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Are you sending out accurate Certificates of Insurance?


Certificates of Insurance updates and suggestions.  Please take all commentary with a grain of salt depending on the state you perform work in, and because there are exceptions to the majority of what I wrote below...

1.  If an upstream party has a 10 million dollar umbrella, and expects all their subs to carry limits equal to or in excess than that, they need to be flexible about changing subcontracts to reflect a realistic limit requirement that smaller subcontractors carry.  We've found this to be a fairly easy push back when our subs are being asked to carry limits that are excessively high for the type of work they do, or their scope of work for a particular project. If you don't push back, and have a large claim, there can be severe breach of contract problems because you are out of compliance with what you signed.

2.  The standard Acord certificate of insurance has been updated.  There are no more endeaver to's, or 10, 30, 60, or 90 day notice of cancellation fields.  If you're the upstream party, request the downstream party to attach the endorsement on their policy that states their policy's cancellation clause.  Check with your agent/lawyer, and have them update the sample certificate you provide your subs with to comply with the new industry standard version.  The insurance industry is still working out some of the kinks, and this gets complicated because different states have different reporting periods.  Sometimes they can even be different for each line of coverage, so check with your agent.  One big thing to remember, is that the only entity that will be informed of this cancelation is the 1st named insured, usually the cert holder.  So if you have a description of ops listing 15 gov't entities, LLCs, holding companies, architects, owners, and whomever else, the only one that is getting a notification of cancelation is the company whose name is in the cert holder field.

3.  Additional Insured.  If your subcontractors are naming or listing your company as additional insured in the description of ops, do not assume that you are an additional insured without asking for a copy of the AI endorsement on your sub's GL, Auto, and Umbrella policies.  And in CT at least, you cannot be added as additional insured on your sub's work comp policy so stop asking! 

4.  Waiver of Subrogation.  Just like with additional insured status, a sub can't just write in the description of ops that a waiver of subrogation applies in favor of additional insureds and it grants you that waiver.  Ask to see the endorsement on their policy for proof that their policy actually includes this coverage.  Part of this responsibility lies on your agent or broker because they are the primary issuer of you certificates, and if they are writing in coverages that you don't actually have, it could get them in big trouble with their Errors and Omissions carrier, and potentially leave you with an unpaid claim. If your agent is doing this, we'd be happy to be your new agent.

5.  One last thing suggestion that applies to both Additional Insured and Waivers of Subrogation.  If you don't have it already, get both of these coverage added to your policy in a Blanket form and/or "when required by written contract".  There are two reasons for this.  1.  You don't have to worry about adding separate endorsements to your policy every time you grant additional insured status to another party you're contracting with.  2.  It's cheaper and easier to buy a blanket Waiver of Subrogation, than it is to buy it on a project by project basis.  By adding these endorsements in a blanket format, it also eliminates the possibility that you forget to call your insurance carrier or agent to have separate parties added for a specific project which could leave you with either an uninsured claim, a breach of contract, or both.

If you love certificates as much as we do, here's a great resource on best practices and suggestions for compliance. 


Sorry for laying all this on you on a Monday morning.  Give us a call if we can help clarify, or if you need help getting your certificates and risk transfer system working more efficiently.

What is a Waiver of Subrogation?


waiver of subrogationWhat is a waiver of subrogation? You've seen this in construction contracts, on certificates, and many of your insurance policies have it, what what exactly is a Waiver of Subrogation and what does it do?  A waiver of subrogation, also known as a "transfer of rights of recovery" is a mechanism that insurers use to transfer risk and to limit the rights of recovery from another party on behalf of the insured.  Confused?  An example of how a "Waiver of Subrogation" would work in a workers' comp claim scenario is this:

A laborer at ABC HVAC is on XYZ General Contracting's site.  ABC's laborer is injured because a piece of wood wasn't cleaned up by one of XYZ's workers.  ABC's injured worker collects workers compensation for his injury, but because a waiver of subrogation was in place, ABC's insurance carrier can  not go after XYZ's insurance limits to get the money they spent on the claim due to XYZ's negligence in maintaining the job site.  Because ABC’s worker was injured, and ABC’s insurance carrier is on the hook for 100% of the medical and indemnity costs of the claim, ABC HVAC’s experience modification factor will increase, as well their workers compensation costs for the next three years.  Depending on what ABC’s experience mod was prior to the claim, this spike could also hurt their ability to bid jobs requiring an experience mod lower than 1.00.

If a waiver of subrogation were not in place, ABC's insurance carrier could have subrogated back to XYZ's insurance carrier and make them pay the percentage of the claim that they were responsible for.  This would have minimized the expense costs for ABC’s workers comp carrier, as well as minimized the effect that the claim had on ABC’s experience mod.

A popular misconception by many upstream contractors is that they are insulating themselves from liability downstream by requiring their subcontractors to provide a waiver of subrogation in their favor.  While they are insulating themselves from the workers compensation insurance carriers of their subs, they are not insulated from having a suit brought by the injured worker and his/her family.  Also, depending on the level of negligence by the upstream party, their general liability policy could be called upon to pay both defense costs as well as a settlement.

One last thing to consider about risk management and waivers of subrogation.  There are two ways to obtain this coverage endorsement.  It can be added to your policy for an annual fee, or can be obtained on a one off basis whenever required by contract.  We advise our clients to have it built into their policy so that there isn't a possibility that they are in breach of contract by forgetting to have it endorsed separately for every job requiring it.

Want to get technical?  Great article on about WOS here

If you missed our post about it last week, this blog as well as many others related to construction and contracting are available on Mike Rowe's Trades Hub.

Do you love workers compensation as much as we do?  Here's the rest of our blog posts about it!

Have a question about your construction risk management program that we haven't answered on the blog yet? Ask a Risk Advisor!

Does Your Construction Risk Management Program Propel Your Company Forward?


That may not be a fair question because it assumes you have a risk management program. Most mid-sized construction companies don't have one. At least not a formal one. It's more likely that they just have a construction insurance program that is reviewed annually.

If you did have one, what would it look like? And if you'll forgive my boating analogy (I'm looking out the window at beautiful sunny skies and wish I was riding the waves right now), is your risk management program propelling you forward or keeping you anchored in place?

If you had a risk management program it would start with strategic objectives. Just like any strategic objective a construction company might have, you would then put a plan in place to achieve it. Let's start with the strategic objectives and consider what they might look like.

• Reduce our OSHA lost time cases by 15%
• Reduce the average lost time case value by 22%
• Reduce our EMR (Experience Mod Rate) by 3 points each year until we reach our lowest possible EMR
• Average Return to Work reduced to three business days
With these objectives in place, what might be some of the action items in your construction risk management plan?
• Review your hiring practices with an eye toward the applicant's ability to physically do the job
• Train supervisors to understand the financial impact of claims and proper accident investigation to eliminate recurrence
• Create partnership with local occupational health clinic to understand treatment protocols and return to work policy
• Establish an effective safety committee that meets quarterly

If this doesn't sound like your construction company, you're not alone. When I talk to prospective customers for the first time, almost none of them have any kind of risk management plan (most have never heard of such a thing). Why should risk management be any different than other critical areas subject to financial measurement? You are certainly going to measure the profitability of a job. You are certainly going to measure productivity on a job. Then why aren't you going to measure the Cost of Risk?

The answer is simple. You don't know how. No one has ever taught you or assisted you. And why is that? Because the people who should be focused on helping you don't know how to manage risk either. They manage insurance. You know them as your insurance agent. Once a year they focus on the "price" of your insurance. Unfortunately, this short term focus on insurance price can lead to a long term disaster on cost.

Back to my boating analogy. If your risk management program is propelling you forward, you are making continual progress at reducing your total cost of risk. Soon your costs will be lower than other construction companies and you will have a competitive advantage. If you're anchored in place, your smart competitors will soon be beating you.

If you'd like to implement a risk management plan and put your cost of risk on a downward trend forever, contact us to see how a Risk Advisor is different from an insurance agent.

Finding a Chief Risk Officer for Your Connecticut Construction Firm


In my last post, I talked about finding the Hulk Hogan of insurance agents. To be more formal, you want a CRO or Chief Risk Officer. Since you probably don't have one on staff, you've got to find one and make him or her one of your Trusted Advisors.

Construction risk management has become a field unto itself. There is probably no more complicated area of insurance than insurance for contractors. The best practitioners are all specialists. It has become impossible to dabble in construction insurance. It's a full time job and you need the best.

It's a down economy, bid lists are long and all that "stimulus" money must have ended up in someone else's checkbook. So I'm not suggesting that you create a new position in your company just for insurance. I am suggesting that you outsource the risk management function to someone who has the skills and training to be your CRO. That is definitely not your typical insurance agent, mainly trained to sell you insurance policies.

Why is this so important? Think about the way you manage risk now. If you're like most of your peers, you've given "insurance buying" responsibilities to either someone on your finance staff or someone in the HR function. Even though their responsibility is limited to managing your insurance, they haven't even been trained to do that much less be your internal CRO. Do you really think that having a part time, overworked insurance buyer with no formal training is the best way to protect your business from catastrophic loss? I didn't think so.

You're probably thinking that you are paying your insurance agent to protect your business. Think again. First of all, most of them lack any level of training beyond what they learned to get a license. That's not very much when you consider half the curriculum was dedicated to homeowners and auto insurance and you can take the training in a week. If you want to see a deer in the headlights, ask your insurance agent if he is your CRO?

Insurance protects the most valuable asset you own, your business. And you need more than just insurance in today's world. You need a full complement of risk management services and a talented team of people who can execute a plan to mitigate and manage the risks faced by your business. Cheap insurance managed part time or a crack risk management team looking out for you like a bodyguard.

You decide.

Does Your $5 Million Umbrella Policy Provide You With Enough Coverage??


The following article is taken form the web site of Connecticut-based law firm Stratton Faxon who represented the plaintiff in the case described here. There are four points for contractors to pay attention to:

1) Safety has to be a cultural imperative for your company

2) You have to read all contracts and understand the liabilities imposed by them

3) Think twice about using temporary help. What looks inexpensive in the short run can be very expensive in the long run if you lose your immunity to be sued by an injured worker

4) Re-think your limits of liability. This is a precedent-setting case and an injury like this can happen to a contractor of any size. $10 Million is the new minimum limit.

November 2, 2009

In the highest-ever construction injury settlement in Connecticut history, and one of the state's costliest personal injury cases, a North Canaan laborer has settled a federal negligence suit for $11.35 million.

The case of Benjamin Wohlfert v. Stop & Shop and Pyramid Contractors is bound to raise serious new questions about construction hiring practices and insurance. Contractors might now think twice about hiring tradesmen from temporary agencies without paying directly for their workers' compensation coverage. While not paying workers' comp premiums saves money at the outset, it leaves contractors more vulnerable to unpredictable tort liability down the line.

"We have seen a trend toward the hiring of temp workers because the contractors feel it is cheaper to do that than employ a union laborer," said plaintiff's attorney Joel Faxon of New Haven's Stratton & Faxon. "Historically, unions have had very strict training and safety practices. In the temporary worker market, there's no specific safety training requirement."

Benjamin Wohlfert, then 29, was working for Providence, R.I.-based Pyramid in March 2006 at the construction site of a North Canaan supermarket. Pyramid hadn't hired Wohlfert directly. Torrington-based Alternative Employment Inc. "leased" Wohlfert to Pyramid.

Wohlfert was with two other men -- carpenters Gerald Bates and Jean Kennedy -- both of whom were working for Pyramid in a similar arrangement with other temp agencies.

It happened to be St. Patrick's Day. "The boys are probably thirsty," said Faxon. "It doesn't take a genius to find that."

Perhaps that's what led them to do something dangerous. Before knocking off for the day, they had to retrieve from the roof of the project a metal-cutting tool, known as a plasma cutter. But the one ladder to the roof had already been removed by the roofers. So Bates, who was the de facto foreman, instructed Kennedy and Wohlfert to get into a three-sided plywood box used for picking up construction debris.

Bates then lifted the box with a type of forklift that was not designed to pick up people. When the lift was some 25 feet in the air, the box began to break apart. Kennedy jumped to the roof - and to safety. Wohlfert fell to the ground, severely injuring his spine, and became a paraplegic. He required spinal fusion surgery, two months of hospitalization, and was transferred to a Colorado rehabilitation facility for "several more months," according to federal court documents.

After returning to Connecticut, he suffered from infections and had to be hospitalized again. During the second hospital stay, he contracted the drug-resistant bacterial infection known as MRSA, and had to have a substantial portion of his hip removed.

Temp Pros, Cons
The use of construction workers from temp agencies has some advantages for general contractors. By paying the agency a premium over the worker's normal hourly wage, the contractor no longer has to handle the paperwork and expense of workers' compensation coverage, payroll or unemployment insurance. Union contracts, requirements and protections also don't come into play.

As one Pyramid supervisor testified in a deposition, a worker doesn't need to be fired or laid off. The temp agency is simply notified that he or she is "no longer needed," with a notation on his or her time card. This effortless termination process removes the threat of a suit for discriminatory firing.

But because Pyramid did not pay the workers' compensation insurance for Wohlfert, it did not get the benefit of the workers comp "bar" to a civil suit. In other words, Wohlfert was able to collect workers' comp payments without jeopardizing his ability to sue Pyramid, which wasn't his actual employer.

Wohlfert went on to sue Pyramid and Stop & Shop directly in federal court, and that was the case that recently settled for $11.35 million. At first he was represented by Trumbull lawyer Richard G. Kascak Jr., of Mihaly & Kascak, who referred the matter to Stratton & Faxon.

Most often, co-workers such as Wohlfert, Bates and Kennedy cannot sue each other for on-the-job injuries. But that was not the case here, because all were hired by temp agencies. Wohlfert sued Kennedy, TradeSource, Bates and Spec Personnel in Bridgeport Superior Court. That case is scheduled for trial in May 2010.

Pyramid was represented by James G. Geanuracos, of West Hartford's Malliet & Geanuracos. "We're under a confidentiality agreement to only disclose the name of the plaintiff and the settlement amount," Geanuracos said. "I can't comment further."

Pyramid also sued several third party co-defendants. They included carpenter Bates, an Orleans, Mass. resident; his Fairfield temp agency, Spec Personnel; carpenter Kennedy; and his Warwick, R.I., temp agency, TradeSource Inc.

After Pyramid brought in TradesSurce and Kennedy as co-defendants to share in any potential liability imposed, TradeSource countersued Pyramid. The personnel agency said that its employment contract had an indemnity clause purportedly requiring the general contractor to hold TradeSource harmless from any on-the-job liability. On Oct. 29, TradeSource and Pyramid settled and withdrew their federal court claims.

Unexpected Deep Pocket
Normally workers' compensation coverage limits the liability exposure of contractors and building project owners, like Pyramid and Stop & Shop. But the fact that separate employment agencies were making the payments to the three key workers prevented the contractor and owner from enjoying the protection and benefit of the workers' comp bar. In such a case, the injuries suffered by Wohlfert become liabilities in the less predictable realm of tort law, to be compensated from general liability coverage. It was no different than if a member of the general public was injured on the job site.

In this regard, this case is analogous to the momentous construction case of state case of Pelletier v. Sordoni-Skanska, in which a subcontractor's employee won a $23 million verdict against the general contractor. The defendant in that case, like the defendants in the Wohlert case, had the means to pay a huge judgment. But in the Pelletier case, Sordoni won a 2008 reversal at the state Supreme Court, and contractors breathed a sigh of relief.

In the current case, no new case law has been created, but the large settlement is a loud and clear warning of the potential risks when hiring temporary workers through an agency.

General contractor Pyramid, in its federal court actions, has advanced an untested legal theory. It noted that it paid a premium over the workers' normal salary to the three temp agencies. Pyramid contended that by doing so, it was in essence paying for their workers' comp insurance, and deserved to get the legal benefits of doing so.

Various defendants in the federal case had motions for summary judgment pending when the case largely settled, and U.S. District Judge Alfred V. Covello had not ruled on any of them. Now that the two main defendants have settled the federal action, there is no longer any need for Covello to rule on the outstanding summary judgment motions. It is therefore not likely that any court will now rule on the defendants' theory of "pass- through" workers' compensation immunity.

Covello, in a ruling on a motion to dismiss last year, signaled that he was unlikely to embrace that theory, said Faxon, because a Connecticut statute specifically states that the temp agencies are responsible for paying the workers' comp coverage. Another statute says the benefit or tort immunity flows to the employer paying the workers' comp premium, he added.

"The statute is very specific about who can claim workers' comp immunity from suit in a leasing arrangement," said Faxon, "and it's only the temp agency.

Construction Risk Advisors Solution to COI Administration (Part 3 of 3)


The job of an insurance agent/broker is to sell insurance policies on behalf of the insurance companies they represent. Even worse, 95% of them are generalists who are only partially dedicated to the construction industry. This means that if you are relying on them to help you with COI administration, don't hold your breath.

A specialized Risk Advisor, dedicated to the construction industry is a different animal. They are a pro-active service provider who understands COI administration in minute detail. If you were to engage one of them, this is the process they would help you implement:

• If you are an upstream party, they would work with you and your legal counsel to be sure you've transferred downstream as much risk as possible

• They would also help you keep your contract current with legal developments in your jurisdiction as well as insurance coverage enhancements and changes

• If you are a downstream party, they would either read or train someone on your staff to read the insurance specifications on every job you bid, and advise what to agree to as well as push-back on

• They would make sure that the coverage you have is adequate to comply with the types of contracts you are signing

If you are an upstream party, they would provide you with the "Perfect COI". This would be a sample COI you provide to all subcontractors and sub-subs to show them exactly how you want the COI to read along with any attachments required (additional insured endorsements, waiver of subrogation, copy of specialty coverage policy, etc.)

Lastly, they would teach someone at your construction firm the process of checking every Certificate of Insurance for as long as the downstream party is obligated to you. This is the final element without which all the others are meaningless. It is also the fourth and final "C" in the C4 process and the subject of my next post.

Contractors Need to Check Certificates of Insurance or Else


Let's say you've done everything right. Let's say you've got all the coverage you need for upstream parties and your specifications to downstream parties spell out exactly what is required by of them. Most contractors think their job is over. All they have to do is keep a current COI on file (upstream or downstream) until project completion. Far from it but this is where the system breaks down. Most contractors have no one on their staff that is trained to "Check" a COI to be sure it matches the requirements in the contract.

What if the insurance carrier(s) is changed and the new one has financial problems?

What if limits are changed?

What if the Additional Insureds are left off the renewal policy?

What if specialty coverage is discontinued?construction contract

What if coverage has to be maintained for three years and you stop checking after job completion?

What if your sub didn't even read the spec and just gave you their standard COI? Would you even know?

What if you misread the spec (or your agent did) and you're providing the wrong coverage to an upstream party?

What if you change carriers and you don't realize that the new (and cheaper) coverage isn't as broad as what you had before?

There are lots of "What ifs"; any one of which could be disastrous to your business. So why does no one pay attention to this critical element? Because it takes discipline, consistency, education and training to manage COIs properly.

Most contractors think that all COIs are created equal. That as long as they have the COI they're all set. If something bad happens and the sub doesn't have the right coverage, you can sue them and recover. Maybe. For a serious uninsured claim, the sub won't have millions in their checking account even if you prove them wrong.

Building a process to make COI administration bulletproof does not have to be difficult or intimidating. A Risk Advisor can assist you, guide you or train you to execute flawlessly. Contact us today to learn more.

Can I Borrow $10 Million to Pay This Uncovered Insurance Claim? (Contract Compliance Part 1)


First, let's look at this subject if you're on the giving end i.e. providing a Certificate of Insurance (COI) to an upstream party. You think you've done everything right so far. You've read the contract and sent the appropriate provisions to your insurance agent for review. You've made changes to your coverage so you're in compliance. Now you provide a COI upstream and it's accepted (no one tells you there is a problem). You begin the job, start making money and life is good. Is there a black swan in your future? Let's pretend there is.

The job was a school renovation. You're a GC and your work was valued at $12 million. Two years after project completion, kids start getting sick. Toxic mold is discovered because new windows weren't installed properly. The school has to be shut down and $6 million in repair work performed. In addition, portable classrooms are brought onsite so school can continue. Big loss. Big problem for you.

The $6 to $10 million question is, "who is going to pay for this disaster?" The insurance specifications for this job required that you buy pollution insurance with mold coverage. The spec also required that you and all subs maintain this coverage for three years post-completion. Since you paid an extra $36,000 for this coverage, you know you did that. You notify your agent and breathe a sigh of relief when he says, "No Problem". The next morning your agent calls and asks if he can come and see you in person. You agree and panic at the same time.

You can tell by the look on your agent's face that your panic was justified. He informs you that your pollution coverage has a mold exclusion. Since your agent spent most of his time taking care of your bonds (he is a surety agent dabbling in insurance) he didn't pick it up.

How did this happen? You relied on a professional and were misinformed. But the upstream party accepted your COI, you say. Yes, but most of the time those responsible for contract management don't know any more about insurance coverage than you do. Most importantly, COIs can be very deceiving. Just because there was a pollution policy listed on the COI doesn't mean you are in compliance with the spec.

As a GC, you are also on the receiving end of a Certificate of Insurance in this claim example. Let's look at your problem there in the next post.

Construction Contract Disasters


One mistake many contractors make is projecting past experience into the future. They think because it has never happened to them before it won't happen at all. They think all contracts are created equal and it would be too time-consuming to negotiate insurance requirements on every one. If you adopt this attitude, sooner or later, a serious claim is going to bite you on the ass.

Remember the Titanic? It wasn't supposed to sink. Trillions of dollars of global wealth wasn't supposed to evaporate in October '08. The federal government wasn't supposed to take over GM. These are called "black swan" events in a book by the same name written in 2007. No matter how many times you've only seen white swans in the past doesn't mean you won't see a black swan in the future.

(Top Ten List from Black Swan)

Real Life Examples:

Contractor's employee was killed on a job and contractor held owner harmless. Employee's estate sued owner and contractor had to pay claim (third party over action), even though it was sole fault of the owner, because federal court overruled state court.

Contractor neglected to buy builder's risk on large project because owner didn't ask for evidence (certificate of insurance). Building burned with serious uninsured damage.

GC hired roofing contractor. Roofing contractor's employee fell off roof suffering severe injuries and becoming a quadriplegic. Injured employee sued GC for failure to maintain safe worksite. Because of a weak hold harmless between GC and roofer, GC gets stuck with the claim.

These contractors had never experienced claims of this type in the past. One of these claims is seven figures and two are eight figures(That's 10 MILLION+ !).

Could your company absorb an eight figure claim?

What would happen to your bonding capacity if you had to pay several million on an uninsured claim?

Would you lose lots of good work after that?

Would your reputation be hurt?

Would your surety even want to keep you as a client?

Answer these questions before you discount the importance of this topic. Without a good left tackle in the form of a Risk Advisor, your black swan is waiting around the next corner.

Contract Compliance for Dummies, Lesson 1: Contracts


No offense meant with the "for Dummies" title. I just happen to know that everyone, contractors, lawyers, insurance underwriters and risk managers, are dummies in one form or another when it comes to construction contracts. Collectively we've made a mess of these contracts but I think I can help you begin to sort it out.

The first step in my C4TM process is Contract. As simple as this step sounds, it's often skipped or dangerous shortcuts are taken. You have to READ the contract or your Risk Advisor has to read the contract before you bid the job. That's right. Someone who understands the lingo needs to READ (I can't emphasize that enough) the contract and take appropriate action. Lots of jobs are being bid by contractors who have no idea what obligations they are signing on for. This is especially true right now when there is so little work and everyone is bidding like crazy.

There are three pieces to reading the contract:

1) All contractors are downstream parties to the contract. GCs or CMs to owners, Subs to GCs and Sub-subs to Subs. The first thing a downstream party needs to understand is what risks are being transferred to them. Are they reasonable? Can they be transferred to another party? Are they deal breakers? In other words, if you can't make them go away do you need to pass on the job?

2) If you have to buy additional insurance to comply with the contract, what is it going to cost? Is the coverage available and affordable? Can you get the upstream party to pay for it? Can you get a downstream party to pay for it?

3) If you are passing the same upstream requirements downstream to subs and sub-subs, are the requirements clear to them in your specs or pro-forma contract? Ignorance is not an excuse and will not hold up in court. If the downstream party doesn't comply and you do, you get stuck with the problem.

Later on I'll be providing a more in-depth checklist to assist with this process and make it foolproof for you. In my next post we'll look at what can go wrong if the Contract phase of the C4TM process goes wrong.

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