Advising Indemnification Agreements with Charles Stec, J.D.

In the second episode of a special two-part series, Executive Vice President Daniel Frazee interviews Charles Stec, J.D., accomplished attorney at Lanak & Hanna, to advise construction companies on what to include in indemnification agreements.

Daniel Frazee: Welcome back to StudioOne™ everybody. We're happy to be joined again by Charles Stec from Lanak and Hanna. We're going to change the conversation a little bit. Charles was nice enough to talk with Drew Garcia, our landscape leader about sub-contract agreements. We're going to shift into indemnification So, welcome back to the studio, Charles, and thanks again for joining us.

Charles Stec: Thanks for having me back. It's my pleasure.

DF: Okay, well, let's talk about indemnification agreements. More specifically, tell our listeners what should go through their minds when they hear that word indemnification and how it may impact them in construction?

CS: So indemnification is a big legal word that simply means a promise to pay for damages or defects that arise from your work.  The bigger concern lately because of the cost of litigation is that there is a duty to defend also included with a duty to indemnify. What that really means is that if there's a claim, you end up being responsible to pay for the legal fees and costs of the person that's making that claim against you. And those costs, especially in smaller claims, can sometimes exceed the value of the actual damages at issue.

So an indemnification provision in a contract can be used to really define who is going to be responsible and to tell a subcontractor that they're responsible for damages that arise from their work. But how we write that provision can very much impact how it will be interpreted and what your actual allocation of responsibility will be.

DF: Okay. So, furthering that part of what you're talking about, can you provide us with an example how indemnification, when worded a specific way, can negatively impact, let's say, a lower tier trade that we might represent?

CS: Sure Daniel. Let’s take a drywall subcontractor as our example. If our drywall subcontractor has an indemnification provision as contract, that ultimately says that he is responsible to defend and indemnify for claims arising from or any way related to his work, then if we had a scenario where there was a water leak from the roof, from plumbing, whatever it is, and it ultimately results in the wall that's dry walled having buckling or mold, then in the event of a claim, that drywall subcontractor could arguably be responsible to indemnify and defend because our provision says in any way relating to his work.

But if we rewrite that position to just say he's only responsible for claims that arise from the negligent performance of his work. Now, in our scenario of the water leak, his duty to indemnify and to defend won't be triggered because the claim ultimately comes from a water leak, not from something wrong with how the drywall work was installed

DF: Okay, that makes sense. And I'm going to go a little off cuff with you, but I want to better understand because I think we have a lot of clients that have concern with redlining contracts, right? They're working with a preferred contractor, a really solid relationship. They don't want to disrupt that. So in your experience, when there is pushback, when there is redlining of contracts, how do most general contractors respond to that when you insert that type of wording. Does it depend on the general or is there some reasonable compromise that you've seen?

CS: So I've actually seen mostly reasonable compromise. I think everybody knows that a contract is ultimately supposed to be negotiated at arm's length. It's supposed to be the two parties are negotiating their position. What people are afraid of as a subcontractor is, "Oh, I'm not going to get the work because I'm not just accepting the contract as it is." But in that scenario, that contractor is running the risk that you're going to argue later that this was a contract of adhesion. Take it or leave it and therefore it's not enforceable. So they're typically open-minded and I have many, many a times in my recent past found myself on the phone with the general contractor's lawyer and we negotiate the few positions that are disputed in a contract. They expect it and for the most part if your requests for revisions are reasonable, they're going to get accepted.

DF: Very helpful. That's very helpful. So let's continue looking at indemnification clauses from a subcontractor's perspective. Walk us through what they may see in a typical contract and some specific examples, again, back to redlining or changing language that can minimize their exposure.

CS: So all contracts are a little different, and every one of these indemnity provisions has been written by different lawyers, so they're all a little different, but I'll give you kind of a general idea of what one normally sounds like. So my example is, “subcontractor agrees to indemnify and hold harmless the owner, contractor, and their agents, and any entity or person for which the contractor is responsible per the contract documents, from and against any claims, damages, or losses, including attorney's fees and costs arising from or in any way related to the subcontractor's work.”

So using my example, there's a few things that you would want to consider redlining with that provision. The first is the vague description of who you're promising to either defend or to indemnify. So in our example it said any entity or person for which the contractor is responsible. Well that's not defined and that creates a very real possibility that you could find yourself either having to provide defense fees for--or indemnity--to parties you've never even met and having to pay potentially multiple defenses. So in that case, I would strike that language in its entirety and instead make sure that each of the people that you were agreeing to identify are clearly defined. Normally that's going to be the prime contractor and the owner only. There may be some scenarios on certain jobs where you would agree to someone else, but it should be defined so you know who and what responsibility you're taking on.

DF: Okay.

CS: In our same example, another consideration is you could add language excluding liability for the owner or the general contractor's negligence. So let's talk about what that would be. For example, if the owner knows there's an unsafe condition there, there's a hole in the ground, a bad step, whatever the case may be, he doesn't tell anybody about it and leaves it there and one of your employees gets injured. Excluding that liability would make sure that the owner becomes responsible and you're not indemnifying the owner for your employee or some other person's injury that's actually coming from a condition the owner knew about and left there and didn't tell anybody.

Similarly, if another contractor on the job has done something that is so poor that it is potentially a danger either to other work or to cause injury. Let's say framing was done with a too small of a header and nobody knows that one day comes crashing down. That would be an example that if the contractor knew that their other sub had put in that bad header and didn't tell anybody that you would want to exclude that damage. So I definitely recommend adding language, excluding the gross negligence of either the owner or the contractor.

DF: Okay, all right.

CS: And a final example, it goes back to the defense costs. So in every contract for indemnity, the law implies this duty to defend. And the duty to defend arises at the time that they tender it to you, they say we've got a claim against us. And so you're now paying the legal fees of somebody else before the claims ever resolved and it's determined whether or not you did anything wrong.

Now, in our example, it said attorney’s fees and costs and you could imply that that is that duty to defend, but simply striking that wouldn't be enough, because the law actually implies the duty in to any contract of indemnity. So you have to specifically excluded it. So what you could say is I have no duty to defend a lot of times though Your contractors and owners might reject that. So what we could also consider is limiting what that duty to defend to be.

Two possibilities you could talk about is; saying that you will only agree to pay your proportionate share of the potential defense costs based on your proportionate share of the potential damages so that it's now shared amongst other subcontractors or of the contractor whoever else might be involved in the particular accident or event. The other would be to put a limitation of liability provision in where you could say our liability is either limited to what insurance proceeds pay or even to a specific dollar amounts. I've seen people say let's put it to the total amount that I was paid on the project or a set number like $100,000. Those types of provisions can help limit that defense cost that you ultimately could see picking up from an alleged accident.

DF: Okay, all right. Thanks for kind of going into that detail. Very helpful for our subs to understand some areas to be focusing on. So, if you look at indemnification clauses from a direct contractor's perspective on commercial and service contracts, what should they be watching out for and how can they redline or a change language that can minimize their exposure?

CS: Sure. So, obviously, when you're talking about these direct contractors, those on a commercial or a service agreement, their relationship is a little bit different. So they're now no longer a subcontractor lower down in the chain, but they're in a direct contract, probably with the project owner. So a lot of our discussion before on subcontractors would still apply, but there's a few other things that you might want to look at as well.

First, I've seen in a lot of direct contracts lately that in the indemnification provision, one of the parties to indemnify that owners have been adding is the design team, either the architect or the engineer. Those should be excluded because as the contractor--unless we're talking about a wholly different subject, which is design build agreements--the contractor has no control over the design. They're not able to influence how it's done, how it's built, or most of the times the design's done long before they ever get there. So to indemnify the design team doesn't make sense because it's not someone that you ever had any ability to control the quality of that work. So I think that those should be excluded, be redlined out, and also you would consider adding a phrase that says something to the effect of the contractor is not responsible for claims that arise from design defects or design errors or emissions. You don't really want to be taking on liability for a designer that you didn't have any business with and you're not in contract with.

DF: That makes sense.

CS: Another example that I've seen is that a lot of these indemnification agreements with owners are very broad. They say all claims, damages, liabilities, or losses and the problem is it doesn't clarify for what claims. Are we talking about claims from the owner or claims made to the owner? So what I've been recommending lately is that in those broad indemnity provisions, that it be revised to say for third party claims. That way the owner can't sort of hodgepodge the indemnity provision into a requirement to you to pay their defense fees to sue you. So that's a revision that we've seen come up more often than not lately.

Another that really is beneficial and it sort of goes back into the design question from a minute ago is putting in a reverse indemnity provision. So in a lot of projects, the owner provides to the contractor a set of plans, maybe some reports, some geotechnical reports, whatever the case may be, and the contractor does their work based on those reports. In a reverse indemnity provision, the owner agrees to indemnify the contractor for errors and emissions in those reports. So let's take for example, you are doing, you know, subterranean grading and there is a retaining wall to hold in that subterranean dig if the design plans didn't build a big enough set of supports and you build what's in the design plans and it fails, you shouldn't be the one responsible for that failure because it's the design, not the construction. So the reverse indemnity provision would then make the owner responsible to go to that designer for that claim rather than come to you as the contractor.

DF: Okay, all right.

CS: Finally, there are a lot of other ancillary provisions in a contract that read together with the indemnity provision can help minimize your liability. We talked about two of them with the subcontractors. That's a consequential damages waiver, those indirect costs that may come up. And the other being excluding damages for latent defects. We talked about it in the underground, an unknown type, things you wouldn't know there, like utility or box. Those types of provisions you could consider having in there and they would define when your indemnity would kick in.

Others that you could talk about adding would be a clearly defined delay provision. If your project is running late, who's responsible for that or defining what the damages would be and maybe setting a liquidated damages amount on a daily rate or a monthly rate. So at least you could control your risk because you know what that potential damage would be if it runs late.

And finally, it would be a provision limiting what recoverable damages could be, either to insurance proceeds or the maximum amount of liability, like we discussed earlier.

So the main point is that every construction business is a little different. And it makes sense to tailor your contracts to the type of trade that you're in, the type of jobs that you're doing, they could be public, they could be private, and there's different risks and allocations that come with those different types of projects. So in my belief, a little bit of foresight in working with your contracts in advance can really help control your risks in the event that something does go wrong in the future.

DF: Well, and I think Drew alluded to it too, that your process of being out in front of this and proactive really aligns with how we interact with our clients trying to mitigate risk on the front end. But so often we get feedback that sometimes crosses that line of insurance to legal, where we can comment and provide some feedback, but we don't have the expertise that you do in the background that can really help them truly negotiate these contracts or just tighten up everything that they have with respects to sub-agreements and/or indemnification.

So these bullet points are so helpful for us and our team, and I can't thank you enough for sharing this. I know this is just the tip of the iceberg too. I know what you do for many of our clients is so effective. Tell us again, if people need to connect with you, what's a good way to start the dialogue?

CS: Well, again, thank you for having me here today. It's been a pleasure. You're absolutely right. It is the tip of the iceberg. There are so many different things we could talk about. We could have gone on for hours. I really do like to tailor to a specific contractor's needs. So the best thing to do is literally to reach out. We're available by phone, consultation is free, I can be reached at my office, it's 714-451-7919, send me an email, that's ckstec@lanak-hanna.com or you can go to our website, which is Lanak-Hanna.com.

I say it all the time and I'll say it again here, I think that a little bit of upfront attention, a small amount of money you spend consulting with a lawyer. If it saves you from one lawsuit, it's worth every penny.

DF: Agreed and I think that's been consistent with the clients that have partnered with you and I think they would say the same thing. So thank you again and thanks to our listeners for joining us again in this series and we'll see you next time.

Catch Up on Part 1

Navigating Subcontract Agreements with Charles Stec, J.D.

In the first of a special two-part series, Executive Vice President Daniel Frazee and Landscape Group Vice President Drew Garcia, interview Charles Stec, J.D., accomplished attorney at Lanak & Hanna, to discuss how construction companies can best navigate subcontract agreements. 

Daniel Frazee: Welcome everyone and thanks for joining us. I am Daniel Frazee, the construction group leader and we're back in StudioOne™ with Drew Garcia, our landscape group leader. Welcome Drew.

Drew Garcia: Dan, good morning. How you doing?

DF: Doing fantastic. We're really excited to be joined by Charles Stec, an accomplished attorney supporting the construction industry with Lanak and Hanna. Charles is here to share his experience in representing California trade and general contractors, which includes several of our clients. And more specifically, I think we're going to get inside two important but very distinct topics, subcontract agreements and indemnification. Welcome, Charles, to StudioOne™.

Charles Stec: Thanks for having me, it's my pleasure.

DF: So before we get started, Charles, tell us more about yourself and how you became so focused in the construction industry?

CS: Well, I actually got my start in the trades. I worked as a roofer back in the 90s and 2000s and worked on a lot of different projects: residential, commercial, public projects. Ultimately I still have and maintain a general contractor's license and when I got into the law I ended up gravitating back to construction both because of my experience but also because I believed as a lawyer that I could help contractor clients navigate the pitfalls of the construction industry by getting involved earlier.

What I've noticed in my practice is that many contractors don't consult with an attorney until something goes wrong and they get sued. And at that point, they've already got the contract, says what it says, the facts are the facts. What I like to do is get involved earlier. And at that point, we can look at contracts, we can look at what's going on in a project, and try to assess risks and minimize risks. So the firm I work for, Lanak and Hanna, were really a one-stop construction shop. We handle everything that's related to a construction business. So from the outset, we handle, for example, the contracts, but also bids during the project, labor issues that might come up. And at the end, collections such as stop notices and mechanics liens, or in the event something goes wrong, defending against a defect or a damages claim.

DG: Very good. Yeah, I think we can relate with your guys’ proactive approach to business and how you're trying to kind of consult with your customers in advance of an issue and obviously when there is an issue reacting to it and making sure that you're there for them. We take a similar approach to the way that we do our business. And when we jump into subcontract agreements you know Rancho Mesa we've got a number of different businesses that we help support. We could have general contractors; we could have trade contractors that are a part of a project. We've also got service contractors that might be subbing out small portions of their work where it might not be as glaring or they might think there's not a need to have a subcontract agreement.

Obviously, it's important. Can you talk to us about why the sub contract agreement is an important step in the relationship between two service partners and how it provides clarity?

CS: Sure, Drew. Let's start with the basic, what is the purpose of a contract? Really the purpose of a contract is to allocate risk by defining the rights and responsibilities between your two service providers to avoid disputes that are caused by misunderstandings or to set forth what's going to happen if something actually does go wrong. So generally what we see a lot of in the most common disputes between contractors and subs or a service provider and their subcontractor is simple things like payments, or what happens when there's extra work. So a subcontract agreement can be used to put those things into writing and set forth those basic terms; what that subcontractor is going to get paid, what the specific items that are included in their scope are, so if there is extra, we can define what is and what isn't extra, and then how that subcontractor is going to get paid. Are they getting paid on a progress payment, or are they getting paid on a lump sum when it's done?

If something does go wrong, the subcontractor agreement also has the benefit of setting forth how it's going to be resolved. For example, if that subcontractor doesn't finish their work or they get terminated, who's responsible for the cost to complete that work? Another example would be if there's an injury or damages that come from their work, how do we apportion that responsibility? And another example after that would be If something does go wrong and we can't resolve it, what's the procedure going to be? Are we going to go to litigation and spend years in court? Are we going to consider arbitration, which might cost us a little more upfront, but could get to a resolution faster?

The main point is a subcontract agreement is giving you an opportunity to allocate your risks, which allows you to better bid a project. If you are taking on a lot more risk, you're probably going to want to charge a premium for that risk. On the opposite side if you are passing that risk on to your subcontractor perhaps then you might be able to bid at a tighter rate. So a subcontract agreement's big main purpose is to really define things so that we know what's going to happen rather than leaving it up in the air.

DG: Well, so that makes sense. And when somebody's putting together a subcontract agreement, maybe it's the first one that somebody like you is putting together for a business. Is it kind of a, “hey, this one agreement fits all types of work that you might subcontract” or should the business look at more of a focused approach in terms of the type of work that they're subbing out or the type of project that they're on? Would that bring any nuance to the subcontract agreement?

CS: It would. So there's really two answers to your question Drew. First, yes, there are many general provisions that you're going to use through all your different types of subcontractors. Those are going to be those basic provisions like price, payment methods, what's the scope of work, how do we handle change orders, what's that procedure and the notice, maybe schedule and your insurance requirements.

But second, there's going to be some provisions that really are specific to the type of work you're subbing out. So take for example, if you're subbing out work where people are working in the ground, they're doing digging, they're doing trenching, they're planting materials. There's a large possibility that you could have unknown obstructions, whether there's big rocks or boulders in the ground or there's an unidentified utility. You might want to have a provision then that's going to assign who's responsible for those unknown encounters? Is it going to be the subcontractor who's then going to price it higher to deal with their risk of the unknowns? Or is it going to be the general contractor? Or is it going to be the owner? And that's going to affect both your pricing and bidding on the project, but it's also going to affect when that comes up, how do you deal with that dispute? Having that provision in place allows you to have the answer so you don't actually have to have a dispute and go to litigation.

Comparatively let's imagine that your subcontracting out work like roofing or windows or plumbing. Those come with the possibility of a water intrusion claim, there could be a leak there could be a burst pipe. So first and foremost we think well damages from that would probably be covered by insurance but there are other things that aren't and that's going to be those incidentals. For example, if you have a plumbing leak and it's in a residence or in a business, there's a possibility that owner is going to make a claim for loss of use or for a loss of profits because they haven't been able to operate their business. What we would want to then consider is whether or not you should have a consequential damages waiver that essentially says if there's these other indirect costs like the loss of use or like the loss of profits, who's going to be responsible for that? Is that going to be the owner or is that going to be the contractor or the subcontractor that caused the damage? And again, that's going to allocate to you how do you want to price this project? Because your bid is probably going to be affected by how much risk you're taking on. So those are two possible provisions that you might want to make more specific to your individual subcontractors and the type of work that they're doing.

DG: Got it. So obviously having open dialogue with a professional like yourselves in terms of what the project might look like for the business helps to kind of cater to the subcontract agreement or the specific needs of that agreement.

So in general, how often should somebody relook at their, the general provisions of their subcontract agreement that might be unanimous across all of their agreements? Is it an annual thing, bi-annual? Is there a recommendation in terms of how and those things should be re-looked at and revisited?

CS: Well, we generally recommend having your contracts re-looked at yearly. Now, some years there might be nothing to change, but other years there could be. The issue is the law is constantly evolving. So what the regulations are out there, whether it's from the CSLB or it's going to be from decisions from the court, are going to change over the years.

Let's take example, most common thing, pay. In the last several years, we've seen many revisions. Going back, not long ago, if paid provisions were allowed, which essentially said that the contractor and the subcontractor would share the risk that the owner doesn't pay. California has since prohibited those and said, no, that's not reasonable., it's against public policy, we want subcontractors to get paid. So now those are prohibited. Yet I still see them in contracts all the time that haven't been updated.

Similarly, California does allow pay when paid, which says that the subcontractor’s payment can be delayed until the contractor is paid by the owner. We saw just in the last couple of years, the court come back though and find one scenario where it decided to limit those provisions. And specifically, it was a lot of these provisions were being written to say that if the owner and the prime contractor got into a dispute, that the subcontractor had to wait to get paid until that dispute, whether it was litigation or arbitration, was resolved. Courts came out and said, that's not reasonable because it potentially makes that subcontractor who may have nothing to do with the dispute have to wait for payment for even years until that litigation is resolved. So the court said now that “pay when paid” provisions have to be reasonable. So I've been recommending in the last couple of years’ revisions to contracts to define what that reasonable period is.

So the answer to your question is ultimately contracts should probably be reviewed yearly. Some years it's going to be more, some years it's going to be less, but you want to stay up to date with the current codes, the current decisions, and the CSLB rules that are ever changing.

DG: Very nice. Now that makes sense. Last question, last subcontract question for you. So obviously having them is important, making sure that they are catered towards the work that you guys are, that you're putting into place. You know, I think the answer is probably obvious on this, when should that subcontract agreement be signed? But I'd like you to comment on that, but also what are some pitfalls if they're not signed before the project takes off? What are some concerns or what could that create in terms of, you know, future issues or maybe more immediate issues if that agreement isn't in place before the project takes off?

CS: Well, I think starting off, I would say what we've been talking about assigning risk and responsibility is really going to impact your pricing. So I would recommend having those agreements signed early.

What a lot of my contractor clients have been doing is they're doing master subcontractor agreements where with the regular vendors that they're using, they have an overall agreement that sets forth the terms and conditions and their assignment of risk and how they're going to deal with problems that they typically would foresee in an agreement that gets signed long before there's ever a job in place. Then when there's a particular job, they'll issue a purchase order and that purchase order will just incorporate the terms and conditions of that master subcontractor agreement. That's a really good place to be because then when you are bidding on a project, you already know how you are allocating risk amongst yourself, your subcontractor, and the owner, and you can price accordingly.

DG: Yeah. Again, it makes total sense.

DF: Okay. Well, tell us if people need to connect with you, what's a good way to start the dialogue?

CS: Again, thank you for having me here today. I can be reached at my office, it's (714) 451 -7919. Send me an email, that's cksetc@lanak-hanna.com or you can go to our website, which is Lanak-Hanna.com.

DG: Thank you again and thanks to our listeners for joining us and we'll see you next time.

Continue to Part II

Understanding the Importance of Subcontractor Warranty Endorsement in General Liability Policies

Author, Lauren Stumpf, Marketing & Media Communications Specialist, Rancho Mesa Insurance Services, Inc.

In a recent podcast episode, Daniel Frazee, Executive Vice President at Rancho Mesa, sat down with fellow Agency Principal Sam Clayton to explore a crucial topic in the realm of general liability insurance policies, the subcontractor warranty endorsement. This endorsement outlines essential requirements that contractors should pay close attention to when working with subcontractors.

The subcontractor warranty endorsement in a commercial general liability policy establishes the minimum conditions that the contractor must have in place with the subcontractors they hire. Sam highlights three key requirements including the necessity for a written contract with an indemnity agreement in favor of the contractor, being named as additional insured for both ongoing and completed operations through endorsement, and ensuring that subcontractors maintain insurance coverage with limits equal to or exceeding the contractor's commercial liability policy (typically $2 million in aggregate and $1 million per occurrence).

Failure to meet these requirements can have significant consequences. Different insurance carriers may react differently, but common outcomes include higher deductibles, potentially reaching $25,000, compared to the usual $2,500 or $5,000 deductible, and, in some instances, a complete denial of coverage.

Given these potential repercussions, Sam advises contractors to carefully read and understand the subcontractor warranty endorsement in their general liability policy. Additionally, they should take proactive steps to protect themselves such as legal reviews of subcontract agreements, insurance consultations with brokers to determine adequate coverage, and implementing robust documentation and monitoring systems for certificates of insurance.

The subcontractor warranty endorsement is a vital component of general liability insurance policies for contractors. Understanding its requirements and taking the necessary steps to comply with them can help contractors avoid potentially costly consequences in the event of a claim caused by one of their subcontractors. To learn more, please listen to Episode 345 below, or on your favorite listening platform.

Unraveling Residential Exclusions: Navigating General Liability in Construction

Author, Lauren Stumpf, Marketing & Media Communications Specialist, Rancho Mesa Insurance Services, Inc.

In Episode 339 of Rancho Mesa’s StudioOne™ podcast, Vice President of the Construction Group Sam Clayton interviews Executive Vice President Daniel Frazee as they discuss the importance of Residential Exclusions in General Liability (GL) Policies for companies in the construction industry.

Sam and Daniel highlight how these exclusions impact coverage for various types of residential work within the construction industry, such as single-family homes, apartments, and more. Daniel emphasizes the need for construction firms to be specific about the type and location of their residential work, as different carriers have varying interpretations of residential exclusions. He also touches on Wrap/OCIP policies, which can provide broader coverage for subcontractors working on residential projects.

The episode highlights the significance of understanding existing residential exclusions for Rancho Mesa construction clients and suggests considering a policy audit to ensure proper coverage.

Overall, the podcast provides valuable insights into navigating residential exclusions and their implications for construction businesses, urging listeners to proactively manage their insurance coverage.

Episode 339 can be listened to below, or on your favorite listening platform. If you would like more information, please contact Daniel Frazee at dfrazee@ranchomesa.com, or Sam Clayton at sclayton@ranchomesa.com.

A Deeper Dive Into Professional Liability

Author, Lauren Stumpf, Marketing & Media Communications Specialist, Rancho Mesa Insurance Services, Inc.

In Episode 319 of Rancho Mesa’s StudioOne™ podcast, Vice President of the Construction Group Sam Clayton interviews Executive Vice President Daniel Frazee as they continue their conversation on general liability policies and move deeper into a key exclusion that is often seen as they negotiate terms and conditions on behalf of their clients and prospective clients.

During the episode, Frazee explains what professional liability is and why it is excluded on general liability policies. He gives a summary of what types of contractors typically have professional liability exposure and reasons for why they may have it. Frazee also describes specific options contractors can look at when it comes to securing stand-alone policies.

Episode 319 can be listened to below, or on your favorite listening platform. If you would like more information, please contact Daniel Frazee at dfrazee@ranchomesa.com, or Sam Clayton at sclayton@ranchomesa.com.

A Brief Discussion on Pollution Liability

Author, Lauren Stumpf, Marketing & Media Communications Specialist, Rancho Mesa Insurance Services, Inc.

In Episode 315 of Rancho Mesa’s StudioOne™ podcast, Executive Vice President Daniel Frazee and Vice President of the Construction Group Sam Clayton discuss pollution liability, and why virtually all general liability policies exclude this coverage.

Frazee and Clayton talk about general liability policies and delve deeper into some key exclusions they often see as they negotiate terms and conditions with underwriters.

Clayton also explains the specific options contractors can look at when it comes to securing stand-alone policies.

Please listen to the full episode below, or on your favorite listening platform. If you would like more information, please contact Daniel Frazee at dfrazee@ranchomesa.com, or Sam Clayton at sclayton@ranchomesa.com.

Understanding General Liability Forms and Endorsements

Author, Lauren Stumpf, Media Communications & Client Services Specialist, Rancho Mesa Insurance Services, Inc.

Two agency leaders within Rancho Mesa Insurance Services, Inc. made a special appearance in a recent episode of the StudioOne™ Safety & Risk Management Podcast. During episode 293, Executive Vice President Daniel Frazee and Vice President of the Construction Group Sam Clayton discussed the important forms and endorsements in general liability policies.

Sam and Daniel highlighted 3 key terms they commonly see within the construction insurance space. Sam started out with explaining residential work, and how it is defined within the scope of general liability underwriting.

Next he explained subcontractor’s warranty endorsement, a term that is recognized by insurance professionals, but may confuse trade and general contractors. Sam dives into the term, explaining the importance of knowing how the warranty on one’s policy actually reads.

Lastly, Sam explains what minimum and earned premium is and how contractors’ can use it to their advantage when negotiating terms through their broker.

The pair wrapped up their conversation educating listeners on first steps contractors can take to learn more about the policies they currently have in place.

Daniel and Sam’s episode, Ep. 293 General Liability Forms and Endorsements, can be listened to below, or via your favorite podcast listening platform.

The Construction Risk Management Guide

Author, Daniel Frazee, Executive Vice President, Rancho Mesa Insurance Services, Inc.

As a business or firm, you are most likely aware of many risks that come with construction projects. Whether it is meeting the terms of a contract, maintaining employee safety on the job site, or dealing with natural disasters, every project has its own set of hazards. If not managed, these risks can compromise your projects and prove fatal to your bottom line. Thus, construction risk management is a must-have for any company, but an effective plan must have easy-to-follow, yet detailed processes to help you control the risks, make decisions on how to deal with them, and turn them around to uplift your company. With the presence of rising material costs, more complex projects and increased safety concerns, having a risk management plan is more crucial than ever.

What is Construction Risk Management?

Risk management is the process of determining the risks present in your business and evaluating the procedures to minimize their impact. In the construction world, the process involves planning, monitoring and controlling instances of risk. At the center of this process is your risk management plan, a formal document that details the risks and your processes for addressing them.

Sources of construction risks may include:

• Safety Risk - any risks or hazards that can lead to worker accidents at a construction site;

• Financial Risk - internal and external factors like sales, problems with the economy, unexpected cost increases and competition from other firms;

• Legal Risk - disputes in the fulfillment of contracts with clients;

• Project Risk - hazards such as poor management of resources, miscalculation of time, lack of proper policies, etc.; and

• Environmental Risk - natural phenomena that damage construction sites like floods and earthquakes.

How to Manage Risks

Before you can manage risk, companies must develop a risk management plan. This process can be broken down into six steps.

1. Identify the Risks
   Risk identification should take place during the preconstruction phase of a project to allow ample time to manage any potential risks before accepting them. One effective way is to hold brainstorming sessions with your project team with an emphasis on identifying all the possible scenarios that could impact the project at hand. Once the brainstorm is complete, hold regular meetings to continually identify new risks that develop.

2. Prioritize Risks in Order of Importance
   High-probability risks should be handled first while low-impact, low probability risks should be addressed last. As an example, an unexpected price increase in the materials for your project can severely hurt your profit margins and might be considered a high priority.

3. Determine your Response Strategy
   Once you have evaluated the priority of risks, your team must decide a response strategy for each hazard. You can avoid the risk altogether, mitigate the risk, transfer the risk if possible via insurance and/or performance bonds, or accept the risk.

4. Execute the Plan
   Much like a sports team on game day, your company now has to execute the plan after you have developed your strategy. Your plan must detail crucial information for each team member and provide specific solutions to mitigate, transfer, or accept risks.

5. Involve Members of the Team
   Great plans are developed with multiple opinions, involving contribution from all team members typically including the ownership group, the financial officers, and the field team. Members are managing cash flows, schedules, inspections, project logs, contracts and regulatory documents.

6. Create Contingencies and Revise
   Strong risk management programs have contingency plans. That is, alternative methods for finishing a project despite accepting the risk. Consistent monitoring and revisions to your plan will help increase resilience against any possible risk and ensure that your “document” evolves and changes over time.

Benefits of Risk Management in Construction

Along with the actual building process, risk management should be seen as one of the most critical steps of a construction project. Identifying, assessing, controlling and monitoring risks strengthen awareness and teamwork among those key members of your organization. Working in step with your insurance broker for resources, templates, and feedback can be key to integrating your plan with the company’s safety initiatives. Request a sample Accident Prevention Template to start your Construction Risk Management plan. And, in turn, communicating an effective and tested plan to the insurance marketplace can position you and your broker to leverage the most competitive terms and pricing within your renewal cycle.

For more information or questions related to this article, please contact me at 619-937-0172 or via email dfrazee@ranchomesa.com.

Download Accident Prevention Template

Accident Prevention Template

The Heart of Rancho Mesa

Author, Daniel Frazee, Executive Vice President, Rancho Mesa Insurance Services, Inc.

If you are reading this article, listening to our podcasts, and taking advantage of the meaningful risk management content we share weekly, you and your business likely find some degree of value in what is produced. While much of this content originates from our Media Communications Group, they, with other Rancho Mesa family members join together as the backbone of our operation. Our Certicians®, Account Coordinators, Benefit Analysts, Claim Advocates, Associate and Account Managers, and Sales Executives are the beating heart of our company. That core focuses on three main principles that guide our values, shape our decisions, and directly influence our daily interaction with clients and one another. They include Developing Solutions, Protecting Clients, and Building Trust.

Developing Solutions

A solution is defined as the act, method or process of solving a problem. Our clients face daily challenges and problems as they manage their organizations and continually look for competitive advantages. They rely on us to provide complete solutions but those can look far different across our many departments. Here are a few examples:

• One of our Sales Executives might recommend higher limits of coverage or adjusting deductibles to meet new exposures.

• Our Workers’ Compensation Claim Advocate might deliver a quarterly status to a company’s Safety Committee and make recommendations on return-to-work options. 

• It might also include an Account Manager reviewing contractual requirements for a client bidding a new job.

• And lastly, an Account Manager in our Benefits department might help to resolve a sensitive claim issue with a member. 

• These actions are just a few of the many day-to-day priorities that are centered entirely on serving our customers. We remain fearless in our approach to problem solving!

Protecting Clients

Risk comes in all shapes and sizes. Protecting our clients with insurance is one vehicle we may use to transfer some or all of that risk to a third-party. But, that process can only be effective when our team actively listens to clients and prospective clients through regular interaction at policy audits, pre-renewal meetings, claim reviews, stewardship reports, and renewal meetings. 

A key part of that protection are the resources we offer internally that help mitigate risk and reduce overall exposure to claims across all lines of coverage. Those resources include our:

• Risk Management Center Platform,

• RM365 HRAdvantage™ Portal,

• RM365 Advantage Safety Star™ Training Program,

• Weekly Educational Newsletter and Podcasts, 

• Workshops and Webinars.

Our clients can use these tools for risk management trainings, HR issues and concerns, safety certifications, and consistent risk management education and guidance.

These examples represent a very small sample of what is available from our organization. Building a risk management program that centers on controlling losses by implementing the proper protocols and best practice techniques is ultimately our vision for protecting clients.

Building Trust

We cannot develop solutions and properly protect our clients without building customer relationships based on a deep level of mutual trust. And, we view a distinct difference between establishing trust and maintaining it over the course of our partnership. While we are proud that our customer retention ranks in the top percentile across the nation, we recognize that trust is the key component to our success. And so, our work is never done. We continually expect more from ourselves, our team members, and our carrier partners to maintain, and ultimately, exceed customer expectations. It is simply how we were built and what we stand for. We see No Limit to what we can do.

To learn more about Rancho Mesa Insurance, subscribe to our weekly newsletter and podcast.

Safety Programs Can Reduce Workers’ Compensation Premiums

Author, Daniel Frazee, Executive Vice President, Rancho Mesa Insurance Services, Inc.

As California business owners continue incurring costs as they work their way through the maze of ever-changing COVID-19 regulations and protocols, prioritizing critical elements of your internal safety program can directly lower your insurance costs. Refocusing on key areas below will help present an effective, detailed submission to the marketplace that will lead to talking points with an underwriter for schedule credits and ultimately, lower rates and premiums.

Employee Benefits

Workers’ compensation underwriters pay close attention to employee benefit plans from a submission they are reviewing to quote. A deeper dive will create inquiries on overall employee participation, employer’s contribution to the plan, and whether established “wellness” plans are made available. High participation and contribution can show underwriters that employees value the benefits being offered and that the employer is investing in their most important asset, the employees. Lastly, industry professionals commonly link reduced fraudulent workers’ compensation claims to more robust, supported employee benefit programs.

Formal Safety Program

Developing a formal, documented Injury and Illness Prevention Program (IIPP) is truly just a baseline for managing risk for any business. The IIPP must be a living, changing document that contemplates random/periodic inspections, regular meeting intervals, safety orientation for new employees, and detailed investigative reports performed by field and management. Your program can be compared to a book that sits on the shelf and develops dust. Or, if you are focused on best practice techniques, it can be used as a tool for education, training, and risk mitigation. It should change as your company changes and incorporate the safety priorities instilled from the top down. Additionally, incorporating safety programs like Rancho Mesa’s RM365 Advantage Safety Star™ training program for foreman and supervisors help make your safety program go to the next level and really stand out in the insurance marketplace. Dynamic IIPPs stand out in a workers’ compensation submission process. They provide much needed detail to simple Yes/No questions on a supplemental application and show just how important safety is to the organization that is being underwritten.

Return to Work Program

Companies of all types will share that they support a return to work program when their injured employee is cleared for modified duty. That support needs to be taken a few steps further to improve your program. Create job descriptions for potential modified positions. Identify and engage with specific doctors within your network and ensure that these job descriptions are on file. This process can often help expedite employees back to the field, warehouse, office, etc. and ultimately lower temporary disability payments which can lower claim reserves. Use Rancho Mesa’s RM365 HRAdvantage™ portal to generate job descriptions and manage employee’s modified duty in the Risk Management Center.

Hiring Practices

Developing “gates” in the hiring process are often overlooked as too expensive or time consuming.  But, the costs of bad hiring decisions can linger for years, impacting your bottom line and employee morale. Employers must strongly consider pre-employment physicals and drug testing, typically performed post interview and before an offer is made. As the Compliance Director for Current Consulting Group LLC, Andrew Current said, “The average cost of a pre-employment drug test is $45. The average turnover cost for an entry level employee is $6,600.”  There is added benefit with workers’ compensation underwriters who view pre-employment checks as key controls to minimizing claim frequency and severity. Take advantage of the New Employee Onboarding Checklist and other resources in the RM365 HRAdvantage Portal.

Website Development

Most, if not all, workers’ compensation underwriters begin their review process by accessing the company in question’s website to learn more about their operation, exposures, risks, etc. Therefore, seeing your website through this same filter and utilizing your broker as an additional soundboard of information, consider these possible edits and/or redesign of your website:

• Add a “Safety” link or tab, allowing space for sharing your company’s philosophy on managing risk.

• Include a section on any safety awards or recognition that you may have received.

• Remove any pictures on your website that might create confusion or concern about your operation as it relates to safety and risk.

• Include examples of safety protocol that are unique to your operation (e.g. proper use of machinery, ladder usage, cleanliness of operating areas, etc).

Like any potential internal investment, companies must always balance whether the time and resource commitment will ultimately benefit their company. Many of the above recommendations require minimal resources and can pay huge dividends in consistently securing the most competitive workers’ compensation pricing, often a significant line item on a profit and loss statement. You may find cost savings in areas you did not know were possible that can help your business survive and remain profitable in these difficult times.

To discuss how your company’s safety program can affect your workers’ compensation premium, contact me at (619) 937-0172 or dfrazee@ranchomesa.com.

Common Sense Strategies for Lowering Risk and Managing Liability

Author, Daniel Frazee, Executive Vice President, Rancho Mesa Insurance Services, Inc.

While business owners spend thousands of hours becoming experts in their own field, most know very little about the intricacies of purchasing commercial insurance. Consider exploring these topics further as you prepare for your upcoming renewal cycle.

Buying Too Little Property Insurance

Property coverage can often be the least expensive piece of a comprehensive insurance program. Yet the impact financially to a business or property owner can be devastating if you are under-insured. Take time to understand any coinsurance clause that may exist within your policy and the real world impacts that could occur if any penalty is imposed by the carrier if you have failed to maintain a minimum amount of insurance. Ensuring that your property limits are more than adequate can truly be a cost-effective approach when there is a significant loss.

Overlooking Potential Savings of Higher Deductibles

In layman terms, purchasing insurance simply transfers risk from one party to the other in exchange for premium dollars. Deductibles are a form of self-insurance that represents the costs you are responsible for before your coverage starts. Typically, the higher your policy’s deductible, the lower annual premium because you are absorbing more financial risk if and when a claim occurs. With this in mind, discussing your risk tolerance with your leadership team and your broker can allow for healthy dialogue leading into rate negotiation.

Not Buying Enough Liability Limits

A common term circling around the insurance industry is Social Inflation. This generally refers to the rising costs of insurance claims that are a result of societal trends and views toward increased litigation, plaintiff friendly legal decisions, and large jury awards. As W. Robert Berkley Jr., chief executive officer of commercial property and casualty insurer W.R. Berkley Corp told analysts, “Social inflation is real. It is here and the industry is beginning to pay attention.” This is a waving red flag that insurance buyers should begin considering higher liability limits by adding an Umbrella policy or increasing existing limits. Businesses can implement plans to mitigate risk. But, lawsuits and the amount of damages plaintiffs will seek remain unpredictable.

The Impacts of “Carrier Jumping”

Building a strong, viable business is centered on relationships. It is those relationships that you lean on most when you need an insurance carrier to come through for you, a consultant to solve a problem, or a key partner to deliver when times are difficult. That philosophy applies more than business owners might realize in the insurance industry. Jumping from carrier to carrier, year to year, to get the cheapest policy might save on the short-term, but this approach can negatively impact your marketability in the long-term. 

First, it is important to understand that underwriters see your carrier and claim history as a part of their risk profile review. In determining their real opportunity to win your trust, they’ll look closely at your willingness to create a longer term partnership and your historical trends with carriers will provide immediate answers. 

Secondly, remember the phrase “when you need an insurance carrier to come through for you.” A critical part of building a relationship with your carrier is developing relationships with their loss control and claims teams. When claims occur, which are inevitable, you want and need that comfort level to know that your vendor will handle it properly and timely.

Start simple when it comes to your approach with buying commercial insurance. The topics above are only the beginning of this process but can have meaningful impact on appropriate coverage and limit levels, pricing, and claims handling.

For more information, contact me at (619) 937-0172 or dfrazee@ranchomesa.com.

COVID-19 Business Shutdown: What Coverage Gaps Exist with Vacant Properties

Author, Daniel Frazee, Executive Vice President, Rancho Mesa Insurance Services, Inc.

In response to the COVID-19 pandemic and ensuing shelter in place restrictions, many non-essential businesses have been shuttered for several weeks. As those businesses deal with the massive revenue and employee losses, building owners must be cautioned to review their property policies closely for vacancy provisions and exclusions.

Vacancy clauses can create exceptions from coverage if the property in question is vacated or unoccupied for a defined period of time (most often 60 days but often shorter). For example, there are some policies that will not provide coverage if a property sits vacant more than that fixed number of days but applies to only certain types of losses like vandalism, theft, or water damage. Additional limitations can include a reduction of losses by 15% or more for more typical covered causes of loss like a building fire and certain losses can be excluded altogether once a property is vacated depending on the insurance company’s form. Finally, there are still other policies that will, in fact, provide coverage for any types of losses but stipulate that the policyholder must inform them that the property has been vacated.

What qualifies as vacant or unoccupied? Some policies define these very specifically while others are broad and ambiguous, offering little comfort at the time of loss. Rather than wait until after a loss when coverage might still be in jeopardy, take the initiative now to contact your broker if your property is vacant or partially occupied as a result of the COVID-19 pandemic. Communicating with the insurance company will help clarify definitions and interpretations and allow you to plan appropriately for the potential of a property loss.

While this continues to be an unprecedented time, several insurance companies are now sending notices to policyholders that they will not consider a building to be vacant for the days during any period of occupancy that changed as a result of the government stay-at-home order or similar directive to COVID-19. Take time now to review your policies with your broker, learn more about your specific vacancy provision and whether your insurance carrier will waive some or all of this provision during this window of time.

Subscribe to our weekly newsletter and podcast to stay informed about what’s happening in the insurance industry during this pandemic.

Managing the Inherent Risks of Personal Vehicle Use Within Your Company

Author, Daniel Frazee, Executive Vice President, Rancho Mesa Insurance Services, Inc.

While costs associated with auto liability continue rising across the country, there are risks within existing fleet safety programs that often get overlooked. If your business allows employees to use personal vehicles to conduct business, even just occasionally, you could be exposing your firm to considerably more risk. You can ignore this potential gap in coverage or closely examine the exposure while simultaneously developing a risk mitigation plan.

Review and Examine Liability Coverage

Before developing any guidelines, we encourage clients to identify those drivers that are using personal vehicles. Again, the pool here should include regular and non-regular drivers who are using personal vehicles. Once that list is finalized, request current declaration pages and/or certificates of insurance showing coverage periods and limits. As you examine this information, ensure that coverage is in force and pay close attention to the limits as many state minimum coverage requirements will be much lower than typical commercial auto policy limits (Example: $10,000 to $15,000 for bodily injury). Working to develop company standard minimum limits for personal use of vehicles is something you can establish with and through recommendations from your broker partner and carrier.

Hiring with Auto Exposure in Mind

Just as many managers do when hiring employees who will drive company vehicles, consider requiring the same guidelines for potential new hires who may use their own vehicles. These guidelines may include a current Motor Vehicle Report (MVR) which allows you to review accidents and track behavior. You may also enroll drivers in the Employer Pull Notice (EPN) Program which notifies businesses when employees have any type of driving activity in or out of the workplace. Lastly, be prepared with documented steps to take when your drivers exhibit unsafe driving behavior. This can include additional training, a suspension, or even termination depending on the frequency.

Written Expectations and Usage Guidelines for Drivers

Vehicle use agreements have become commonly used documents for employers. Depending on the layout, usage guidelines can help establish clear expectations and encourage real buy-in from the employee. As a reference point, Rancho Mesa offers an example of a usage guideline form available within the Risk Management Center.

Creating and Maintaining a Culture of Safety

Evaluating your respective safety programs is a process that takes time. Many employers are unfamiliar where to even start and perhaps which areas of their operation pose the greatest risk to their business’ financial health. With auto liability, in general, the potential for direct loss can impact balance sheets of all sizes. Part of our role as commercial insurance brokers is tying in years of experience seeing these gaps within programs, like personal vehicle use. We recommend first how to mitigate them and then tailor an insurance program that further reduces or eliminates the exposure. The points listed above represent only the start to your process in revamping your Fleet Safety Program. Call or email Rancho Mesa Insurance for a complete “all lines” safety review and coverage audit. Your company’s financial future could depend on it.

New Law Changes Which Injuries Must Be Reported

Author, Daniel Frazee, Executive Vice President, Rancho Mesa Insurance Services, Inc.

A new California law, Assembly Bill 1805 (AB 1805), changes when employers are required to report serious workplace injuries to the California Division of Occupational Safety and Health (Cal/OSHA). The law now broadens the scope of what will be classified as a serious illness, injury or exposure. Many believe this change will increase the number of workplace accidents that will have to be reported in 2020.

The definition of “serious injury or illness” has, for many years, been defined as an injury or illness that requires inpatient hospitalization for more than 24 hours of treatment, or if any employee suffers a “loss of member” or serious disfigurement. The definition has excluded hospitalizations for medical observation. Regulations also excluded from reporting requirements any serious injury caused by a criminal assault and battery or a vehicle accident on a public road or highway.

AB 1805 aligns California’s rules more closely with Federal OSHA regulations for reporting. More specifically:

Rules

The following will need to be reported to Cal/OSHA:

• Any inpatient hospitalization (even less than 24 hours),

• An inpatient hospitalization is required for something “other than medical observation or diagnostic testing,”

• Employers must report any “amputation” (even if the tip of a finger is cut off) to Cal/OSHA. This replaces the terminology “loss of member;”

• The loss of an eye,

• Serious injuries or deaths caused by a criminal assault and battery,

• The exclusion for injuries from auto accidents on a public street or highway remains in effect.  However, accidents that occur in a construction zone must now be reported.

Compliance (related directly to serious injuries and illnesses or fatalities)

In order to say in compliance:

• The report must be made within 8 hours of the employer knowing, or with “diligent inquiry” should have known, about the serious injury/illness.

• The report must be made by PHONE to the nearest Cal/OSHA district office.

For more details on how these changes may impact your company’s IIPP, please contact me at (619) 937-0172.

Steps to Understanding and Managing Subrogation

Author, Daniel Frazee, Executive Vice President, Rancho Mesa Insurance Services, Inc.
Author, Jim Malone, Workers’ Compensation Claims Advocate, Rancho Mesa Insurance Services, Inc.

Definition

Subrogation is defined as the substitution of one person or group by another in respect of a debt or insurance claim, accompanied by a transfer of any associated rights and duties. It occurs in property/casualty insurance when a company pays one of its insured’s for damages, then makes its own claim against others who may have caused the loss or contributed to it. Subrogation crosses into many areas of the insurance world including workers compensation, general liability, property, and auto. As an employer, developing an effective Incident Investigation Plan is a key first step to managing the potential impacts of subrogation on your organization. 

Employer Level Investigation

Identifying the potential for subrogation should occur immediately after an injury or accident occurs with an employer-level investigation. This includes visiting and securing the scene of the accident. If there are hazards or dangerous conditions still present, address them by taping off the area or removing the hazardous element. All potential witnesses need to be identified with securing their name, employer, telephone number, address, copy of their driver’s license, etc. These witnesses should be provided a witness statement for their completion. 

It is also imperative that the employer preserve the evidence by taking possession of the tool or equipment that caused the injury. If a ladder broke causing a fall and injuries, take possession of the ladder and keep it secure until needed later. If a tool malfunction is the cause of injury, take possession of that tool until it is needed for the next step of the investigation. Removing the injury-causing item prevents the chance of additional injuries or accidents. 

Additionally, take photographs or measurements of the entire area, building as much visual evidence as possible. Be aware too that changes can and will occur to the scene of the accident within minutes or hours of the incident. Entire crews are known to be removed from the area to avoid being identified as potential witnesses of an at-fault third party incident. 

Referring a Claim and Protecting the 2 year Statute

As you continue with your internal investigation, ensure that the claim’s assigned adjuster sends your third party information to the insurance company’s subrogation department. Most claim professionals do not have experience nor handle the details of subrogation cases. As a subrogation adjuster and attorney build their respective files, they will benefit significantly from the information obtained in a thorough post-injury investigation. They can then focus on obtaining additional discovery that can solidify their subrogation efforts. Reach out promptly to your subrogation adjuster and attorney as they will value your contribution to the investigation. We also recommend requesting regular updates, which would include participating in regular interval claim reviews. 

Be aware that the California Statute of Limitations for personal injury cases is 2 years from the date of the injury and/or accident. “Protecting” this statute means ensuring your insurance company formally files a civil lawsuit against the identified third party in a timely fashion.

Pursuing Subrogation

While injured employees are barred from suing their employer for their workers compensation injury due to the Exclusive Remedy Rule, that same employee may still bring a personal injury claim against a third party who shares responsibility for the injury. The employer also has the right to bring a civil claim against a third party to be reimbursed for the workers compensation benefits it is providing. If the employee pursues the third party, the workers compensation carrier can join as a party to this litigation. In this scenario, the workers compensation carrier simply provides a summary of their costs, or their workers compensation lien. The carrier then has first lien rights once a judgment is reached against the at-fault party. 

As subrogation cases move toward settlement, there are many factors impacting the net recovery for the injured worker and insurance company (employer). Many incidents have shared negligence alleged by the employer and even by the employee. The civil arena does not have the same thresholds or tolerances for extent of injury, need for medical care, resulting temporary disability, permanent disability and / or future medical care as does the workers compensation system. Many times the workers compensation liens are considered liberal and excessive by the civil arena. Therefore, it is difficult for the workers compensation carriers to be fully reimbursed for the total costs of their claims.      

Waiver of Subrogation

In the Construction space, many trade contractors are asked via contract to provide waivers of subrogation in conjunction with other insurance requirements. Waivers do not prevent a subcontractor’s injured worker from filing suit against the general contractor. The waiver bars the subcontractor's workers compensation carrier from pursuing subrogation in the event the employee does not pursue relief from the aggrieved party. If the employee files suit, the subcontractor’s work comp carrier can then join the action. If the employee does not file suit, then the subcontractor’s carrier cannot pursue subrogation on its own against the General. Consider this example: A general contractor responsible for erecting scaffolding on a jobsite subcontracts drywall work to a subcontractor who will use the scaffolding in the scope of their work. An employee of the drywall contractor falls from the scaffolding and it is later determined that the General did not secure the base of scaffolding properly. Typically, the employer’s workers compensation carrier could look to subrogate the costs of the work comp injury claim incurred by the injured worker from the general contractor. However, the drywaller provided a waiver of subrogation to the general as a condition of securing the contract. Therefore, their right to subrogate against a general contractor has been waived. Subrogation between subcontractors; however, remains a viable avenue of subrogation if the involved parties are subcontractors.    

Closing

Becoming comfortable with the many facets of subrogation is crucial as your team builds an overall plan to manage risk. This process includes incorporating third party questions into your Incident Investigation Plan, overseeing the claim and recovery process, creating reasonable expectations as settlement draws near and paying closer attention to waiver requirements. While these are only initial steps, they represent a solid base to building a greater awareness and deeper understanding of subrogation. 

To learn more, email Daniel Frazee at dfrazee@ranchomesa.com or Jim Malone at jmalone@ranchomesa.com.

Understanding Your Claims: What Do You Have To Lose?

Author, Daniel Frazee, Executive Vice President, Rancho Mesa Insurance Services, Inc.

Claims happen. They come in all shapes and sizes, from all types of parties, and can cost your company in many different ways. An important aspect of managing the costs of risk start with gaining a clear understanding of your claims. Our clients are always looking to improve their bottom line. This article focuses on just one piece of the pie chart; workers compensation claims. Understanding the nuances of these cases can create measurable plans in the future to reduce frequency and severity of claims and ultimately lower your costs.

DIG UP THE ROOTS

Perhaps the most common problem solving method for identifying causes of problems or faults is referred to as a “Root Cause Analysis.” As someone who likely manages many facets of your business, developing systems that analyze failures of a process makes complete sense. Once a claim occurs, initiate an Accident Investigation that is meant to uncover all of the small details that ultimately led to the injury or incident. In many cases, a Best Practices approach involves this same process for “near miss” incidents. That is, perform the same process despite the fact than injury did not actually result from the incident. This allows your company to refine the approach, improve the analysis, and develop training modules addressing the failure(s).

MORE QUESTIONS LEAD TO ANSWERS...

When claims occur, proactive business owners build a list of specific questions that deliver uncensored facts. Those facts build a story and allow your team a clear view of what really happened. Some examples of questions that can be used by your team are listed below:

• How long had this injured worker been employed with us before the claim occurred?

• Was the employee following protocol when the injury occurred?

• Did the claim occur at the beginning or end of the day?

• How quickly did our team provide assistance and get him or her the care they needed?

• How quickly was the claim reported to our insurance company?

• Have we had incidents like this in the past?

ROLE PLAYING EXAMPLES

While role playing actual incidents and scenarios is not factual, it helps your team walk down a path to understand “what if” scenarios and forces discussion on how to address issues.

Example: Employee ‘A’ was injured when he fell from a ladder and fractured his leg. He had been employed for only two months. The injury that occurred was caused by a lack of proper training as the ladder was not properly secured. This claim occurred in the early morning and the area surrounding the ladder was wet. The team reacted quickly and was able to transfer the injured worker to an emergency room in less than an hour. The claim was reported 3 days from the incident. There have been two other similar “near misses” with ladders that did not result in injury.

Understanding your claims is a vital step in preventing future incidents. An investigation of an incident or near miss can uncover the root cause, explain the circumstances surrounding the incident, and help to identify scenarios and prevention plans. To learn more about understanding your claims, register for the Accident Investigation and Analysis training in Rancho Mesa’s Risk Management Center.

Equipment Hazards and Ways to Reduce Exposure

Author, Daniel Frazee, Executive Vice President, Rancho Mesa Insurance Services, Inc.

The very nature of the construction business creates risk - from injuries in the course of employment, damage to property, third party liability, etc. One important area that can be overlooked is equipment security. While there is simply no way to eliminate 100% of risk to equipment, there are several steps a contractor can take to initiate proper controls and minimize losses in this area.

Managing Keys and Locks

Locks should be placed on all vehicles, storage sheds, portable equipment, and trailers. It is recommended that “high security” locks, which are pick-resistant or laminated in steel, be used in all cases. Chains should be case-hardened and thick enough to prevent cutting. Many contractors also use locking fuel caps on vehicles and passive alarm systems, for higher valued machinery, to disable equipment or sound an alarm when there is attempted theft.

Operating or Transporting Equipment

Drivers and/or operators of equipment must be screened prior to use. Requiring a valid driver’s license is a good start, but also consider asking for medical history, criminal background check, motor vehicle record, random drug screens, and sight and hearing checks. Employees should be trained properly in company safety procedures, rules, and emergency protocol. In loading or unloading situations, consider the angle of the ramp, how your employees are stabilizing the piece of equipment, placement of flags, and ensuring the ignition and brakes are locked.

Construction Site Security

Construction sites have always been attractive targets for thieves. The considerable value of equipment, product, tools, and machinery create strong appeal, particularly if that location is not properly secured. Stepping up the security at a jobsite can come in many forms but several best practice methods stand out. They include securing a specific area within the site for equipment storage. The more difficult it is for a thief to access equipment, the less motivated they will be to take the risk of accessing the site. Maintaining an equipment inventory control with photographs and “check-out” systems can be critical to holding employees accountable. Lastly, and perhaps the most logical task to improve security on a jobsite, are regular inspections. These can occur from superintendents, owners, managers, etc. This oversight shows all contractors performing work that your equipment is important and you are managing it regularly.

Fire Prevention

Managing the exposure to fuel is an important first step for preventing fire losses of equipment on a jobsite. Engaging an outside vendor to provide fueling services is always a possible solution, but may not be realistic. If the contractor is responsible for their own fueling, consider the flammability of different fuels, location of onsite fuel supplies, tank inspection, and methods for clean-up and disposal of the fuel. Regular intervals of visual inspections by the operator and any ensuing maintenance allow for easy fixes or repairs that minimize the development of bigger issues.

As the construction industry continues reaching strong post-recession levels, the use of equipment from trade and general contractors, across the board, is more prevalent. Developing a “safety net” around jobsites, pre-qualifying those using equipment, and prioritizing theft and fire mitigation lower your organization’s overall risk. Take some or all of the ideas above as your first step in integrating equipment security into your overall safety plan.

For additional information, please contact Rancho Mesa Insurance Services, Inc. at (619) 937-0164.

Developing an Effective Injury and Illness Prevention Program (IIPP)

Author, Daniel Frazee, Executive Vice President, Rancho Mesa Insurance Services, Inc.

If you have operated a business in the state of California for any period of time, you have very likely heard about or run across the acronym IIPP. Wherever you stand with your knowledge within the world of safety, injury, and illness, it is important for every organization to understand the mandatory parts of an IIPP. What is often overlooked is how developing an effective safety program can create positive change and truly impact your bottom line.

What is an IIPP?

An Injury and Illness Prevention Program (IIPP) is a required written workplace safety document that must be maintained by California employers (Title 8 of the CA code of regulations, section 3203). These regulations require eight (8) specific elements that are summarized below. In many cases, this process requires direct questions about how the company currently views and manages safety. Answering these questions will begin to highlight the positive aspects of what already is currently in place and shed light on areas that need improvement.

Responsibility

Clarifying the name, title and contact information for the person(s) with overall responsibility for the IIPP is a critical first step to this process. Making the IIPP available and accessible at all business locations becomes the first task of the “responsible person.”

Compliance

What is the content of the company’s safety meetings? Who runs those meetings? How do you discipline employees if they do not follow safety guidelines? How might the company recognize or reward their employees for safe practices or behavior?

Communication

Safety meetings are held on what type of schedule within your organization? How can employees anonymously notify management of safety and health concerns without fear of reprisal? Is there a safety committee in place that provides communication to all employees? If not, who would be considered as important members of that committee?

Hazard Assessment

Who within the company is responsible for periodic inspections to identify and evaluate workplace hazards? Provide detail on this schedule along with accompanying documentation that these visits occurred. Continuously communicating with employees for feedback and constantly reviewing hazards on a jobsite or within the workplace are crucial. Lastly, does the company use a standard or tailored JHA (Job Hazard Analysis) checklist to accomplish this? Re-visiting these checklists regularly as exposures change is critical to reducing claim frequency.

Accident/Exposure Investigation

Post-accident, who is the name of the person within the organization responsible for conducting those investigations? What type of form or checklist are you using to establish “root causes” of the accident or injury? And, back to the compliance section, what type of discipline could be handed down in the event of employee error that causes an accident or injury?

Hazard Correction

After the company has identified the hazard and determined exactly how and why an incident occurred, the IIPP must provide detail on how the company will correct the problem from happening again. One solid first step can include a review of Personal Protective Equipment (PPE) use. That is, did the equipment being used cause the accident or injury and, if yes, why? Answering the\is question may show that the piece of equipment was not appropriate for the task, or the item was defective or too old, which caused failure.

Training and Instruction

Ongoing and job specific training and instruction are really the lifeblood of any truly effective IIPP. Presenting the information in a clear, concise format that is easily understood is often the most difficult task in this process. Yet, it remains perhaps the most important as it is vital that employees are continually educated and RETAIN their instruction. Peeling back this process with managers, foreman, superintendents, etc. and learning specifically how the training is being disseminated, allows for a true baseline to be established.

Recordkeeping

Document, document, document! While establishing a written version of the IIPP might be the first step, and revising/editing on an annual basis is recommended, having the proper documentation that accompanies each section is just as important. This provides the responsible person(s) an important tool to continually compare the company’s actions, trainings, assessments and prevention techniques with the available documentation.

Can An Effective IIPP Impact my Bottom Line?

Building an effective IIPP means that the document represents a part of the company’s culture. For it to be meaningful and have a real impact on reducing workplace injuries and illnesses, it must reflect what your company is actually doing on a day to day basis. As the company’s ownership ties this into the overall business, building the IIPP from the ground up into a living, breathing document has measurable impact on controllable costs like workers’ compensation. Reducing frequency of injury can help lower the experience modification, improve the loss ratio, and establish a solid risk profile in the insurance marketplace. Having the supporting documentation along with specific examples of forms, checklists and assessments can arm an insurance broker with the tools they need in the marketplace. More specifically, this information provides a broker important leverage points when negotiating the most competitive terms possible for the employer with the insurance carrier’s underwriter. Those points can lead directly to premium savings, which leads to healthier margins and stronger profitability. Build the IIPP because it is a CA state requirement and it is the right thing to do. But, believe that building a first class safety program will absolutely lower your long-term insurance costs.

For a sample IIPP, visit the Risk Management Center or contact Alyssa Burley at (619) 438-6869.

Why All Trade Contractors Must Consider Pollution Liability

Authors Sam Clayton, ARM, CRIS, Vice President, Construction Group and Daniel Frazee, ARM, CRIS, Executive Vice President, Rancho Mesa Insurance Services, Inc.

Contractor’s Pollution Liability (CPL), once viewed as expensive and unnecessary, has now become an integral part of every trade and environmental contractor’s insurance program. The industry is seeing requirements for this coverage from a combination of building owners, developers and general contractors for projects of all sizes.

Protecting contractors from pollution exposure by transferring this risk to a CPL policy supports a best practice approach. Contractors' pollution liability insurance provides coverage for third party bodily injury, property damage and pollution clean-up costs as a result of pollution conditions for which the contractor may be responsible. A pollution condition can include the discharge of pollutants brought to the job site, a release of pre-existing pollutants at the site or other pollution conditions due to the performance of the contractor’s or a lower tier subcontractor’s operations. In addition to the potential loss of reputation, often overlooked expenses that can negatively impact a profit & loss statement are the costs incurred to defend a company involved in a pollution claim.

Contractors who choose not to purchase Contractor’s Pollution Liability Insurance generally fall into two categories. Many believe that their operations do not have a pollution exposure. And countless others assume that their Commercial General Liability (CGL) policies offer protection in the event a pollution claim arises. Neither of these assumptions is accurate. Pollution coverage is not commonly found in CGL policies by virtue of the Total Pollution Exclusion. This form excludes pollution coverage for any bodily injury, property damage and/or the clean-up costs. Examples of pollution incidents apply to many different types of trade contractors, in addition to traditional environmental contractors. A handful of those are listed below:

1. An HVAC system is installed improperly which, over time, causes moisture and ultimately mold to spread throughout a residential building, causing bodily injury and property damage
2. A painting contractor accidentally disposes paint thinner through a public drain causing polluted water to a local community
3. Dirt being excavated from one area of a job site to another is contaminated with arsenic and lead. The chemicals are then spread to a larger area which is later found by a soils expert
4. Construction equipment on a project site has hydraulic fuel lines cut by vandals, causing fuel to leak out and contaminate the soil
5. A contractor punctures an underground storage tank during excavation, causing the product to spill into the soil and groundwater.
6. A gas line ruptures during excavation causing a gas leak into a neighboring building that leads to an explosion

The common thread seen above describes how contractors are causing some type of “contamination” on a job site. And, contamination is the operative word in all pollution exclusions. With such a broad definition extending to so many types of construction, beginning your search now for CPL options is just simply good business.

And, with a multitude of insurance companies aggressively pricing CPL policies, securing competitive quotes to compliment your current insurance program can fill significant gaps at more reasonable costs than you think. 

Take time to consult with your broker and learn more about how pollution liability impacts your firm.

For more information, contact Sam Clayton at (619) 937-0167 or Daniel Frazee at (619) 937-0172.

Building an Effective Fall Protection Program

Author, Daniel Frazee, Executive Vice President, Rancho Mesa Insurance Services, Inc.

In a Census, summarizing fatal occupational injuries from 2016, those originating from falls continued a steady upward trend that began in 2011 and increased another 6% in 2016.  More specifically, falls increased more than 25% for roofers, painters, carpenters, tree trimmers & pruners.  Since 2013, fall protection citations have been #1 or #2 on OSHA’s most cited violations.  Now, more than ever, it is essential for employers with personnel who work at heights to provide comprehensive fall protection.

Job Hazard Analysis

While developing any type of new safety program, experts encourage breaking the process into steps.  These steps must be designed for all construction sites where exposure to height exists.  And the plan must be prepared by a competent (qualified) person, defined as someone with extensive knowledge and training on fall protection systems.  The initial step requires a job hazard analysis to be performed at the location in advance of work commencing.  The analysis can include determining the average & maximum height at which work will be performed, identifying the number of employees using the area, observing potential hazards that might compromise the work, and modifying work to reduce exposure.  According to the American National Standards Institute (ANSI), “the most desirable form of protection is elimination of the need to work from height” (Z359.2, section 5.1). 

Types of Fall-Arrest Systems

Assuming hazards cannot be eliminated and the need to work from height still exists, employers can implement both passive and active fall-arrest systems.  Passive systems can include examples such as guardrails or ladder cages while the more technical active fall-restraint systems can use specialized lanyards and anchors to eliminate fall exposure.  These require individualized training that is crucial for proper use and effectiveness.

Proper Implementation & Calculating Fall Clearance

Once you have identified the appropriate system for the jobsite, the implementation is critical to the success of the program.  Using the more complex active fall-arrest system as an example, employers can track their progress with four steps:

• Anchorage-the secure point of attachment to the fall arrest system.  The structure must be capable of supporting at least 5,000 pounds/worker or meet OSHA’s criteria of a 2:1 safety factor.
• Body Support-the connection point to the anchorage, commonly seen with a full body harness that distributes the forces of a fall over the chest, shoulders, pelvis & thighs.
• Connectors-examples include lanyards and self-retracting lifelines, devices that connect or link the harness to the anchorage.
• Descent & Rescue-all good fall protection programs must have a plan for rescue or retrieval of a fallen worker.  Employees need to be raised or lowered to a safe location when needed.

As employers build out their fall-arrest system, calculating fall clearance and swing fall hazards represent key components to a successful program.  In part, this can be achieved by determining sufficient clearance below the worker to stop the fall before he/she hits the ground or another object.  It should include an awareness of the anchorage location, the connecting system, deceleration distance, the height of the suspended worker, etc.

Training, Training, Training

Formal, written training programs only become effective tools when employers combine classroom knowledge with practical, hands-on experience.  Competent persons need to continually educate workers on industry regulations, proper equipment selection/use and ongoing maintenance standards.  This must be emphasized on a consistent basis so that workers understand the importance of fall protection as it relates to their own safety and that of the company.

Improving Your Risk Profile

Without argument, the most important reason for introducing a Fall Protection program is the safety and well-being of your employees.  Getting workers home safely at the end of every work day remains every employer’s ultimate goal.  A second goal for consideration is that of improving your company’s risk profile to the insurance marketplace.  If your construction firm performs work in excess of 2 stories, underwriters expect to see details on your Fall Protection program.   While just one aspect of a Best Practices renewal strategy, providing a copy of your program with training examples and site specific layouts can give insurance company underwriters the comfort level they need to deliver more competitive quote proposals. Allowing your insurance broker these reference points can help them engage more options which can lead to better terms and pricing, and lower overall insurance costs for your company.

As your company builds out safety modules and looks to refresh or develop new a Fall Protection program, look to Rancho Mesa Insurance and their Risk Management Center (RMC) for assistance.  The RMC contains endless content, program templates and resources for our construction partners.  Additionally, the Agency’s monthly offerings of industry specific trainings and webinars provides the education our clients need to stay ahead of their competition.

For more information about fall protection, contact Rancho Mesa Insurance Services, Inc. at (619) 937-0164.