Association of Towns 2006 Annual Conference Advising Your Municipality on Insurance Procurements Rona L. Platt, Esq. Congdon, Flaherty, O’Callaghan Brian Custer and Robert Bambino NY Municipal Insurance Reciprocal

‘Typical’ Town Property & Casualty Insurance Programs Law Enforcement Liability Claims arising from law enforcement activities & operations Public OfficialsProfessional liability claims arising from wrongful acts of the Board, elected and appointed officials Excess LiabilityAdditional limits above Automobile, General Liability, Law Enforcement and Public Officials Liability

Considerations for Selecting Insurers Claims Philosophy Risk Management and Loss Control Financial Stability Reinsurance Support

II. Coverages & Limits Property Dwellings, furniture, supplies, business property, equipment, records, computers; extra expenses Blanket limit for all insured property within the Town Automobile (Liability & Physical Damage) Injuries and damages caused by autos, trucks, vans, snow plows; damage to owned/leased autos, trucks and vans $1,000,000 CSL $200 – 1,000 deductible for physical damage

Coverages and Limits General Liability Streets & roads, sidewalk claims, recreation $1,000,000/ 2,000,000 Law Enforcement False arrest, use of force, civil rights $1,000,000/ 2,000,000 Public Officials Employment practices, civil rights & land use $1,000,000/ 2,000,000 Excess‘Follow-Form’ Policy (Excess limits above liability policies) $5,000,000 to 10,000,000

Other Coverages Inland Marine (“Floaters”)Damage to equipment off premises with a lower deductible Boiler & MachineryDamage to boilers & other equipment not covered within the property policy Crime CoverageEmployee theft and embezzlement Limited Pollution LiabilityCovers sudden and accidental pollution events emanating on-premises

IV. Limits, Exclusions & Other Pitfalls to Avoid: Property Decorative street lights & signs not at a covered location Property or equipment that travels more than 100 feet from a covered location Newly acquired property Clean-up expenses because of a pollution loss  Add to a “floater” policy  Report to broker/ insurer within 180 days  Coverage limit of $10,000 – purchase higher limits

Limits, Exclusions & Other Pitfalls to Avoid: General Liability Owned underground or above ground storage tanks Liability deductibles Property in Municipality’s care and custody Asbestos/ lead abatement projects  Purchase separate environmental (tank) liability insurance  Change for full coverage  Purchase Garage Policy for confiscated vehicles; floater if storing or warehousing nonowned property  Have contractor provide coverage,or purchase separate policy

Limits, Exclusions & Other Pitfalls to Avoid Public Officials Fines & penalties Wages & benefits – employment practices Fiduciary liability – financial management of employee benefit plans Limited land use coverage EPL coverage sub limits  Risk control  Purchase Fiduciary Liability insurance policy  Risk control  Increase, remove or practice risk control

Limits, Exclusions & Other Pitfalls to Avoid Law Enforcement Liability Auto exclusion Contractual liability exclusion EPL excluded  Covered under auto policy  Exception for mutual aid agreements  Covered under POL policy

Frequently Asked Questions Q: Do I need a Builders Risk Policy? A: Yes, for large renovations and new construction – unless the Gen. Contractor provides it Q: Are volunteers covered in the CGL policy? A: Yes, but only if they are acting within the scope of their approved volunteer activities. Q: Do I have coverage for skateboard parks, pools and snowmobile trails? A: Generally – yes, but you should contact your broker or insurer – might be an additional premium

Frequently Asked Questions Q: Do we need to purchase mold coverage? A: Maybe – its something to check on. There may be coverage under the GL policy; the Property policy only covers if it is a result of a covered loss. Q: Which physical assets should we obtain coverage for? A: Those assets that you can’t afford to lose or those without which you can’t effectively operate your municipality.

Guiding Principles As with all contracts, ambiguities contained within an insurance policy are construed against the insurer which drafted the policy. Mostow v. State Farm Ins. Co., 88 N.Y.2d 321 (N.Y. 1996) You don’t get what you deserve, you get what you negotiate Dr. Karras The big dog usually wins Unknown

Risk Transfer Concerns: What We’ll Cover Why use risk transfers Indemnity agreements Additional insured status Standard ISO endorsements Pitfalls, problems & solutions

Why Use Risk Transfers Transfers responsibility to do something Transfers responsibility to pay for something Compels a third-party to indemnify or hold someone harmless Compels a third-party to release another …to improve and optimize our subscribers’ ability to reduce risk financing costs

Risk Transfers – Pros and Cons Pros Reduces/stabilizes loss experience Transfers risk Demonstrates a commitment to risk management Cons Time consuming Requires trained staff Creates potential E & O exposure

Indemnity Agreements Why we shouldn't rely solely on indemnity agreements: It’s a transfer of liability/responsibility – not loss financing Indemnitor may not be financially responsible Agreement may be voided by law - e.g., nondelegable duties or unfair advantage Anti-Subrogation Statutes Indemnitor’s CGL policy may not cover the agreement

Contractual Relationships Owners on GCs’ policies GC and owners on sub-contractors’ policies Owners or lessors on tenants or lessees’ policies Owners on facility users’ policies Municipality on school districts’ policies State subdivision on local municipality’s policy

Additional Insured Status Pros Insurance protection – immediate defense Can apply even when indemnity agreement cannot be enforced Courts will enforce AI status Can be direct and primary Can include negligence of AI Cons Reduced aggregate limits Lose control of defense SIR problems Endorsements may not provide expected coverage to AI

Anti-Subrogation Doctrines Insurer can’t subrogate against its own insured Applies within risk transfer parameters when an entity has additional insured status, and the insurer is providing defense & indemnity Owner on lessee’s policy; visitor sues lessee. Lessee’s insurer acknowledges AI status of Owner – insurer can’t start a third-party action vs. owner

Additional Insured Endorsements Most courts interpret the terms of the endorsement to decide the extent of the transfer “Arising out of” often interpreted to mean full coverage for direct as well as vicarious liability ISO AI endorsements have become more restrictive over time  Restrict coverage to “on going operations” only  Require a written contract  Establish a fault-based system for endorsements

Additional Insured Endorsements 1. CG Additional Insured – Owners, Lessees or Contractors Edition WHO IS AN INSURED (Section II) is amended to include as an insured the organization shown in the schedule, but only with respect to “your work” for that insured by or for you. Includes coverage for products/completed operations Includes direct negligence of the AI

Additional Insured Endorsements CG – & Versions Covers the AI for liability arising from “on-going operations” for the insured’s only Includes AI’s direct liability and negligence CG – Version Covers the AI only for liability arising from “on- going operations” for the insured Specifically excludes products-completed operations exposures

Additional Insured Endorsements Coverage for the AI is limited to scheduled covered operations Only covers “on-going” operations at the locations described in the schedule; excludes products- completed operations Fault-based coverage: only covers damages caused by the insured’s acts or omissions, or those acting on behalf of the insured If insured not at least partially at fault – no coverage for the AI CG – 07 04

Additional Insured Endorsements Coverage for the AI is limited to scheduled completed operation Fault-based coverage: only covers damages caused by the insured’s “work” for the AI Used with CG (1993 or subsequent versions) to include products-completed operations exposures 2. CG Additional Insured – Owners, Lessees or Contractors – Completed Operations

Additional Insured Endorsements Blanket automatic endorsement, where additional insured status is required in a written contract Coverage is for “on-going operations” of the insured version is also “fault based” and it includes a products/completed operations exclusion 3. CG – Additional Insured – Owners, Lessees or Contractors – Automatic Status when Required in a Construction Agreement

Additional Insured Endorsements Restricts definition of “Insured Contract” Covers: leases, sidetrack agreements, easements, etc. f. (“That part of any contract or agreement…”) now excludes broad form indemnity agreements by requiring the insured (or those working on the insured’s behalf) to have caused the damages May leave indemnitors without coverage for some indemnity agreements 4. CG – Amendment of Insured Contract Definition

Additional Insured Endorsements: Business Automobile Possible to list entities (besides lessors) a additional insured on the liability section of the BAP However, it covers them to the extent they qualify as an "insured" under the Who Is An Insured Provision contained in Section II of the Coverage Form 5. CA Designated Insured

Amending AIA – Standard Form of Agreement Between Owner & Contractor WC & EL: E.L. limits; entities not otherwise required to provide WC CGL: limits and aggregates; “per project” requirement; length of time for completed operations, Auto Liability: coverage symbol; limits Supplementary Conditions are used to amend Article 11 in the A.I.A. General Conditions

Amending AIA – Standard Form of Agreement Between Owner & Contractor Excess/Umbrella: underlying coverages; coverage basis; limits OCP: required or not? Limits Environmental: for services provided; limits; retro date management Bonds:types; form; percentage of contract Other Conditions: additional insured status; cancellation notice, certificates of insurance, primary insurance language, etc.