Association of Towns 2006 Annual Conference

Advising Your Municipality on

Insurance Procurements

Rona L. Platt, Esq.

Congdon, Flaherty, O’Callaghan

Brian Custer and Robert Bambino

NY Municipal Insurance Reciprocal

‘Typical’ Town Property & Casualty Insurance Programs

Law Enforcement Liability

Claims arising from law enforcement activities & operations

Public Officials Professional liability claims arising from wrongful acts of the Board, elected and appointed officials

Excess Liability Additional limits above Automobile, General Liability, Law Enforcement and Public Officials Liability

Considerations for Selecting Insurers

• Claims Philosophy

• Risk Management and Loss Control

• Financial Stability

• Reinsurance Support

II. Coverages & Limits

Property Dwellings, furniture, supplies, business property, equipment, records, computers; extra expenses

Blanket limit for all insured property within the Town

Automobile

(Liability &

Physical Damage)

Injuries and damages caused by autos, trucks, vans, snow plows; damage to owned/leased autos, trucks and vans

$1,000,000 CSL

$200 – 1,000

deductible for physical damage

Coverages and Limits

General Liability

Streets & roads, sidewalk claims, recreation

$1,000,000/

2,000,000

Law Enforcement

False arrest, use of force, civil rights

$1,000,000/

2,000,000

Public Officials

Employment practices, civil rights & land use

$1,000,000/

2,000,000

Excess ‘Follow-Form’ Policy

(Excess limits above liability policies)

$5,000,000 to

10,000,000

Other CoveragesInland Marine (“Floaters”) Damage to equipment off

premises with a lower deductible

Boiler & Machinery Damage to boilers & other equipment not covered within the property policy

Crime Coverage Employee theft and embezzlement

Limited Pollution Liability Covers sudden and accidental pollution events emanating on-premises

IV. Limits, Exclusions & Other Pitfalls to Avoid: Property

Decorative street lights & signs not at a covered location

Property or equipment that travels more than 100 feet from a covered location

Newly acquired property

Clean-up expenses because of a pollution loss

Add to a “floater” policy

Add to a “floater” policy

Report to broker/ insurer within 180 days

Coverage limit of $10,000 – purchase higher limits

Limits, Exclusions & Other Pitfalls to Avoid: General Liability

•Owned underground or above ground storage tanks

• Liability deductibles

• Property in Municipality’s care and custody

• Asbestos/ lead abatement projects

Purchase separate environmental (tank) liability insurance Change for full coverage

Purchase Garage Policy for confiscated vehicles; floater if storing or warehousing nonowned property

Have contractor provide coverage,or purchase separate policy

Limits, Exclusions & Other Pitfalls to AvoidPublic Officials

• Fines & penalties • Wages & benefits – employment practices• Fiduciary liability – financial management of employee benefit plans• Limited land use coverage• EPL coverage sub limits

Risk control Risk control

Purchase Fiduciary Liability insurance policy

Risk control

Increase, remove or practice risk control

Limits, Exclusions & Other Pitfalls to AvoidLaw Enforcement Liability

• Auto exclusion

• Contractual liability exclusion

• EPL excluded

Covered under auto policy

Exception for mutual

aid agreements

Covered under POL

policy

Frequently Asked QuestionsQ: Do I need a Builders Risk Policy?

A: Yes, for large renovations and new construction – unless the Gen. Contractor provides it

Q: Are volunteers covered in the CGL policy?

A: Yes, but only if they are acting within the scope of their approved volunteer activities.

Q: Do I have coverage for skateboard parks, pools and snowmobile trails?

A: Generally – yes, but you should contact your broker or insurer – might be an additional premium

Frequently Asked Questions

Q: Do we need to purchase mold coverage?A: Maybe – its something to check on. There

may be coverage under the GL policy; the Property policy only covers if it is a result of a covered loss.

Q: Which physical assets should we obtain coverage for?

A: Those assets that you can’t afford to lose or those without which you can’t effectively operate your municipality.

Guiding Principles

• As with all contracts, ambiguities contained within an insurance policy are construed against the insurer which drafted the policy.

Mostow v. State Farm Ins. Co., 88 N.Y.2d 321 (N.Y. 1996)

• You don’t get what you deserve, you get what you negotiate Dr. Karras

• The big dog usually wins Unknown

Risk Transfer Concerns:What We’ll Cover

• Why use risk transfers

• Indemnity agreements

• Additional insured status

• Standard ISO endorsements

• Pitfalls, problems & solutions

Why Use Risk Transfers

• Transfers responsibility to do something

• Transfers responsibility to pay for something

• Compels a third-party to indemnify or hold someone harmless

• Compels a third-party to release another

…to improve and optimize our subscribers’ ability to reduce risk financing costs

Risk Transfers – Pros and Cons

Pros• Reduces/stabilizes loss

experience• Transfers risk• Demonstrates a

commitment to risk management

Cons• Time consuming• Requires trained staff• Creates potential E & O

exposure

Indemnity Agreements

Why we shouldn't rely solely on indemnity agreements:

• It’s a transfer of liability/responsibility – not loss financing

• Indemnitor may not be financially responsible• Agreement may be voided by law

- e.g., nondelegable duties or unfair advantage• Anti-Subrogation Statutes• Indemnitor’s CGL policy may not cover the agreement

Contractual Relationships

• Owners on GCs’ policies

• GC and owners on sub-contractors’ policies

• Owners or lessors on tenants or lessees’ policies

• Owners on facility users’ policies

• Municipality on school districts’ policies

• State subdivision on local municipality’s policy

Additional Insured Status

Pros• Insurance protection –

immediate defense• Can apply even when

indemnity agreement cannot be enforced

• Courts will enforce AI status

• Can be direct and primary• Can include negligence of

AI

Cons

• Reduced aggregate limits

• Lose control of defense

• SIR problems

• Endorsements may not provide expected coverage to AI

Anti-Subrogation Doctrines

• Insurer can’t subrogate against its own insured• Applies within risk transfer parameters when an

entity has additional insured status, and the insurer is providing defense & indemnity

• Owner on lessee’s policy; visitor sues lessee. Lessee’s insurer acknowledges AI status of Owner – insurer can’t start a third-party action vs. owner

Additional Insured Endorsements

• Most courts interpret the terms of the endorsement to decide the extent of the transfer

• “Arising out of” often interpreted to mean full coverage for direct as well as vicarious liability

• ISO AI endorsements have become more restrictive over time Restrict coverage to “on going operations” only Require a written contract Establish a fault-based system for endorsements

Additional Insured Endorsements

1. CG 20 10 Additional Insured – Owners, Lessees or Contractors

11 85 Edition

WHO IS AN INSURED (Section II) is amended to include as an insured the organization shown in the schedule, but only with respect to “your work” for that insured by or for you.

• Includes coverage for products/completed operations

• Includes direct negligence of the AI

Additional Insured Endorsements

CG 20 10 – 10 93 &

03 97 Versions

• Covers the AI for liability arising from “on-going operations” for the insured’s only

• Includes AI’s direct liability and negligence

CG 20 10 – 10 01 Version

• Covers the AI only for liability arising from “on-going operations” for the insured

• Specifically excludes products-completed operations exposures

Additional Insured Endorsements

• Coverage for the AI is limited to scheduled covered operations

• Only covers “on-going” operations at the locations described in the schedule; excludes products- completed operations

• Fault-based coverage: only covers damages caused by the insured’s acts or omissions, or those acting on behalf of the insured

• If insured not at least partially at fault – no coverage for the AI

CG 20 10 – 07 04

Additional Insured Endorsements

• Coverage for the AI is limited to scheduled completed operation

• Fault-based coverage: only covers damages caused by the insured’s “work” for the AI

• Used with CG 20 10 (1993 or subsequent versions) to include products-completed operations exposures

2. CG 20 37 07 04 Additional Insured – Owners, Lessees or Contractors – Completed Operations

Additional Insured Endorsements

• Blanket automatic endorsement, where additional insured status is required in a written contract

• Coverage is for “on-going operations” of the insured

• 07 04 version is also “fault based” and it includes a products/completed operations exclusion

3. CG 20 33 – Additional Insured – Owners, Lessees or Contractors – Automatic Status when Required in a Construction Agreement

Additional Insured Endorsements

• Restricts definition of “Insured Contract”

• Covers: leases, sidetrack agreements, easements, etc.

• f. (“That part of any contract or agreement…”) now excludes broad form indemnity agreements by requiring the insured (or those working on the insured’s behalf) to have caused the damages

• May leave indemnitors without coverage for some indemnity agreements

4. CG 24 26 07 04 – Amendment of Insured Contract Definition

Additional Insured Endorsements: Business Automobile

• Possible to list entities (besides lessors) a additional insured on the liability section of the BAP

• However, it covers them to the extent they qualify as an "insured" under the Who Is An Insured Provision contained in Section II of the Coverage Form

5. CA 20 48 Designated Insured

Amending AIA – Standard Form of Agreement Between Owner & Contractor

• WC & EL: E.L. limits; entities not otherwise required to provide WC

• CGL: limits and aggregates; “per project” requirement; length of time for completed operations,

• Auto Liability: coverage symbol; limits

Supplementary Conditions are used to amend Article 11 in the A.I.A. General Conditions

Amending AIA – Standard Form of Agreement Between Owner & Contractor

• Excess/Umbrella: underlying coverages; coverage basis; limits

• OCP: required or not? Limits• Environmental: for services provided; limits;

retro date management• Bonds: types; form; percentage of contract• Other Conditions: additional insured status;

cancellation notice, certificates of insurance, primary insurance language, etc.