2. Errors & Omissions (aka Professional Liability Insurance) – attending the WOM Convention and during almost every break-out session at the Offsite Construction Summits, I hear about engineering, approvals, codes, and how essential the planning process is to a successful project. This points directly to the importance of well-crafted contracts, working with experienced pros, considering Errors & Omissions (E&O) and understanding its potential benefits and limitations. “Per Project” insurance was affordable and readily available in the old days, but for the last several years, “Practice” policies are the norm. There are two facts you must be familiar; first, the engineer’s, architect’s or other design-build consultants policy limits apply to all their customers and are NOT only for your contract, and second, in 90% of the cases, these same limits extend back into time to the date of the first time they purchased E&O insurance. This is known as the “retroactive date.”
For illustrative purposes, your agreement with Y3TmX Engineering, Inc. requires maintaining $1,000,000 Professional Liability, and they present a certificate of insurance (COI). The $1,000,000 per accident or Wrongful Act limit is available to all current clients and all prior projects, completed or on-going. If they show a retroactive date of June 15, 2007, this same $1,000,000 is available for all projects Y3TmX Engineering was/is engaged reaching back over 15 years.
If your broker has not discussed this with you, or if they have yet to propose viable risk management techniques to protect your balance sheet, please carefully choose another broker.
3. Incorrect General Liability Classification – with over 325 business types to choose from, underwriters price General Liability, including Products Liability, utilizing rates (pure loss rate + other charges) promulgated by their actuaries and third-party advisory services (mostly ISO) given historic loss levels as a percentage of sales, payroll, or area.
Since the permanent modular construction industry is a relative newcomer to this country, and the multitude of industries being built to support the sector are so varied, the General & Excess Liability insurance policies crafted by over 750 insurers, I strongly suggest your policy be evaluated by an expert. What you do not want is a contract to an argument. Post-loss or after litigation commences, is not the time to learn about coverage deficiencies. Although not an adversary, the insurance carrier wrote the insurance policy (contract) language, and they did so with their interests being number one. The playing field should be tilted in your favor as much as possible pre-loss.
Prior to becoming a client, one such modular operator was previously insured by a carrier who was only aware of their manufacturing, and not their contracting operations. The coverage was limited to their single plant location, and losses arising from transit or contracting activities were specifically excluded.
Are you certain your coverage does not contain warranties, restrictions, or limitations you are not familiar?
4. Possession or Bill of Lading – the “simple solution” I reference is not complex like high school organic chemistry or collegiate-level calculus, but it does require thought, experience, and a deep understanding. Knowledge surrounding frequency, values, conveyance types, purchase orders, and precedence. Insurance carriers are accustomed to insuring raw materials, finished stock, and goods in transit, or materials located in a temporary warehouse or a manufacturing plant. It is to the advantage of the insurance company to charge premium and then exclude or limit their exposure when possible.
Just because your incoming Bill of Lading indicates FOB Destination (your plant), and your outgoing Bill of Lading is FOB Shipping Point (your plant), does not mean you are protected. For example, the on-site general contractor calls asking about the status of your $173,000 shipment. You are shocked since it was released last Monday. The shipper indicates a problem came up, and the shipment is missing or damaged. Your BOL releases you from liability, but your client (project owner) is not happy, and the general contractor is now going to deliver three weeks late.
Negotiate property coverage to extend to your interests, and that of your customers, if there is no other valid and collectible insurance? If this is not in place for your company currently, we can help.
5. Risk Transfer – a term used frequently by licensed insurance brokers, many of whom do not support their clients’ needs A through Z. What do I mean by “Risk Transfer?” The party holding themselves out as a professional and being paid to perform specific tasks should be responsible for assuming risk and pre-funding exposure to loss created by or arising from their actions, omissions or services. For true risk transfer to take place, applicable contracts must be studied and coordination with counsel must occur. Unless licensed to provide legal guidance, the insurance broker should not supply final indemnification language without being clear of the need for legal counsel approval.
95% of insurance brokers I speak with are not up to speed on the subject of Additional Insured. In 1985 and again in 2013, substantial changes were made by the insurance industry. Utilizing antiquated contract language (purchase orders, leases, partnership agreements, loan covenants, etc.) will not accomplish risk transfer. Note, the benefits of being an Additional Insured are not realized by simply receiving a certificate of insurance which states you are Additional Insured.
The solution – utilizing practical written minimum insurance and indemnity requirements, along with monitoring certificates of insurance by someone who has COI training will not yield a perfect risk transfer strategy, but the exposure will be managed much better than it is currently.