October 2010

Many companies are implementing safety incentive programs, hoping that by rewarding employees for good safety records, they will cultivate a safer work environment and reduce costly Workers Compensation claims. Some employers are concerned, however, that safety incentive programs can actually lead to a more dangerous work environment where injuries are under-reported in pursuit of rewards. To make sure a safety incentive program is a positive addition to your company’s safety program, several factors should be considered.

1. Incentive Programs Are Just the Icing, Not the Cake – Most importantly, incentive programs should be just an added layer to your already strong and comprehensive safety program. Employees cannot improve their performance if they do not have the appropriate safety training needed to recognize and mitigate hazards. The bottom line is that safety incentive programs will not reduce injury rates and should not be implemented if you do not already have an effective safety program in place.

2. Support Safety from the Top Down – To demonstrate the importance of the program to employees, upper management should be committed and involved throughout the process. From the initial design and launch stages, to implementing the program, they must be visible on an ongoing basis. Management should communicate frequently to their employees about the program and take an active role in distributing the rewards.

3. Carefully Design and Administer Incentives – Poor design and administration are the most commonly cited reasons for incentive program failure. Because the concern of accident under-reporting is valid, some experts recommend substituting or adding a more process-based approach as opposed to a strictly results-based incentive program. A process-based system provides incentives for engaging in safety behaviors such as participating in safety training or earning a high mark on a safety quiz. Result-based approaches typically just provide rewards for accident-free time periods.

Once the overall approach is selected, the details of the program should be designed carefully with thoughtful consideration given to selecting the appropriate goals and rewards, establishing methods of evaluating and recording performance and determining how and when rewards will be given.

4. Give Meaningful Rewards for a Job Well Done – Common rewards include cash bonuses, time off work and gift certificates. Whatever you choose, make sure it has value to your workers and can be earned frequently enough to remain a top-of-mind goal.

Recognition can also be an effective part of an incentive program. For instance, rewards can be handed out at an awards banquet or along with a plaque.

5. Communicate Frequently and Effectively – Management should be proactive by emphasizing that hiding or not reporting injuries is strictly prohibited and that such acts will have consequences. Supervisors should clearly communicate how the program works and how employees’ progress will be measured. An ambiguous program is an ineffective one. To maintain incentive and keep the momentum, your employees should be continually reminded about the program and updated about how they are doing.

Remember, if your company’s safety incentive program is conducted thoughtfully and thoroughly, it will not only help reduce costly accidents and injuries, but also help boost the morale within your organization.

Virtually all buildings have at least one thing in common: Glass, and usually a lot of it. When a building owner is having work done, the windows are very susceptible to damage. Glass is fragile. Unless they are careful, workers can easily break, scratch, or mar windows, even if they are not working on them directly. For example, a contractor spray painting outdoors can find that he has painted the windows if the wind is blowing the wrong way. In situations like this, the contractor’s attempts to clean the paint off the windows sometimes make the problem worse. The cleaning chemicals he uses might damage the glass. Window cleaning services run an obvious risk of accidentally damaging windows, but carpenters, siding installers, masons, roofing contractors, and others can all conceivably face blame should the building owner find something wrong with the glass after the job is done.

When something like this happens, many contractors will look for their Liability insurance to pay for the cost of repairing or replacing the windows. However, they might find out that their policies do not cover accidents such as these. The standard Commercial General Liability policy does not apply to property damage to “(t)hat particular part of real property on which (the insured) or any contractors or subcontractors working directly or indirectly on (the insured’s) behalf are performing operations, if the ‘property damage’ arises out of those operations.” It also does not apply to damage to “that particular part” of property that must be restored, repaired, or replaced because the insured’s work was performed incorrectly on it unless the insured has completed his work.

The meaning of the phrase “that particular part” has been the subject of many insurance coverage disputes and some lawsuits over the years. If a contractor is painting the side of a building, is the entire side “that particular part” of the property on which he is working? If so, then the insurance company will consider any windows on that side to be the subject of the work; the company will not pay for damage to them. If a worker is cleaning the glass and does damage to the window frames, are the frames also “that particular part”? If so, the company will not cover this damage, either. How then do insurance companies and courts decide what was “that particular part” of a contractor’s work?

Here are some of the factors they consider:

How close is the damaged property to the specific part of the work? The closer the subject of the work is to the damaged windows, the more likely it is that coverage will not apply. A contractor installing gutters or replacing roof shingles is further removed from the glass than is a contractor painting the shutters or caulking around the windows. The worker painting or caulking may not have coverage, while the one working on the gutters or shingles might.

When did the damage happen? Did it happen at the time the contractor was doing the work or same time after?

What was the scope of the contractor’s control over the project? If the contractor was responsible for moving equipment or protecting the windows in order to do the job, it might follow that the windows were part of his work.

Because of the uncertainty of coverage in these situations, speak with our agents about purchasing Property insurance that might cover a scratched glass loss. It is possible that a Builders Risk or Installation Floater policy might fill in the gap. Claims for damaged windows can cost tens of thousands of dollars; contractors would be wise not to ignore the risk.

A real estate firm on the third floor of an office building hired a janitorial service to clean during a weekend. The service completed its work by late Saturday afternoon. However, one of its employees left water running in the employee break room after rinsing off some rags, which he also left in the sink. The rags plugged the sink drain. Over the next 36 hours, the sink overflowed, the room flooded, and water seeped into the law office downstairs. The water ruined several desktop computers, left marks on leather chairs, streaked the walls, and soaked a six-month-old carpet. The law firm submitted a bill for several thousand dollars in damages to the real estate firm. Because the real estate firm is legally liable for the actions of contractors it hires, it was liable for the damage to the law firm’s property.

This is the sort of accident for which companies buy Liability insurance. There are multiple ways to insure the exposure to loss from actions of contractors. Each company should investigate alternatives and choose those most appropriate for its situation.

Every business should carry its own General Liability insurance policy. The standard policy will cover damages caused by contractors. Although relying on its own insurance gives the business a certain amount of control (especially over timely payment of premiums,) there are disadvantages to using only this approach. Some policies might contain endorsements that reduce or eliminate this coverage, so business owners should review their policies carefully. Even if the policy does provide this coverage, a few large losses caused by contractors could use up the business’s insurance limits. Also, the insurance company will count the contractors’ losses when it calculates the business’s experience modification, resulting in higher future premiums.

The business might want to include an indemnification agreement (also known as a “hold harmless agreement”) in its contract for the work. This will require the contractor to assume liability for losses resulting from its work. If the contractor has insurance or other financial resources to pay for the loss, this is a good approach. The standard policy covers liability assumed under what it defines as an “insured contract.” However, some policies might carry endorsements that eliminate coverage for liability assumed under a contract. Also, if the business has to sue the contractor to enforce the agreement, the damaged third party will have to tolerate lengthy delays before it receives payment. Finally, unless the business meets very specific conditions, the contractor’s policy will not cover its defense costs.

Another approach is to require the contractor to name the business as an additional insured on its policy. This will provide the business with coverage for both the damages and defense costs. However, the business will share the contractor’s insurance limits with all the other additional insureds named on the policy; the amount of insurance available might be inadequate. The business’s insurance might or might not have to share in the loss, depending on the terms of both policies. Also, as with the hold harmless agreement approach, the business must hope that the contractor keeps its insurance in force.

Finally, the business could require the contractor to buy an Owners and Contractors Protective Liability policy. Issued in the name of the business (not the contractor,) this policy will give the business its own primary limits of insurance for the project, advance notice of cancellation, and keeps the losses out of the business’s loss experience. It does not provide coverage for completed operations; the business may still need additional insured coverage for that.

Every business hires contractors from time to time. Planning ahead can ensure that the business has adequate protection should an accident occur. Call our offices today to determine the appropriate Liability coverages for your particular situation.