RISK MANAGEMENT ADVISORY	JANUARY 1996

IN-HOUSE GUIDELINES FOR THE REVIEW OF
CLIENT-DRAFTED INSURANCE REQUIREMENTS

Commercial General Liability Insurance
(Note: If our project is within 50' of a railroad or is being conducted under a Joint Venture, we need to contact PPIB to secure additional coverage.)

1. Additional Insured: We can add a client as an Additional Insured under our Commercial General Liability Insurance policy at little or no additional premium. It means that our insurance will protect our client in the event of a covered loss for which the client is partially responsible. It also means that our client's insurance, if any, will contribute to that loss according to formulas set forth in each of the policies.

   Where our contract contains an indemnification provision which triggers broad general liability obligations including an obligation to defend, we should always add the client as an Additional Insured for our own protection--even if not required by contract to do so.

2. Primary and Non-Contributing: We can agree to strengthen further the coverage provided to our client by adding language under which our general liability insurer assumes primary responsibility for a covered loss caused in part by the client. Some clients will insist on this protection. By granting it, our insurer agrees not to exercise its right under our policy to look to our client's insurer to share proportionally in the loss. There is an additional premium for the additional coverage afforded by this endorsement, and we bear additional administrative costs, as well.

   Some clients may insist that the limits of the policy apply separately to their project, and this can normally be accomplished, if necessary. This, typically, also requires payment of an additional premium.

3. Severability of Interests: This is a simple and straightforward requirement that our insurer consider the interests of each of the insureds under the policy (ours and our "Additional Insured" clients) separately and individually. Acceptance of this obligation is routine, and it is built into the language of the basic general liability policy. It is not a problem for us to agree to accept it.

4. Notice: All standard Certificates of Insurance provide for a 30 day notice of cancellation to the certificate holder (our client). This notice is generally qualified, however, so as to impose no obligation on the insurer in the event notice is not given. Some clients will not accept this qualification and will insist on an unqualified, 30 day notice instead. The most we can agree to is a firm "...30 day notice of cancellation, except in the event of non-payment of premium in which case 10 days' notice will be given." We cannot agree that our insurer will notify our client of anything else (such as termination, expiration, non-renewal, or material change).

   There is no substantive difference between termination or cancellation and the expiration date is shown on the Certificate of Insurance. No further notice of either of these eventualities should be necessary. Non-renewal can be assumed absent a replacement Certificate, and no one can define what a "material change" might be.

   While our insurer will not agree to afford anything other than a 30 day notice of cancellation to our client, we can accept the additional responsibility if we must, but this is an unusual obligation, and it is difficult to manage. Try to limit any such obligation we undertake to notice of something more specific than "any change" in the policy--"any reduction in the limits of liability set forth on the Declarations Page" would be a more reasonable obligation, for example.

5. Waiver of Subrogation: General liability insurers generally refuse to issue an endorsement waiving their rights to subrogate a claim (i.e. collect from another responsible party, such as our client). They argue that naming the client as an Additional Insured is sufficient protection, as it is generally against public policy (i.e., against the law) for an insurer to subrogate a claim against one of its own insureds. Thus, our client's interests can be protected without an endorsement to the policy (which will not be forthcoming in any event).

   In some cases, we can agree, contractually, to waive our rights of subrogation (and if we have waived those rights, our insurer cannot exercise them) as long as we do so prior to a loss. Because some policies prohibit any such agreement, however, the only safe way to waive our rights of subrogation is to limit our waiver to "...to the extent permitted by any applicable policy of insurance."

Workers' Compensation

1. Additional Insured: Workers' compensation insurers are prohibited by California law from naming third parties as Additional Insureds under Workers' Compensation Insurance policies. If necessary, we can agree to provide an endorsement waiving our insurer's rights of subrogation as described in c) below.

2. Indemnification: We can indemnify a client against claims by an injured employee, and there are reasons our clients would want us to do so. The law prohibits our employees from suing us for work-related injuries; it provides for them to file a workers' compensation claim, instead. It also provides that they may sue anyone else they think might be responsible for their injury, including our client. Should this happen, it is our Commercial General Liability Insurance which we would expect to respond on our behalf and on behalf of our client. We can be fully certain this protection is in place only if our indemnification is backed by an endorsement to our general liability policy naming our client as an Additional Insured and extending "primary and non-contributing" protection.

3. Waiver of Subrogation: A waiver of subrogation can be extended to our clients under our Workers' Compensation Insurance policy (but not under our General Liability Insurance policy). Issuing the endorsement triggers an additional premium based on the projected payroll for the project (which is subject to annual audit). The premium cost for the waiver is relatively modest, but the indirect cost to us of its appurtenant paper work can become substantial. A request for a policy endorsement providing for waiver of subrogation should be resisted wherever possible.

4. Longshoremen's & Harbor Workers' and Jones Acts: These requirements are occasionally encountered. They are applicable only if our project is on or near navigable water. Our policy includes incidental U.S.L&H exposure, but if the project involves work actually located on barges, vessels or docks, or on bridges over navigable water, or if it requires us to serve as a member of a crew on board ship, we should contact PPIB to arrange for the purchase of the necessary coverage.

5. All States Endorsement: This also is a common requirement if our project is in a State other than our office location. Our policy automatically includes this coverage. If necessary, the coverage can be indicated on the Certificate of Insurance. There is no additional premium.

6. Notice: The notice provisions discussed in the Commercial General Liability Insurance section above apply.

Automobile Liability Insurance
(Note: If the firm owns autos, choose Option 1 below. If the firm does not , choose Option 2.)

Option 1

1. Additional Insured: The basic policy language of the standard Automobile Liability Insurance policy issued in the U.S. includes provision for our client to be an Additional Insured under the policy. Our policy is a standard policy, and our clients already are Additional Insureds under that policy. Some clients demand an endorsement to the policy, as well. We frequently run into a problem here because insurers are generally not willing to issue endorsements intended for no other purpose than to restate coverage which is already afforded. They fear, with some justification, that a court will conclude that they must have intended to broaden coverage--otherwise they would not have issued the endorsement in the first place. Since they do not intend to broaden coverage, they will not issue the endorsement. Nor is such an endorsement necessary for our clients' legitimate interests to be protected. If we must, we can have a Certificate of Insurance issued with a copy of the appropriate language from the basic policy attached.

2. Notice: The notice provisions discussed in the Commercial General Liability Insurance section above apply.

Option 2

1. Additional Insured: Our firm does not own any automobiles. Our general liability policy includes a "non-owned and hired" automobile liability coverage endorsement, and this is the only automobile liability coverage which applies to us . This endorsement already includes our client as an Additional Insured as respects "non-owned and hired" automobile liability.

2. Notice: The notice provisions discussed in the Commercial General Liability Insurance section above apply.

Professional Liability Insurance

1. Additional Insured: Adding a client as an Additional Insured under a Professional Liability Insurance policy is not possible. No insurer of architects and engineers in the United States is willing to do so for the simple reason that our clients have no insurable interests in a policy written to protect us against our negligence in the performance of our professional services.

2. Notice: The notice provisions discussed in the Commercial General Liability Insurance section above apply, and they are even more compelling here. Because the policy is written with a single per claim and aggregate limit, the mere existence of a claim potentially impairs that limit and arguably represents a "material change" requiring notice. No insurer is willing to assume that notice obligation, nor would it be in our interests to have clients informed every time someone decides to pursue us for one reason or another. Our insurer is not willing to get into a legal argument about what a "material change" might be, and neither do we. Thus the importance of limiting any notice obligation we find ourselves forced to undertake as respects notice to our client to "...reduction in the limits of liability set forth on the Declarations Page of the policy."

Owner's Endorsements and Certificates of Insurance

1. Endorsements modify insurance contracts. All insurers have standard endorsements which have been carefully tailored for consistency with the policy language to address the issues they are willing to address. None will accept policy language drafted by our clients (but keep in mind that most, if not all, of what our clients typically request can likely be accommodated with the insurer's own endorsement language).

2. Certificates of Insurance are issued by the thousands, if not tens of thousands, on a daily basis, and they contain important obligations as respects both the insurance brokers who issue them and the insurance companies which stand behind them. The process has, of necessity, been standardized to facilitate communications and minimize error. The industry standard is known as an ACORD Certificate of Insurance. Brokers have developed automated ACORD forms; insurers have developed administrative procedures for accepting them. Use of an owner's Certificate of Insurance disrupts this process by requiring careful review and, in most cases, modification. It is tedious and costly. Most importantly, it is unnecessary, because what our clients will receive in the end will be nothing more than that which could otherwise be delivered on a standard ACORD form. We receive many valuable services from our broker, and it makes no sense to dilute that value by asking for non-productive efforts. Resist the demand for use of the owner's Certificates of Insurance and substitute an ACORD form wherever possible.

(Note: These guidelines are intended to assist us in our efforts to review and respond to insurance requirements in contract provisions drafted by our clients. They are not an interpretation of coverage under our policies, nor do they deal with every issue which may arise. If in doubt, call PPIB. Its staff will be happy to advise us on specific contractual requirements formulated by our clients.)

 

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