Water Damage: Are You Covered?

Preston Cavignac, CPCU, CIC, CRM
Water damage is one of the most misunderstood coverages when it comes to commercial insurance policies. Most think that water is a covered peril if their policy contains “full coverage.” Be wary of this term. “Full coverage” does not exist under any policy; it’s a term that is too often used by marketing departments of large insurance companies to sell “higher quality” policies. Coverage will always be subject to the terms and conditions of the policy and every policy has exclusions. In this article, we will be looking at the standard ISO CP 10 30 10 12 Causes of Loss – Special Form, specifically the coverage of Water Damage.

The CP 10 30 is special form policy. This means all perils are covered except for those specifically listed as excluded. This is different than named peril policies which only give you coverage for those specific perils which are named. Under the CP 1030 B.1.g. “water” is excluded. The form states:

  • We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.
    • Water
      • (1) Flood, surface water, waves, tides, tidal water, overflow of any body of water, or spray from any of these, all whether or not driven by wind.

This exclusion also removes coverage for mudslides, water that backs up from a sewer, drain or sump, water underground pressing on or seeping through any property, etc.

However, water damage is defined later in the policy. It is defined under the definition of Specified Causes of Loss. Under this section, water damage means:

  • (1) Accidental discharge or leakage of water or steam as the direct result of the breaking apart or cracking of a plumbing, heating, air conditioning or other system or appliance (other than a sump system including its related equipment and parts), that is located on the described premises and contains water or steam;
  • (2) accidental discharge or leakage of water or waterborne material as the direct result of the breaking apart or cracking of a water or sewer pipe that is located off the described premises and is part of a municipal potable water supply system or municipal sanitary sewer system, if the breakage or cracking is caused by wear and tear.

The section also explains that water damage does not include loss or damage otherwise excluded under terms of the “Water Exclusion.” However, to the extent that accidental discharge or leakage of water falls within the criteria of this definition, such water is not subject to the provisions of the water exclusion, which preclude coverage for surface water or water under the surface of the ground.

Confusing? Yes! Water damage is difficult to understand. If water is a concern, a flood policy should be considered. These policies can cover additional water losses in addition to the standard flood coverage. To get a better understanding of water damage and what is included in your policy, call your broker to discuss your property and the types of water loss that may be of concern.

Educating and Protecting Your Children From Cyber Risks

Carolyn Konecki, CPRM, Private Client Manager
Families rely on technology to simplify their lives and keep them connected. The use of multiple devices and smart home systems means more and more individuals have access to their personal data. Cyber crime and the breach of this confidential information poses the greatest risk to your family’s financial data and assets.

While corporate attacks get the most media attention, successful individuals and families need to be vigilant about cyber security. Many parents practice good cyber hygiene but forget to educate and protect their children against cyber threats and the children can inadvertently put the entire household at risk.

Children are more trusting than adults. They can unintentionally engage with cyber thieves in gaming situations, or bypass security to view sites their parents don’t want them to see. Many children are far ahead of their parents’ ability to keep them from making mischief online – in fact many of them are the family’s tech support.  Here are some tips:

  • Never talk to strangers, even online. Some people you meet online may not be who they say they are.
  • Avoid accessing public WiFi networks. Even those that require a password are not secure. Similarly, be cautious of WiFi spoofing on your home network.
  • Whether playing a game or using social media, never share any personally identifiable information. Use a nickname rather than your real name. Set your profile to private so that only your friends can see it. Avoid sharing information such as your full name, address, mobile number, school and photos.
  • Never give out your password.
  • Be cautious when clicking. To avoid the possibility of inadvertently installing malware, be cautious of the links you click on when using social media.
  • Don’t access offers that sound too good to be true.
  • Don’t commit or tolerate cyber bullying.
  • Use caution when downloading files.

Three Steps to Making Cybersecurity a Company-Wide Priority

Kelly Potter, CIC, PWCA
  1. Leadership Buy-in:  The management team at your company must recognize the importance of cybersecurity.  Risk assessments and standard operating procedures need to be implemented and discussed at regular leadership meetings.  Cybersecurity is no longer just an IT issue; it needs to be a “boardroom” issue.
  2. Create a Culture of Cybersecurity:  Promote awareness and make cybersecurity a regular part of company conversation.  Training your staff once a year will no longer cut it. There should be regular discussions on new and emerging cyber risks and reminders on cyber security best practices.
  3. Training:  Staff training is a necessity.  It only takes one “weak-link” employee to potentially open your business up to substantial risk.  Your cyber liability insurance company, insurance broker or IT professional should be able to assist you in finding the right training to address your cyber risk exposures.  Ransomware, phishing, password management, access controls and mobile device management should all be addressed.

 

Group Captives for Employee Benefits

Matt Noonan, CIC, RHU, CHRS, CCWS
Group Captives for Employee Benefits

A group captive is a strategy that can reduce risk and volatility essentially making self-insurance more feasible.  As health care costs continue to rise, employers are looking for alternative risk financing solutions that can give them more control. Group captives could make the difference.

What’s driving the costs in health care?

  • Demographics
  • Government policy and regulation
  • Social factors and lifestyle
  • General inflation
  • Drug spending
  • Medical technology and innovation

Add to the trend provider megamergers, physician consolidation and the epidemic of preventable diseases.  The four leading causes of death are heart disease, cancer, chronic obstructive pulmonary disorder, and stroke.  Chronic diseases cause all of them.

Group Health Risk Financing Options

Today there are four popular models for group health risk financing.  Each has its own pros and cons.

  • Fully-insured
  • Level-funded
  • Self-insured
  • Captive

The basic structure of a group captive is a symbiotic relationship between the employer, the captive and the insurance carrier.

Each employer has its own Third-Party Administrator to handle its own claims processing, ID cards, and preferred provider contracts and each employer is responsible for covering its smaller more predictable claims.

Each employer then pays into the group captive “pool” to cover medium-sized claims.  If the dollar amount of these pooled claim payouts exceeds the amount that has been put into the pool, the group shares the loss (up to certain thresholds).  Likewise, if the pool payouts are less than the balance in the pool, the group shares the profit.

Each employer pays an insurance company a premium to cover the unpredictable large catastrophic claims.  The insurance company provides protection in cases where an individual’s claims exceeds an annual cap, or the aggregate of all claims exceeds an annual cap.

Since the group captive model provides the employer with transparency of claims and expenses, it quickly becomes clear that the employer/administrator can take action to have an impact on the overall costs.

Health risk management is where we can make a positive impact on our employees and our health care spend over the long-term.  Population health management methods like those listed below should be a requirement for your group captive for the purposes of promoting better outcomes while controlling costs and attracting like-minded members into the group captive.

  • Health Risk Assessments & Biometric Screenings
  • Plan Design
  • Pricing Transparency
  • Financial Incentives
  • Disease Management
  • Telemedicine
  • Onsite Clinics
  • Health Advocacy

Employee benefit group captives give small- to mid-sized employers a way to gain control of the cost of employee benefits.  When employee claims are extensive, your group captive absorbs the shock.  When employee claims are modest, you essentially pocket a portion of the profit that would normally have gone to an insurance carrier.

Entering a benefits group captive is more complicated than simply buying traditional group health insurance.  Membership requires on-going active involvement and should be considered a long-term commitment, however, for the right business it can allow you to take control and strike the right balance between cost and volatility.  The first step is to conduct a risk assessment and captive feasibility study to consider if a benefits group captive is right for you.

Workers Compensation: New Independent Contractor Test May Impact Your Business

On April 30, 2018, the California Supreme Court issued a decision that clearly makes it harder now to label workers as “independent contractors” under Industrial Welfare Commission (IWC) wage orders. The result: Workers Compensation audits in California will be more scrutinized in the future against employers attempting to classify workers as independent contractors vs. employees.

The new ruling is clear: The label an employer chooses, or the label used in a contract, does not matter in classifying a worker. Instead, the type of work performed matters.

The Supreme Court placed the burden on an employer seeking to classify an individual as an independent contractor instead of an employee to satisfy a three-factor test. Workers have long been presumed to be employees unless the employer proves all three factors that the worker:

1) is not under the control of the employer;

2) performs work outside of the usual course of business; and

3) is in a customarily independent trade.

The ruling stemmed from a class action lawsuit by delivery drivers against a package and document delivery company. The drivers alleged that the document delivery company misclassified drivers as independent contractors, and therefore violated an IWC Wage Order and engaged in unfair business practices.

The Supreme Court evaluated the core issues related to the appropriate legal standards for determining if a worker is an employee or an independent contractor. The Supreme Court agreed with the drivers. The Court adopted a three-factor “ABC” test that the company must satisfy in order to establish that a worker is an independent contractor:

  1. The worker is free from the control and direction of the hiring entity in the performance of the work, both under the contract calling for the performance of work and in fact;
  2. The worker performs outside the usual course of the hiring entity’s business; and
  3. The worker is customarily engaged in an independently-established trade, occupation, or business of the same nature as the work performed for the hiring entity.

The Court held that the failure of the company to prove any one of these factors is grounds to establish that the worker is an employee.

As we know, all California employers are subject to IWC wage orders. This court decision will have substantial consequences on some employers, particularly those that involve transportation activities, like contractors that have trucking operations. Misclassification of employees as independent contractors can result in significant liability for employers; labor code penalties as high as $25,000 per violation, payroll tax, overtime, unemployment benefits, and of course workers compensation premiums.

We recommend consulting with your labor attorney and insurance professional to assure your workers are properly classified.

Coverages to Consider When Starting Your Architectural or Engineering Firm

Stephen Watson, MBA, CISR, Account Executive
Venturing out on your own and starting a new firm can feel overwhelming considering all that needs to be accomplished before accepting your first client. From writing a business plan to determining a budget, selecting an office location, building a website, buying software, and setting up systems, one may forget the critical task of purchasing insurance.

This step, like many other areas of starting your business, needs attention and guidance from a specialized insurance broker.  As a design professional, you absorb tremendous financial risk when you oversee the construction, rehabilitation, or design of a building.  Insurance is a risk transfer mechanism used to protect your business from financial loss. The purpose of this article is to provide an understanding of coverages to consider when starting a firm and to introduce additional coverages you may consider adding as your firm grows.

Professional Liability: Professional Liability insurance, sometimes referred to as errors and omissions insurance, covers your defense costs and/or settlement payments should your firm’s professional services or advice be found to be inadequate, contain errors, or fail to meet specifications.  It is essential to work with an insurance company and broker who specialize in your industry and can provide additional risk management services such as contract reviews, webinars, and education credits.

The cost of Professional Liability insurance varies depending upon your projected annual revenue, your areas of discipline, the anticipated project types, and policy limits. Typically, most contracts require a limit of $1 million or higher.

Business Owners Policy (BOP): A BOP includes multiple coverage sections including losses related to:

  • property damage
  • business income and extra expense (if business operations are suspended)
  • lawsuits and claims related to property damage, bodily injury, personal injury or advertising injury resulting from your firm’s actions or location

The premium is based upon your location, policy limits, estimated payrolls, and other factors specific to your operations. Typically, most contracts require at least a limit of $1 million per claim and a $2 million aggregate.

Other Coverages to Consider: As your firm grows and you add even one employee, there are additional coverages to consider, some of which are required by law.

  • Workers Compensation is required by law in most states to be carried by a business with employees. Workers compensation provides coverage for employee-related accidents and employer liability lawsuits brought against the company for a work-related injury.
  • Cyber Liability helps your firm survive data breaches and cyber attacks by paying for recovery and notification expenses. It is essential to run system backups multiple times a day or at least once a day, as a cyber policy will not be of much benefit in data restoration if the backup data is old.
  • Employment Practices Liability covers your firm for claims made by employees for alleged discrimination, harassment, wrongful termination, and other employment-related issues. Some insurance companies offer training or have a help line for you to call if there is an issue. This coverage becomes essential as your firm grows.
  • Commercial Auto covers company-owned vehicles from liability or physical damage when involved in an accident. Other coverages can be added to include employee-owned autos used for business, leased vehicles, rental cars, etc.
  • Umbrella Coverage protects your firm from major claims and lawsuits by providing additional limits over your general liability, auto liability, and employer’s liability insurance.

As you can see, there is insurance available for just about any risk.  Having a knowledgeable insurance broker who also serves as a loss prevention advisor can be far more beneficial to your bottom line than merely looking for the cheapest premium.

California’s Proposed Single Payer Health Plan: Questions That Our Lawmakers Need to Answer

Patrick Casinelli, RHU, REBC, CHRS
Patrick Casinelli - resized Adopting a “single-payer” system means the State of California would run and regulate the healthcare of the state’s residents using taxpayer money. The cost estimate for this plan is between $330 and $400 billion per year. To put it in perspective, California’s entire annual state spending budget is $190 billion. This additional money has to come from somewhere.

The plan to fund the bill is to repurpose $200-$225 billion of existing Medicare (this would require a Federal waiver) and Medi-Cal funds. The other $105-$200 billion would come from new tax revenue.  Proposed new taxes are a 15% increase in payroll tax and/or 2.3% gross receipts tax on businesses plus additional 2.3% sales tax increase.

The single payer bill (dubbed the “Healthy California Act”) is proposed by State Senators Ricardo Lara (D-Bell Gardens) and Toni Atkins (D-San Diego). Governor Brown has not been keen to the idea of single payer, but Lieutenant Governor (and front runner to replace Gov. Brown) Gavin Newsom is very much in favor of a single-payer plan.

What Does the “Healthy California Act” Look Like?

Simply put, the State of California would cover all costs for its residents’ healthcare. Effectively, the government would step into the role that insurance companies play now, paying for all “medically necessary” care. Whether you’re insured through an employer, through Covered California or on public programs such as Medicare and Medi-Cal, if you’ve established California residency — regardless of legal immigration status — you would be enrolled in the one and only plan available.  As proposed in the “Healthy California Act”, employer-provided and outside commercial options would be illegal and not allowed.

The plan would have no premiums, no deductibles, no copays and zero out of pocket costs for any “medically necessary” care.  The benefits would include all inpatient and outpatient care, dental and vision care, mental health and substance abuse treatment, and prescription drugs. Patients would be able to see any healthcare provider of their choosing.

Reality Check: Questions That Must Be Answered

  • What will the future cost of this “free” healthcare be to California?
  • How long do you have to be an established resident to receive free care?
  • Who determines “medical necessity”?
  • Who approves care and treatment plans?
  • Will the best doctors want to practice in the State of California?
  • How will doctors and hospitals be paid?
  • Who will determine the allowed amount to be paid for care?
  • Will doctors and hospitals be rewarded for quality care?
  • Will the plan incentivize and promote wellness?
  • Would all public employees be required to be on the “Healthy California Act”?
  • Will there be any waivers for unions or large multi-state employers?
  •  Who will oversee the “Healthy California Act”?

Closing Thoughts

Quality of care and access to great doctors will greatly diminish in a single-payer system. I cannot see the best doctors in the United States wanting to work for the State of California, or hospitals investing in the best technology or quality care systems when the return on investment is unachievable.  Wait times for surgeries will likely increase to ten times what they are now, similar to other countries who have adopted this system.  Corners will be cut, quality will suffer, and the patient advocates will be the same people that implemented the single payer plan in the first place.

Single-payer is not the answer for California.

My next blog will discuss how we fix our current healthcare system. We do not need to “throw the baby out with the bath water.”  We can fix and eliminate what is wrong with our current system, while keeping and improving all that is great.

60 Seconds on Risk Management: Communication

Kelly Potter, PWCA, Account Executive
Watch our one-minute video on Communication:

https://www.youtube.com/watch?v=IKAw3FhwJ84

Bed Bugs!

Matt Slakoff, CIC, CRIS
We all hear the stories on the news about bed bug infestations.  The thought makes most people start itching and want to run to the shower!  If you want to see how pervasive and widespread the risk is, just Google “bed bugs” in the news section. There are infestations in hotels, apartments, city buildings, offices, Airbnb…the list goes on and on.

What most people don’t realize, however, is how costly the problem can be.  Most public places are at risk for exposure. These infestations not only create property damage, they create bodily injury hazard to employees and any third-parties who visit those properties. The potential liability costs range from a couple hundred dollars to millions of dollars.

So, is there any commercial insurance for this type of exposure?  Like so many exposures, it depends.  Below is a description of how coverage may apply.

First Party Property – Coverage for Owned Property:

  • This risk is excluded under standard property insurance policies. Insurance companies typically consider pest control to be part of ongoing maintenance, and do not view infestation as an insurable peril.
  • Standalone coverage specifically for bed bugs is available to purchase. One item to note is that the coverage is limited to an infestation on a covered premises and it does not extend to employees’ property. Some brief coverage details include reimbursement for the cost of:
    • Bed bug elimination services
    • Treating bed bug-infested apartment/co-op/condo unit contents
    • Cleaning of clothes
    • Additional Living Expenses for a set period of time (24 hrs.)

Third Party Liability – Lawsuits

  • The risk of a tenant/visitor filing a lawsuit based on a bed bug infestation is real. Tenants, guests or visitors may make a claim for reimbursement or make allegations of bodily injury.  Most General Liability polices do not have certain specific exclusions (like the above covered premises exclusion) so coverage (defense and indemnity) should apply as long as negligence or liability is proven.

Workers Compensation

  • If an employee suffers bed bug bites at work, workers compensation will apply. In most cases, the bites are more of a minor annoyance and do not require significant medical attention. However, employees could develop stress-related conditions.

Additional Considerations

  • Disability Claims — As with workers compensation, the primary issue may not be the bites themselves. It could be resulting associated conditions such as stress that could form the basis of a disability claim. The fact that bed bugs are so difficult to get rid of could provide support for such claims, particularly if employees take the infestation home and additional damage occurs as a result.
  • Employment Practices Liability — An employee who is suspected to be the source of an infestation may feel that the suspicion is not based on any objective evidence, but is the product of bias against some protected status, e.g. race, national origin, etc. Similarly, workplace discussions and accusations could lead to harassment claims.
  • Publicity — As a business, you do not want to be in the headlines for this issue. There could be a media/public relations risk which would need to be managed.

Bed bugs, like all risks, require an awareness and education to determine what your exposure is.  The best course of action is prevention but knowing what protection you have available through your insurance program is also important. Good night, sleep tight…

General Contractor’s Potential Liability for Unpaid Subcontractor Wages – Assembly Bill 1701 (Labor Code 218.7)

Jase Hamilton, CPCU, AFSB
The State of California has passed a number of new laws in recent years but none has been so widely discussed by the construction industry as Assembly Bill 1701 (Labor Code 218.7). This new law extends liability to a general contractor on a private construction project for unpaid wages, fringe, and other benefits owed to a subcontractor’s employees. This is regardless of the tier of the subcontractor or if the subcontractor has already been paid or not.

Before discussing possible protections, there are a few key components of the law to mention:

  • The new law became effective January 1, 2018;
  • All claims against the general contractor must be made within one year of the earliest of the recording of the notice of completion, the recording of the notice of termination of work, or the actual completion date;
  • The general contractor can seek indemnity from the subcontractor to recover costs incurred as result of a claim;
  • If requested by the general contractor, the subcontractor is required to provide its payroll records to show compliance with its wage obligations on the project; and
  • Claims are limited to unpaid wages, fringes, and other benefits, and may not include claims for liquidated damages or penalties.

How to Protect Your Company

When new and potentially unfavorable laws are enacted, there is usually an immediate scramble to avoid the negative impacts it may bring. However, as a general contractor, claims cannot be fully avoided. Like many other exposures to loss, the best practice is to implement procedures that reduce the possibility of a claim.

Drafting a favorable contract is a good first line of defense. This includes but is not limited to:

  • Including language that shifts the liability created by the new law back to the subcontractor.  For example, the general contract should include language affirming that every subcontractor is accountable for full and timely payment of their workers and all sub-tier subcontractor’s workers;
  • Requiring subcontractors (all tiers) to provide time cards and wage statements monthly with their pay applications. If the subcontractor fails to provide this information, they do not get paid;
  • Including a comprehensive indemnity clause and/or obtaining personal guarantees from subcontractors at all tiers; and
  • Requiring the subcontractors to defend the upstream party in the event a claim is made under the new law. This requirement should be outlined in the indemnity clause and/or defense clause.

Performance and Payment Bonds

A second line of defense and more secure solution is for the general contractor to require its subcontractors to provide performance and payment bonds.  The performance bond protects the general contractor (obligee on a subcontract bond) from losses in the event that the subcontractor fails to perform the contract. The payment bond guarantees that the subcontractor will pay their workers, subcontractors, and materials suppliers and that the project will be a lien-free project. Requiring performance and payments bonds from your subcontractors transfers the risk of a subcontractor’s non-performance and non-payment to the surety company.

With the introduction of this new law, it is even more critical for general contractors to thoroughly prequalify their subcontractors and implement safeguards to protect them from undue claims. Adding contract language/provisions that transfer the burden back to the subcontractor and implementing additional risk mitigation requirements surrounding tracking payroll should now be a staple of all subcontracts on private construction projects.

If you have additional questions regarding this Bill or if we can be of direct assistance, please do not hesitate to contact us.

Click here to view the Bill

Note:  This document is provided for informational purposes only and does not purport to be a legal opinion. For legal assistance, please consult your attorney.