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Learn about the necessity of insurance requirements in contracts and how they can limit the state's liability. Understand the different types of bids or contracts and the coverage and limits needed. Explore the advantages of standard policy forms and the different types of coverage available.
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Insurance Requirements in Contracts www.doa.louisiana.gov
PURPOSE OF WORKSHOP • Limit State’s liability • Necessity of insurance requirements • L.R.S. 38:2195
TYPES OF BIDS OR CONTRACTS • IFB - Invitation for Bids • RFP - Request for Proposals • CONSTRUCTION • PRINTING CONTRACT • SOLE SOURCE • EMERGENCY
WHAT’S NEEDED ? • Coverages • Limits • Hold-Harmless Agreement
TYPES OF COVERAGE Workers Compensation and Employers Liability Maritime Liability Commercial General Liability Automobile Liability Property Damage Coverage Bond Coverage Crime and Fidelity Wet Marine Coverage Aviation Coverage Medical Malpractice
STANDARDIZATION OF FORMS 1. Insurance Services Organization ISO Standard Forms: CG 00 01 [10 01] -- CGL CA 00 01 [10 01] -- Auto 2. Manuscript Forms Company-written
ADVANTAGES OF STANDARD POLICY FORMS • Set rates using pooled data • Coverage generalizations • Comparison of policies
ADVANTAGES OF STANDARD POLICY FORMS(Continued) • Case law scope of coverage • Simplified claims-settlement
Commercial General Liability Forms • OCCURRENCE • CLAIMS - MADE
ISO Occurrence FormCG 00 01 10 01 July 1, 1999 July 1, 2000 Will pay these sums that the insured becomes legally obligated to pay... • DISCOVERY PERIOD • Occurrence during policy period • NO TIME element when claim is reported/paid • Statute of limitations
ISO Claims-Made FormCG 00 02 10 01 July 1, 1999 July 1, 2000 Will pay these sums that the insured becomes legally obligated to pay... • DISCOVERY PERIOD • Claim made DURING policy period or extended reporting period.
ISO Claims-Made Form (Continued) 1. BASIC EXTENDED REPORTING PERIOD: 60 days - no additional premium 2. SUPPLEMENTAL EXTENDED REPORTING PERIOD: Up to 200% additional premium DOES NOT REINSTATE OR INCREASE LIMITS
COMMERCIAL GENERAL LIABILITY 1. Premises Operations 2. Off Premises 3. Products and Completed Operations 4. Contractual 5. Personal Injury and Advertising Liability 6. Broad Form Property Damage 7. Watercraft
Coverage BPersonal Injury & Advertising Liability Personal Injury: Other than bodily injury • False arrest • Malicious prosecution • Wrongful entry • Libel or slander • Violation of privacy
Coverage CMedical Payments A. Medical expenses for accidents: 1. On premises you own or rent 2. On ways next to premises you own or rent 3. Because of your operations
Coverage CMedical Payments(Continued) B. Reasonable expenses for: 1. First aid 2. Medical, surgical, x-ray, dental services 3. Ambulance, hospital, nursing, funeral expenses
Common CGL Exclusions • Pollution (Asbestos and hazardous wastes) • Workers compensation, unemployment benefits, etc. • Aircraft and watercraft over 26 feet
Common CGL Exclusions (Continued) • Intentional Acts • Automobile Liability • Some Professional Liability • Property Damage to Property • 1. You own, • 2. Loaned to you, • 3. In your care, custody and control
PROFESSIONAL LIABILITY(Errors and Omissions Coverage) • ACCOUNTANTS • ARCHITECTS • ENGINEERS • MEDICAL PROFESSIONALS • ATTORNEYS • HAZARDOUS ACTIVITIES
BUSINESS AUTOMOBILEPOLICY CODES • Any auto • Owned autos only • Owned private autos only • Owned autos other than private autos • Owned autos subject to no-fault • Owned autos subject to a compulsory uninsured motorists law • Specifically described autos • Hired autos only • Non-owned autos only
Owners Protective Liability (OPL) • Protects the employer of an independent contractor • Employer can be liable for contractor’s negligence
WORKERS COMPENSATION Per Labor Code of the State of Louisiana Disability Benefits Updated annually in Sept. 9/1/2004 $438 max $117 min 9/1/2004 75% of average salary (from Dept. of Labor)
BID BONDS • Guarantee the good faith of the bidder • L.R.S. 38:2241 (A) (2)
PERFORMANCE AND PAYMENT BONDS 1. Financial protection 2. Prompt completion upon default 3. Defective work / materials 4. Payment of bills L.R.S. of 1950 Title 38 Chapter 10 Sections 2241 to 2248
“ADDITIONAL INSURED” I. BLANKET ADDITIONAL INSURED ENDORSEMENT Example: “The State of Louisiana is added as an additional insured on the above liability policies.”
“ADDITIONAL INSURED” CONTINUED II. LIMITED ADDITIONAL INSURED ENDORSEMENT Example: “The State of Louisiana is added as an additional insured as regards the (sole) negligence of XYZ contractor.”
“ADDITIONAL INSURED” CONTINUED III. NAMED INSURED ENDORSEMENT (Owners Protective Liability) Example: “The State of Louisiana, as the owner, is added as a namedinsured on the above policy.”
WAIVER OF SUBROGATION SUBROGATION: The right of one who has taken over another’s loss to also take over the right to pursue remedies against a third-party NOTE: ORM will NOT accept contract language which allows waiver of subrogation with regard to damage to State-owned property
HOLD-HARMLESS AGREEMENTS • Deductibles • Under-insured • Exclusions to insurance policies
TYPES OF HOLD-HARMLESS AGREEMENTS All liability, except that arising out of the sole negligence of the agency (State) • All liability without regard to fault • Own negligent acts (Contractor) • Agrees to share responsibility when both parties contribute to a loss
COMMON ERRORS • Neglect to review certificates • Using old insurance requirements • NO insurance requirements in bid • Insurance Company Ratings - taking company’s word on it
COMMON ERRORS CONTINUED • Neglect to review policies for exclusions • NO hold-harmless agreements • Not enforcing rating requirements • Leaving some insurance requirements out of bid
UNACCEPTABLE INSURANCE • Risk retention groups (unless A.M. Best rated) • Self-insurance funds (except WC) • Companies rated below insurance requirements • Claims-made coverage (some exceptions)
BOND COMPANY RATINGS www.fms.treas.gov/c570/c570.html
DEPARTMENT OF INSURANCE Regulates insurance companies licensed to do business in Louisiana DOMESTIC COMPANIES - 28 FROM 1978 TO 2002 583 insurance companies under rehabilitation or liquidation
CAPITALIZATION REQUIREMENTS Insurance Company Capitalization: $2,000,000 1989 $3,000,000 Premium Limited By Law: 4 times policyholders surplus Example: $3,000,000 X 4 = $12,000,000 Exposure to company = $100 millions
Louisiana Insurance Guaranty Association LIABILITY {CGL & Auto} $150,000 per claim - $100 ded. $300,000 per accident - $100 ded. WORKERS’ COMPENSATION Follows law - limits do not apply PLUS Unearned premium up to $10,000 (in addition to above limits)
PROOF OF COVERAGECertificates of Insurance • State’s Form (State Designed) • Accord Form (ISO Designed) • Manuscript Form (Company Designed)
BEST’SKey Rating Guide Property/Casualty Edition A.M. BEST COMPANY Oldwick, NJ 08858 Phone: (908) 439-2200 Fax: (908) 439-3296 www.ambest.com
ORM Website • www.state.la.us/orm/orm • Click on Underwriting • Click on Procedures Manual for Insurance Requirements in Contracts