Presented by lauren karagozian IMA, Inc. risk Transfer Presented by lauren karagozian IMA, Inc.

Risk Transfer Transfer exposure of risk to balance sheet Traditional philosophy (Public Policy) The party in the best position to identify and control the risk should be financially responsible for any loss. Means of transfer Balance Sheet Business Risk- Cost of Doing Business Insurance Carrier of insured or other party accepts risk for premium Insured Status Contractual obligations Indemnity Other provisions ( waivers, limitations, etc.)

Transfer of risk to insurance The party in the best position to purchase the appropriate coverage to support their loss exposures should be responsible for associated losses

Typical Insurance program Umbrella/Excess Liability Workers’ Compensation (Part A) Commercial and Personal Property Builders Risk/ Installation Floater Professional Liability/ E&O Cyber/Network Security Liability D&O Media/ Liability Crime Coverage Pollution Liability Employer’s Liability (Part B) Commercial General Liability Business Auto Property/ Inland Marine Policies Basic Liability Policies Additional/Specialty Liability Policies

Typical Insurance Limits Liability Policies Policy Coverage Industry Standard Limits Workers Compensation Covers workers injured on the job, whether they're hurt on the workplace premises or elsewhere, or in auto accidents while on business. It also covers work-related illnesses Coverage A: Workers’ Compensation Statutory Coverage B: Employer’s Liability $1,000,000 each accident $1,000,000 disease per employee $1,000,000 disease policy limit General Liability A broad form of liability insurance usually covering businesses, to protect them against liability claims from third parties for bodily injury and property damage arising out of operation, products, and completed operations $1,000,000 each occurrence; $2,000,000 aggregate Automobile Liability Provides automobile liability and physical damage coverage for commercial entities. Liability coverage is for property damage or bodily injury to a 3rd party caused in some way by the insured driver’s negligence. Auto physical damage coverage is for property damage to the insured’s vehicle itself $1,000,000 combined single limit Umbrella Liability A liability policy that covers in excess of primary limits of the basic liability policies Amount will vary based on project/work/exposure

Typical Insurance Limits Property Policies Policy Coverage Industry Standard Limits Builders Risk /Installation Floater Coverage on property, materials, equipment being used/permanently incorporated into project. Insurance is normally written for a specified amount and applies only in the course of construction Based on the value of the Project Commercial and Personal Property Coverage on physical damage to the property itself Replacement Cost Actual Cash Value Agreed Amount * Limits may vary based on Insured’s industry and type of work/services

Typical Insurance Limits Specialty Liability Policies Policy Coverage Industry Standard Limits Directors and Officers ( D&O) liability insurance covering directors and officers for claims made against them while serving on a board of directors and/or as an officer $2-5,000,000 each claim and aggregate Media Liability The policy is intended to cover financial injury to a 3rd party arising from certain wrongful acts relating to intellectual property infringement $1,000,000 each occurrence and aggregate Commercial Crime Crime insurance protects insureds against a number of loss exposures, such as embezzlement, burglary, and robbery from OWN employees- must have third party coverage to cover others financial loss due to your employees $1,000,000 combined single limit * Limits may vary based on Insured’s industry and type of work/services

Typical Insurance Limits Specialty Liability Policies Policy Coverage Industry Standard Limits Professional/ Errors and Omissions Protects against potential negligence claims made by third parties for their professional scope in said duties $1,000,000 each claim and aggregate Cyber/ Network Security Liability A type of insurance intended to cover the insured's liability for damages resulting from a data breach Pollution Liability Provides coverage for third-party claims for bodily injury and/or property damage, as well as remediation/clean up costs stemming from pollution incidents resulting from the contractor’s covered operations $1,000,000 each occurrence and aggregate * Limits may vary based on Insured’s industry and type of work/services

FIRST PARTY COVERAGE “First Party” insurance coverage insures against loss or damage sustained by the “insured” (person for whom the policy is written to protect and/or person or business entity who purchases the insurance) Claim made by insured is contractual – meaning they arise out of a contract (insurance policy) between the company and the policy holder 8

THIRD PARTY COVERAGE These are meant to insure against liability of a person or entity for loss, damage or personal injury caused to a “third person” (i.e. someone other than the “insured”) A third party claim is made by an injured person against the insurance policy that covers the at-fault person. This is also called a liability claim because someone else is liable (responsible) at least in part for the injured person’s damages. 9

1ST VS. 3RD PARTY POLICIES 10

Transfer of risk to others insurance Insured Status Additional Insured Named Insured Loss Payee Indemnitee Status KEYs to gaining coverage under another’s policy: CONTRACTUAL REQUIREMENTS Requiring status under the policy AND indemnification obligation

INSURED STATUS: ADDITIONAL INSURED Additional insured Endorsements/Coverage in Forms Standard Procedure to add parties as Additional Insureds under the General Liability Policy, Automobile Liability, Umbrella Liability, and Pollution Liability No Additional Insured coverage may be added under Property policies, Workers’ Compensation/Employer’s Liability, D&O, or Professional Protect the upstream party from claims arising out of the operation of the Insured over which, the upstream party as no control Primarily used to provide the additional insured with initial defense coverage in relation to third party liability claims Endorsements will provide coverage for ONGOING vs COMPLETED operations of Insured

INSURED STATUS: NAMED INSURED Standard to add parties as named insureds under Builders’ Risk policy A person or organization, other than the first named insured, identified as an insured in the policy declarations or an addendum to the policy declarations. added to a policy after the policy is written with the status of named insured. This entity would have the same rights and responsibilities as an entity named as an insured in the policy declarations (other than those rights and responsibilities reserved to the first named insured)

INSURED STATUS: LOSS PAYEE Standard to add parties as loss payee under installation floater, equipment floater ( if property is leased), property insurance ( mortgagee clause) A person or entity that is entitled to all or part of the insurance proceeds in connection with the covered property in which it has a financial interest.

Indemnified party status Having an indemnification obligation in the contract in favor of a party identifies them as an indemnified party. Policies will covered “insured contracts” which are assumption of the tort liability of another This coverage can be reduced by endorsements on the policy If only provided indemnity and not additional insured status the insurance will not pick up the initial defense without considerations as laid out in the policy Insurer can agree to just pay back losses after final settlement and not assume defense

Contractual risk transfer

Contractually transferring risk Indemnification Waivers Special Considerations Pollution and Hazardous Materials Professional/ Errors and Omissions

Indemnity Indemnification A contractual provision in which one party agrees to answer for any specified or unspecified liability or harm that the other party may incur- Blacks Law Dictionary Eighth Ed. Indemnification clauses allocate the liability risks between the parties to the contract These clauses are a common contractual risk management technique

INDEMNITY Basic Components of an Indemnification Obligation Legal Limitation Parties Scope Extent

Indemnity: Legal limitation “To the fullest extent permitted by law” Most of the standard form indemnification clauses contain a provision making them applicable to the fullest extent provided by State law This saving language may at least insure that indemnification will be allowed Any contrary language can be modified to the extent permitted, this will reduce the chances of the court nullifying the entire provision

INDEMNITY: PROTECTED PARTIES Who benefits from the indemnity obligation Standard indemnitees Upstream Parties Consultants Officers, directors and employees of any of them Only parties with a legal nexus or connection to the principals under contract should be named as indemnitees All others have independent legal rights to sue for negligence

INDEMNITY: SCOPE Types of Claims covered by the indemnity obligation Standard Limit obligation to third party bodily injury and property damage Ensures coverage by the Liability Policy, subject to the terms and conditions of the policy All other indemnification obligations may not be covered insurance and are therefore subject to support through the good will and balance sheet of indemnifying parties

INDEMNITY: EXTENT “how much indemnification” :Which party’s liability triggers the indemnity obligation Broad: Additional Insured coverage even if Indemnified Party is solely negligent Language: “your work” Intermediate: If the party providing Indemnification has any part (even as little as 1% negligence or fault is responsible for 100%) Language: “In whole or in part” Limited: Indemnification to the proportionate fault of party providing Indemnification Language: “But only to the extent”

INDEMNITY: ANTI-INDEMNIFICATION Each State has specific anti-indemnification Statutes The extent of the indemnification is effected by the Statute The level of extent allowable may be dependent on the nature of the work Insurance The Statute may effect the amount of insurance risk transfer allowable In Colorado the extent of insurance transfer is limited by the anti-indemnification statute The Statute may have an insurance exception

Considerations when reviewing indemnification clauses Statutory Limitations Anti-indemnification statutes Industry and Scope of Agreement Industry standard and available insurance coverage may dictate the scope and extent of indemnification obligation Other Contractual Provisions Limitations may be imposed by other contract provisions

Waivers: Subrogation Waiver of Subrogation The relinquishment by an insurer of the right to collect from another party for damages paid on behalf of the insured. The waiver of subrogation condition in current standard policies is referred to as “transfer of rights of recovery” The insurer will not have the ability to go back against benefiting Party for things which were covered under Insured’s policies in which Insured paid premium Use Liability Waivers Typically Unilateral - Standard to see waivers flowing downstream Property Waivers Unilateral if related to owned property Mutual whereby parties are named insureds under the policy ( Builders Risk) or in Leases

Waivers: Waiver of liability Relinquishing or limiting a liability of a party through contractual obligation Waiving Liability Waiving liability associated with the actions/work/services of a party Waiving right to hold a party liable Limiting Liability Only holding a party liability for a set amount of liability Percentage of fault Monetary amount Associated Fee

Waivers: Consequential loss damages may be divided into two categories: direct damages and indirect or consequential damages Direct damages are those damages which arise naturally from action or breach; that is, direct damages accrue as a result of the action or breach Indirect or consequential damages are damages which do "not flow directly and immediately from the act of the party, but only from some of the consequences or results of such act." Waivers of Consequential loss provide that the party receiving the benefit of the waiver will not hold the other party liable for indirect or consequential losses If arising from a peril or liability covered by the policy, indirect losses can be insurable In many industries standard agreements it is common to waive consequential losses Energy and Construction Agreements

Considerations: Pollution/Hazardous Materials Liability Pollution Liability provides coverage for third-party claims for bodily injury and/or property damage, as well as remediation/clean up costs stemming from pollution incidents resulting from the contractor’s covered operations Pollution risks can include contaminated soil disposal and the accidental release of fuel oil, chemicals and toxic gases from broken pipelines, utilities, stationary and mobile fuel tanks, asbestos, mold and lead based paint can also be covered under this type of policy. Considerations what is a “pollutant” Contingent Liability- hiring of parties who have a pollution exposure Privity of Contract Additional Insured Status typically provided to upstream parties Associated Deductibles and Self Insured Retentions

Considerations: Professional Liability Protects against potential negligence claims made by third parties for their professional scope in said duties The primary reason for professional liability coverage is that a typical general liability insurance policy will only respond to a bodily injury, property damage, personal injury or advertising injury claim Policy will cover economic loss due to a professional error or omission Considerations Professional Liability (indemnification of professional duty) policies do not extend to defend or cover the negligence of others, this includes no additional insured status provided to others Contingent Liability- hiring of parties who have a professional exposure Privity of Contract – each party providing or hiring a party with professional exposure should have coverage Associated Deductibles and Self Insured Retentions