Contract Insurance Requirements Joseph C. Risser, CPCU, ARM-P Director, Risk Management California Polytechnic State University

Objectives Need for Insurance in Contracts Transferring Risk Basic & Special Insurance Proof of Insurance 1 & 2 Special Problems

Caveats NOT a lawyer NOT your legal counsel NOT your risk manager Specific details of a situation (contract) must be identified and addressed to manage the risks involved. General reasons, requirements and performance

Agenda Set the Stage Review Present details Tips Questions

Simple Roof Repair

Bob, the Roofer Leaking roof in golf clubhouse Just a quick repair, no contract necessary Drying the roof to apply sealer FIRE Structure & Contents loss – TOTAL Loss of real and personal property Business interruption – Owner & Tennant Loss of rent and revenue

Russ, Furniture Systems Vendor Contracted for modular furniture and installation 5 years later – Covered shelf unit above desk falls on employee and equipment Employee Injuries Equipment Damage Facility Damage Loss of Work

Tom, the Landscaper Transplant “signature” Palm Tree Large Crane, Large Back Shovel Tree defect not considered - technique Top crashes onto to backhoe, pins driver and control, boom swings and slices wires Contractor’s employee injured Equipment damaged Wires – data and voice (RR & 911)

What Can Go Wrong? Damage to/ Loss of University Buildings Loss of University and Personal property Loss of Rent & Loss of Revenue Injury to University Employees Interruption of Activities & Services Damage to Contractor Equipment Injury to Contractor Employee Damage to Property of Others

Who Pays? Replace the building Replace the equipment Replace the personal property Medical expenses, rehabilitation Repair the equipment Repair the damage Compensate for lost service & revenue And what about the Palm Tree?

When You Hire a Contractor Contractor Service provider Vendor When you buy materials AND When you rent your facilities to others

Transfer the Risks Transfer the Risk of doing the “WORK” –Hire an “expert” & their resources –Direction and control of the activities and results –Contractual responsibilities - operations & products Transfer the Risk (responsibility) of having to pay for losses that arise from the “WORK” –Injury to persons, damage to property –Interruption of your business activities –Failure to follow contract requirements

Contractual Transfer of Risk 1.Indemnification – the promise to pay for any losses of the University resulting from the “WORK” Types Restrictions 2. Insurance – the financial resource to pay for losses due to the “WORK” Types Specifications

Contract Indemnification ___(entity)__ shall defend, indemnify, hold harmless and protect the State of California, the Trustees of the California State University, ___CAMPUS___, their officers, employees, representatives, agents, students and volunteers (the “University”) from and against any and all liability, loss, damage, expense, cost (including without limitation to costs and fees of litigation) of every nature arising out of or in connection with ___(entity’s)__ (any subcontractor, anyone directly or indirectly employed by anyone for whose acts any of them may be liable) ___(performance of work, use, etc.)___ hereunder or failure to comply with any of its obligations contained in the agreement, except such loss or damage which was caused by the sole negligence or willful misconduct of the University.

Contract Insurance Specify products & materials? Specify design & construction? Specify access & safety? Specify insurance!

SPECIFICATIONS for INSURANCE –Funding contractual indemnification Limitations –Description of Losses: Arising out of the “WORK” [Operations, Products and Completed Operations] Arising out of the ownership and use of vehicles Arising out of employment of workers Arising out of damage to property Arising out of professional services –Proof of Insurance - Documentation

Basic Insurance for Contracts ExO 849 TypeCoverageLimits (minimum) General Liability (Commercial or Comprehensive) CGL Injury, damage and contractual liability from their “work” $1 Million / occurrence $2 Million aggregate Automobile Liability (Commercial or Business Auto) CA or BA or AL Injury & damage from their ownership & operation of autos $1 Million combined single limit per accident Workers’ Comp & Employer’s Liability WC & EL Work related injury or illness for their employees WC - Statutory Limits EL - $1 Million per illness and injury

Specialized Insurance ExO 849 TypeCoverageLimits (minimum) Professional Liability (errors & omissions) Errors and Omissions in Professional Services causing injury, damage, failure to perform $1 Million / claim $1 Million aggregate Builder’s Risk (course of construction or installation) Damage to your property being constructed, remodeled and/or installed 100% of the value of the property Excess or Umbrella Liability Increase limits for specific insurance policies (general, auto) Amount as needed to meet minimum required limits

Hazardous Materials ExO 849 ADDITIONAL Liability Insurance CoverageLimits GeneralIncreased limits and coverage breadth $5 M / CSL Occ. $10 / Aggregate Environmental Pollution Pollution of property$ 5 M / Occurrence $10 M / Aggregate *Environmental Errors & Omissions Errors in professional services $ 1 M / Claim $ 2 M / Aggregate *Automobile (transporters) Sudden & Accidental Pollution $2 M / Occurrence $2 M / Aggregate *MCS-90 (transporters) (Federal Requirement) Cleanup of pollution$ 1 M Occurrence

Proof of Insurance 1. Certificate of Insurance –Broker –Insured (your contractor) –Insurance companies (NAIC number) –Rating (A.M. Best – A:VII or equivalent) –Type of Insurance –Basis of coverage and scope –Policy number, period, $ limits and deductible

Certificate of Insurance MOST IMPORTANT WORDS This certificate of insurance is not an insurance policy and does not amend, extend or alter the coverage afforded by the policies below.

Contractor’s Insurance Contractor is the INSURED –Pays for legal defense of the contractor –Pays claims for which the contractor is found liable –Pays for investigation of claims against the contractor Contractor’s Insurance does not provide insurance coverage for the University –“IF” the University has losses it can file against the contractor and proceed with legal action to enforce the indemnification –“IF” the University is sued, it can file against the contractor and proceed with legal action to enforce indemnification

University as Additional Insured General and Automobile Liability Insurance Policies –University is an INSURED –Direct Access to Contractor’s Insurance policy –Report loss and file claim –Doesn’t have to enforce indemnification in the contract REQUIRES A WRITTEN AMENDMENT TO THE INSURANCE POLICY BY: ENDORSEMENT or such language shall be contained in the policy

Other CSU Endorsements Coverage shall not be canceled by either the contractor or the insurance carrier, except after 30 days prior written notice to University. (ALL) Contractor’s coverage is primary as respects the University. (CPDC CGC) University coverage shall be excess of coverage provided by contractor. (CPDC CGC) University shall not by reason of inclusion as an additional insured incur liability for payment of premiums for the policy. (CPDC CGC)

Proof of Insurance 2 Endorsement of Insurance Policies as required in your Insurance Specifications Endorsement Form –“Endorsement” in title of form (“changes the policy”) –Policy number, Insurer –Type of policy & policy period –Name of insured (YOU) being added –Purpose & scope of endorsement –Identification of project or contract –Authorizing signature Copy of Policy if such language is contained therein

Basic Insurance Endorsements ExO 849 Policy TypeEndorsementLanguage General Liability Additional Insured Operations, Products, Completed Operations their “ WORK” Automobile Liability Additional Insured Ownership and/or operation of automobiles (owned, scheduled, non-owned) ALL Notice of Cancellation 30 days advance written notice of cancellation of any of the coverage

Additional Insurance Endorsements CPDC CGC Policy TypeEndorsementLanguage General & Automobile Liability Open Form Insurance coverage shall be primary as respects the University General & Automobile Liability Open Form University insurance shall be excess of the contractor’s and shall not contribute with it ALL Open Form University shall not be reason of inclusion as additional insureds incur liability for payment of premiums

Special Endorsements Policy TypeEndorsementLanguage General Liability (CPDC CGC) Amendment of Limits Policy limits in full apply to this project or contract (not all the contractor’s operations for the year) Automobile Liability (hazmat) Sudden & Accidental Pollution Reinstates coverage normally excluded from automobile policies Automobile Liability (hazmat) MCS-90Provides funding for cleanup of pollution

Special Endorsements Policy TypeEndorsementLanguage Workers’ Comp & Employers’ Liability (ALWAYS) Waiver of Subrogation Insurer waives rights to recover from YOU for any payments they make for injury or damage Builder’s Risk CPDC CGC Loss PayeeInsurance will pay University for loss as respects $ interest Builder’s Risk CPDC CGC Waiver of Subrogation Insurer waives rights to recover from YOU for any payments they make for injury or damage

Professional Liability Policies “Errors and Omissions” Claims Made basis of coverage (Limited time in which to report a claim vs. Occurrence basis) Critical Information –Retro Date (when coverage began) –Extended Claims Reporting Period (policy period plus 30, 60, 90 days) –Claims reporting procedures (so you can report claim directly within limited time frame) Declaration Sheet

Excess & Umbrella Insurance Follow form of underlying coverage? –Identifies underlying policy –Exclusions or gaps in coverage Provide additional coverage? Matching policy period? Declaration sheet

Insurance Policy Limits general liability Limits based upon value of the contract –ExO $1m/2m –CPDC CGC - $5m/5m < $5,000,000 Limits based upon risk of the contract operations, products, completed operations HOW MUCH CAN BE LOST?

Questions ?

THANK YOU

References CSU Executive Order CSU Contract Services and Procurement CSU Capital Planning, Design & Construction (CPDC) CSU Insurance Requirements In Contracts

Joseph C. Risser Chartered Property Casualty Underwriter (CPCU) Associate of Risk Management – Public Entities (ARM-P) Director, Risk Management, California Polytechnic State University, San Luis Obispo Executive Committee, Board of Directors, California State University Risk Management Authority (CSURMA) office fax