MINNESOTA COUNTIES INSURANCE TRUST

transcript

Top Concerns and Current Issues

Presented By:

2004 On-site Risk Management Training for _____ County

Contracts Introduction Contracts Introduction

• Why are Contracts important?– County-wide concern– Member input

• To help counties identify and manage risks assumed in Contracts – May increase the county’s exposure to loss– Could be agreeing to terms or conditions not covered

by MCIT

• To provide risk management recommendations for ways to prevent or reduce risk in Contracts

Types of ContractsTypes of Contracts

• Lease/Rental Agreements– Space Rental– Office Equipment– Contractors Equipment– Vehicles

• Construction Agreements– Building/Renovation

Projects• American Institute of

Architects (AIA)

• Easement Agreements– Railroad– Trails– Right-of-way

• Joint Powers Agreements– Collaboratives– Juvenile Detention

Center– Libraries

• Grant Agreements...

Types…Types…

• Service Provider Contracts– Public Health Nursing Services– Social Services – Service Providers– Lawn/Building Maintenance Services– Computer Services– Engineering Services– Architect Services– Legal Services

Recognize the Risks Created In Recognize the Risks Created In ContractsContracts

• Understand MCIT Coverage Document

– Exclusions are generally applied when• Exposure is limited to one member or a few

members• Providing coverage is not beneficial to all

members• Cost of coverage would be prohibitive• Exposure has the potential to affect

reinsurance• Assets of the Trust would be at risk…

RisksRisks…

• Breach of Contract Exclusion– Any “Claim” based upon Breach of Contract or

other obligation arising out of an agreement creating an obligation on behalf of a “member” to another person or entity. This clause specifically excludes any coverage for “damages” or “claim expenses” based upon, caused by or arising from:

• Breach of contract• Cost estimate overruns on any Contract or project• Any penalties for failure to comply with a contractual

obligation OR• Other duties assumed as a result of a written

agreement...

Risks...Risks...

• County could agree to limits in excess of MS§466– Significance of MS§466

• Legislation that protects Minnesota Municipalities– Provides certain Immunities and Defenses– Places a CAP on Tort Liability claims

» $300,000 per Claimant» $1,000,000 per Occurrence

• Could Agree to coverage not provided by MCIT– Example:

• Railroad Contract that required county clean up any pollution discovered onsite

– Pollution Liability Exclusion...

Risks…Risks…

• Contractual Liability Exclusion– Excludes coverage for Bodily Injury or Property

Damage that the county is obligated to pay because you assumed that Liability in the terms of the contract• Exceptions

– Liability that you would have had if you didn’t enter into the agreement

– “Covered Party Contracts” as defined» Lease of Premises» Sidetrack Agreements» Easement or License Agreements» Elevator Maintenance Agreements…

Risks...Risks...

– Covered Party Contract does NOT include• Construction or demolition operations within 50 feet of

any railroad or trestle, track, road bed, tunnel underpass or crossing

• Indemnification to an architect, engineer or surveyor• Indemnification to any person or organization for

damage by fire to premises rented or loaned to you

• This exclusion is often the least understood and most confusing provision...

Risks...Risks...

• Example:– County hires a plumber to repair a pipe in the

courthouse. Water leaks from a pipe creating a puddle on the floor. Rather than cleaning up the water, the plumber takes his lunch break. A resident comes to the courthouse to pay her taxes and slips on the water, breaking her hip.

• The County tells the plumber to submit the claim to his Liability insurance carrier.

• The plumber’s insurance carrier reviews the Contract and finds it included a provision stating the County would hold the plumber harmless. Therefore, the insurance carrier tenders the claim back to the County.

• The County submits the Liability claim brought against the plumber to MCIT. Coverage is denied based on the Contractual Liability exclusion...

Risks…Risks…

• Concern:– Members might assume Liability in the Hold Harmless

& Indemnification Agreement

• Hold Harmless and Indemnification – Hold Harmless – One party assumes an obligation to

protect and defend another – Indemnification – One party agrees to pay for losses or

damages incurred by another as a result of contract...

• Important tool in transferring risk – Key Question #4

Risks…Risks…

• Hold Harmless Agreements– Each should be appropriate for the specific

agreement• County holds the other party harmless for the

County’s negligent acts• Other party holds the County harmless for

their negligent acts • CAUTION: County holds other party harmless

for the other party’s negligent acts...

RisksRisks…

• Waiver of Subrogation– Is the County agreeing to waive MCIT’s Right of

Subrogation?• Subrogation – The trust’s right to recover from the

negligent party• Waiver of Subrogation – Waives the trust’s legal

right of recovery

– MCIT Bulletin Article (April 2004)• “Don’t Give Away An Opportunity To Replenish The

Pool With A Waiver Of Subrogation”

Risk Management RecommendationsRisk Management Recommendations

• Review Contracts before signing– Review new and renewal Contracts– Terms are generally negotiable– Board approval or delegation of authority

• Develop Contract review process– Examine:

• Terms of the Agreements• Hold Harmless and Indemnification Clause• Insurance Provisions• Waiver of Subrogation• Escape Clause/Cancellation Clause

• Obtain a legal opinion…

Risk Management Risk Management Recommendations...Recommendations...

• Utilize MCIT’s resources– Publications (Bulletins/Resource Briefings)– Checklist of Recommended Coverages for Independent

Contractors or Construction Projects• Contracting with outside vendors

– Do not qualify for MS§466– No limit to the amount of damage

• Contracting with another municipality– Limits for both parties should reference MS§466– MCIT’s limits mirror those outlined in the first and

third clauses of MS§466, subdivision 1– Contact your MCIT Account Executive

• Review from a Risk Management perspective

• Develop Policies and Procedures to review Certificates of Insurance

Why Manage Certificates of Why Manage Certificates of Insurance?Insurance?

• Effective Risk Management tool

• Protects the Hold Harmless and Indemnification Agreement in the Contract– Provides evidence the other party can satisfy

their obligation• Meeting obligations of liability losses

assumed under the agreement• Provides protection for loss or damage to

property that has been assumed under the Contract

• Demonstrates the other party has insurance to support the Contract...

Why Manage Certificates of Why Manage Certificates of Insurance...Insurance...

• Workers’ Compensation– Independent Contractor – An Employee?

• “Every Independent Contractor…in the public sector or private sector is, for Workers’ Compensation purposes, an employee of any employer for whom the independent contractor is performing service…, except as provided in MS§176.042 subdivision 2”

– 9 conditions to avoid Workers’ Compensation Liability

– Must meet all 9 points to not be an employee for Workers’ Compensation purposes

– Employees of Uninsured Independent Contractors• MS§176.215 transfers responsibility

• Standard form issued as evidence of a policy holders coverage and limits of liability

– ACORD

– MCIT

What is a Certificate of What is a Certificate of Insurance?Insurance?

ACORD Certificate of InsuranceACORD Certificate of Insurance

MCIT’s Certificate of InsuranceMCIT’s Certificate of Insurance

LimitationsLimitations

• A certificate is not an insurance policy– Evidence of insurance only

• Represents the coverage and limits at the time of issuance– At the time the Contract is executed– The work prescribed has begun

• Limits might be reduced by paid claims– Claim may be higher than available limits

• Does not define or modify coverage• Certificate holder

– Not entitled to information regarding policy changes– Only entitled to notice of cancellation

Risk Management RecommendationsRisk Management Recommendations

• Require contracting party to furnish an original Certificate of Insurance before work commences

• Require the County be named as an Additional Insured on relevant liability policies– Affords the County coverage under the vendor’s policy – Affords defense should the County be sued based on

actions of the vendor...

• Require a Hold Harmless Agreement in favor of the County– Example found in the Recommended Checklist

• Require appropriate coverage and limits for the project or service– Recommended Checklists provide MINIMUM

recommended limits– MS§466 limits for other “municipalities”...

Risk Management Risk Management Recommendations...Recommendations...• Require Insurance be placed with Insurers

with a current A.M. Best rating of no less than A: VII – A. M. Best Company

• Largest, longest-established rating company

– Provides measurement of insurer financial stability

• Two part rating - separated by a colon– First portion - assessment - overall management

• A++, A+ (Superior) to S (Rating Suspended)– Second portion - Assessment of financial size

(policyholder’s surplus)

• Roman numeral ranging up to XV

• More information or look up rating on website… www.ambest.com

Risk Management Recommendations...Risk Management Recommendations...

• Require 30-days written notice of intent to cancel, suspend, or reduce coverage (60-days preferable)– Delete “endeavor to” and “however, we assume

no liability for failure to do so” in the cancellation clause

• Compare certificate limits and coverage to requirements in each contractual agreement...

• Effectively manage Certificates of Insurance– Review each certificate

• Information could change from prior year– Establish certificate file

• Consider two copies– One filed alphabetically– One filed chronologically

– Suspense or tickler system– Use a form letter to obtain certificates and renewal

certificates

Certificates of Insurance can be an effective risk management tool if used and managed properly

ResourcesResources

• MCIT Bulletin articles (handouts available)– “Don’t Give Away An Opportunity To Replenish The

Pool With A Waiver Of Subrogation” (April 2004)– “Damage To Property Provisions In Contracts”

(November 2003)– “Certificates Of Insurance” (October 2004)

• Independent Contractors – 9 conditions found in MS§176.042

• Checklist of Recommended Coverage for Independent Contractors

• Checklist of Recommended Coverage for Construction Projects

MINNESOTA COUNTIES INSURANCE TRUST

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