Archive for category insurance

Who You Gonna Call? Reporting Claims

People frequently overlook one of the best values of a liability policy which is the insurance company pays to investigate and defend a claim. But the insurance company has to receive timely notification of a claim or incident to trigger or initiate these defense expenses. Too often the insured (you) contact your legal counsel and forget to call your insurance agent to report the claim.

True story

An association received a letter from an attorney representing a terminated employee seeking restitution for alleged discrimination. The association sent the letter to its attorney who did a little research and wrote a letter to the employee’s attorney saying “go away.” Several months later the association received a letter announcing a court award of a judgment to the former employee. The organization did not respond to the complaint nor appear in court because it failed to notify its registered agent of its new address.

At this point the association finally contacted its insurance agent to file an Employment Practices Liability claim. The insurance agent presented the claim which the insurance company denied due to late reporting. The association was very lucky and had a good agent who after much pleading and negotiation the insurance company agreed to pay the defense costs from that point forward. The carrier was within its rights to deny the claim.

What went wrong?

The association did not call its insurance agent as soon as it received the original demand letter but rather had its legal counsel “handle it.” This common practice jeopardizes your insurance coverage. Frequently attorneys tell association executives to contact them as soon the person becomes aware of a claim or potential legal action. A few attorneys even tell clients they will advise the association if it should submit the claim to its insurance company.

WRONG! The insurance company is the only party that decides whether or not a claim is covered. So your first phone call must be to your insurance agent so he or she can guide you in filing a claim or notice with the appropriate insurance companies. Neither your attorney nor insurance agent should decide whether or not to report a claim.

Why?

Every insurance policy requires claims to be reported in a timely manner.  The insurance company wants to investigate the claim immediately while memories are fresh, people are available and the evidence can be preserved. Many states have laws that stipulate late reporting can relieve an insurer of its responsibility to defend and pay a claim. A few states mandate that the reporting delay has to have a “material effect” on the company’s ability to defend the claim to negate coverage. Regardless of the applicable law, you are better served when the insurance company begins its investigation promptly.

Defense Expenses

Second, the insurance company’s responsibility to defend the insured is the most valuable coverage under a liability policy. Defense costs can exceed the actual claim payment. For example you may win in court or convince the claimant to go away but will still have defense costs.

Each policy’s defense provisions stipulate if the insurer has the right and duty to defend the insured. If the insurer does not have a duty to defend, there may be an option for the insured to tender its defense to the insurance company. However even if you do not tender the defense to the company the carrier still has to approve in advance any defense expenditures paid by you. Under most reimbursement provisions, the insurer will advance defense expenses (pay before the claim is settled).

It is important to know how defense costs are covered under each policy. In most general liability and auto policies defense costs are paid in addition to the policy liability limit(s). The full limit is available to pay any settlement or judgment. Most Directors & Officers and professional liability policies have defense expenses within the policy limit thereby reducing the amount of money available for claim payments. Some insurance companies offer an endorsement (for an additional charge) making defense expenses “outside” the policy limit. Check with your insurance agent to determine the defense provisions for your key liability policies.

Bottom Line

You are probably paying a lot for your insurance policies and should receive its full benefits. Therefore all claim and incident notices should be filed promptly to the insurance company. Make sure every supervisor, manager, executive, general counsel and key volunteer (board and committee members) knows how to report any incident or event that could lead to an insurance claim to the proper person. Remind them often of the importance of timely notice and how to report an incident or claim.

The association’s first call or email should be to the insurance agent or broker who can guide them through the reporting process. The second call can be to General Counsel or your outside legal counsel but it is more important to notify the insurance company via your insurance agent. Don’t rely on your attorney to decide if you have insurance coverage; only the insurance company can make that determination.

Late claim reporting can cost you thousands (or more) of dollars in defense costs that the insurance company would have paid (within the terms of the policy) if you told them sooner.

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Protecting Your Association: Insurance and Indemnification

My earlier post, What Does Your Exhibitor Contract Say? Protect Yourself, discussed how a hotel and convention center contract could hold an association responsible for anything that goes wrong, including the bad acts of exhibitors. Regardless of the terms of the facility contract, an exhibitor should have to protect the association from any harm caused by an exhibitor. The exhibitor contract should contain an indemnification and hold harmless agreement in favor of the association.

The protection provided by an indemnification provision is only as good as the offending party’s ability to pay for any harm they cause. If the exhibitor does not have the right insurance they won’t be able to meet their obligations nor protect the association. This is why having the right insurance is so important.

Very few contracts are written correctly from an insurance and risk management perspective. The hold harmless and indemnification provisions and insurance requirements are problematic. The contracts often contain incorrect insurance terms and do not require the exhibitor to submit proof of insurance.

Insurance Requirements

If the contract has the exhibitor agreeing to indemnify and hold the association harmless, require the other party to have certain insurance coverages. You should also demand proof of insurance by requiring a Certificate of Insurance and/or Evidence of Property Insurance. Certificate handling is time and staff intensive especially for a large event. You have to train someone to receive, review and approve the certificates, follow-up if there is a problem, and file and retain the documents. This may seem like a lot of trouble but is invaluable if you avoid a large loss caused by an exhibitor.

The following is a general explanation of common insurance terms and coverages. Your policies may vary so do not rely upon this discussion. The terms and conditions of the actual policy determines coverage. Have your insurance agent or broker review all contracts before signing to make sure you have the required and appropriate coverages. Many contracts mandate terms contrary to insurance industry practices making compliance difficult or impossible. When drafting a contract or agreement have your insurance professional review it from an insurance and risk management perspective.

Liability Coverages

Terminology

The most common errors arise from incorrect insurance terms. Almost universally contracts mandate “comprehensive general liability insurance” which no longer exists. Insurance companies stopped writing “comprehensive general liability insurance” in 1986 and some of the coverages under the comprehensive policy are no longer available. The correct term is “commercial general liability” although some use the terms of business or general liability. All insurance people understand the term “commercial general liability” and carriers’ policies are usually based on the Insurance Services Office’s Commercial General Liability policy.

Other terms not to use are:

  • Personal Injury – Frequently, the exhibitor agrees to hold the association harmless for “personal injury” and damage to property. For attorneys, “personal injury” means or includes bodily injury. However in a commercial general liability policy, “personal injury” covers intentional torts such as libel, slander, defamation, false arrest, detention or imprisonment, malicious prosecution and wrongful eviction or entry into committed by or on behalf of the premises’ owner, landlord or lessor. Personal injury coverage excludes bodily injury, so the indemnification provision should use the term bodily injury. You can also require Personal and Advertising Injury which is Coverage B in the commercial general liability policy.
  • Public liability – This was never an insurance coverage – no insurance person knows what it means.
  • Broad form coverage – This was an endorsement added to a “comprehensive general liability” policy. The endorsement no longer exists and some of the coverages are no longer available.
  • Blanket contractual liability – Another pre-1986 endorsement that is no longer available. Some insurance companies have a “blanket” endorsement for contractual liability but each form is different and may not give the intended coverage.

The contract may also require the exhibitors to include coverage for their independent contractors. No insurance company will provide coverage for the insured’s independent contractors – the exposure is too large and unknown.  However you can require the exhibitor to pass your insurance requirements to their subcontractors.

Contractual Liability

The general liability policy grants contractual liability coverage as an exception to an exclusion. The insured has coverage for bodily injury or property damage liability assumed under a contract or agreement that is an “insured contract.” Not all contracts meet the policy’s definition of “insured contract.” The policy also has other restrictions on contractual liability coverage. Talk with your insurance professional to get a better understanding of this coverage.

The general liability policy is usually the only policy that provides some form of contractual liability coverage. Most other liability policies exclude liability assumed under a contract. Work with your insurance agent to decide which, if any, of your policies give this coverage when signing a contract requesting contractual liability

Additional Insured

In most cases request the exhibitor to have the association added as an Additional Insured to its general liability policy. However there are many variations of the Additional Insured endorsement so specify the endorsement or wording you want. Request a copy of the additional insured endorsement to verify it is providing the right protection.

The exhibitor’s policy may have a “blanket” additional insured endorsement that adds any party requiring such status. However the blanket endorsement can have limitations or other problems so ask for a copy of the endorsement to verify coverage. Ask your insurance professional to check the form for compliance.

 

Property Terminology

A contract may specify “all risk” or “fire and extended coverage” forms but these coverages no longer exist. Property coverage is now written on Cause of Loss – Basic, Broad or Special Form. The broadest coverage is the “Cause of Loss – Special Form” which usually does not include flood or earthquake.

Certificates of Insurance

A certificate of insurance documents the insurance policies in force as of the date of preparation; the coverage can change the next day. Regardless what the certificate displays, it does not amend the terms of any policy. The contract’s requirements such as adding the association as an additional insured may drive the need for an endorsement.

Get Help

By requiring the exhibitors to have certain insurance coverages you are protecting your association from harm caused by others. Make sure your contracts are well-written and the exhibitors have to have the appropriate insurance policies.

Insurance is quite complex; so get help in drafting (and reviewing) your contracts and agreements. While attorneys address the legal aspects of a contract you also need the counsel of an insurance professional. Insurance with its own terminology and intricacies need the help of an insurance professional. Your survival may depend on it.

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What Does Your Exhibitor Contract Say? Protect Yourself

An association executive asked me about requiring certificates of insurance from conference exhibitors. My primal response was “Of course you require certificates of insurance from exhibitors that is Risk Management 101.” But then I decided to investigate the world of meeting and event planning to see what associations are doing. Thanks to ASAE’s Knowledge Center’s Models and Samples I reviewed seven (7) exhibitor contractors. The findings surprised me; from a risk management perspective the indemnification provisions were rather weak and the insurance requirements were problematic. Bottom line, only one association had a good indemnification provision and all had problems with their insurance requirements.

Why Do We Care?

Every hotel, convention center or facility contract has an expansive indemnification provision. In most cases, the association agrees to indemnify, hold harmless and defend the facility for anything that goes wrong. What do these terms mean?

Indemnification or to indemnify means the association assumes the financial responsibility for the liability of another party such as the hotel or convention center. A hold harmless agreement requires the association to respond to certain legal liabilities of the other party. Most event contracts have an “intermediate” hold harmless form where the association is responsible for its sole negligence and the negligence of both parties. However, the agreement can be “broad” where the association holds the other party harmless for suits against the other party based on the association’s sole negligence, joint negligence of both parties or the sole negligence of the other party. The facility can try to impose liability for its sole negligence but that portion is unenforceable in a number of states. (Definitions provided by International Risk Management Institute’s Insurance Glossary.)

Consequently, hotel and convention center contracts or license agreements impose substantial liabilities onto an association. Limited attention is often given to the indemnification provisions since the association is usually in a weak bargaining position. While the association may not be able to modify the terms it can work with an insurance professional to make sure it has the appropriate insurance coverages and limits. Just as importantly, the association can transfer contractually some of these exposures to the exhibitors and other service providers (exposition companies, caterers, AV, entertainment).

Most facility contracts also hold the association responsible (liable) for the acts of any persons admitted to the facility by the association. One agreement states “For the purposes of this Agreement, the act of any person admitted to the Center by Customer shall be the act of Customer.” Therefore, the association is financially responsible to the facility for any legal liabilities caused by its employees and volunteers as well as the attendees, exhibitors, speakers, contractors, subcontractors and anyone else invited to the event. For example, if an exhibitor’s “swag” hurts a person or they serve food that causes food poisoning, the association is liable to the facility if the facility is involved in the loss or claim. A knowledgeable claimant or plaintiff will name every party even remotely related to the incident including the facility. For your protection, transfer this financial responsibility to the exhibitors and other service providers through your contracts.

What’s Wrong?

Indemnification and Hold Harmless Problems

Several of the exhibitor contracts focused on limiting the association’s liability from the exhibitor filing a claim against the association for damage to the exhibitor’s property or people. The contract should address this issue but it is more important to have a good indemnification and hold harmless provision especially if the facility contract has an “intermediate” or “broad” hold harmless provision.

The indemnification provision should protect the association to the fullest extent possible. Review the facility contract to determine your obligations and transfer the same responsibilities to the exhibitors.

Below are solutions to some common errors in indemnification provisions.

  • Clearly identify the provision with a heading such as Indemnification, Liability or Waiver
  • State that the exhibitor has to defend the association in addition to indemnify and hold it (and any other parties) harmless. Most insurance policies will not pay defense costs unless the contract specifically requires the insured (exhibitor) to defend the other party (you).
  • State what liabilities and exposures the exhibitor is assuming.
  • List all parties that the exhibitor has to indemnify. This should include the parties the association has to indemnify under its event contracts.

NOTE: Since this is a part of a contract or agreement, have your attorney review and approve the document before you use it. 

 Co-ordination with Lease

The Produce Marketing Association (PMA) has a great provision in its PMA Official Exposition Rules and Regulations that makes the exhibitors liable to the same extent that PMA is obligated to indemnify the owner of the building. Here’s the wording:

Exhibitor hereby agrees to indemnify, defend and hold harmless Exposition Management to the same extent that Exposition Management may be obliged to indemnify the owner of the building and other related entities as lessee or licensee of the exhibit hall or space. If there are any inconsistencies between Exposition Management’s lease or license for the exhibit hall or space and this agreement, the terms of the lease or license shall govern. If there are additional rules, regulations or terms or conditions that Exposition Management must comply with under its lease or license, to the extent they may be applicable to the Exhibitor’s booth, those additional rules, etc. are hereby incorporated herein by reference and the Exhibitor agrees to comply with them.

If you include a similar provision you should inform the exhibitors of the extent of your liability to the building owner so they can review their insurance program for the appropriate coverages.

Insurance

Insurance is the best way to fund an indemnification agreement. However the Insurance section is either overlooked or done poorly. Another blog post will more fully explain Insurance requirements.

First, make sure the indemnification provision is written to trigger insurance coverage. Second, describe the required insurance coverages properly. Your insurance agent or broker can help you develop the correct wording. Finally require the exhibitor to provide your association with a Certificate of Insurance and Evidence of Property Insurance prior to the event. Review the certificates to verify the exhibitor has the right insurance coverages.

You have too much at risk to have a weak indemnification provision in your exhibitor contract. The larger exhibiting companies will have no trouble meeting tougher indemnification and insurance provisions – they expect it. Some smaller companies may not have the required insurance but you can help them. Short-term special event general liability policies are available if an exhibitor needs help to meet the contract’s requirements. Your insurance agent can help identify or supply these markets if the exhibitor needs help. You can provide a valuable service to the exhibitor while protecting your association.

What to Do

So what does your exhibitor contract say about indemnification and insurance? Review your contract with your insurance agent and attorney. They can draft a stronger contract to protect your association from harm caused by others. Get to it!

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How Much Insurance is Enough? Risk Financing Decisions

My friend, an insurance broker, was lamenting the disconnection between her association and nonprofit clients and the insurance industry. Her clients expect their property and casualty insurance premiums to decrease while insurance companies are seeking increases. This disparity forces insurance brokers to market their accounts in search of reduced pricing. The marketing efforts can produce lower costs but usually because the incumbent carriers cut their prices to keep the account.

The insurance industry has programmed insureds to expect premium decreases. The insurance marketplace is cyclical and it has been in a “soft” market since 2005 with declining rates. However according to MarketScout’s research, the market started to turn last fall when rates stayed flat and then slight increases. Since November 2011, average premiums have increased with April recording a 3% increase compared to last year. Conning Research’s Property-Casualty Forecast & Analysis predicts net premium growth of 4% in 2012, +5% in 2013 and +5.5 in 2014.  Premium increases will be higher in catastrophe-exposed regions especially for property coverages.

What does this mean? Associations and nonprofits should expect their annual premiums to increase for the next few years. But nonprofit organizations are still recovering from the Great Recession and money is tight. Many have already reduced their insurance costs by lowering policy limits, increasing deductibles, and/or eliminating coverages. How much lower can they go?

Although you may still need to cut costs, reducing your insurance coverages can be a false savings. Having adequate insurance is important to your financial well-being but what is “adequate” for you? How did you decide where to cut your insurance costs?

 Risk Financing Strategy

In a perfect world every nonprofit has a risk management policy but few have one. It is valuable to discuss how to manage your risks and then adopt a formal policy. A plan for financing your risks – how you will pay for losses – is a part of your risk management program. A risk financing strategy helps you make these difficult risk financing decisions. Most associations have policies or strategies for their investments and reserves but not for financing its risks.

Risk Financing Techniques

There are two ways to finance risk; retention or financial transfer. An organization retains a risk when it pays for all or part of a loss. A deductible is one form of retention; not purchasing insurance for an exposure is another. Hopefully your types and amounts of retention are conscious decisions but you can passively retain a risk when unaware of its existence and have no plans for paying for a loss. A good risk identification process may prevent an unexpected risk retention.

With financial transfer another party is financially responsible for a loss but you need to make sure they have the financial resources to meet their obligations. Purchase of insurance is a financial transfer. Indemnification or hold harmless provisions in contracts are another transfer technique since another party has to pay for certain types of losses. For all financial transfers make sure the other party can meet their financial obligations.

Insurance

Insurance is the primary risk financing technique for nonprofit organizations. Every nonprofit has an informal risk financing strategy based on the scope of its insurance program but it would be better to formalize your strategy.

Insurance purchasing guidelines, a part of a risk financing strategy, are similar all organizations. An organization should:

  1.     1.        Assume risks whenever the amount of the potential loss would not significantly affect the organization’s financial position; and
  2.     2.        Insure risks whenever the amount of potential loss is significant or insurance is required by law or contractual agreement.

The first step is to decide what is a “significant loss.” Often a “significant loss” is one that threatens the organization’s survival. You may have established your loss threshold when setting your reserves level.

Another consideration is your association’s risk appetite – how much risk the association is willing to accept in pursuit of its strategic objectives. In some pursuits you are willing to accept more risk than others. These factors affect your insurance purchasing decisions.

Your association may be subject to certain laws or regulations requiring specific insurance coverages and limits. For example most states mandate Workers Compensation insurance and the Employee Retirement Income Security Act (ERISA) requires Employee Dishonesty insurance for your fiduciaries.

Contracts are often an overlooked exposure due to an indemnification or hold harmless agreement as well as specific insurance requirements. The person responsible for the insurance program isn’t always informed of the contractual requirements so the insurance program is non-compliant. You could inadvertently breach a contract or have an uninsured exposure.

Think Before You Cut

Before you make cuts in your insurance program adopt a risk financing strategy. Decide what you want to do via retention and financial transfer. Make retention a conscious decision matching your risk appetite. Insurance is another option but don’t forget you can transfer a risk or operation to another party (outsourcing). Just make sure the other party has the right types and amount of insurance to protect both you and them. When necessary buy insurance but base your decisions on your risk financing strategy and organizational goals. You’re less likely to be surprised.

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How Much? Costs to Manage Your Reputation

Several nonprofit organizations have had their reputations tarnished recently. The National Restaurant Association had its 15 minutes of fame via Herman Cain. Susan G. Komen for the Cure  is still reeling from its decision to defund Planned Parenthood. Penn State University (PSU) has been handling the repercussions of a grand jury report of child abuse allegations against former assistant football coach, Gerald (Jerry) A. Sandusky. Unfavorable media coverage is every organization’s worst nightmare.

Quantifying reputational risks is hard because the financial impact can take months to appear. The association may experience a decline in membership, advertising revenues, donations, or sponsorship that won’t be known for awhile. How do you know if you are still attracting or retaining members, students, talented employees, volunteers or board members? But there can be substantial upfront costs when your reputation is being attacked. Penn State has disclosed scandal offers insight into the initial costs of managing its reputation.

Penn State established a website, http://openness.psu.edu/, to demonstrate its commitment to openness and transparency. The site details the costs associated with the scandal.

Costs to Penn State

Protecting your reputation is not cheap. Penn State disclosed that as of January 31, 2012, it had paid $5,723,553 to respond to the Sandusky incident. (F.A.Q. 14. How much money is the University paying for legal fees, consultants and PR firms associated with the Sandusky matter?)

  •  Internal Investigations and Crisis Communications                 $3,936,137
  • University Legal Services/Defense                                                    $  813,427
  • Externally Initiated Investigation                                                     $     49,788
  • Officers Legal Defense                                                                              $  338,545
  • Other                                                                                                              $  558,656

The University states that it will not use donations or tuition fees to pay for the scandal. Some of the costs may be covered by insurance but much of it will be “out of pocket.”

Indemnification

The University’s bylaws [Article 5, Section 2 (a)] state that “except as prohibited by law, every trustee and officer of the University shall be entitled as a right to be indemnified by the University against expenses (including counsel fees) and any liability (including judgments, fines, penalties, excise taxes and amounts paid in settlement) paid or incurred by such person in connection with any actual or threatened claim, action, suit or proceeding, civil, criminal, administrative, investigative or other.”

Penn State promises to reimburse every trustee and officer for their expenses and any resulting liability from this scandal via its bylaws. The indemnification provision does not include employees so it is unclear what protection Penn State will provide to its non-officer employees.

General Liability Insurance

Penn State is relying on its general liability policy to cover many of the lawsuits and allegations arising from the Sandusky scandal. However, according to Business Insurance, the University’s general liability insurer, Pennsylvania Manufacturers’ Association Insurance Company (PMA), filed for declaratory judgment or basically denied any coverage for the lawsuit filed in November 2011 (alleging Penn State’s negligence related to Mr. Sandusky’s alleged sexual misconduct). PMA asserts that Penn State is not entitled to coverage and defense under certain policies issued by PMA mainly because of an abuse and molestation exclusion. Penn State has countersued PMA over its refusal to cover the lawsuit (Penn State sues insurer PMA in dispute over Sandusky case coverage).

So now Penn State is paying for its own defense against this lawsuit (probably only the first of many). Plus the University is funding its legal expenses to sue its own insurance company – never a cheap endeavor.

Directors & Officers Liability

On a brighter note, Penn State’s D&O policy may provide some coverage including defense costs. But coverage is dependent upon the terms and conditions of the policy such as how it defines “wrongful acts,” “claim,” and “insured.”

Some of the defense costs for both the entity and its directors and officers may be covered by the D&O policy. But a D&O policy usually excludes coverage for bodily injury claims so that policy won’t cover the specific negligence allegations.

Crisis Communications

Penn State has already spent almost $4 million in internal investigations and crisis communications which is probably not covered by insurance.

Lessons to be learned

Crisis Management Plan

If you haven’t already, develop and test your crisis management plan. The need for a crisis plan is reinforced every day with the power of social media (Trayvon Martin, Kony 2012, Arab Spring). Social media can both generate and respond to a crisis.

When you are prepared you can strive to keep the initial costs low since many of your actions may not be covered by insurance. Penn State probably had a crisis plan but doubtful it addressed the possibility for allegations of child abuse especially one involving its football program.

Indemnification

What does your bylaws or other corporate indemnification provision say about directors, officers, employees, volunteers, etc? The provision is probably rather broad and not all costs will be covered by insurance.

Review your insurance coverages

Meet with your insurance agent to review your coverages; use these current crises to analyze your coverages and limits. Remember several liability policies such as D&O, professional liability, media liability and others may include defense costs inside the policy limits. Penn State has already paid over $1.1 million in defense expenses; it’s not unusual for defense costs to exceed the settlement.

No one likes to think about bad things happening but they do and often occur to good people. It is only a matter of time before your association experiences unfavorable attention. Be prepared – it may save your association.

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Earthquake Insurance?

After the recent Virginia earthquake, many people asked about the need for earthquake insurance. Let’s do a risk assessment.

The Risk

Earthquake is not the risk but rather the peril or cause of loss for damage to property. A building can sustain structural damage, walls crumble and ornate facades, pinnacles and spires fall off. Heating, ventilation and air conditioning equipment if not secured properly will shift and be damaged. Broken gas pipes and electrical wiring create other dangers. The shaking can make interior walls collapse, file cabinets, large furniture and other objects tip over, and pictures fall off walls.

If the quake caused any significant direct property damage your business operations will be interrupted. During the interruption your association may lose income (rental fees, dues, sales, conference registrations) or incur added expenses to keep up operations including setting up a temporary office.

The Analysis

During the analysis phase we consider the frequency (how often) and severity (dollar loss) potentials of earthquakes. The U. S. Geological Survey (USGS) is a tremendous resource all things earthquake.

Frequency

USGS suggests you find your proximity to active earthquake faults, the seismic history of the region (frequency), and how long since the last earthquake. On the East Coast earthquakes are relatively low in both frequency and intensity. However the New Madrid Fault in southeastern Missouri and western Tennessee has a higher probability of a significant earthquake. The West Coast including Utah and Nevada has a higher incidence of earthquakes. USGS’s 2009 Earthquake Probability Mapping site enables you to check the probability by zip code.

Severity

As we say in the insurance world “frequency breeds severity,” so the more earthquakes in a region the greater the chance for a significant event. Alaska is the most earthquake prone state but California has had the most substantial earthquakes.

When assessing severity consider both the potential intensity of an earthquake and your building’s and office’s susceptibility to damage. Brick buildings don’t do well in earthquakes while frame construction fares better due to its “flexibility.” Other construction types depend upon its level of “earthquake resistance.” Buildings in California are more earthquake resistant than in other parts of the country. You also need to consider the soil composition, slope of the land and annual rainfall to assess severity.

Earthquake Insurance

You can purchase earthquake insurance as an additional peril under your property insurance policy (personal and commercial). The premium depends upon your location (proximity to faults) and building construction. Earthquake insurance is much cheaper on the East Coast than the West Coast. You can buy coverage for the full value of your property or as a sublimit.

Another factor is the size of the deductible. On the East Coast your deductible may be as low as 2% of the property values while in California your deductible would be 10 – 15% of the property values.

While assessing the need for earthquake insurance, determine the property values subject to loss by an earthquake. If the property values are low and you have a high deductible, the claim may be under the deductible. If you own an older building with ornate features you may sustain more damage than a newer building. The East Coast quake caused damage mainly to churches and older brick buildings where it might be appropriate for earthquake insurance.

If you are still undecided, ask your insurance agent to get a quotation for earthquake insurance. Knowing the cost and deductible can help you decide if you need earthquake insurance.

The Virginia earthquake awakened people to this exposure. We learned that few of us know what to do and unintentionally endangered themselves and others. Even if you don’t purchase insurance learn what you should do before, during and after an earthquake to protect people and property. After writing your new procedures don’t forget to train your staff. Be safe.

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But She Returns My Calls – Choosing an Insurance Agent

While talking with an association executive about his insurance program (I’m quite a hoot at cocktail parties) he described his insurance broker as good because he returned calls promptly. Responsiveness is the most common criteria for judging insurance agents and brokers but there are other factors to consider. Timely responses are desirable but the quality of the answers, the other services provided and the appropriateness of the insurance coverages recommended are critical to protecting your association.

For full disclosure, I am not an insurance agent or broker (tried it for six months, not a good fit) but assist clients in managing their property and liability insurance programs including broker selection. I always answer insurance questions by telling people how important it is to have a knowledgeable, qualified insurance agent to safeguard their association or nonprofit.

Why is a good insurance agent so important? Because associations and nonprofits depend upon their property and liability insurance program to protect their organizational assets. An uninsured fire, auto accident, employment-related allegation, liability claim or lawsuit can bankrupt an organization. For something so important to your organization’s well-being it’s surprising how little time some executives spend on choosing their insurance professional.

For whatever reason, most association executives do not consider their insurance agent as a valuable, trusted business partner. Many are quick to call an attorney but rarely remember to call the agent to discuss the insurance implications of opening a new office or moving, having remote employees, buying a new vehicle, introducing a new program, product, service or event, or before signing a contract. Your insurance agent can’t advise you if you don’t keep him or her informed. No one wants an uninsured claim especially if insurance was available but not purchased.

Here’s what I think is important in judging and selecting your insurance agent or broker.

  • Knowledge of Industry – Associations and nonprofits are unique so the agency should have extensive experience with that sector.
  • Account Team Qualifications – Remember the person you see is the “producer,” the sales person. Find out about the “back room”, the people working on your account.
  • Knowledge of Account – How much do they know about your organization? Have they done any research or just providing generic information about their services?
  • Account Handling
    • Responsiveness – How quickly do they respond to your calls or emails?
    • Timeliness – Are they there even when you don’t know you need them? Set up pre-renewal meeting, account reviews, claims issues, etc.
    • Credibility – Do you believe them? Do you trust them?
    • Commitment – Willing to do what it takes to meet your needs?
    • Claims Handling – Are claims handled promptly? Are they your advocate?
    • Accuracy – Insurance companies are notorious for issuing policies incorrectly. Is the account team catching the errors? Doing what you asked? Is their proposal error-free?
    • Results – Are you getting the results you want and deserve? Price is a poor method of evaluating your coverage and your broker. A very low price may mean extremely poor coverage and/or service.

My advice is to conduct a broker selection process rather than have multiple brokers get quotations for your account. In June 2007 I wrote How Many Agents? Bidding Your Insurance, an article about selecting an insurance broker.  Your insurance program is too important to your association’s survival to be left to the person with the best sales technique or returns your calls quickly.

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