Blog - Month: June 2024
Common Mistakes with Builder’s Risk Coinsurance Clauses
Coinsurance clauses are commonly found in a builder’s risk completed value policy.
A coinsurance clause involves the policyholder becoming a co-insurer of the risk of loss with the insurer. In other words, certain conditions would result in the insurance company not paying the total amount of loss, thereby leaving the policyholder to bear the remainder. The insured and the insurer jointly assume the risk.
The benefit of buying an insurance policy with such a clause is that the policyholder will usually have relatively low premiums compared to other similar policies that don’t contain a coinsurance clause.
That said, anyone considering a coinsurance clause should understand what it entails and requires, so that they aren’t taken by surprise with penalties if a loss should occur.
A typical coinsurance clause found in a builder’s risk completed value policy will say that the insurer will not pay more for any loss than the proportion that the limit of insurance bears to the value of the structure described in the declarations as of the structure’s date of completion.
How it works
The way a coinsurance clause works with the policy limit is often a source of confusion for policyholders.
Take a loss of $20,000 with a policy limit of $100,000, for instance. It would superficially appear as though the insurer would be responsible for the total loss.
But, once the coinsurance clause is figured into the equation, the insurer might not be responsible for paying the total loss amount. This will depend on the policyholder maintaining enough insurance to avoid the coinsurance penalty.
If the coinsurance is applied, it might look something like this:
Still using the $100,000 policy and $20,000 worth of damage from above, the completed value of the project will be determined as $120,000 at the time of loss. The value of the $100,000 policy is only 80% of the $120,000 actual value of the project. So, the insurer is only responsible to pay $16,000, which is 80% of the $20,000 worth of damage.
Anytime the policyholder receives a lesser sum than what the full value of the claim is because of a shortfall between the completed value of the project and the policy limit, it’s termed a coinsurance penalty. The discrepancy between the two numbers can be the result of a number of mistakes made by the policyholder.
Common errors
Policyholders often make the mistake of failing to report when expected costs are surpassed. Any increased completed value must be shown in the policy limit when costs overrun original figures. The best way to make sure the policy limit is updated is by keeping your insurance agent apprised to the overruns so that the appropriate changes can be made.
All too often a policyholder makes the mistake of setting their limit of insurance based on the amount of the construction loan for the structure.
Most of the time, the completed value of the project is greater than the amount of the construction loan. An example would be a significant portion of a building project being funded by cash, but not computing the cash amount when totaling the completed value. If the insurance is only for the financed amount, then the policyholder will suffer a coinsurance penalty for any losses.
Another common mistake occurs when the policyholder doesn’t include profit and overhead in the completed value. These are generally figured at 10% for each. If not accounted for, this can cause a substantial coinsurance penalty.
Sometimes, it’s what shouldn’t be included that may lead to problems. Land value, excavations, and underground work, for example, shouldn’t be included in the completed value. These aren’t covered losses on typical policy forms. So, the policyholder would just be paying additional costs for items that wouldn’t be covered during loss.
New Rule Permits Non-Employees to Join OSHA Inspections
A new Department of Labor rule change clarifies the rights of employees to appoint an outside representative to accompany OSHA officers during workplace inspections.
OSHA inspections usually occur after a workplace has had a safety-related incident or a whistleblower has reported suspected safety violations. Attorneys representing employers say the new rule, which comes into force May 31, could be problematic for businesses trying to keep inspections free of disruptions.
Advocates for employers worry that external observers may use their new ability to collect information that can be used to convince employees to join a union.
They also see a potential for other adversaries to join the inspections in search of employer failures. These might include disgruntled former employees, plaintiffs’ attorneys, potential expert witnesses or injured workers’ family members.
OSHA stressed that the final decision as to whether to permit a third party representative to join the inspection is up to the OSHA compliance safety and health officer that conducts the inspection. Either the employer or workers may appeal to the CSHO to reject a representative, but the CSHO decides.
In its response to public comments, OSHA emphasized the importance of employee representation to gathering necessary information about worksite conditions and hazards.
It also noted that the rule does not limit third party representatives to union representatives; third parties’ ability to participate will be based on their knowledge, skills or experience.
“Third party representatives’ sole purpose onsite is to aid OSHA’s inspection,” it wrote, “and CSHOs have authority to deny the right of accompaniment to third parties who do not do that or who interfere with a fair and orderly inspection.”
Supporters of the rule argued that third parties may:
- Have important technical or subject matter expertise.
- Have language skills and cultural knowledge.
- Increase employees’ trust in the inspections.
- Improve inspections of multi-employer worksites such as construction sites.
- Balance the rights of employers and employees.
The takeaway
Employers may be more likely to face litigation and a difficult discovery process after an accident when the revised walkaround rule comes into force this month, legal pundits say.
Some observers recommend that employers stand ready to object to participation from plaintiffs’ attorneys who may not have much workplace safety expertise but who know how to fish for clients. It will be important that they evaluate the need for a particular third party to participate in the inspection.
The rule might not take effect on schedule. Court challenges from the groups who have opposed it are anticipated. A court might issue an injunction preventing the rule’s enforcement during litigation.
That is uncertain, however, so employers should be ready on May 31 to permit third parties to join OSHA inspectors on their premises if workers request it.
Protect Yourself against Liability Exposure from Subcontractors’ Employees
As a business owner, you could be held liable for the actions of other peoples’ employees.
U.S. employment law has long recognized that workers may have an employment relationship with multiple entities at the same time. That means your company could get stung with OSHA fines, Title VII discrimination claims and other actions that arise from the actions of an employee that you thought was a subcontractor.
Here’s why:
In Secretary of Labor vs. Summit Contractors, the 8th Circuit ruled that companies that exercise overall control of a job site can be held liable for workplace infractions – even when the individual or individuals directly responsible for the infraction were employees of another firm, and no employees of the controlling employer were directly involved.
Furthermore, even if your company doesn’t exercise direct supervisory control of subcontractors, courts have held that a de facto employment situation exists if the controlling employer simply reserves the right to exercise control.
Protecting yourself
Here are some ways to safeguard yourself from joint employer liability:
- Ensure that all subcontractors have employee liability insurance and general liability insurance of their own.
- Check out the vendor or subcontractor’s track record with safety and OSHA-related claims.
- Research the subcontractor’s bonding history.
- Ensure your employer’s liability insurance covers claims that may arise from contractors and vendors working on your property, or on worksites your company controls.
- Negotiate for an indemnification clause in any vendor contracts or subcontracting arrangements.
- Don’t rely on verbal assurances: Put the subcontractor’s responsibility for complying with OSHA standards and labor laws, rules and regulations in writing, as part of the contract.
- Hold regular safety meetings with representatives from the subcontractor’s firm, and document them.
- Don’t sign a contract with a manpower or employee leasing firm unless you have looked through it for exposure to liability from their employees.
- Ensure the vendor or subcontractor is providing job site supervision. At a minimum, ensure their management is checking on the site regularly. If all supervision is left to you, federal regulators may deem these workers to be your employees.
- Don’t discipline the subcontractor’s workers directly. Work through the subcontracting entity wherever possible. If your supervisors attempt to discipline their employees, or direct their work too closely, courts may find that a de facto employment relationship exists with your firm as well as with the subcontractor. This exposes you to liabilities that these employees may cause.
- Train your middle managers and foremen that they should not attempt to take on the role of supervisor to subcontractors’ employees and onsite vendors.
- Don’t lend heavy equipment, power tools or vehicles to subcontractors on the job site, unless you also send a designated operator. Contractors are expected to have and maintain their own equipment. Also, when you send your own operator with a forklift, for example, you can help ensure that the subcontractor doesn’t expose you to liability because of an accident caused by an unqualified operator.
For more information, or to schedule an insurance and risk exposure review, call us today.
Training Your Drivers to Avoid Road Debris
Road debris is a common problem on America’s roadways. Most accidents caused by debris are sudden and unanticipated and can result in serious injury or death.
Road debris is anything that doesn’t belong on the road, including trash, stuff that may have fallen from other trucks, branches and other natural objects that fall or blow onto the road. After big storms debris can often be found littering the roads.
This hazard contributed to more than 200,000 accidents that injured more than 39,000 people and killed 500 over a three-year period, according to the AAA Foundation for Traffic Safety. The majority of these accidents occurred on interstate and state highways.
Two-thirds of all road-debris accidents are the result of objects falling off moving vehicles.
According to the foundation, 37% of all fatal road-debris accidents involved a driver suddenly swerving to try and avoid debris. Here are some of the types of personal injury crashes that can occur when debris is on a roadway:
- Single or multiple vehicle sideswipe collisions from swerving when attempting to avoid debris.
- High-impact, rear-end collisions when a vehicle suddenly brakes to avoid debris.
- Rollovers caused by hitting debris.
- Head-on crashes from swerving to avoid debris.
The most dangerous form of road debris is that which falls off another vehicle, forcing other motorists to take quick evasive action, which can cause them to swerve or forcefully apply their brakes. However, when a driver has to suddenly react to avoid an object, they also run the risk of hitting a guard rail or another vehicle.
Train drivers
It’s important that firms with driving employees include training about the dangers of road debris and how to reduce the chances of causing an accident when encountering it.
- Drivers should stay alert at all times.
- They should keep a comfortable distance between themselves and the vehicle in front of them by following the three-second rule. This will provide enough time for a driver to take evasive action, if needed.
- If the driver is behind a vehicle hauling goods of any type, they should add another second or two to the count. Even better: They should change lanes.
- If they spy a truck with an unsecured load, they should avoid driving behind it, change lanes and pass when it’s safe to do so. This way, if something falls off, the driver doesn’t have to take evasive action.
- If a driver sees debris in the distance in their lane, they should simply change lanes calmly if there is plenty of space in an adjacent lane. If there is a car behind them, it’s courteous to flash the brake lights twice to let them know you’re dodging on purpose and give them a few extra seconds to follow suit.
If there is only one lane, no shoulder or the driver is boxed in, they should not change lanes. In these cases, they should use their best judgment and try to minimize damage to the vehicle. This may include slowing down significantly and possibly trying to adjust their lane position so that their tires don’t run over the debris. This gives them the best chance to maintain control of their vehicle, although there may be some damage to the front of the vehicle and/or the undercarriage.
Liability and insurance
It’s difficult to establish liability in road-debris accidents.
It’s a bit easier if it arises from debris suddenly flying from a truck and striking another vehicle. If the load is unsecured, the driver of that vehicle could be held at fault. If the other driver doesn’t stick around, you may be able to file a claim under your uninsured motorist coverage.
However, in cases where your driver hits debris that was laying on the roadway, your insurer may determine that your driver failed to avoid the debris because they were either distracted or speeding, and deny coverage as a result.