal Fitness for Work – Petti Redding
• Plus Breakout Sessions on Various Topics

Who Should Attend?

• The Texas Safety Summit is a forum for all segments of the Texas workforce.
• Small to large employers
• Public and private sector
• Workers’ compensation subscribers AND non-subscribers

Why should you attend?

• Sharpen your skills and get updates on critical issues in accident prevention.
• Discover how the Division of Workers’ Compensation can assist you in reducing injuries and compensation costs through workplace safety and return-to-work programs.
• Network with regulators and industry professionals who are responsible for workplace safety and health just like you.
• Share experiences as well as solutions while recharging your energy and enthusiasm for preventing injuries, and saving lives.
• Learn practical tools and techniques that you can take back and put to use in your workplace.