July 2014

Dread insurance audits? Maybe they stand out because the audit period is inconvenient.

Let’s take a look at payroll oriented audits like workers’ compensation.

The easiest audit will cover a period defined by four quarterly employee tax filings, a calendar quarter expiration date. Why? Because you must internally audit these periods already.

The second suggestion is a financial quarter. If for some compelling reason your financial year is not a calendar quarter, chose your financial year or quarter for these audits for the same reason as above.
Separate overtime payroll. Workers’ compensation premium is based on straight time payroll. Overtime earnings are discounted, thus premiums are reduced.

Keep Certificates of Insurance (COI) on all your subcontractors. Technically, even a clerical operation must request a COI for their air conditioning repairman to avoid potential workers’ compensation exposure.

Keep a record of any subcontractor payments made since, even if a COI is not available, the auditor will discount the gross payment and reduce the premium charged. And keep a thorough record of the scope of work performed – there are half a dozen carpentry class codes – so you get charged the correct premium.

General liability insurance uses many “exposure units”. An exposure unit is a statistical devise used to measure average risk to a given type of operation. Some risks are better measured against sales, some by payroll – like workers’ compensation.

Some policies allow square footage as an exposure unit. Of course, this unit is unlikely to change or vary as often as sales or payroll. Ask your agent to shop exposure units that decrease the effects of audits for your company.

Audits assure the insurance does not over or under charge for the risk that your company represents. Sometimes, you’ll receive money back if you over-estimated your exposure units. Cooperate with your auditor, but make it easier on yourself but choosing the right policy period, keeping the correct records, and choosing a compatible exposure unit.

What distinguishes products, completed operations and professional liability?

A product is a good sold to consumers. Think about “things” when you think about products. Products liability covers the business which manufactures the product against injuries, illnesses or property damage caused by the product.

Completed operations are usually contracted building services which have a beginning point and an end point, like installing a heating, ventilation and air conditioning (HVAC) system. Since it is part of a greater system of insulation, walls, floors, ceilings and lights, HVAC is not a stand alone product. The outdoor compressor is. The installation is an operation.

Professional liability insurance covers service oriented business: designers, architects, dentists, doctors, or hair stylists. The key distinction is service versus a product or an installation operation.

So, how does this distinction affect claims negotiations?

Professional liability claims imply poor professionalism which directly affects your reputation. The paid claim implies dereliction of duty or incompetence.

The insurance company’s response to any claim is a business decision – determine the long-term cost of settling and benefit of not paying the claim, pay accordingly. Your reputation does not fit into this decision matrix.

The buying public saw this decision as a conflict of interest. The insurance company did not have to live with a loss of reputation, the professional did. Now the companies offer this solution:

The professional can veto the claims payment.

If the professional chooses to do so, the insurance company is limited to the agreed upon claim amount as their new maximum limit, including legal and claims costs to that point in time.

An architect, with a $1,000,000 professional liability policy, inspects a property and determines the structure is unsafe for renovation. The contractor talks the owner into going forward anyway. The building collapses. The owner sues the architect for “allowing” the contractor to start work before the structural issues are addressed. The insurance company offers a settlement of $100,000 after spending $25,000 on legal fees.

The architect can either endorse the settlement and pay the client or he can refuse, but now his coverage limit drops to $125,000 inclusive of legal fees. It is a much more difficult reputation decision than a business decision.

Let’s walk through the evolution of a mold claim due to roofing repairs or interior restorations.

The building owner calls and reports the leak or damage. Implied in this request is water damage and the intrusion of outdoor elements, like mold, mildew or other various spores.

The roofer assesses damages and fixes the roof. Perhaps other contractors are called in to repair sheetrock walls or ceilings. Everything looks back to normal if not better, and the roof does not leak during the next storm event.

A few weeks later, visible black mold is present in the repaired area. What went wrong and why is the contractor to blame?

Part of the repair process is drying out the dampened area. Mold needs over 15% moisture content to thrive. That level feels very dry to the touch; dry soil is about 17% normally. Wood members need to be that dry because wood is mold food, and it is very difficult if not impossible to remove a colony of mold from a porous surface.

Use a moisture meter to measure the dryness of the repair area before covering up wood with insulation or plastic. Do not encapsulate wood greater than 15% moisture content. Treat any wood exposed to the elements with a biocide before covering it up. This includes new building materials.

Advise the building owner to positively pressure the building to avoid mold infiltration. In other words, circulate filtered air and let the building exhale normally.

If you use these preventative actions, environmental claims will be reduced. Look into Contractors Pollution Liability to cover these occurrences.

To answer the opening question: it is not the roofer’s fault. All the conditions existed for mold growth before they arrived on the scene. However, as a completed operation, roof repairs assume the wood members and other roof materials have been returned to fully functioning condition. Wet wood does not meet this definition because rot and mold is likely to grow on it.

Dry thoroughly – and test the moisture content to verify dryness.

Losses while loading and unloading vehicles, whether it is property of others in your care, custody and control or your own, can be a tangled web of policy language.

The business automobile policy anticipates the risk of loading and unloading vehicles by manpower. Goods delivered to a specific location, whether that location is a loading dock or a fourth floor apartment bedroom, is covered for liability under business automobile as long as the goods are delivered by non-motorized means – think forklifts.

So if your delivery professional dents a car in the parking lot or a hallway wall in the building while using a hand truck to deliver, the business automobile policy pays for the damage. Unloading is defined by the final destination, not just literally off the vehicle.

Delivery by motorized device is subject to general liability rules. Loading a truck on a loading dock using a pallet jack would be subject to business automobile; using a fork lift, general liability would cover damages.

Damage to your own property is subject to property coverage, specifically inland marine during transportation. Property belonging to other people while in your care, custody or control is treated exactly the same way. You need property coverage to pay for damages while in transport, including loading and unloading.

General liability and business automobile policies assure there is no double coverage by defining through exclusions which policy covers which event. Even if you use your employees vehicles in business, buy business automobile non-owned coverage to protect the business.

Ten years ago, the insurance industry adopted new provisions to differentiate mobile equipment and automobiles. These technical definitions exceed the complexity limits of this discussion, but if you have mobile equipment that ever enters a public roadway, talk to your agent or insurance professional.

Remember: manpower is business automobile, motorized loading and unloading is general liability. The cargo must be covered by a property form, probably inland marine.