SUMAssure Insurance 101

SUMAssureInsurance 101

Outline for Today • General over view of coverages: • Property • General Liability • Crime • EIL • Equipment Breakdown • Insuring to value/coinsurance • First party vs. third party claims • Liability issues • Role of adjusters, examiners, brokers • Claim examples

Coverages Property • Property of every description (POED) • Business interruption (80% coinsurance, gross earnings) • 90 % coinsurance on POED, buildings and equipment insured per statement of values, stock on ACV basis • Deductibles: numerous deductibles

Coverages Liability • Limits $5,000,000 subject to deductible • Coverage: To protect you against claims made by third parties alleging negligence • Additional Coverage: Employee Benefits Liability, Liquor Liability Protection, Fire Fighting Expenses

Coverages Crime • Employee Dishonesty • Depositors Forgery • Credit Card Forgery • Computer Theft & Fraud • Money Orders & Counterfeit Paper

Crime • To reduce potential claims insurers require a system of checks and balances • Requirements for Full Coverage ($100,000 limit) • Dual Signatures on cheques • Individual reconciling bank statement cannot be a cheque endorser • Incoming cheques must be stamped for deposit only • Auditors must report to board, not an individual

Crime • Employee dishonesty limit is $500,000 • Same conditions apply • Depending on size of municipal entity some of the requirements may not be possible to comply with

Environmental Impairment • Claims Made Policy ,not occurrence based • Covers you for environmental/pollution exposures • Example: a municipality is sued alleging they caused harm to someone, this policy responds. It does not respond to clean up costs.

Equipment Breakdown • Covers equipment • Examples — cranes, construction equipment, graders etc.

Insuring to Value • Insurance is purchased to protect your investment and the revenue generated through the use of your property. The significance of insuring to full value of your property cannot be overstated when it comes to managing your risk and protecting your investment. • If you don’t insure to value, you risk possible reduction of your claim. Maintaining adequate protection is very important so that you do not suffer a coinsurance penalty in the event of a partial loss. A coinsurance penalty applies when you do not purchase the required amount of insurance based on the value of the property.

Insuring to Value • How to insure to value? • Determine the valuation basis on your policy. There are two main valuations: “Replacement Cost” (not to be confused with book value, original cost or market value) means the actual cost to replace the propery. “Actual Cash Value” means the depreciated cost to replace the property • Locate a source to determine the current cost of replacement which reflects local labour conditions and material costs. Sources include building trade publications, equipment dealers, appraisers, contractors, and quantity surveyors

Insuring to Value • Prepare a detailed schedule of all assets to be insured showing the proper value derived from above • Building and contents values, once verified, should be kept current by applying an annual inflation factor

Claim Example • ABC Municipality builds a warehouse 10 years ago at a cost of $10,000,000. That amount has been the value every year on the insurance schedule since the building was completed. ABC knew the costs to build things were going up but never thought they would lose the building in a fire. Earlier this year the building was seriously damaged by fire. The cost to replace the building was $15,000,000. ABC is only insured to $10,000,000 and is now uninsured for $5,000,000.

Coinsurance Example • A policyholder owns a building with a replacement value of $1,000,000. Co-insurance is 90%. This means the insured must have at least $900,000 as a declared value for the building. The formula for calculating the payment is: • Actual Declared Value / Required Value x Loss • The Insurance schedule lists the building for $600,000. A claim is submitted for $300,000. In this example the insurance company would pay $200,000 and the policyholder would pay the remaining $100,000 (subject to deductible) • $600,000 / $900,000 x $300,000

First Party vs. Third Party • First Party: • A named insured or an additional insured under a policy • Can include lien holders, sub companies, suppliers, joint ventures, contractors • Third Party: • An individual or company making a claim against you. • The individual or company has suffered a loss arising out of your negligence

Liability Issues • In order to establish liability there must be negligence • Negligence is defined as the failure to do or not do something that a reasonable or prudent person would do in the same set of circumstances • Gross Negligence is a higher standard where the court will find the actions of a party were so bad (wanton disregard, extreme carelessness) that the negligence is higher than ordinary negligence

Negligence • Contributory Negligence is what percentage another party may be considered liable • Example: • A person slips and falls on ice on a sidewalk outside a store. They are wearing running shoes with no treads. A court may conclude the footwear was inappropriate and the person who fell is partially responsible for their own injuries

Liability Issues • Duty Owed • A court will determine if there was a duty owed by one party to another • Duty Breached • If there was a duty owed then the court must determine if the party that owed the duty breached that duty • Damages • If the court concludes there was a duty owed and a duty breached then they must assess damages based on the facts

Municipal Government Act • Generally speaking policy decisions do not attract liability • However operational decisions do attract liability. • If you have a policy in place but do not follow it then you open yourselves up to liability

Municipal Government Act • In many circumstances the standard of negligence for municipal entities is gross negligence. • Exceptions to this however usually involve public safety issues • Claims often allege road maintenance or design issues. The standard of negligence for these types of claims is ordinary negligence not gross negligence.

Role of Parties • Adjuster • Hired to investigate and handle the claim, typically by an insurer • Public Adjuster is hired by an insured to assist them with their claim • Examiner • Works for insurer and controls the adjuster. The decision maker • Broker • Assists insureds in determining the risk and providing solutions to minimize and insure those risks

Claim Examples • A driver loses control of a vehicle and damages it severely. The driver alleges the road was improperly designed, poorly maintained. • What do we do?

Claim Example • Pipe bursts in municipal office, causing severe flooding in basement and damage to offices • What do we do?

Claim Example • A farmer alleges that Toradol was sprayed on municipal property but over spraying occurred damaging his crops • What do we do?

Claim Example • Employee accepts cash and credit card payments but only submits a portion of the cash but all of the credit card payments • What do we do?

SUMAssure Insurance 101