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What is a Primary and Non-Contributory Endorsement?

What is a Primary and Non-Contributory Endorsement?

Contingent on the business, a primary and noncontributory endorsement can be an important part of an insurance policy. Credible businesses who understand the value of proper insurance coverage may want to require the parties they do business with to have insurance that includes them as an additional insured on a primary and non-contributory basis.

In order to truly recognize the importance of the primary and noncontributory endorsement, we must break down and analyze the terms "primary" and "noncontributory" separately.


Primary:

When an insurance policy is considered “primary” it will pay out first in the event of a loss. If there are two policies covering the same risk, the policy deemed “primary” will pay out its limit before the secondary policy and is responsible for the defense costs until liability is determined. This is important because if there is a claim, you want to the other party’s insurance to pay out first if there is a loss as well as pick up the defense costs.

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Noncontributory:

When and insurance policy is considered “noncontributory” the insurance carrier issuing the policy will not seek contribution from an additional insured if it pays out a loss.

For example, ABC general contractor needs some help constructing a building and hires XYZ subcontractor.  XYZ names ABC as an additional insured on a primary and non-contributory basis. If a claim arises and XYZ’s insurance company pays out, the noncontributory endorsement prevents them from seeking contribution for the loss from ABC. 

This is important because if the other party’s insurance pays out a claim, you don’t want their insurance carrier coming after you after claiming you were partially at fault and should responsible for contributing to the loss.


Primary & Noncontributory Endorsement (CG 20 01):

If you are named as an additional insured on a policy containing a "primary and noncontributory" endorsement, that policy will generally pay out first, cover the defense costs associated with the claim and be estopped from seeking contribution from you.  This endorsement is ideal for general contractors because it helps transfer the risk associated from the negligence of one of its subcontractors.

To learn more about primary & contributory coverage or proper risk transfer in general, contact us to set up a review of your insurance.


THE SKYLINE DIFFERENCE

Other brokerages take a cookie cutter approach to insurance and outfit their customers with generic coverage.  Skyline is different.  We believe insurance should be built on innovation and experience. We appreciate the fact that every engagement is unique and understand proper coverage requires a deep understanding of the underlying business and individual.

"The opportunity to safeguard your concerns is a privilege we never take for granted."

7 Tips for Managing Certificates of Insurance

7 Tips for Managing Certificates of Insurance

For those who do not know, a certificate of insurance ("COIs") is a document, which summarizes an insured’s coverage as it pertains to a particular risk. More often than not, COIs are issued to third parties who require evidence that proper coverage is in place. If handled irresponsibly, Certificates of Insurance COIs can be a cumbersome issue for your business. Here are 7 tips for managing certificates of insurance:


1. Get it from the broker:

Did you know an insured is prohibited by law to issue its own COI? In order for a COI to legally be issued it needs to come from a licensed insurance broker. To avoid any issues, ask an insured’s broker for a COI directly.

2. Set specific and concise requirements for EVERY risk:

There is no such thing as a universal insurance policy for every risk you encounter, determine the specific coverages necessary to ask for in the COI. Developing insurance guidelines specific to each risk you manage is the best way to ensure proper coverage. 

3. Don’t be afraid to voice your concerns:

At the end of the day, you are responsible for protecting the well-being of your business. If you sense or recognize an insured’s COI is not compliant with your requirements say something. Even if you are wrong, developing the habit of questioning and understanding the coverages listed in a COI will pay dividends for you in the future.

4. Create a system for managing COIs:

This may not be the most exciting part of your day but it will save you from misery in the future. Creating an internal system for managing and overseeing COI is a great way to reduce the risk of improper coverage.

5. Don’t Jump The Gun:

No matter how urgent it is to begin working a job, it is not worth risking the livelihood of your business. All too often businesses permit vendors to begin working on a job without reviewing and approving their COIs. You may get away with this once or twice, however, this bad habit can and will lead to issues moving forward. 

6. Record and Respect the Expiration Date:

One of the first pieces of data to extract from a COI is the expiration date of the policies listed. Ask yourself, what if the insured’s coverage expires in the middle of the project? Record and monitor the expiration dates for all policies listed on the COIs and make sure to follow-up for renewals. 

7. Outsourcing:

Depending on the size of your business, you may not be able to handle a comprehensive system for managing COIs internally. A common alternative is to outsource the responsibility of managing your COIs to your insurance broker. Skyline Risk Management, Inc. can oversee and manage your COIs for you. 

If you have specific questions about how you can manage your COIs, contact Skyline Risk Management, Inc. at (718) 267-6600 for more information. 


THE SKYLINE DIFFERENCE

Other brokerages take a cookie cutter approach to insurance and outfit their customers with generic coverage.  Skyline is different.  We believe insurance should be built on innovation and experience. We appreciate the fact that every engagement is unique and understand proper coverage requires a deep understanding of the underlying business and individual.

"The opportunity to safeguard your concerns is a privilege we never take for granted."

Commercial General Liability and the Prior Work Exclusion

Commercial General Liability and the Prior Work Exclusion

What is a policy exclusion?

A policy exclusion is anything specifically not covered by your insurance policy. Every insurance policy has a designated section called “Exclusions”. The purpose of an exclusion is to limit coverages appropriately. Some policies offer coverage for certain risks for which the insured may not need coverage. Exclusions serve to limit excess coverages and often help reduce the cost of insurance.

What is a Commercial General Liability (CGL) policy?

Commercial General Liability (CGL) policies are commonly referred to as General Liability (GL) policies and cover a business for liability against bodily injury (BI) and property damage (PD). CGL policies cover claims, which occur on the premises, or from operations, product and completed operations, and/or advertising personal injury (PI) liability.

Commercial General Liability Exclusions:

Excluding certain coverages from your CGL policy is not a bad thing. Of course the more coverage you have the better protected you are, however, excess coverage for risks that are outside the regular scope of operations may be deemed unnecessary. A big reason why policyholders elect to include calculated exclusions is to remove unnecessary coverages for a reduced premium. On the flip side, carriers commonly issue exclusions for certain risks they are not willing to insure against.

The Prior Work Exclusion:

A popular CGL exclusion carriers request is the Prior Work Exclusion. For example, Paul is a contractor and carries a CGL policy with ABC company effective from January 1st, 2016 to December 31st, 2017. All throughout 2016, Paul is working and completing various jobs.

At the end of 2016, Paul is approached by XYZ insurance carrier offering the same coverages as ABC carrier but at a much more affordable premium. However, XYZ carrier’s policy includes something call a prior work exclusion. Not knowing the significance of the prior work exclusion Paul cancels his policy with ABC carrier and binds with XYZ carrier. Paul believes he made a wise decision because he has the same coverage limits he had with ABC carrier but at a more affordable rate. 

Four months later Paul gets a phone call from one of the clients he performed work for during 2016. The client informs Paul that one of the walls Paul built in the client's office unexpectedly cracked and fell down during the middle of the work day. The felled wall caused significant property damage and bodily injury to one of the client’s employees. The client is not happy and plans to sue Paul for damages. 

Paul calls XYZ carrier to submit the claim. XYZ carrier denies Paul’s coverage because of the prior work exclusion, which clearly states no work that was performed before the effective date of the new policy is covered. Paul now realizes that the prior work exclusion leaves him vulnerable to any and all work he completed prior to the effective date of his policy.

The Lesson Learned:

If you take away anything from this article, understand that exclusions can have a major impact on the quality of a policy. Do not take exclusions lightly and do not underestimate their importance. On the other hand, do not be afraid of exclusions either as some exclusions are okay when coverage is deemed excess and/or unnecessary. The best person to help you make these decisions is your insurance broker. A good broker will be able to identify these potential issues and will recommend alternative coverages to fit the unique needs of your business. 


THE SKYLINE DIFFERENCE

Other brokerages take a cookie cutter approach to insurance and outfit their customers with generic coverage.  Skyline is different.  We believe insurance should be built on innovation and experience. We appreciate the fact that every engagement is unique and understand proper coverage requires a deep understanding of the underlying business and individual.

"The opportunity to safeguard your concerns is a privilege we never take for granted."

Insuring Completed Operations Pollution Risks

Insuring Completed Operations Pollution Risks

Construction companies are increasingly relying on specific insurance policies that protect against lawsuits regarding contamination and pollution. Contractor’s pollution liability, or CPL policies, help construction companies that may face lawsuits related to construction projects.

Pollution and contamination issues related to construction projects garner a lot of negative attention. They can also be financially and professionally difficult to navigate for companies involved in lawsuits. CPL policies can protect project owners and any contractors involved from liability claims.

Pollution, contamination, and other harmful environmental issues can occur during a construction project or after it has officially been completed. During a construction project, excavating, building roads, operating heavy machinery, and the materials used for the building can have a negative impact on the earth around the project.

If something should go wrong during the construction project, the mistake might not be known until after the project has been completed. A CPL policy helps minimize a project’s liability when it comes to environmental issues.


Project-specific policies

Project-specific CPL policies are useful for insuring a particular project that could have an environmental impact in a concentrated area. Obviously, the risk of pollution or contamination are highest where the construction is occurring. In most cases, contractors on a project will purchase a CPL policy and include the owner of the project as the additional named insured on the policy.

Although the instances of CPL policy purchase have increased, there are still some coverage gaps that need to be addressed. Often, the wording of the insurance requirements from the project owners conflicts with the CPL policies.

CPLs come in occurrence and claims-made forms. When a CPL is claims-made, additional insurance is needed for any issues that may arise after the construction project is completed. An occurrence-based policy doesn’t require any additional insurance purchases, but this can cause an increase in risk of claims made after the project is over. If a project owner or contractors choose not to purchase completed operations insurance additions to their CPL policy, this can leave a dangerous coverage gap.

Regardless of policy type, a project owner or contractor’s liability is only for the time period that the insurance policy is for. If damages occurred during that period, the insurance policy comes into play. Having a CPL policy and a completed operations policy can keep a project protected for longer.

A completed operations period refers to the time that a project has been completed, but issues related to the project may still cause problems. This can be a difficult timeframe to pin down. Some projects are more likely to cause pollution or contamination issues during construction, while others may have a bigger environmental impact after the job is done.


Benefits of CPL policies

CPL policies come with a few benefits. One benefit is that a CPL policy is project-specific, meaning an insurance policy can be tailored to an individual project’s characteristics. A policy holder can take into consideration the expected duration of the project, when the most environmental damage may occur, and what the completed operations period might be.

There are many insurance policies that try to cover environmental issues as part of a blanket policy. Having the ability to cater an insurance policy to the needs of a particular project decreases gaps in coverage and helps keep your risk lower for longer.

Additionally, you can choose to purchase completed operations coverage for claims or occurrence policies to cover all bases left by a construction project. CPL insurance isn’t the same as a general liability policy or other environmental insurance policies. An expert in environmental insurance issues should be consulted for your individual project to determine the best insurance for your project.


THE SKYLINE DIFFERENCE

Other brokerages take a cookie cutter approach to insurance and outfit their customers with generic coverage.  Skyline is different.  We believe insurance should be built on innovation and experience. We appreciate the fact that every engagement is unique and understand proper coverage requires a deep understanding of the underlying business and individual.

"The opportunity to safeguard your concerns is a privilege we never take for granted."
 
 
 

Issues in Contractual Privity

Issues in Contractual Privity

Legal issues regarding contractual privity have been occurring around the country, many with conflicting results. This issue primarily affects the construction industry, where insurance policies from the parent company or contractor is filtered down through other third party contractors and subcontractors.

Solving this insurance problem would make it financially safer not only for construction companies, but for the people who work as part of the construction industry. Every part is important to one another, and subcontractors are an integral part of the construction industry. Resolving the issue of contractual privity would make it easier to know what is covered by an insurance policy and what is not.


Explaining blanket additional insurance

When a general contractor or a project owner has insurance for a particular project, they are often able to transfer that insurance to include the people and companies they hire to work on that project. The transfer of insurance comes with the obligation to purchase additional insurance and a contractual risk transfer.

This insurance is known as blanket additional insured endorsements. This kind of insurance is triggered by a written contract that outlines the required additional insurance, as well as a loss that is connected to the person or company who holds the original insurance policy. This becomes very important when a company or subcontractors are trying to decide if the original insurance policy is enough, or if all parties need to be insured by the original policy or blanket insurance additions.

In construction, it can be helpful to have direct contractual contact between two companies to ensure insurance coverage for all involved. In this kind of agreement, general contractors or subcontractors under a parent company may be required to name that owner or parent company on their general liability policies. Without a direct contract between the two parties, it may be difficult to decide if the insurance policy will cover the owner or parent company in case there is an issue.


Legal Ramifications

Cases regarding contractual privity have been ongoing in Connecticut, Maine, and Texas. These cases found that contractual privity (that is, the agreement between two entities) is not required for additional insured endorsements.

The first case in Connecticut, known as First Mercury Insurance versus Shawmut Woodworking, was decided in favor of Shawmut Woodworking. An accident occurred with a subcontractor working under a company working under Shawmut Woodworking. Shawmut Woodworking had taken out additional insurance endorsements with First Mercury Insurance, under the contractual policy that “any person or organization for whom you are performing operations when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy.…"

This statement was taken as evidence that a direct contract between Shawmut Woodworking and the two subcontracting companies was not needed.

The case in Maine involved Pro Con, Incorporated, and Interstate Fire and Casualty. Pro Con was doing a project at Bowdoin College and there was a contract required between Pro Con, Bowdoin, and a subcontractor of Pro Con called Canatal. Canatal then hired another subcontractor that was also required to name Pro Con, Bowdoin, and Canatal as additional insureds on their general liability policy.

In the court case, Pro Con was sued by a subcontracted employee. The details of the blanket endorsement didn’t specify that there needed to be a written contract between all the subcontracting companies, but rather that there just needed to be a general written contract.

Opposing legal action

Other legal cases around the country have found that contractual privity is required, putting into question the impacts of differing legal systems between the states. The laws regarding contractual privity are constantly evolving, but remain incredibly important for companies that work in the construction industry.


 

THE SKYLINE DIFFERENCE

 

Other brokerages take a cookie cutter approach to insurance and outfit their customers with generic coverage.  Skyline is different.  We believe insurance should be built on innovation and experience. We appreciate the fact that every engagement is unique and understand proper coverage requires a deep understanding of the underlying business and individual.

"The opportunity to safeguard your concerns is a privilege we never take for granted."
 
 
 

Understanding Liability Under the False Claims Act

Understanding Liability Under the False Claims Act

Over the years, government compliance requirements have grown and grown. They've become more intricate, too – as have the tools needed to enforce them. Using a wide array of enforcement methods, the federal agencies work to control and enforce compliance.

There is one tool the government uses that affect contractors more than others – the False Claims Act. While understanding the False Claims Act can be difficult, it's imperative for contractors and surety professionals. The risks associated with violating the Act are significant.


What is the False Claims Act?

Before we get too far in, let's break down the False Claims Act. While complicated, the Act boils down to this: the law imposes liability on companies and individuals who defraud any government program. The federal government uses the act as the primary litigation device in fighting fraud against the government.

Not Too Difficult?

Contractors are typically aware that defrauding a customer, company, or government is completely prohibited and illegal. The False Claims Act extends beyond full-on fraud. A doctrine known as the "false certification doctrine" states that a contractor who falsely states they have complied with a variety of compliance policies imposed by the government can be held liable under the False Claims Act.

Violating the False Claims Act is far easier than committing traditional fraud. The government doesn't have to prove any damages suffered. They simply have to find a contractor who has submitted a claim that was "known" to be false.

Due to how the Act is enforced and the "false certification doctrine" – it is incredibly simply to violate the False Claims Act. Once you do, the violations can add up. Most contractors find a violation can be exceptionally costly.


Volatile and Expensive

There are two different types of liabilities the government can dish out to violators of the False Claims Act. Both actual damages and statutory penalties can be lobbied against violators.

The penalties can be between $10,781 and $21,563 for each claim submitted by the government. As individual invoices are treated as separate claims, a large penalty can be enforced – even when the government hasn't suffered any actual harm.

Not only are the fines costly, but they can be unpredictable, too. Even subcontractors without a direct relationship to the government can be subjected to liability – just like federal prime contractors.

Due to the whistleblower provisions in the False Claims Act, individuals with knowledge of a company's operations can bring suit on the government's behalf. This clause often catches contractors flat-footed and unaware of the consequences that may be coming.


What Sureties & Their Contractors Should Know

Paying attention to the False Claims Act is mandatory these days. While it seems to be tougher and tougher to stay in compliance with the Act than ever before, the consequences for failing to do so continue to get higher and higher.

As a surety, it's imperative to educate contractors on the perils of the False Claims Act. Contractors can take a number of steps to ensure risks are minimized. For example, a contractor could:

  • Implement a mandatory independent review of every single invoice by a project manager before submitting and completing the project.
  • Continual communication with the federal government through counsel. Details of contractual difficulties that arise and compliance issue may be discussed.
  • Fully implementing a compliance, monitoring, and training program for all employees that covers a majority of significant contractual requirements.

On top of these ideas, a contractor may seek to consult with outside counsel regarding changes to federal regulations and implementation. By doing so, a contractor can limit exposure to liabilities under the Act. 

To learn more about liability under the False Claims Act and how this effects your business contact Skyline Risk Management, Inc. at (718) 267-6600.

Understanding Flood Insurance in 2017

Understanding Flood Insurance in 2017

After flying through the House, many believed the Flood Insurance Market Parity and Modernization Act would zip through the Senate, too. The Act was thought to become law sooner than later. However, things didn't go as smoothly as planned in the Senate.

The National Association of Professional Surplus Lines Offices (NAPSLO) and their officials continue to work to get the bill through the Senate. They continue to work to get this Act into law.


Understanding the Act

Why is the Flood Insurance Market Parity and Modernization Act of such importance for NAPSLO? For a variety of reasons, but one seems to stand out: the bill clarifies the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12).

The new Act defines the ability of privately issue flood insurance when meeting a lenders' purchasing requirements. Initially, the Act required lenders to accept private flood insurance for mandatory purchase. Then language was added before the bill was passed that created confusion. Lenders who were evaluating policies for the purpose of complying with mandatory flood insurance requirements became confused.

Now, the Flood Insurance and Market Parity and Modernization Act clearly defines a private flood insurance policy as:

"A policy issued by a company licensed, admitted or otherwise approved by the state."

According to Brady Kelly, the Executive Director of the NAPSLO, the bill strives to clarify a number of items, including the surplus lines market:

"All we're doing in this legislation is clarifying that the Surplus Lines market is, in fact, an eligible market from which to accept a private Flood insurance policy. I say that because Surplus Lines insurers have long written Flood insurance policies — this isn't a new opportunity.

Before BW-12 was signed, our market has always served as a supplement to the NFIP There are a number of homes and commercial properties that don't fit within the terms and conditions of the NFIP policy.

So we've oftentimes served as an excess option, or an option when the NFIP policy doesn't do the trick. From that perspective, the primary goal is to preserve the types of solutions the market was already providing."


No Smooth Sailing

While the bill is hung up at the Senate now, the House was no issue. In April of last year, the Flood Insurance Market Parity and Modernization Act flew through the House with a vote of 419-0.

While the victory seemed like smooth sailing, many have noted the result stemmed from a lot of hard work. The NAPSLO began educating legislators on the bill and the surplus lines marketplace at the start of 2014. These efforts were in preparation for the day the bill reached the House.

According to NAPSLO higher-up Keri Kish, the surplus line marketplace is:

 "It's not something everyone just knows about and understands. Our education really helped them understand how the Surplus Lines market functions as part of the private insurance market — how we developed and why it's important to maintain our ability to provide those options."

Luckily, many believe the failure in the Senate was more due to timing than legitimate concern over surplus lines. The election took a lot of time and energy for those in Washington. Many Senators were in heated state races and didn't have time or concern to hear about flooding.

Once the elections have passed, many surmise the bill will get more focus in the Senate. Not only will the election be over, but increased interest in flood issue will be coming up next year, as the National Flood Insurance Program is being reauthorized.


Optimism in 2017

Many NAPSLO members are excited and optimistic about the idea of the bill passing the Senate in 2017. Kish certainly is:

"I'm confident it will pass this year. There's no reason not to do it now. Ultimately, this is giving consumers choices. I can see no policy concerns in passing it this year."

While optimism is good, we'll have to wait and see if the bill goes through. If issues arise, the potential impact on the surplus line marketplace will certainly be noticed. The bill needs to be passed if the private market is to be a viable alternative to the NFIP.


The Strength of the Surety Market

The Strength of the Surety Market

It's not too complex. Naturally, the power of the surety market strongly correlates with the success of the construction industry. The stats show that when the construction industry is down – so are the surety markets.

With over $5.5 billion in 2008, the construction markets took a dive following the recession. Once the economy improved, the markets rebounded, and construction activity increased to over $5.5 billion once again in 2015. Looking at statistics isn't the only way to know the markets have bounced back.

According to Susan Hecker, director of national contract surety and area executive vice president, Arthur J. Gallagher & Co:

"One way I measure what's going on in the construction industry is how many tower cranes I can count on my drive to work every day. Over the past few years in the San Francisco area, it has gone from a handful to more than 50."


Understanding the Upswing

Private projects are thriving, and more bonds have been issues on these plans as of late. Most see this as a great thing for sureties, as lending institutions have started to require bonds for financing projects in the private sector.

However, spending on public projects has not found the same level of bounce-back. State and local governments don't have the funding that they did before the recession. While there is still a demand for projects, the government has to get creative in finding ways to meet their needs.

Enter P3s. One creative manner many government entities are working on is public-private partnerships or P3s. While the name is self-explanatory, the surety side has been working to offer bonds that fill this ever-growing market. Typically, a P3s bond offering will need to be more liquid.


Is All Growth Good?

While the upswing in the construction and bonding demand is a good thing, there are still concerns. Many worry about the availability of high-skilled employees and workers. It can be hard to find a qualified workforce for many construction companies these days.

The lack of skilled workers comes from a few factors. First, baby boomers are retiring. This leaves a lot of knowledge at the trade level off the table. There is a void to fill. And while the unemployment rate for construction workers is lower than it has been in the last decade, the available labor force has been strained. According to Ed Titus, senior vice president of surety for Philadelphia Insurance Cos:

“We see the Texas, California, and Florida construction markets struggling with not having enough of an available trained, skilled workforce for contractors to start bidding on new projects."


Cause & Effect

With a lack of skilled labor, most sureties have been keeping a close eye on the industry. Many have found a rise in claims. A lack of workers makes it difficult to finish on time. Projects that take longer often find more damages, too.

Plus, the flow of money slows down. Often, owners can't pay sub-trades until things get completed. When this happens, a claim can be triggered. Bonds often guarantee labor providers and suppliers are paid. If the flow of cash is slow, then it comes back to the claims.


Energy Sector Issues

Construction isn't the only industry sureties work heavily in. The energy sector has been problematic for the surety markets lately, too. Bankruptcy in the energy sector has become all too familiar.

The largest surety loss of all time was an energy company, Enron. Thus, when sureties see a number of energy companies file for bankruptcy, there's a legitimate call for concern.


Understanding the Surety Marketplace

With the construction industry coming up, sureties are looking to expand their business. Professionals in the space are hungry for new business. But with pricing becoming hyper-competitive, one can expect the industry to remain active and engaged – if profitable results are to continue. 

For more information on bonds and surety contact Skyline Risk Management, Inc. at (718) 267-6600. 

Trends for 2017: Workers' Comp Edition

Trends for 2017: Workers' Comp Edition

Some brokers struggle to help clients these days. It's not easy. Rising health care costs seem to be an inevitable part of doing business today. While the skyrocketing costs cannot be ignored, there are ways to decrease risk and manage premiums in the wide world of workers' comp.


Workers' Comp Trends in 2017

As we enter 2017, changes and trends in the workers' comp world are coming. Brokers may have niche opportunities to help businesses and clients by keeping workers' comp costs in line.

Here are six workers' comp trends to pay attention to:

1. Rising Premiums

High claims typically lead to high premiums. This is the insurance industry in a nutshell. That's the bad news, but it gets worse. Certain insurance companies have seen more claims, longer breaks from work, and higher dollar amounts being claimed. That's a recipe for high premiums. And many predict these premiums will continue to go up due to increasing costs for prescription drugs and an aging workforce. If change is to happen quickly, most brokers note it'll come from within an organization – not to the system.


2. Bad Management

One way companies may control workers' comp costs is through better management of pharmaceutical benefits. Opioid use has continued to rise in the United States. As such, many employers require workers' comp claims using opioids to have a weaning off strategy at the start. Another way to manage benefits is limiting where employees can get pharmaceuticals. Getting drugs from the physician's office typically costs more than at an off-site pharmacy.


3. Plentiful Partnerships

Certain workers' comp programs have developed relationships with facilities that specialize in work-related injuries specific to their industry. While requiring workers' comp claimants to choose a particular occupational medicine clinic is barred, a recommendation is legal. Brokers can help make an introduction in these scenarios.


4. More Technology

Innovations in the medical field incorporate technology to give patients options. Telemedicine is one such trend. Instead of visiting a doctor's office, a patient can call in on a smartphone or iPad at any time during the day or night. This is especially useful for people who work nights and mornings. Other programs have incorporated a hotline that connects injured employees to a health care professional immediately.


5. Cultural Focus

A culture of getting back to work is essential to ensure the success of a workers' comp program. Employees who want to get healthy and get back to work can save a company a lot of money. One way to potentially get employees back faster is through support. Most companies don't contact employees while they're off on a workers' comp claim. A phone call or card from a supervisor could help an employee recover mentally and physically.

Many were surprised to learn that over 80% of a workers' comp program costs go towards 5% of the claims. This means employees away from the job for a long time eat up more costs than anything else. Getting these people back on the job on schedule can be significant for workers' comp programs.


6. Keep Things Safe

While workers' comp programs are in place for a reason, the easiest way to potentially control costs is through a safety program at the workplace. Many have found the costs of incorporating more safety programs and measures to be minimal compared to the cost of workers' comp when an employee gets injured.

Certain companies have found a large financial incentive to focusing on safety and doing things the correct way. A broker can play a significant role in helping companies manage workers' comp costs by focusing on safety. 


For more information regarding workers compensation contact Skyline Risk Management, Inc. at (718) 267-6600. 

It Finally Happened! 421-A Gets Extended

It Finally Happened! 421-A Gets Extended

It took months upon months. There was a lot of hand-wringing. Developers threatend to stop a number of multifamily developments if there was no tax abatement in place.

Luckily, that disaster was avoided. Finally, the Real Estate Board of New York and the Building and Construction Trades Council of Greater New York came to an agreement. The extension of the lapsed 421-A program that offers tax exemption has been extended.


What It Means?

So what was all the fuss about? The 421-A extension means that eligible buildings in Manhattan must pay an average hourly wage of at least $60 – including all wages and benefits. Other buildings in Queens and Brooklyn are required to pay at least $45 per hour when all wages and benefits are taken into account.

The 421-A extension obligations only apply to buildings in certain areas that meet specific criteria. Only buildings in Manhattan south of 96th street qualify. In Brooklyn and Queens, only buildings in Community Boards 1 and 2 around one mile from the closest waterfront bulkhead qualify.

As well, only buildings with over 300 rental units are obligated to the pay stipulations. Buildings that have 50% or more of affordable housing units are also excluded from the obligations in 421-A.

If a project began before the effective date of the new 421-A agreement, then the project can choose to opt-in to the program if they want to. Of course, these projects must meet eligibility criteria, too.


Understanding the Benefits of 421-A

While the details are important, the reasoning behind the agreement shouldn't be overlooked. Many important people are thrilled with the agreement, especially regarding benefits for low-income New Yorkers. Governor Andrew Cuomo is one of them:

"The deal reached today between these parties provides more affordability for tenants and fairer wages for workers than under the original proposal. While I would prefer even more affordability in the 421-a program, this agreement marks a major step forward for New Yorkers.

The agreement extends affordability for projects created with 421-a for an additional five years–bringing affordability for these units to 40 years. It also allows lower-income individuals to qualify as it lowers the percentage of area median income needed to apply.

Additionally, this agreement rightly delivers fair wages for working men and women – providing a rate of $60 per hour in Manhattan and $45 for certain projects in Brooklyn and Queens. Most importantly until this agreement is finalized, the State Legislature has refused to release $2 billion in state affordable housing funds. I urge the Legislature to come back to Albany to pass desperately needed affordable housing and to sign the MOU to release these funds. We simply cannot allow the lack of resolution to stall affordable housing production for years to come. There is no excuse not to act."


More Info on 421-A

Governor Andrew Cuomo is excited about 421-A for a number of reasons, including:

1. Traditional Worker Standards: Many applaud the amendment for continuing to give construction workers the rights they deserve in New York City. The standards and benefits provided in 421-A go a long way towards keeping workers taken care of.

2. Affordable Housing: The 421-A amendment allows for the development of affordable housing for low-income individuals. This is critical in a city like New York City, which features some of the most expensive housing costs in the world. The 421-A program allows buildings complying with the regulations to stay in the program for 35 years with a property tax exemption. This incentive should keep units with income limitations in the program.


Finally Done!

Overall, the passing of 421-A is set to benefit a number of New Yorkers. The amendment ensures quality wages and benefits for construction workers. It also ensures affordable housing units are created in some of New York's most popular neighborhoods and areas. 

For more information about NYC insurance laws contact Skyline Risk Management, Inc. at (718) 267-6600.

New York Labor Law

New York Labor Law

  • What it means for property owners, their agents, managers and commercial tenants.
  • What you need to know to protect your assets.
  • How GNY can help.

New York Labor Law:

New York State’s Labor Law (NYLL) represents an onerous burden for property owners and managing agents in New York, making them financially liable for virtually any work-related accident on their premises. So as building owners and managing agents routinely hire contractors to do work on their properties, they routinely face huge liability exposures.
To insulate themselves from high-value lawsuits brought by injured workers, building owners and managing agents should enter into hold harmless and indemnification agreements, backed up by the contractors’ own insurance, which transfers liability for such injuries from themselves to the contractors and subcontractors whose negligence caused the injuries. Failure to do so can cost building owners millions of dollars.

GNY can help navigate this challenging landscape.


Three Key Sections:

1. Section 200 requires building owners and managing agents to provide workers with safe places to work.

2. Section 241(6) makes building owners strictly and vicariously liable for worker injuries at their buildings if improper or inadequate safety equipment causes a worker’s injury. Damages from resulting lawsuits can be reduced or eliminated if building owners can show that the injured worker was partially or fully responsible for his injuries.

3. Section 240(1), commonly known as the Scaffold Law, makes the building owners as well as their contractors and project managers “absolutely liable” for all gravity-related construction accidents at their buildings, subject to a few hard-to-prove exceptions. The building owner is liable even if it did not hire the injured worker or his employer, even if it did not know that the worker or his employer was working at the building, and even if the worker is partially or fully responsible for his own injuries. These lawsuits often result in summary judgment for the plaintiff on the issue of liability, leaving only the damages portion of the lawsuit to be tried against the building owner and property manager. Because these lawsuits often present serious injuries, verdicts in such cases can be quite high.

  • A good safety record will not protect building owners, managing agents and construction contractors from liability under any of these statutes. In addition, litigation can become a part of your loss history, which may drive up your insurance rates. Don’t let this happen to you.

  • GNY Recommends The Following Steps To Protect Your Business And Assets Under These Statutes: 

1. KNOW YOUR CONTRACTOR:

  • Verify the contractor is properly licensed, insured and experienced in the type of work it is being hired to perform.
  • Verify whether the general contractor uses subcontractors. If the general contractor uses subcontractors, find out how it screens its subcontractors and confirm with your contractors that its subcontractors are properly insured.
  • Verify there are written agreements in place between the building owner and its general contractor, as well as between the general contractor and its subcontractors, with proper indemnification and insurance-procurement clauses. The contractor and subcontractors should name the building owner and the managing agent as additional insureds on their liability policies on a primary and non-contributory basis.
  • Verify before entering into contracts with your contractors that the contracts make the contractors responsible for worksite safety and for having a safety-and-employee training program in place.
  • Verify contractors have obtained all necessary permits before they begin their work.
  • Verify your contractors and their subcontractors do not have a history of Occupational Safety and Health Administration Law violations.

2. USE RISK TRANSFER TACTICS:

Using written contracts to transfer the risk of liability and damages from you to your contractors can protect you from claims of serious injury and potentially large damage awards. The following clauses have proven successful:

  • Hold Harmless and Indemnification Agreements

Every contract between you and your general contractors, as well every contract between your general contractors and their subcontractors, must contain a clause requiring the general contractors and their subcontractors to “defend,” “indemnify,” and “hold harmless” the building owner and the managing agent from liability, loss or other damages that arise because of any of the contractors’ negligence. It is important that this agreement be properly worded, dated and executed before the work begins.

  • Insurance Procurement Requirement

Contractors and their subcontractors must agree to add building owners and their managing agents as additional insureds to their insurance policies for any liability arising out of their work. The limits of these policies should be at least $1 million for a primary commercial general liability (CGL) policy and $5 million for an umbrella policy. Also, the additional insured coverage should be written on a “primary and non-contributory basis.”

  • Insurance Requirements and Certificates of Insurance

While it is common practice to request a Certificate of Insurance (COI) from contractors and subcontractors, the certificate alone does not confer or prove the existence of additional-insured coverage on your behalf. A proven “best practice” is to require your contractors to submit a copy of their primary liability and umbrella policies for review by an insurance professional. All COI’s and insurance policies must be provided to the building owner or managing agent before the work begins. The COI and insurance policies should also show that the building owner and managing agent are named on the primary and umbrella policies as additional insureds.

GNY will review your contracts with your contractor or subcontractors free of charge. Simply ask your broker to forward the contracts and insurance policies to your GNY underwriter.


SPECIAL CONSIDERATIONS FOR ...

 

COMMERCIAL PROPERTY OWNERS:


NYLL’s unfavorable liability provisions can adversely affect the owners of commercial buildings when tenants hire contractors to perform construction, alteration, repair or maintenance in their units, and those tenants are inadequately insured or indemnified by the contractors they hire.

As part of their commercial leases with tenants, building owners should use the same strategies suggested above for the transfer of risk from themselves to their contractors:

  • Obtain copies of the CGL and umbrella policies and COI’s from all commercial tenants and their contractors.
  • Set up a notification system alerting you to renewal dates for these policies.
  • Make sure tenants have sufficient CGL and umbrella policy limits.
  • Require tenants and their contractors to name the building owner and the managing agent as additional insureds on their CGL policies on a primary and non-contributory basis.
  • Require tenants to sign agreements indemnifying and holding the building owner and managing agent harmless for liability arising out any of the tenants’ work in their units.
  • Review your leases with an attorney to ensure these clauses have been included in the leases.

GNY will review the relevant contractual clauses and policy provisions for you free of charge. Simply ask your broker to forward the contracts and insurance policies to your GNY underwriter.


RESIDENTIAL CO-OPS

To protect the board, the shareholders and the co-op corporation, the same risk-transfer strategies mentioned above should be in place whenever a shareholder in a co-op has work done in his unit. This work ought to be done under an Alteration Agreement, which should require the shareholder’s contractors to indemnify and hold harmless the shareholder, the co-op and the managing agent, and to name these entities as additional insureds on the contractors’ general-liability policies on a “primary and non-contributory” basis.

The Alteration Agreement should also require the shareholder to indemnify the co-op and the managing agent and to have proper liability insurance in place to cover these exposures. The co-op must mandate, preferably in the lease agreement, that contractors cannot begin work in a unit until the shareholder submits to the co-op and the co-op approves all of these construction contracts and insurance policies.

Insurance companies insuring contractors have come up with broad exclusions and limitations designed to protect them from having to defend and indemnify you as additional insureds under their policies. This is very unfair to the co-op. By showing you what to look for in these policies, GNY can help protect you and your finances.

GNY will review the relevant contractual clauses and policy provisions for you free of charge. Simply ask your broker to forward the contracts and insurance policies to your GNY underwriter.

GNY can also supply you with an exemplar of an “Alteration Agreement” incorporating these conditions for the co-op, the shareholder and the contractors to sign.

Actual Cash Value (ACV) Vs. Replacement Cost Value (RCV)

Actual Cash Value (ACV) Vs. Replacement Cost Value (RCV)

Buying items is simple. Selling things is a little more difficult, but still fairly straightforward. As long as humans have been around, we’ve been giving value to certain items, whether it be monetarily or otherwise. “How much does it cost?” isn’t that complex of a question – until it is.

So when it pricing complex? Pricing becomes a problem when claims adjusters get involved. Finding a definitive price for an item not on the market, after depreciation, and so forth is an art form. Well, more like a science. So how do claims adjusters find the true or definitive price of an item?


The Basics

Enter actual cash value (ACV) and replacement cost value (RCV). Actual cash value is the cost to replace an item minus depreciation. Replacement cost value is the cost to replace the asset at the full present value.

While these concepts may seem straightforward, things can get complex quickly. Adjusters not only need to decide on the value of an item, but there are also numerous local and state laws that can impact how ACV and RCV are calculated.


Diving Into Differences

Each state tends to handle ACV and RCV a bit differently. For instance, California includes an interesting tidbit in their legislation regarding these issues. In California:

“Actual cash value is the amount it would cost the insured to repair, rebuild, or replace the item lost or injured less a fair and reasonable deduction for physical depreciation based on its condition at the time of the loss.”

While seemingly fair, this leaves pre-loss condition in a tough situation. Many adjusters have found themselves between a rock and a hard place due to this law. Often, it can be difficult to determine what an item actually is – much less its exact condition at the time of the loss.


Unique or Obsolete

Furthering confusing things, an adjuster has to work with obsolete and unique items. Not even item loss will be easily purchased on Amazon.com. No, there will be a variety of items that hold a unique value for the owner. Many of these items will be tough to find pricing for.

 This Honus Wagner baseball card sold for 2.1 Million in 2013

This Honus Wagner baseball card sold for 2.1 Million in 2013

As an adjuster, understanding that one man’s trash could equate to another’s treasure is paramount when dealing with these unique cases. When dealing with these cases, communication is key. The adjuster must work to understand the insured and what he or she places value on. You need to understand the insured and the item before placing a value on it.

When dealing with these items, begin by understanding what exactly the item is, how it was used, and if the insured still values it. Many times, an adjuster will need to dig deep and do some research before giving value to a unique or obsolete item.

If an adjuster is struggling to price an item properly, try:

  • Consulting experts in the field. Look for a certified consultant who can help you give value to a unique, obsolete, or high-priced item. Always verify these individuals’ credentials.
  • Use the Internet. While Internet pricing isn’t the most accurate, you’ll often be able to gather a working knowledge of the item and its value by going online.

Overall, the best way to determine value for an obsolete or unique item is to find a similar item already on the market. Finding a similar kind and like item can ensure fair pricing and valuation for both parties.


Understanding Antiques

Antique items open a whole other bag of worms for adjusters. Not every item that is older is considered a valuable antique. Most items are required to be a certain age and origin to qualify. A minimum of 100 years old is required for an item to be “antique” from an insurance perspective. Adjusters should handle antique items in a similar manner to obsolete and unique items.


Actual Cash Value Vs. Replacement Cost Value

Overall, understanding the actual cash value versus the replacement cost value isn’t that complex. Most homeowners will benefit from RCV more than ACV when an adjuster is looking into their claim. How a state handles these cases and individual policies will go a long way in determining how the claim is calculated.

For more information about Actual Cash Value (ACV) vs. Replacement Cast Value (RCV) contact Skyline Risk Management, Inc. at (718) 267-6600

Additional Insured Coverage Confirmed Limited to Contractual Privity in New York

Additional Insured Coverage Confirmed Limited to Contractual Privity in New York

The New York Supreme Court, Appellate Division, First Department decided that additional insured endorsement only provided additional insured coverage to an entity in direct contractual privity with the named insured. The decision reinforces the New York law, which controls policy language entitlement to added insured coverage.


Why the Confirmation?

The New York Supreme Court was forced to confirm this law due to a recent case. Brought to heed on Sept. 15, 2016, the case involved the Dormitory Authority of New York (DASNY), Gilbane Building Co. /TDX Construction Corp (a joint venture, or JV)., and Sampson Construction Company.

The contract between DASNY and the JV stated that all prime contractors retained by DASNY were to name the construction manager as an additional insured under the liability policies. This was a requirement.

Next, DASNY contracted with Sampson to retain its services as a prime contractor in all foundation and excavation labor. In this contract, Sampson agreed to name the construction manager as an additional insured on its commercial general liability policy. The company then purchases a commercial general liability insurance plan from Liberty Insurance.

The policy Sampson procured from Liberty contained the following information about additional insured endorsements:

WHO IS AN INSURED: (Section II) is amended to include as an insured any person or organization with whom you have agreed to add as an additional insured by written contract, but only with respect to liability arising out of your operations or premises owned by or rented to you.

Moving forward – the work Sampson did on the job site allegedly created property damage to the building adjacent. Thus, DASNY filed suit against Sampson and the architect. Then the architect bought a suit against the JV, too. The JV then sought coverage under the Liberty policy that Sampson procured for the DASNY contract as additional insured.

Liberty denied coverage. So the defendants opened a declaratory judgment action against Liberty. Then Liberty made a play for a summary judgment, claiming that additional summary judgment would require some direct contractual privity with the named insured, Sampson.

The court then denied Liberty’s motion on the basis that the policy only required a written contract in which Sampson is a party. This requirement was satisfied when DASNY and Sampson entered a contract. However, this was overturned on appeal based on the additional insured endorsement.

While the Sampson and DASNY contract was evidence that Sampson agreed to provide coverage, the court ruled that this has no impact on the coverage Liberty agreed to provide them. This opened the door for the JV to pursue Sampson on a breach of contract clause, as a third-party beneficiary.


Nothing Has Changed

The concept that New York courts read closely regarding additional insured endorsements determined whether privity was required is nothing new. The Gilbane Court relied on numerous prior decisions with similar language, including:

AB Green Gansevoort, LLC v. Peter Scalamandre & Sons, Inc., 102 A.D.3d 425, 961 N.Y.S.2d 3 (1st Dep’t 2013) (requiring contractual privity where additional insured endorsement stated that “an organization is added as an additional insured ‘when you and such organization have agreed in writing in a contract or agreement that such organization be added as an additional insured on your policy.’”); Linarello v. City Univ. of New York, 6 A.D.3d 192, 774 N.Y.S.2d 517 (1st Dep’t 2004) (same). See also Zoological Soc. of Buffalo, Inc. v. Carvedrock, LLC, No. 10-CV-35-A, 2014 WL 3748545 (W.D.N.Y. July 29, 2014) (requiring contractual privity where additional insured endorsement afforded coverage to “[a]ny person or organization with whom you have agreed, in a written contract, that such person or organization should be added as an insured on your policy, provided such written contract is fully executed prior to the ‘occurrence’ in which coverage is sought under this policy.”)

The JV and courts attempted to distinguish the language in each policy, but the Gilbane Court clearly stated that privity between named insured and additional insured is required. 

For more information about Additional Insured Coverage, contact Skyline Risk Management, Inc. at (718) 267-6600

New And Improved Workers’ Comp Rehabilitation Programs

New And Improved Workers’ Comp Rehabilitation Programs

The end goal in a workers’ compensation claim is to get the employee in the position to be able to go back to work. Work rehabilitation has long been a factor that contributes to this goal. By providing employees with the proper physical therapy to be able to successfully do their job once more, it is not only improving the well-being of the employee, but also benefits the employer as the carrier can typically closer the claim quicker. However, work rehabilitation programs have changed, and new and more efficient programs have mostly replaced the more scattered, outdated rehab plans of the past.


Work Hardening and Conditioning

A term that many often use in correlation with workers’ comp is "work hardening." Work hardening is a multi-focus regiment used to physically and mentally prepare employees to return to work. Sessions run several hours long, are often five days a week, and can take as long as eight weeks to complete. In the past, this type of return to work effort was used mainly for skilled laborers who needed to regain dexterity to perform their job again. The problem with work hardening is that most employees injured on the job do not need rehabilitation to the extent that it is designed to provide. The cost of the problem often outweighs the value.

Work conditioning is another method of workers’ comp rehabilitation that is more boot camp-like. The regiment includes an individualized plan for recovery, but focuses more on the physical aspect of returning to work only.


New and Improved Rehabilitation

Today, new return to work programs are using a mixture of the two techniques to create the advanced work rehabilitation plans that health care professionals commonly use for the modern injured worker. There are a few key factors contributing to the success of the program.

  • Personalizing: Crafting the rehabilitation plan to each employee is important to make the program as efficient as possible. Each workers’ comp injury can be vastly different from the next, and so it stands to reason that every rehabilitation plan should be different as well.

  • Focus on Job-Specific Functions: The primary goal in back to work rehabilitation is for the employee to get back the ability to do their job unhindered. Returning to work may require small steps to accomplish, but by focusing on the specific functions they need to perform their job tasks, workers’ are typically able to return to work faster than they are with multi-function rehab plans. By strengthening the functions that the employee uses on a daily basis on the job, there is also a lower chance of re-injury. 

  • Faster Recovery: With the specificity of today’s return to work programs, workers’ are often able to return to the job much faster than they had in the past. The employer clearly benefits from this as the cost of the workers’ comp claim is less, but it also benefits the employee as well. The longer one is out from work, the harder it is to return. Benefiting from a quick recovery, the worker can get back into the flow of things faster and become a productive member of the workforce once again.


Recap

Getting injured on the job is not an ideal situation for anyone. Typically, neither the employee nor their employer wants to see the worker undergo the arduous and sometimes painful process of rehabilitation. Though it can seem like a daunting task to undertake, by utilizing the personalized workers’ comp rehabilitation programs available today, employees are now able to get on the path to recovery and return to work faster than ever.

For more information contact: Skyline Risk Management, Inc. at (718) 267-6600

The Upside of Tech-Savvy Construction

The Upside of Tech-Savvy Construction

In a world full of bad news, good news comes in the form of the rise of the construction market. While it has not quite hit pre-recession levels, numbers are expected to increase in 2017. So now that the market is recovering, the next goal to tackle is how the construction industry can be improved.  It turns out that technology might play a big part in the future of the business. New technological tools are already bringing new advantages to the worksite and opening up the doors for new and possibly better ways of doing things.


Loss Reduction

The ability to predict, detect, and counteract losses is game-changing possibility that new technology tools are turning into a reality. Damages to construction from weather and nature-related losses have always been an unfortunate side effect of the trade.  One does not have to look too far back to find a time when technology limitations made weather difficult to track and therefore more frequently devastating. With advancements in technology, weather prediction became more accurate, and contractors were able to prepare better for the coming storms. In the same manner, new technologies are making risks that were hard to predict more manageable.


Building Information Model

A Building Information Model (BMI) is a digital, 3D model of a building that contains combined resources between engineers, architects, and members of other construction trades to help more accurately and more efficiently make development and designing choices. With the shared knowledge of all parties involved, everyone becomes more informed about the other areas of construction. Increased knowledge and awareness makes for a safer and more accurate construction environment. BMIs also provide for less duplication of work, easier conflict resolution between trades, and the ability to be closer to perfection than ever before.


Detectors and Predictors

As mentioned earlier, the weather has always been a significant risk in construction. Enhanced forecasts are a plus, but the precision of weather predicting is reaching higher levels than ever before. A weather predictor or application is an invaluable tool to use on the job site. The ability to anticipate potentially devastating weather provides for the time to take the necessary precautions to lessen or eliminate damage completely.

Water leakage is another area where technology has provided a tool to assist. New water leakage detection technology can determine where there is possible water leakage on a job site. Catching water leaks fast can mitigate any further damage that may have otherwise occurred.


Other Technologies

The development of functional and sophisticated drones has also lead to a convenience in the industry regarding surveying usage. Could the forefathers in construction ever have dreamed that one day we could survey a job site without ever setting foot on it? Another piece of technology that brings a whole new wave of possibility is the 3D printer. The ability to recreate just about anything is a mostly yet untapped potential in the construction field but could provide endless benefits in the future. Mobile Apps are also an area of technology that is teeming with advantage for the tech-savvy tradesman. From calculating apps to assist with supply configuration to blueprinting gadgets, there is a whole market of construction-related apps available.

The fact of the matter is that we are living in the 21st century and as a benefit of life in our time, we are privy to technological advances that those that came before us could ever imagine. The construction industry is no exception to these advantages. The construction market is changing, and technology is beginning to play a bigger and bigger role. Now is the time to make use of the tools that are out there. 

For more information contact Skyline Risk Management, Inc. at (718) 267-6600

Sureties Still a Construction Asset

Sureties Still a Construction Asset

The construction industry has been an ever-changing environment over the last decade or so because it has had to adapt to the rise and fall of the marketDemand has changed, requirements have changed, and desires have changed. Will all these changes in play, it becomes a fair question as to whether sureties are still an important part of the business. The answer to that question is a resounding yes.  With the changes to the construction industry, risks have increased if anything, making sureties a more important part of business than ever.

The primary purpose of a surety is to financially protect the obligee if the principal does not fulfill their contractual obligations. With the changes in the market, there are new reasons why the need for this promise is so vital for contractors.


Tougher Competition

Increased competition in the marketplace presents more than one factor to the changing construction climate.  Everyone in America knows that during the recession, construction was one of the hardest hit industries. Although still recovering, the industry has yet to see conditions equivalent to what they were before the fall of the market.  Even though the market has not fully rebounded, demands of owners have changed and become surprisingly stringent.  More responsibility than ever falls on the heads of the contractors from the expectation to finish uncompleted designs to the need to lower overhead costs significantly just to be able to stay in the market. With increased responsibility comes an increased opportunity for risk.


Enormous Risk

The likelihood of subcontractor default is a scary, but relevant factor in construction. A recent risk study conducted by the Associated General Contractors of America (AGC of America) places the risk of subcontractor default as one of the three highest risks in the construction industries.  Other major risks include highly-detailed contract language and a shortage in skilled laborers. The fact that the very purpose of a surety for a contractor is to protect against subcontractor default and statistics are showing that default is still a huge risk, is alone enough to warrant a surety.

It seems as though subcontractors are not adjusting to the new industry standards in the same manner that others in construction have been forced to.  Maintaining the high overhead or pre-recession times is not going to cut it in today's industry. As an unfortunate side effect, this takes many who may have proven their worth as a subcontractor out of business as they fail to match the bids of others who have adjusted.  The fact that experienced subcontractors are losing bids links to the other risk factor of a lack of skilled laborers. With the shortage, the workload for those who are skilled is increased and falling behind on that workload is a major contributor to the trend of subcontractor default.


Surety Benefits

A surety, then, becomes a great way to combat these risk factors.  Not only does a surety guarantee that if the subcontractor falls behind and fails to live up to their promise, the financial institution will financially compensate you but it also serves a wonderful second purpose. To be guaranteed a surety, the subcontractor must live up to the scrutiny of the bank or lender.  By undergoing this process, contractors can be more assured that the subcontractor they hire is reliable.

Contractors are in many ways in a more precarious position than they were ten years ago with more liability risks being tossed to them every day. However, the risks are manageable. With proper management of these risks, contractors can know that they are protecting their business. One of the most important ways of doing that is a surety, and it is clear that now more than ever not only it is important, it is necessary.

For more information contact Skyline Risk Management, Inc. at (718) 267-6600

Getting Familiar with Rectification Coverage

Getting Familiar with Rectification Coverage

Recently there have been some significant changes to contractors’ professional liability coverage that has expanded the types of coverages available and also opened the doors for more carriers providing for a more competitive market.  It is no surprise then, with the influx of options available, that contractors may be unfamiliar with some of the coverages or their benefits. One such critical coverage relatively new to the game is rectification coverage, and by looking at the benefits and the ways in which it differs from other coverages, one can begin to understand its usage.


What is Rectification Coverage?

Depending on the insurance carrier, rectification coverage may also be known as mitigation of damages coverage or other similar names. Rectification coverage provides first-party coverage to a contractor for the costs that come from fixing design errors made during construction. The coverage’s purpose is to cover the type of serious flaws that, if not corrected, would result in a professional liability claim.

Benefits

-Prevents litigation. The main advantage of rectification coverage over similar coverages is that it prevents the contractor and owner from having to file a liability claim. If the contractor or owner does file a liability claim, negligence has to be determined, and the case could then go to court.

-Help maintain a positive relationship with the owner. By preventing litigation, rectification coverage also allows the contractor to keep the professional relationship with the building’s owner intact.


Important Factors

-Claim Reporting. Because of the seriousness in nature of the type of design flaw that warrants a rectification claim, most insurance carriers require that the contractor reports the claim immediately. In addition, many will also require that along with the reporting of a claim, the contractor must also submit a plan detailing how they will fix the problem.

-Project Specific. Rectification coverage is typically a sub-limit on your standard contractor’s liability policy, but some carriers will allow the insured to add the coverage on a project specific basis. However, they also will additional requirements in correlation with the project specific coverage.


Limitations

-Cost. A rectification claim is not a claim that the contractor will come out of scot-free. There is a significant financial responsibility that they must assume in the event of a claim. Professional liability policies typically have a self-insured retention (SIR) of $250,000 and upwards that the contractor is responsible for in the case of a claim. This SIR applies to any claim on the policy, including a rectification claim. Aside from the SIR, the insurance carrier requires a co-insurance on a rectification claim and most companies require a 20% co-insurance. The substantial out-of-pocket expense for the contractor for this type of claim often means that more feasible for large contractors. However, as things continue to change in the professional liability insurance hopefully, it will become more financially accessible to more contractors.

-Future consequences. If you do need to make a claim under your rectification coverage, it may be difficult to obtain insurance in the future as it suggests that you are a higher insurance risk. In the event you can purchase coverage, it will likely be much higher than you paid before.


How does Rectification Coverage Differ from Other Coverages?

You may be familiar with protective indemnity coverage, which is covered in excess of a professional liability coverage and protects the owner of the building from damages incurred by the contractor. Rectification coverage differs in that it is not an excess coverage, but replaces the liability coverage when used. Also, it is a coverage that protects that contractor rather than the owner. As touched on earlier, rectification also differs from contractors’ liability coverage as there is no need to determine negligence or to go to court.

Rectification coverage can be a very useful coverage, but may not be appropriate for every situation. Contact your insurance agent or carrier with further questions or you are in need of rectification coverage.

For more information contact Skyline Risk Management, Inc. at (718) 267-6600

Small Business Subcontracting Faces More Scrutiny (Compliance)

Small Business Subcontracting Faces More Scrutiny (Compliance)

Gone are the good old days of wheeling and dealing. If you're working with subcontractors, you need to keep an eye on compliance. It doesn't matter if you're working on federal, state, local or prime contracts – you need to know the legal ramifications of every action, and explain them to your subcontractors.

As a construction contractor, you pay close attention to your local subcontracting community. You need to know where you can get great work done when you need it. You even need to know where you can get cheap work done now and then. You know the subcontractors in your area, but are you familiar with the legal ramifications of working with subcontractors on federal contracts?


Get It Right the First Time

Unless you fancy yourself the center of a federal investigation that could end up costing you millions, it's imperative to stay on top of compliance right from the start. You must employ robust compliance measures when working on any and every government contract.

If you don't, you could find a number of government agencies banging on your door. Just a few of the organizations that deal with subcontractors include:

  • The Small Business Administration (SBA)
  • The Federal Acquisition Regulation (FAR)
  • The U.S. Department of Transportation (DOT)
  •  Disadvantaged Business Enterprise Program (DBE)

While we won't go into all the federal regulations, these agencies enforce (as that would take a number of full-length books), a few examples should help illustrate how these organizations work. Take note that negligence is not punished as severely as purposeful actions. 


Tired Trickery

Nationwide Supply and Fence found themselves in a lot of trouble in 2015. They claimed to have used a DBE-qualified company on a number of federally funded projects. In reality, the company had hired a non-DBE company to supply the materials. Then they directed the DBE company they claimed to be working with to make it seem as though they were providing the materials – not the non-DBE business.

This dog-and-pony show resulted in $1.75 million in fines to settle allegations stemming from the project. In addition, one of Nationwide Supply and Fence's former officers was personally dinged over $350,000 to settle further allegations resulting from the trickery.


Masked Markups

Nationwide wasn't the only company in trouble. Yonkers Contracting in New York found themselves ordered to pay over $2.5 million after they violated a DBE program on a federally funded contract.

The company hired Global Marine Supply to provide steel on a DBE federal contract. Global Marine Supply bought the steel from a non-DBE company, then added a 1% markup and sent it to Yonkers. All the while, Yonkers Contracting knew exactly what Global was doing and had signed off on it.  


SKYLINE

As is clear from the above examples, construction contractors can’t afford to ignore subcontracting requirements on federal contracts. If you do so, you could be held accountable for quite a costly sum. Focus on reducing your compliance risk by making sure all subcontractors understand DBE guidelines. 

Have questions about compliance regulations for your business? Contact Skyline Risk Management, Inc. (718) 267-6600 to voice your concerns. 

Top 5 Reasons for Contractors to Consider Environmental Insurance

Top 5 Reasons for Contractors to Consider Environmental Insurance

Most construction contractors are acutely aware of their need for General Liability, Workers' Compensation, and Inland Marine insurance. Rarely will a construction contractor even consider that their company may be tied up in court for performing work that damaged the environment, but it happens, and it happens more frequently than you would imagine.


The U.S. Environmental Protection Agency has determined that contractors working in the construction industry have a significantly high potential for contributing to environmental damages. The EPA considers general contractors, subcontractors, engineers, and architects as the group of usual suspects when it comes to environmental pollution and the resulting damages pollution causes. 

Unfortunately, only a small percentage of active contractors recognize the significant risk of environmental claims that can result from their activities because claim activity is something they pay little attention to until if affects their livelihood.


Environmental Example:

XYZ Grading Services was hired to excavate some trenches on the perimeter of a residential construction project. The soil that was excavated was temporarily piled up on a nearby vacant industrial property. When the excavated trenches were backfilled by the contractor, the excess soil was spread across the construction site and used for grading purposes.

Not long following the completion of the construction project, dioxin was found in other soil at the industrial site where the excavated soil was temporarily stored. After further testing, dioxin was also found in the soil that was spread around the residential construction project. After EPA testing had been completed, it was determined that the contamination had also seeped from the surface into a water supply.

A number of parties to the project were found liable for the pollution which included the XYZ Grading Services and became responsible for a multimillion-dollar cleanup. XYZ Grading Services, a family owned business that had survived for three generations, no longer exists.


Important Reasons for Consideration

Certainly, a typical environmental pollution case should motivate contractors to consider environmental insurance, but if not, consider the following reasons below:

1.      Most General Liability and Professional Liability policies exclude coverage for pollution claims.

2.      Spills of toxic chemicals that are stored and used at job sites such as solvents, finishers, and fuel can lead to a pollution claim.

3.      Exposure resulting from hazardous materials such as fiberglass, asbestos, lead paint, and mercury that is not properly disposed of.

4.      Storm water run-off from project sites due to lack of a safe drainage strategy.

5.      Inadvertently puncturing an underground pipeline or storage tank that causes the release of hazardous materials.

All of the episodes listed above can affect General Contractors and subcontractors as well. Any contractor or subcontractor that becomes a party to a project can be held directly or indirectly responsible for a pollution claim and the significant costs of remediation.


Environmental Insurance Coverage

Fortunately for construction-related contractors, there is a stand-alone Environmental Insurance product that can provide financial protection for defense costs, settlement agreements, and judgments awarded by the court.

Typically, Environmental Insurance Coverage will provide several coverage options:

  • Can be purchased on a claims-made or occurrence basis.
  • Will provide coverage for third-party claims of bodily injury or property damage and environmental damage that results in remediation costs.
  • Can be site-specific for properties owned by the contractor.
  • Coverage for storage and staging of equipment used at a covered job site.
  • Ability to expand the definition of pollution conditions.

SKYLINE

Knowing that your contracting business is operating in a highly regulated and litigious industry, it is incumbent upon each general contractor and subcontractor to transfer the very present risk of polluting the environment and the costs associated with cleaning up the mess you caused. 

To better under your pollution risk and the most effective way to transfer your risk, contact the insurance professionals at Skyline Risk Management, Inc. (718) 267-6600.

Contractors are Now using Drones for Large Construction Projects

Contractors are Now using Drones for Large Construction Projects

Drones are becoming a household concept. More and more industries are looking for the best way to utilize drones safely and effectively to help save time and money for any task. Drones are even becoming something discussed around the home for personal use, especially when dealing with repair and maintenance issues around the house. However, using a drone for business is not that cut and dry. At home they may cause issues, however, businesses must adhere to regulations for their industries as well as insurance issues that could ultimately cause more trouble if ignored. The construction industry sees drones as a huge asset to their business. However, if the proper steps to obtaining and using drones are ignored, the fines and lawsuits could easily put a construction company out of business. Therefore, it is important to know and follow the rules before purchasing a drone for your site.


The Preliminary Work

Before you even purchase a drone, first you must complete some preliminary research and work. For instance, did you know you must receive approval from the FAA to operate a drone? The FAA has guidelines that must be learned and understood when applying for approval for use of a drone (or UAV: Unmanned Aircraft System) on a construction site. In addition to applying for approval from the FAA, you must have a new section of your employee handbook or operations manual that deals with the use of drones, risk management, and safety procedures. This includes proper employee training regarding drones and their proper usage on a job site. In addition to training your employees and receiving an FAA approval, you must prepare to hire drone operators or train current employees on drone operations and have those operating employees pass the required aeronautics test for them to serve as a drone operator.

Finally, the last piece of preliminary work that must be completed before purchasing your first drone is the insurance test. It is important to contact your insurance provider or broker to determine the following items:

  • Does your insurance cover drones?
  • If not, do you need a policy or rider that will cover drones on your worksite?
  • How much will this extra coverage cost, and is it cost effective in the long run?
  • Once coverage is purchased, how long will it take to go into effect?

Your insurance broker should be able to sit with you to discuss these and other issues which may pop up as the results of drone usage on a job site. Most importantly, when dealing with insurance, never assume anything.  Many policies specifically exclude drone usage and specific policies need to be purchased just for this type of issue.


Continuing Issues

Once you have set everything in motion and have purchased your first drone, your job has not ended. Each job site must be analyzed properly to ensure you are within the proper guidelines of the FAA in regard to drone usage. For instance, drones are not allowed to fly over people that are not directly involved with your project.  Therefore, if you are in a busy commercial district, it may be wise to leave the drone at the office or only do work with the drone during off business hours. This and many other regulations will play a constant issues for each job.

Furthermore, since drones are a relatively new technology, the issues involving drones are constantly changing and being updated.  Should you choose to utilize drones for your construction projects, dedicate an individual within your company to constantly check for updates regarding drones in your industry and adjustments you may need to make to accommodate their usage.

Finally, be prepared to always mitigate risks for each job that may occur. Drones are a great opportunity to save money and keep employee injuries down. However, they are new and still being analyzed and understood. Therefore, there is still quite a bit of unknown risk involved. Each job site may offer a different risk as well, therefore, it is important to know your risks in advance and prepare accordingly.  

Interested in using drone technology for your construction company? Contact the experts at Skyline Risk Management, Inc., (718) 267-6600 to get proper coverage for all your business needs.