A Word About D & O Applications

Many commercial property and liability insurance applications are completed primarily by the insured’s broker and may not even be signed (or even reviewed – although they should be) by the insured. However, D&O applications always should be completed personally and very carefully by a senior officer of the policyholder. These applications, and a few others, require a personal signature and typically are attached to the policy itself, if issued, or otherwise become warranties. The significance of this, without trying to get too “legal,” is that omissions or errors in the application are unquestionably attributable to the policyholder and typically afford the insurer the opportunity to rescind (nullify) the policy after a claim, thereby leaving the insured with nothing (except a premium refund.) Use your broker’s advice and experience, but the responsibility – and the consequences if ignored – for a complete and accurate submission, including all attachments, rests with the policyholder.

Don Way
CEO

Are You International?

Most businesses have at least minor exposures outside of the U.S. and Canada; many have substantial exposures.

For those with incidental exposures only, a number of major insurers have designed various forms of an “Exporter’s Package Policy” to cover basic needs. Designed primarily for firms in the early stages of going global, these policies typically offer limited forms of protection in the following areas:

• General liability (premises, if any, and operations)
• Automobile liability (on a contingent basis)
• Product liability (but usually not completed operations)
• Voluntary workers' compensation
• Employer's liability
• Property insurance of various forms
• Business income insurance of various forms
• Marine and air cargo
• Employee theft and other crime coverages

Some interesting challenges arise the moment a firm goes global. For example, in Napoleonic Code countries (e.g., France), and in some Islamic law countries as well (i.e., the Muslim world), strict “neighbors and tenants liability” may be imposed – in essence, this is strict liability for damage to or destruction of another’s property located nearby caused by specified perils (e.g., fire.) Employer’s liability, “no big deal” in the U.S. generally, may indeed be a very “big deal” elsewhere (e.g., Great Britain.) Voluntary workers compensation coverage must be examined to ensure appropriate endemic disease and repatriation expense is included for your U.S. employees temporarily out of the country. Some countries require local “admitted” insurance for certain exposures, most typically your own first party property insurance. Outside of the U.S., the rules change.

Domestic policies may offer some limited extensions. Often, products liability is worldwide (but it may apply only to suits first brought in the U.S. or Canada.) Employee dishonesty coverage typically is a confusing mix of domestic only and worldwide coverage. State extraterritoriality provisions may afford some measure of workers compensation coverage under the domestic policy.

Once a business has serious international exposures, including any completed operations (e.g., construction work or installation services), the exporter’s package policy is insufficient and a true global insurance program is necessary. As with all insurance issues, the prerequisite to an intelligent solution is risk management analysis. Some companies opt for a controlled master global program, with overseas operations buying coverage strictly per the parent’s instructions and primarily limited to compliance with local laws; such programs require strong communication between foreign operations and the home office, something that is anything but automatic. Other companies opt for a looser set of arrangements in which each foreign operation largely arranges its own insurance and the U.S. parent limits its involvement to the purchase of a Difference in Conditions/Difference in Limits (DIC/DIL) policy to attempt to “fill in the gaps.” This is important because most foreign polices are woefully deficient by U.S. standards, especially in the setting of limits and in the terms and conditions of their property insurance protection. It is also important to keep in mind that not only are other countries’ laws and legal systems different than ours, their construction standards and public and private protection afforded often is woefully inadequate by our standards as well.

Particularly if property exposures are substantial, there may be significant legal, tax, and accounting issues as to where the insurance is purchased (and in what currency) and where the loss is to be paid (and in what currency.)

Arranging an effective international insurance program often is not simple. For businesses with exposures overseas it is essential.

CA Reforms Lower Comp Costs

The reforms of 2003 and 2004 have dramatically reduced Californians’ workers compensation insurance costs. The 2006 Legislative Cost Monitoring Report, released September 27, is the third in a series of annual studies prepared by the Workers’ Compensation Insurance Rating Bureau of California (WCIRB), at the direction of the California Department of Insurance (CDI), that retrospectively evaluates and costs out system reforms of 2003 and 2004 as a result of AB 749, AB 227, SB 228, and SB 899. The most recent WCIRB report tracks experience through mid-2006. Among its key findings:

• Physician and inpatient facility fees both are down 4%, outpatient facility fees are down 39%, and pharmaceutical fees are down 13%.
• Physical therapy utilization is down 61% and chiropractic 77%.
• On average, excluding physical medicine, the visits per claim count is down 5%.
• Medical network utilization has increased from 32% in 2002 to 63% in 2005.
• Indemnity (lost time) claim frequency is down 46%.
• Temporary disability duration is down about 10%.
• Vocational rehabilitation costs per claim are down about 75%.
• Permanent disability benefit costs are down about 50%.
• Employee theft and other crime coverages

They Never Give Up

It used to be that when a California employee was injured on the job and given permanent work restrictions and the employer did not have a qualifying job available, thus resulting in the termination of employment, the injured worker would be eligible for Vocational Rehabilitation benefits under the workers compensation insurance policy. This went away as a result of one of the recent compensation reform acts, SB 899.

In its place, we now have the Supplemental Job Displacement Voucher plan, but it offers less money.

A new legal strategy employed by applicants’ attorneys is to make allegations that the employer failed to comply with the Fair Employment and Housing Act or Americans with Disabilities Act regulations. If they can make that stick, there’s a lot more money in it than in the voucher plan alone.

Employee Practices Liability insurance policies generally (depending upon the nature of the allegations) would cover the resultant costs of defense and any indemnity awarded.