9/1/20041 insurance requirements in contracts
TRANSCRIPT
9/1/2004 1
Insurance Insurance
RequiremenRequirements ts
in Contractsin Contractswww.doa.louisiana.gov
9/1/2004 2
PURPOSE OF PURPOSE OF WORKSHOPWORKSHOP
Limit State’s liability
Necessity of insurance requirements
L.R.S. 38:2195
9/1/2004 3
TYPES OF BIDS OR TYPES OF BIDS OR CONTRACTSCONTRACTS
IFB - Invitation for Bids
RFP - Request for Proposals
CONSTRUCTION
PRINTING CONTRACT
SOLE SOURCE
EMERGENCY
9/1/2004 4
WHAT’S NEEDEDWHAT’S NEEDED
Coverages
Limits
Hold-Harmless Agreement?
9/1/2004 5
TYPES OF TYPES OF COVERAGECOVERAGE
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
9/1/2004 6
STANDARDIZATION STANDARDIZATION OF FORMSOF FORMS
1. Insurance Services Organization
ISO Standard Forms:
CG 00 01 [10 01] -- CGL
CA 00 01 [10 01] -- Auto
2. Manuscript FormsCompany-written
9/1/2004 7
ADVANTAGES OF ADVANTAGES OF STANDARD POLICY FORMSSTANDARD POLICY FORMS
Set rates using pooled data
Coverage generalizations
Comparison of policies
9/1/2004 8
ADVANTAGES OF ADVANTAGES OF STANDARD POLICY FORMSSTANDARD POLICY FORMS (Continued)(Continued)
Case law scope of coverage
Simplified claims-settlement
9/1/2004 9
Commercial General Commercial General Liability FormsLiability Forms
OCCURRENCEOCCURRENCE
CLAIMS - MADECLAIMS - MADE
9/1/2004 10
ISO Occurrence ISO Occurrence FormForm CG 00 01 10 01CG 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
9/1/2004 11
ISO Claims-Made ISO Claims-Made FormForm CG 00 02 10 01CG 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.
9/1/2004 12
ISO Claims-Made ISO Claims-Made FormForm (Continued) (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
9/1/2004 13
COMMERCIAL COMMERCIAL GENERAL LIABILITYGENERAL LIABILITY
1. Premises Operations
2. Off Premises
3. Products and Completed Operations
4. Contractual
5. Personal Injury and Advertising
Liability6. Broad Form Property
Damage
7. Watercraft
9/1/2004 14
Coverage BCoverage BPersonal Injury & Personal Injury & Advertising LiabilityAdvertising Liability
Personal Injury:
Other than bodily injury
False arrest Malicious prosecution Wrongful entry Libel or slander Violation of privacy
9/1/2004 15
Coverage CCoverage CMedical PaymentsMedical 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
9/1/2004 16
Coverage CCoverage CMedical PaymentsMedical Payments(Continued)(Continued)
B. Reasonable expenses for:
1. First aid
2. Medical, surgical, x-ray, dental services
3. Ambulance, hospital, nursing, funeral expenses
9/1/2004 17
Common CGL Common CGL ExclusionsExclusions
Pollution
(Asbestos and hazardous wastes)
Workers compensation, unemployment benefits, etc.
Aircraft and watercraft over 26 feet
9/1/2004 18
Common CGL Common CGL ExclusionsExclusions (Continued) (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
9/1/2004 19
PROFESSIONAL LIABILITYPROFESSIONAL LIABILITY(Errors and Omissions (Errors and Omissions Coverage)Coverage)
ACCOUNTANTS
ARCHITECTS
ENGINEERS
MEDICAL PROFESSIONALS
ATTORNEYS
HAZARDOUS ACTIVITIES
9/1/2004 20
BUSINESS AUTOMOBILEBUSINESS AUTOMOBILEPOLICY CODESPOLICY CODES
1 Any auto
2 Owned autos only
3 Owned private autos only
4 Owned autos other than private autos
5 Owned autos subject to no-fault
6 Owned autos subject to a compulsory uninsured motorists law
7 Specifically described autos
8 Hired autos only
9 Non-owned autos only
9/1/2004 21
Owners Protective Owners Protective Liability (Liability (OPL)OPL)
Protects the employer of an independent contractor
Employer can be liable for contractor’s negligence
9/1/2004 22
WORKERS WORKERS COMPENSATIONCOMPENSATION
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)
9/1/2004 23
BID BONDSBID BONDS
Guarantee the good faith
of the bidder
L.R.S. 38:2241 (A) (2)
9/1/2004 24
PERFORMANCE AND PERFORMANCE AND PAYMENT BONDSPAYMENT 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
9/1/2004 25
““ADDITIONAL INSURED”ADDITIONAL INSURED”
I. BLANKET ADDITIONAL INSURED ENDORSEMENT
Example:
“The State of Louisiana is added as an additional insured on the above liability policies.”
9/1/2004 26
““ADDITIONAL INSURED”ADDITIONAL INSURED” CONTINUED 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.”
9/1/2004 27
““ADDITIONAL INSURED”ADDITIONAL INSURED” CONTINUED CONTINUED
III. NAMED INSURED ENDORSEMENT
(Owners Protective Liability)
Example:
“The State of Louisiana, as the owner, is added as a named insured on the above policy.”
9/1/2004 28
WAIVER OF WAIVER OF SUBROGATIONSUBROGATION
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
9/1/2004 29
HOLD-HARMLESS HOLD-HARMLESS AGREEMENTSAGREEMENTS
Deductibles
Under-insured
Exclusions to insurance policies
9/1/2004 30
TYPES OF TYPES OF HOLD-HARMLESS HOLD-HARMLESS AGREEMENTSAGREEMENTS
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
9/1/2004 31
COMMON ERRORSCOMMON ERRORS
Neglect to review certificates
Using old insurance requirements
NO insurance requirements in bid
Insurance Company Ratings - taking company’s word on it
9/1/2004 32
COMMON ERRORSCOMMON ERRORS CONTINUED CONTINUED
Neglect to review policies for exclusions
NO hold-harmless agreements
Not enforcing rating requirements
Leaving some insurance requirements out
of bid
9/1/2004 33
UNACCEPTABLE UNACCEPTABLE INSURANCEINSURANCE
Risk retention groups (unless A.M. Best rated)
Self-insurance funds (except WC)
Companies rated below insurance requirements
Claims-made coverage (some exceptions)
9/2000 34
FINANCIAL RATINGS OF FINANCIAL RATINGS OF INSURANCE COMPANIESINSURANCE COMPANIES
COMPANY
COMPANIES
RATED
APPROX. NO. OF ANALYSTS
COST FOR
RATING
A.M. Best
(1906)
2,500+
100
500
Standard and Poor
(1983)
1,200 – 1,800
30
15,000 – 28,000
Moody (1986)
1,000+
9
25,000
Duff and Phelps
(1986)
Less than 1,000
7
17,000
Weiss (1989)
Less than 1,000
7
None
A.M. BESTA.M. BEST20032003 Property/Casualty Property/Casualty RatingsRatings
RATING DESCRIPTION NUMBER PERCENT A++ Superior 150 6.7 A+ Superior 312 13.9 A Excellent 739 32.9 A- Excellent 485 21.6
Subtotal:
1,686
75.1
B++ Very Good 193 8.6 B+ Very Good 147 6.5 B Fair 78 3.4 B- Fair 37 1.6
C++ Marginal 20 0.9 C+ Marginal 7 0.3 C Weak 6 0.3 C- Weak 8 0.4 D Poor 14 0.6 E 33 1.5 F 17 0.8
Subtotal:
560
24.9
NR-1 Insufficient Data 421 51.0 NR-2 Insufficient Size/Operating
Experience 104 12.6
NR-3 Rating Procedure Inapplicable
232 28.1
NR-4 Company Request 22 2.6
Subtotal:
887
100.0
9/1/2004 36
BEST’SBEST’SFinancial Size Financial Size CategoriesCategories
Companies By Class
Financial Size
Class
Adjusted Policyholders’
Surplus # % (In thousands of dollars) I Up to 1,000 181 6.1% II 1,000 to 2,000 198 6.6% III 2,000 to 5,000 325 10.9% IV 5,000 to 10,000 296 9.9% V 10,000 to 25,000 327 11.0% VI 25,000 to 50,000 213 7.1% SUBTOTAL 1,540 51.6%
VII 50,000 to 100,000 217 7.3% VIII 100,000 to 250,000 358 12.0% IX 250,000 to 500,000 194 6.5% X 500,000 to 750,000 78 2.6% XI 750,000 to 1,000,000 82 2.8% XII 1,000,000 to 1,250,000 64 2.1% XIII 1,250,000 to 1,500,000 30 1.0% XIV 1,500,000 to 2,000,000 118 4.0% XV 2,000,000 or more 299 10.0%
2,980 100% 2003 A.M. Best Company, Inc.
9/1/2004 37
BOND COMPANY BOND COMPANY RATINGSRATINGS
www.fms.treas.gov/c570/c570.html
9/2002 38
DEPARTMENT OF DEPARTMENT OF INSURANCEINSURANCE
Regulates insurance companies licensed to do business in
Louisiana
DOMESTIC COMPANIES - 28
FROM 1978 TO 2002
583 insurance companies under rehabilitation or liquidation
9/1/2004 39
CAPITALIZATION CAPITALIZATION REQUIREMENTSREQUIREMENTS
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
9/1/2004 40
Louisiana Insurance Louisiana Insurance Guaranty Guaranty AssociationAssociation
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)
9/1/2004 41
PROOF OF COVERAGEPROOF OF COVERAGECertificates of Certificates of InsuranceInsurance
State’s Form (State Designed)
Accord Form (ISO Designed)
Manuscript Form (Company Designed)
9/1/2004 42
BEST’SBEST’SKey Rating GuideKey Rating Guide
Property/Casualty Edition
A.M. BEST COMPANYOldwick, NJ 08858
Phone: (908) 439-2200Fax: (908) 439-3296
www.ambest.com
9/1/2004 44
ORM ORM WebsiteWebsite
www.state.la.us/orm/orm
Click on Underwriting
Click on Procedures Manual for Insurance
Requirements in Contracts