#IRMI2016

Agribusiness and Farm

Insurance Specialist

(AFIS™)

Part 3

Farm Auto, Workers

Compensation, Umbrella

#IRMI2016 1

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Course Overview

Chapter 1: Agribusiness Vehicle Exposures

Chapters 2-4: Business Auto Policy and Endorsements

Chapter 5-9: Workers Compensation

Chapter 10: Excess and Umbrella Insurance

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Agribusiness Vehicle Exposures

Chapter 1

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Who Owns the Vehicle(s)?

• Farming is a combination of personal and business exposures

• Vehicles may be owned, leased, rented, borrowed

• Vehicles may be owned by individuals, partnerships, corporations, LLCs, associations

• Sole proprietor may be insured under a PAP or a BAP

• A business must have a BAP

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Vehicle Exposures

• Private passenger autos, light & heavy trucks, farm machinery, equipment owned or leased by the insured

• Vehicles the insured rents or borrows from others

• Vehicles the insured’s employee rents from others

• Employee-owned vehicles used in business

• Vehicles loaned or rented to others

• Insured under farm liability, general liability, PAP, or BAP• Physical damage might be covered under an inland marine policy

• Auto versus mobile equipment

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Vehicle Operation and Use

• Never leave the farm

• Local use

• Long-haul (commodities)

• Used in planting, cultivating, feeding, harvesting

• Used to transport livestock• Loading and unloading exposure

• Used to transport equipment, materials, supplies, people, farm products

• Liability exposures, physical damage exposures, cargo exposures

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Personal versus Business Auto

• PAP may cover owner and resident household members• “Business use” limited to 10,000 lbs. GVW

• Larger vehicles must be insured under a BAP

• Some farms have both a PAP and a BAP

• Some motor vehicles are covered by a CGL or a farm liability coverage form

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Overview of the Business Auto Policy and Covered Auto

SymbolsChapter 2

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BAP Structure

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BAP Declarations Page

• Item One: The named insured, including the form of business

(corporation, partnership, LLC, individual, other)

• Item Two: Schedule of coverages and covered autos

• Item Three: Schedule of covered autos owned by the insured

• Item Four: Schedule of covered autos hired or borrowed by the insured

• Item Five: Schedule of non-ownership liability (employee owned autos)

• Item Six: Schedule of gross receipts or mileage basis (not applicable to

agribusiness risks)

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Major Coverages

• Liability

• Physical Damage• Specified causes of loss• Comprehensive• Collision • Transportation expenses• Loss of use expenses

• Medical Payments

• No-fault (where applicable)

• UM/UIM

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Symbols

• ANY AUTO: Symbol 1 can be used only for liability coverage. When it is selected, any auto, whether owned, nonowned, or hired, is considered a “covered” auto.

• OWNED AUTOS ONLY: Symbol 2 covers all autos owned at the beginning of the policy period, plus any owned autos acquired during the policy period. If symbol 2 is used for liability coverage, any nonowned trailer attached to an owned power unit is also a covered auto. This symbol is often used to designate UM/UIM and physical damage collision coverages.

• OWNED PRIVATE PASSENGER AUTOS ONLY: Symbol 3 covers all private passenger autos owned by the insured, plus any such autos acquired during the policy period. The symbol is frequently used to designate auto medical payments and physical damage comprehensive coverage. If physical damage towing and labor coverage is purchased, this symbol may be used for that coverage.

• OWNED AUTOS OTHER THAN PRIVATE PASSENGER AUTOS ONLY: Symbol 4 covers all owned autos except private passenger autos. Similar autos acquired during the policy period are also covered. If this symbol is used for liability coverage, any nonowned trailer attached to an owned power unit is covered. The most common use for this symbol is for physical damage specified causes of loss coverage.

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Symbols

• OWNED AUTOS SUBJECT TO NO-FAULT: Symbol 5 covers only owned autos that are required to have no-fault benefits in the state in which they are licensed or principally garaged. This symbol also indicates coverage for autos acquired during the policy period, provided they are required to have no-fault benefits. The use of the symbol is restricted to compulsory no-fault coverage.

• OWNED AUTOS SUBJECT TO A COMPULSORY UNINSURED MOTORISTS LAW: Symbol 6 signals coverage for owned autos that are required to have UM insurance because of the law in the state where they are licensed or principally garaged. (Some states’ UM laws allow vehicle owners to reject the required coverage. Symbol 6 does not apply to vehicles licensed or principally garaged in such states.) Autos acquired during the policy period are also covered autos when symbol 6 is used if they are subject to the same state UM law and the required coverage cannot be rejected.

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Symbols

• SPECIFICALLY DESCRIBED AUTOS: Symbol 7 provides coverage only for autos that are specifically described in a schedule of covered autos in the policy declarations. If this symbol is used for a particular coverage, a newly acquired auto will be included for that coverage only if the insurer already provides that coverage on all autos the insured owns, or the auto replaces one that was previously owned and insured for the same coverage and the insured informs the insurance company within 30 days after acquiring it that coverage is desired on the new auto.

• When symbol 7 is used for liability coverage, liability arising from nonowned trailers attached to a power unit described in item 3 of the declarations is covered. *7*

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Symbols

• HIRED AUTOS ONLY: Symbol 8 applies coverage only to autos that the insured leases, hires, rents, or borrows. It does not include any auto that is leased, hired, rented, or borrowed from an employee of the insured or a partner in the business, or members of their households .

• NONOWNED AUTOS ONLY: Symbol 9 gives “covered auto” status to autos used in connection with the insured’s business if they are not owned, leased, hired, or borrowed by the insured. This symbol includes autos owned by the insured’s employees or partners, or members of their households while such autos are used in the insured’s business or personal affairs. Symbol 9 is used for liability coverage only.

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Symbols

• MOBILE EQUIPMENT SUBJECT TO COMPULSORY OR FINANCIAL RESPONSIBILITY OR OTHER

MOTOR VEHICLE INSURANCE LAW ONLY: Symbol 19 applies to land motor vehicles that would

qualify under the definition of “mobile equipment” if they were not subject to a compulsory

insurance or other motor vehicle insurance law in the jurisdiction in which they are principally

garaged or licensed. This could apply to an accident involving farm machinery and equipment that

takes place on public roads and triggers the state’s financial responsibility or other motor vehicle

law. These vehicles would then be treated as covered autos.

• CUSTOM SYMBOL: This symbol allows for any designation that is agreeable between the insured and the insurer. It is used to either include or exclude any category of owned autos not precisely described by any of the other standard symbols (e.g., autos with book values below a specified amount) from physical damage coverage. Use of this symbol requires the attachment of the covered auto designation symbol endorsement filled in to describe the custom symbol.

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Auto Liability Insurance

Chapter 3

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When Does Liability Coverage Apply?

• BI or PD is caused by an accident• Defined to include repeated exposure

• The BI or PD results from the ownership, maintenance, or use of a covered auto

• An insured is legally responsible for the loss

• Defense costs are also covered

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What Vehicles are Covered Autos?

• If symbol 1 is selected (as it should be), any auto is a covered auto for liability

• Otherwise, it depends on the symbol chosen

• Additional covered autos• Newly acquired autos

• Trailers with a load capacity of 2,000 lbs. or less

• Mobile equipment carried or towed by a covered auto

• Temporary substitute auto

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Who is an Insured?

• Named insured

• Permissive users, except• Owner of a hired or borrowed auto• Employee, partnership partner, or LLC member using personal

vehicle• Auto business worker• Non-employee loading or unloading a covered auto

• Omnibus clause (anyone liable for the conduct of an insured)• An additional insured endorsement is redundant but available due

to demand

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What Exclusions Apply?

• Expected or intended injury• Contractual liability*• Workers compensation and other

statutory obligations• Employee

indemnification/Employers liability

• Injury to a fellow employee • Owned property/care, custody,

or control* • Loss resulting from the handling

of property

• Loss resulting from the movement of property by an unattached mechanical device*

• Mobile equipment*

• Completed operations

• Pollution*

• War

• Racing, demolition, or stunting events

* See subsequent slides

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Contractual Liability Exclusion

• Does not exclude • Liability that would exist even without a contract

• Liability assumed in an “insured contract”:• A lease of premises (e.g., an auto accident on the premises)

• A sidetrack agreement

• An easement or license agreement (except in connection with construction or demolition operations on or within 50 feet of a railroad)

• An obligation, as required by ordinance, to indemnify a municipality, except in connection with work for a municipality

• That part of any other contract or agreement pertaining to the named insured’s business (including an indemnification of a municipality in connection with work performed for a municipality) under which the named insured assumes the tort liability of another to pay for “bodily injury” or “property damage” to a third party or organization

• That part of any contract or agreement entered into, as part of the named insured’s business, pertaining to the insured’s rental or lease of any “auto”

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Owned Property/Care, Custody, or Control Exclusion

• Precludes coverage for damage to• Property owned or transported by the insured

• Property in the insured’s care, custody, control

• Damage to a rented or borrowed vehicle

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Loss Resulting from the Movement of Property by an Unattached Mechanical Device

• Does not exclude coverage when the loading/unloading device is attached to the covered auto or is a hand truck• Example: a hoist attached to a truck

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Mobile Equipment Exclusion

• While used in the field farm equipment has farm exposures

• While farm equipment is being driven to the field its exposures resemble auto exposures

• ISO definitions of “auto” and “mobile equipment” focus on the vehicle’s primary use

• Premium is charged for “auto” but not for “mobile equipment”

• Gray areas are a good reason to place auto and general liability coverages with the same insurer

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Pollution Exclusion

• Almost absolute; two exceptions:• Escape of pollutants being transported, loaded, unloaded, or

stored in the covered auto

• Discharge of fuel, lubricants, fluids, exhaust from the part of the auto that is designed to hold them

• Pollution Liability—Broadened Coverage for Covered Autos (CA 99 48) endorsement• Provides coverage for direct (not contractual) liability from

transporting, loading, unloading pollutants

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Motor Carrier Act Coverage

• Federal Motor Carrier Act of 1980 imposes financial responsibility requirements on firms transporting hazardous materials

• MCS 80 endorsement (Motor Carrier Act endorsement) does not add coverage but guarantees to 3rd parties that the insured will respond to pollution claims

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Limits of Liability

• Combined single limit• For BI and PD

• Applies per accident• Regardless of the number of covered autos, insureds, premiums paid,

claims made, or vehicles involved in an accident

• NO aggregate limit

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Policy Conditions

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General Conditions

• No benefit to bailee—physical damage coverages

• Example: car stolen from parking valet. Insurer will pay and subrogate against

the valet, who does not benefit from the BAP

• Other insurance

• BAP is primary for owned autos, excess for nonowned autos

• Proportion to limits if both policies have same other insurance provision

• Premium audit

• Insurer audits actual fleet after expiration and adjust premium

• Policy period, coverage territory

• US, US territories, Puerto Rico, and Canada

• NOT Mexico 30

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Size Classifications

• Light truck size class: Trucks that have a GVW of 10,000 pounds or less. A half-ton or three-quarter-ton pickup, for example, would be in this size class.

• Medium truck size class: Trucks that have a GVW of 10,001 to 20,000 pounds. Crawler type trucks are also in this class. A 1-ton or 1½-ton vehicle, for example, would be in this size class.

• Heavy truck size class: Trucks that have a GVW of 20,001 to 45,000 pounds. A 2- or 3-ton vehicle would be in the heavy truck size class.

• Extra-heavy truck size class: Trucks that have a GVW over 45,000 pounds. A 4-ton or larger vehicle would be in the extra-heavy size class.

• Truck-tractor: A motorized auto with or without body designed for carrying commodities or materials; equipped with fifth wheel coupling device for semitrailers. Heavy truck-tractors have a GCW of 45,000 pounds or less; extra-heavy truck-tractors have a GCW over 45,000 pounds.

• Semitrailer: A trailer equipped with a fifth wheel coupling device for use with a truck-tractor, with a load capacity over 2,000 pounds (includes bogies used to convert containers into semitrailers).

• Trailer: Any trailer with a load capacity over 2,000 pounds, other than a semitrailer.

• Service or utility trailer: Any trailer or semitrailer with a load capacity of 2,000 pounds or less.

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Business Use Classifications

• Retail use: Vehicles used to pick up property from or deliver property to individual households

• Commercial use: Vehicles not classified as either retail use or service use

• Service use: Vehicles used for transportation of insured’s personnel, tools, equipment, and incidental supplies to or from a job location

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Radius* Classifications

• Local: 50 miles or less

• Intermediate: >50 miles up to 200 miles

• Long distance: >200 miles

*Straight-line radius, not road miles

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Business Auto Endorsements and

Other Policies

Chapter 3

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Pollution Liability—Broadened Coverage for Covered Autos Endorsement (CA 99 48)

• Provides coverage for one situation: pollution cleanup costs arising out of cargo being transported by an insured

• If an insured wants full pollution coverage it must be obtained from an environmental insurer

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Designated Insured Endorsement (CA 20 48)

• Merely reaffirms omnibus clause

• Used to satisfy those who want additional insured status

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Employees as Insureds Endorsement (CA 99 33)

• Can be used to provide coverage for an employee using an auto not owned, rented, or borrowed by the insured

• Rarely used because most employees have their own PAPs

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Fellow Employee Coverage Endorsement (CA 20 55)

• Deletes the fellow employee exclusion

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Employee Hired Autos Endorsement (CA 20 54)

• Clarifies that the employer’s BAP’s liability and physical damage coverage applies to an employee who rents a car for business as well as to the employer• If the employer’s BAP includes Symbol 1 or 8

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Individual Named Insured Endorsement (CA 99 17)

• Used when an individual (typically the business owner) has no PAP; vehicles are owned by the business• Protects against the use of nonowned autos by the named insured

or family members

• Provides coverage comparable to the PAP under the BAP

• Mandatory when a sole proprietor’s BAP covers a private passenger vehicle, pickup, or van

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Drive Other Car Coverage—Broadened Coverage for Named Individuals Endorsement (CA 99 10)

• Provides liability, med pay, UM/UIM, and physical damage coverage for an individual’s personal use of a nonowned vehicle (e.g. rents a car while on vacation)

• Covered individual is named • Spouse is automatically covered

• Other family members are not covered unless named

• Does not exclude vehicles furnished for regular use

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Lessor—Additional Insured and Loss Payee Endorsement (CA 20 47)

• Used when an auto lease agreement requires the lessee to provide primary liability coverage for the lessor

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Employee as Lessor Endorsement (CA 99 47)

• Used when employees use their own vehicles in the insured’s business and the insured agrees to provide auto insurance for the vehicle using a leaseback arrangement• Might also need a DOC endorsement if employee owns no other

autos• Or a PAP with a named nonowner endorsement

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Hired Autos Specified as Covered Autos You Own Endorsement (CA 99 16)

• Used when the party renting or lending an owned vehicle requires the insured renter to provide primary coverage for the owner

• Modifies the renter’s BAP

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Vehicle Coverage under the Farm Liability Coverage Form

• Liability coverage for “mobile equipment” but not “autos”• ATVs are excluded both on and off premises

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Vehicle Coverage under the PAP

• Individuals and married couples are eligible• Can’t use PAP to insure corporations, partnerships, etc.

• Can only be used for private passenger autos and light trucks not used for commercial purposes

• Less flexible than BAP regarding• Nonowned auto coverage

• Pollution and contractual exposures

• Trailers

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Physical Damage Coverage on Farm Vehicles

• Farm liability policy and CGL policy’s coverage on mobile equipment does not include physical damage coverage• An inland marine farm program form can provide coverage on

mobile agricultural equipment

• Other inland marine insurers also offer coverage

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Introduction to Workers Compensation

Chapter 5

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Employer’s Common-law Obligations and Defenses (historical)

• Obligations• Provide a safe workplace• Provide enough competent fellow employees• Provide safe tools and equipment• Develop and enforce safety rules• Warn employees of inherent dangers

• Defenses• Assumption of risk• Contributory negligence• Negligence of a fellow employee

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Workers Compensation Laws

• Automatic no-fault compensation

• Employee forfeited the right to sue employer for compensatory damages

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Today’s Workers Compensation Laws

• Covered versus elective laws

• Exclusive remedy

• Penalties for failure to insure

• Covered employments

• Independent contractors

• Employee leasing

• Sole proprietors, partners, executive officers, and LLCs

• Elective coverage

• Suits against third parties

• Injuries not covered

• Occupational disease

• Extraterritorial application

• Workers compensation benefits

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Compulsory versus Elective

• WC is compulsory in most states

• WC is elective in TX and NJ• NJ employers must carry either WC or EL coverage

• If TX or NJ employer rejects WC and employee sues for negligence, the employer may not use common-law defenses: • assumption of risk

• negligence of a fellow employee

• contributory negligence

• In practice, few employers reject WC

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Exclusive Remedy

• WC benefits are the sole remedy for job injuries• Most states permit suits if employer did not obtain WC or qualify

as a self-insurer

• Many states allow suits for injury intentionally caused by employer

• Most states shield fellow employees from negligence claims

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Penalties for Failure to Secure Benefits

• Fines

• Criminal penalties in many states• Executive officers may be personally liable

• Injured workers of a defaulting employer may be awarded increased benefits

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Covered Employments

• Wyoming lists covered employments

• In all other states WC applies to all employments not specifically excluded

• Often excluded:• Very small employers

• Certain types of work such as farm laborers or casual employees

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Number of Employees

• Employers with fewer than a specified number of employees (e.g. 3, 4, 5) are exempt in 10 states

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Type of Work

• Excluded categories usually include• Domestic workers

• Agricultural employees (varies by state)

• Real estate brokers paid on commission

• Casual employments

• Employees not covered by WC law can sue employer for negligence

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Independent Contractors

• State laws vary in distinguishing between employees and independent contractors

• Where workers compensation law is silent common-law principles generally apply

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Employee Leasing

• State laws vary

• Discussed further in a later chapter

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Sole Proprietors, Partners, Executive Officers, LLCs

• In most states sole proprietors and partners are not covered employees • But may elect to be covered

• In most states corporate officers are covered • But may elect to be excluded

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Elective Coverage

• In most states farm employers not subject to WC can voluntarily elect to be covered• Obligated to pay statutory benefits regardless of fault

• Limited protection from employee lawsuits (exclusive remedy)

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Suits Against Third Parties

• Subrogation by employee and employer is permitted in all states• Most states allow the injured employee to accept WC benefits and

sue the responsible third party

• In a few states the employee must do one or the other

• Insurer may recover benefits from an employee who successfully obtains damages from a third party

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Injuries Not Covered

• Noncompensable injuries, which vary by state, may include• Self-inflicted injuries

• Injuries sustained while attempting to injure someone ele

• Injures sustained while committing a crime

• Injuries caused by employee use of drugs or alcohol

• Employee’s willful misconduct or willful negligence

• Injury during voluntary recreational activities

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Occupational Disease

• Examples: asbestosis, silicosis

• Difficult to determine when injury took place

• Must generally be a causal link between the employment and the disease

• Most states assign liability to the last employer that exposed the employee

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Extraterritorial Application

• Laws vary by state

• Other states coverage is discussed later

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Workers Compensation Benefits

• Medical

• Disability

• Rehabilitation

• Death• Death benefits to survivors, that is

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Medical Benefits

• Unlimited amounts and duration in most states

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Disability Benefits

• Temporary total• Can’t work while recovering

• Permanent total• Can’t do any work for life

• Temporary partial• Can do some work while recovering

• Permanent partial• Will never recover but can still do some work

• Scheduled injuries (e.g. loss of one hand)

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Rehabilitation Benefits

• Cover rehab and rehab-related expenses in most states

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Death Benefits

• Payable to survivors

• Burial allowance and weekly income benefit

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The Workers Compensation and Employers Liability

PolicyChapter 6

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National Council on Compensation Insurance

• Filing agency and rating organization for workers compensation insurance in most states

• Promulgates the standard workers compensation and employers liability insurance policy (WC 00 00 00 A)• Part One – Workers Compensation Insurance

• Part Two – Employers Liability

• Part Three – Other States Insurance

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Who Is an Insured?

• The employer listed in Item 1 of the “information page” (declarations)

• If a partnership, each partner is insured as an employer of the partnership’s employees

• Corporate officers and other employees are not insureds

• Distinguish between being an insured (covered for liability) and being entitled to receive benefits

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Covered Workplaces

• All workplaces listed on information page

• Other workplace(s) in a state listed in Item 3A of information page• Unless insured elsewhere

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Part One—Workers Compensation Insurance

• Insurer is liable to pay benefits prescribed by state WC law• No policy limit

• As long as the BI or last exposure to OD conditions occurs during the policy period• Claims may be made long after a policy’s expiration date

• Insurer has the right to investigate and settle claims or suits at its own expense• May settle claims without the insured’s consent

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Additional Expenses Covered

• Reasonable expenses incurred at the insurer’s request (but not loss of earnings)

• Premiums for bonds to release attachments and for appeal bonds

• Litigation costs taxed against the insured

• Interest on any judgments

• Expenses incurred by the insurer

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Payments the Insured is Responsible for

• Excess payments due to• The insured’s serious and willful misconduct

• Includes punitive or exemplary damages

• Employment the insured knew was illegal• Example, penalty for an illegally employed minor who is injured

• Injury due to the insured’s failure to comply with a health or safety law• Example: OSHA

• Discharge, coercion, discrimination against an employee in violation of WC law• Example, retaliatory discharge

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Subrogation

• Insurer has the right to recover from any liable party benefits the insurer has paid

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Part Two—Employers Liability Insurance

• Applies when work-related injuries result in claims for “damages” outside prescribed WC benefits• Suit filed by an injured employee who is excluded under workers

compensation law

• Suit brought by an injured employee whose employer is not subject to workers compensation law because, for example, its workforce is so small

• Suit filed by an injured employee whose employer has elected not to accept the workers compensation law in one of the two states that allow employers to opt out

• Suit filed by an injured employee’s spouse, claiming loss of consortium (e.g., sexual relations, companionship, and help in performing household chores and maintenance)

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Coverage Criteria

• EL coverage applies to BI, including death, by accident or disease if the following criteria are met:

• BI must “arise out of and in the course of” the employee’s employment with the insured.

• Injured worker’s employment must be necessary or incidental to the insured’s work in a state

or territory for which Coverage A has been activated by its being listed on the information

page.

• If the BI is caused by an accident, the accident must occur during the policy period.

• If the BI is caused by disease, the disease must be caused or aggravated by the conditions of

the employment. In addition, the employee’s last day of last exposure to the conditions that

cause or aggravate the bodily injury or disease must occur during the policy period.

• The suit for damages must be brought in the United States, its territories or possessions, or

Canada.

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Common Types of EL Claims

• Third-party-over suits

• Loss of consortium suits

• Dual capacity suits

• Consequential bodily injury suits

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Third-Party-Over Suits

• Insured’s employee sues a third party for damages arising out of a work-related injury

• Third party seeks indemnity based on a hold harmless provision in a contract with the employer

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Loss of Consortium Suits

• Suit by injured employee’s spouse for loss of his or her spouse’s services• Many states permit suit even if the injured employee also receives

WC benefits

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Dual Capacity Suits

• Employer is sued for its involvement in the injury other than as an employer• Example, farm owner manufactures equipment that injures an

employee. Suit based on products liability.

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Consequential BI Suits

• Suit by family member who suffers injury as a consequence of the employee’s injury• Examples: heart attack, nervous breakdown

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Employers Liability Exclusions

• Contractual liability • Punitive or exemplary damages • Injury to illegally employed persons (under certain circumstances)• Injuries covered by the workers compensation statute or similar laws • Intentional injury • Injuries sustained outside the United States, its territories or

possessions, or Canada, except with respect to citizens of the United States or Canada who are temporarily outside of these countries

• Employment-related practices • Fines or penalties imposed for a violation of a federal or state law • Injuries covered under a federal compensation act (see next slide)

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Migrant and Seasonal WorkerProtection Act

• Establishes a private right of action for actual or statutory damages (as well as criminal and administrative sanctions) against employers and contractors (e.g., farm labor contractors) of migrant or seasonal agricultural workers who violate the Act’s housing and motor vehicle safety requirements, motor vehicle liability insurance requirements, and job information disclosure requirements.

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Limits of Liability

• Bodily injury by accident—each accident limit• Applies to all claims from any one accident• Basic limit: $100,000

• Bodily injury by disease—each employee• Most the insurer will pay for BI by disease to any one employee• Basic limit: $500,000

• Limits can be increased

• Umbrella policies can provide excess limits

• Insurer pays defense costs

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Part Three—Other States Insurance

• Makes WC&EL coverage available for incidental exposures in states not listed in Item 3.A. of the information page

• States for which other states coverage is desired must be listed separately• Monopolistic fund states cannot be listed

• Suggested wording“All states and U.S. territories except North Dakota, Ohio, Washington, Wyoming, Puerto Rico, the US Virgin Items, and states designated in Item 3.A. of the Information Page”

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Part Four—Your Duties if Injury Occurs

• Notify the insurer of the injury “at once”• Supply the insurer or the insurer’s agent with the names and addresses of the

injured parties and the witnesses and any other information the insurer may require

• Promptly give the insurer all notices, demands, and legal papers concerning the claimant’s suit

• Cooperate with the insurer and assist the insurer, if necessary, in investigating, settling, or defending a claimant’s suit

• Do nothing after an injury occurs that would interfere with the insurer’s right to recover from others

• Make no voluntary payments, assume no obligations, and incur no expenses, except at the insured’s own expense

• Provide immediate medical attention and any other services that are required by the workers compensation law

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Part Five—Premium

• Describes how premiums are calculated• Multiply rate by premium basis (usually remuneration)

• Estimated premium shown on information page

• Final premium determined by audit after the policy period ends

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Part Six—Conditions

• Insurer has a right to inspect the insured’s workplace

• Policy issued for more than 1 year + 16 days applies as if a new policy were issued on each anniversary date

• Assignment is not permitted without the insurer’s consent

• Cancellation procedure• By insured (advance written notice required)

• By insurer (varies by state)

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Workers Compensation Policy Endorsements

Chapter 7

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Stop Gap (Employers Liability) Endorsement

• Provides employers liability insurance in monopolistic states

• Form WC 34 03 01 in Ohio, WC 00 03 03 C in other states

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Voluntary Compensation Endorsement (WC 00 03)

• Provides statutory WC benefits to employees, such as farm laborers in some states, not covered by WC law• An injured employee who accepts WC benefits must sign a release

• If the employee sues instead, EL coverage applies

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Sole Proprietors, Partners, Officers, and Others Endorsement

• WC 00 03 10 is used to cover excluded proprietors, etc. if they elect to be covered • Listed by name or description

• WC 00 03 08 is used to exclude proprietors, etc. who elect to be excluded• When permitted by state law

• Listed by name or description

• Rarely used

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Migrant and Seasonal Agricultural Worker Protection Act Endorsement (WC 00 01 11)

• Extends EL coverage to provide benefits to which injured workers are entitled under MSAWPA• Some insurers are reluctant to provide this endorsement

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Alternate Employer Endorsement(WC 00 03 01 A)

• Used when employees are loaned or borrowed• Because the borrowing employer (“special”) can be held liable for

WC benefits

• When attached to the lending (“regular”) employer’s policy, the endorsement covers employees working for the specified alternate employer as though the alternate employer were an insured

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Employee Leasing Endorsements

• Used when the farm owner is securing the coverage.

• Farm Owner’s Policy: Labor Contractor Endorsement (WC 00 03 20 A)

• PEO’s Policy: Employee Leasing Client Endorsement (WC 00 03 19) or Labor Contractor Exclusion Endorsement (WC 00 03 21)

• Used when the PEO is securing coverage in the voluntary market.

• Farm Owner’s Policy: Employee Leasing Client Exclusion Endorsement (WC 00 03 22)

• PEO’s Policy: Alternate Employer Endorsement (WC 00 03 01 A)

• Required when the PEO secures coverage in the residual market in states that have adopted the NCCI rule on employee leasing.

• Farm Owner’s Policy: Multiple Coordinated Policies Endorsement (WC 00 03 23) and Labor Contractor Endorsement (WC 00 03 20 A)

• PEO’s Policy: Labor Contractor Exclusion Endorsement (WC 00 03 21)

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Waiver of Subrogation Endorsement(WC 00 03 13)

• Prevents the insured’s WC insurer from suing another party whose negligence contributed to the insured’s employee’s injury

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Broad Form Named Insured Endorsement

• Provides automatic coverage to a host of related entities• Because the insured might forget to name all subsidiaries

• No standard NCCI endorsement exists

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Rating Workers Compensation Risks

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NCCI Rules

• Found in NCCI Basic Manual for Workers Compensation and Employers Liability

• Premiums are based on• Covered payroll

• Covered employees’ risk classifications

• Usually an experience modification (mod)

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Exposure Base

• $100 of payroll for most agricultural operations

• Payroll usually includes total remuneration• Wages or salaries

• Commissions

• Bonuses

• Paid time off

• Etc.

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Classification

• Categorizes employers with common exposures

• Numerous “farm” classifications are available

• With adequate records, payroll can be allocated between agricultural classifications based on the work being done

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Calculating Estimated Annual Premium

• Published loss costs X multiplier determined by the insurer

• Experience modifier (X-Mod) based on the insured’s own loss experience relative to that of other employers in the same industry• 1.0 mod = average loss experience

• >1.0 mod = debit modifier, higher-than-average losses & premium

• <1.0 mod = credit modifier, better-than-average losses, reduced premium

(continued)

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Calculating Estimated Annual Premium

• Expense constant covers administrative costs that do not vary based on account size

• Minimum premium is charged when rating process generates a lower premium

• Premium discount may apply to large policies

• Schedule rating modifies the premium to reflect characteristics of a risk that are not reflected in experience rating

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Excess and Umbrella Liability Insurance

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Applicability To Insureds Involved In Agriculture

• Ag risks have unique catastrophe liability exposures• Mix of farming, commercial and personal

• Owned locations with “attractive nuisance” hazards

• Land leased to and from others

• Owned, leased and hired autos and agricultural equipment

• Contractual liability for other parties

• Food safety

• Employers liability exposures for non-employees

• Pollution liability from operations and autos

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Unique Needs

• Farm ownership often involves a mix of personal risks and commercial risks

• Commercial Umbrellas are typically written for commercial risks only

• Combining a Commercial and Personal (or Farm) Umbrella may provide the best solution if available

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Other Liability Exposures

• Premises or Operations• Manufacturing, warehousing, or processing products• Owned, leased, or rented premises or locations

• Products sales• Negligence claims• Strict liability claims

• Contractual indemnification obligations• Employees

• Direct hire• Contract labor

• Labor contractor does not carry the entire burden of risk• Some states allow tort suits against the party hiring the contract labor

• Family members

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Vehicle Liability Exposures

• Owned, Leased or Rented• U. S.• Overseas

• Permissive Drivers• Employees

• Direct hire• Contract labor

• Teenagers• Elderly

• Automobiles• Personal or Business Use• High value, Classic or Antique

• Truck or Van• Personal or Business Use

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Vehicle Liability Exposures

• Motorcycle

• Recreational• Motorhome/RV• ATV• Snowmobile• Go-cart• Golf-cart

• Tractors (Semi)

• Trailers

• Farm implements and mobile ag equipment

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Other Liability Exposures

• Aircraft• Owned• Chartered• Borrowed• Business or personal use

• Watercraft• Owned

• Type• Size• Drivers

• Rented• What type and where

• Borrowed

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Purpose of Excess/Umbrella Policies

• Provide a layer of liability protection over and above that offered by primary policies such as• Farm liability form

• CGL

• Business auto policy

• Most umbrellas also provide broader coverage and include defense costs

• Policies are not standardized• Read the policy!

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Excess versus Umbrella

• Excess policy provides higher limits of liability than primary “underlying” policies• Follow form policies provide same coverage as underlying policies

but for a higher limit• No broader coverage than underlying

• Excess coverage may be narrower than underlying due to exclusions

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Umbrella Terms and Conditions

• Indemnify versus Pay on Behalf of• “Pay on behalf”--the insurer pays damages directly to claimant• “Indemnify”--insurer reimburses after the insured pays the claim

• Defense costs• Usually “outside the limit”

• Drop Down Provision• Umbrella provides primary coverage when underlying policy is

exhausted• Coverage over SIR when umbrella is broader than underlying

policy

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Umbrella Terms and Conditions (cont’d)

• Underlying insurance• Maintenance of underlying insurance is required

• If not done, the attachment point remains the same and the insured must retain claims within the coverage gap

• Self Insured Retention (SIR)• Total amount the insured must pay when no underlying coverage

is in place or required

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Insuring Agreement

• Usually covers “personal injury,” property damage, and advertising injury• “Personal injury” defined to include bodily injury and other

offenses

• Per occurrence coverage

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Umbrella Terms and Conditions

• Review the policy carefully with special attention to

• Punitive damages exclusions

• Defense costs included in limit of liability (“defense inside the limit”)

• Personal injury definition

• Treatment of additional insureds (i.e., automatically included if covered in underlying)

• UM coverage

• Coverage for owned and nonowned aircraft or watercraft

• Definition of “insured”

• Care, custody, or control exclusion

• Pollution coverage and exclusions

• Coverage territory (most umbrella policies are written on a worldwide basis)

• Notification of occurrence or reduction in underlying limits

• Concurrency (a requirement of an umbrella policy that underlying policies have the same effective and expiration date)

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Common Underlying Requirements

• Commercial General Liability at $1,000,000 per occurrence and

$1,000,000 General Aggregate and Products and Completed Operations

Aggregate

• Commercial Auto at $1,000,000 per accident

• Employer’s Liability at $1,000,000 per accident/$1,000,000 occupational

disease/$1,000,000 aggregate

• Farm Liability $1,000,000

• Personal Auto Liability $500,000 CSL

• Homeowners Liability $500,000

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What Is Meant By The Term “Concurrency”?

• This means that any liability policy with an aggregate limit and your umbrella or excess policy(ies) should have the same inception and expiration dates

• All underlying policies should be concurrent

• “It is a condition of this policy that the policies referred to in attached “Schedule of Underlying Insurance” shall be maintained in full effect during the policy period without reduction of coverage or limits except for any reduction in the aggregate limits contained therein solely by payment of claims in respect to accidents and/or occurrences occurring during the period of this policy.”

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Coverage Offers

• Always quote to match existing limit requirements or client request

• Always offer higher limits

• Be careful about only offering one limit

Unfortunately, the only person who knows how much insurance you should buy is the person who is suing you!

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Summary

• Umbrella, or at the least excess liability, policies are of great benefit to all insureds to protect their assets

• A professional agent or broker will always offer this protection and never assume the client won’t buy this protection

• This is one of the best “buys” in all of insurance

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