Contract Insurance Requirements

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

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

3. 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

4. Agenda • Set the Stage • Review • Present details • Tips • Questions

5. Simple Roof Repair

6. 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

9. 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

12. 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)

13. 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

14. 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?

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

16. 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

17. Contractual Transfer of Risk • 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

18. 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.

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

20. 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

21. Basic Insurance for ContractsExO 849

22. Specialized InsuranceExO 849

23. Hazardous MaterialsExO 849

24. 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

25. 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.

26. 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

27. 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

28. 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)

29. Proof of Insurance 2 • Endorsement of Insurance Policiesas 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

30. Basic Insurance EndorsementsExO 849

31. Additional Insurance Endorsements CPDC CGC

32. Special Endorsements

33. Special Endorsements

34. 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

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

36. Insurance Policy Limitsgeneral liability • Limits based upon value of the contract • ExO 849 - $1m/2m • CPDC CGC - $5m/5m < $5,000,000 • Limits based upon risk of the contractoperations, products, completed operations HOW MUCH CAN BE LOST?

37. Questions?

38. THANK YOU

39. References • CSU Executive Order 849 http://www.calstate.edu/eo/EO-849.pdf • CSU Contract Services and Procurement http://www.calstate.edu/CSP/crl/crl.shtml • CSU Capital Planning, Design & Construction (CPDC) http://www.calstate.edu/cpdc/CM/CGC.shtml • CSU Insurance Requirements In Contracts http://www.csurma.org/___

40. 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) • jrisser@calpoly.edu • 805-756-6755 office • 805-756-1602 fax