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

1. 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.)

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 1ST VS. 3RD PARTY POLICIES 10

11. 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

12. 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

13. 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)

14. 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.

15. 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

16. Contractual risk transfer

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

18. 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

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

20. 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

21. 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

22. 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

23. 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”

24. 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

25. 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

26. 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

27. 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

28. 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

29. 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

30. 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