Construction Insurance Bulletin

There is never a good time to be laid off from a job. In addition to the loss of income, many people define themselves by what they do. To these employees, being laid off can be a blow both economically and emotionally.

That’s why it’s so important to relay this news to workers in a way that minimizes the possibility of a violent reaction. The best way to accomplish this is to remain respectful of the individual so that they can maintain their dignity. Here are some tips to help you terminate without destroying the employee’s ego:

• Be explicit about the reason(s) for termination. If economic conditions have required you to let this employee go, you need to explain the justification for your actions. Don’t attempt to spare your employee’s feelings. If this person was chosen for termination instead of a colleague who has similar responsibilities, you must be explicit about what other issues, such as chronic lateness/absenteeism, poor performance, etc. influenced your decision. Be prepared to backup your statements with written documentation that verifies your decisions.
• Choose an appropriate time. You should always terminate an employee early in the day and early in the week. Never terminate on a Friday or on the day before a holiday.
• Have the termination paperwork ready. You should provide the employee with all information about pay, benefits, and unused vacation time during the termination interview. Be ready to answer all questions regarding what they are entitled to, especially if there is a severance package.
• Ask for the assistance of your Human Resources professional. Having an HR person sit in on the termination interview can be helpful because they can answer questions about benefits in greater detail.
• Conduct the interview in privacy. Hold the termination meeting in your office, and close the door so that other employees can’t overhear the proceedings. Assure the employee that no part of your conversation will be repeated to other employees. Also explain the wording that will be used to announce the employee’s departure to the rest of the staff.
• Don’t overstate. Once you have explained the reasons for the termination and what benefits the employee is entitled to and given the employee time to ask questions, bring the meeting to a close. The longer you stay in the room, the more opportunity there is for the employee to try to negotiate to get the job back. This type of situation has the potential for violence.
• Be mindful of your tone throughout the meeting. Be direct, but compassionate. Never try to commiserate with the employee.
• Stay in charge of the meeting. The employee might attempt to deflect blame to save their job. Don’t allow this to continue. Politely interrupt the employee and explain that the decision has been made and is not reversible.
• Offer some words of encouragement. End the meeting by thanking the employee for their service and wishing them well in their future career.

With all the attention garnered in recent years by the California wildfires, it’s a vivid reminder of the constant threat that jobsite fires can pose on construction projects. Contractors need to continually reassess their risk management plans to adequately prepare for a potential fire. The International Marine Underwriters Association offers the following 10 tips for keeping construction sites free from fire:

1. Maintain a written loss control plan that addresses risks of fire exposure comprehensively. Your plan should include general safety measures and specific objectives that are enforced actively by job site management, with a specific person in charge of on-site safety coordination.
2. A no smoking policy should be enforced at all times during the project.
3. Daily on-site inspections by project managers should investigate the work area, material and equipment storage, and any locations with hazards. A log should be maintained of all daily inspections for future reference.
4. During “hot works” operations like cutting, welding or brazing, a designated person should look for sparks that could lead to fires by maintaining a line of sight to the working and adjacent areas. This person should watch actively for sparks, slag, and products of combustion, as well as inspecting the surrounding areas for at least 30 minutes after operations have ceased.
5. All portable heating equipment should be placed on non-combustive flooring or platforms. Adequate clearance, maintenance and fueling should be in accordance with manufacturer’s specifications and/or recognized standards.
6. Build temporary enclosures that contain designated travel paths for materials and emergency personnel. Ideally, these enclosures should be located away from overhead exposures and should be built with approved Underwriters Laboratory or Factory Mutual non-combustible construction materials.
7. During roof construction, place at least one portable fire extinguisher on the roof level that has sufficient capacity for the task at hand.
8. Properly clean roof vents to reduce possible ignition sources, such as lint, prior to roof surfacing operations.
9. Review identification and labeling requirements on flammable liquid and gas containers prior to allowing them on the jobsite. Designate safe storage areas for flammable materials and clearly identify them with signs and stable barriers.
10. Firefighting equipment should be readily available on the jobsite at all times. Project managers should ensure that such equipment is implemented properly, connected to a reliable water supply and easily adaptable to local fire department equipment.

Jobsite theft continues to be a major challenge for all contractors with industry experts estimating annual losses at roughly $1 billion to $2 billion in the residential construction sector alone. Meanwhile, the National Equipment Register estimates annual thefts of heavy equipment, such as bulldozers and skid-steers, at $300 million to $1 billion – with only 10% of all stolen equipment ever being recovered. Contractors, equipment dealers, and insurers all suffer when jobsites are vandalized or equipment and materials are stolen. In what starts a vicious cycle, a stolen piece of equipment or material can shut the jobsite down temporarily adding to indirect costs for the contractor. Rental equipment companies may refuse to rent to contractors who don’t properly safeguard their assets. And finally, insurance premiums are bound to rise for all parties to mitigate losses associated with equipment theft.

The phenomenon of theft and vandalism of construction sites is not new and not limited to any one region. This is a national problem that will most likely only get worse over time. Whether we like it or not, jobsite theft is here to stay and the industry must focus on limiting the incidents as much as possible by making it difficult for the perpetrators to succeed.

Contractors can demonstrate commitment to stopping theft and vandalism on their sites by following these tips:

• Inventory Assets and Property. All assets on a construction site should be identified, inventoried, and tracked as closely as practical.
• Enlist Neighborhood Support. A company representative should contact neighbors around the jobsite to solicit their support in maintaining a safe and secure jobsite.
• Control Keys. Keys should be issued to as few people as possible. A log of issued keys should be maintained which includes the type of key issued, to whom, on what date, and for what purpose.
• Lock Gates after Hours. The number of gates on the jobsite should be kept to a minimum. If possible and practical to do so, uniformed guards should be utilized during working hours to check vehicles entering and leaving the jobsite. Gates should be closed and locked at night and on weekends.
• Secure Tools and Equipment When Not in Use. Storage sheds or fenced areas should be provided on the jobsite for the secure storage of tools and equipment. When vehicular equipment is not in use, ignition keys should be removed and the cabs locked.
• Engrave Construction Equipment in at least two obvious and one hidden location.
• Install Motion Activated Lighting. Lighting can be an effective deterrent to theft and vandalism on the site. Lighting systems triggered by a motion detector are recommended as such lighting gives the impression an intrusion has been detected and might also warn neighbors of potential intruders.
• Fence the Jobsite. Ideally, the entire jobsite should be enclosed in sturdy fencing topped with multiple strands of barbed wire. If it is not practical to enclose the entire site, at a minimum the area around trailers and material storage should be enclosed.
• Hire a Security Company. It might be advisable to employ the services of a bonded and insured security company either to maintain guard staff on-site or to conduct periodic patrols of the construction jobsite.

Although this list might be lengthy, the time spent reading these tips and implementing them could save you a lot of time and money.

Risk in business is unavoidable. Operating a store, owning or renting office space, hiring employees, driving a truck, giving insurance advice — all of these involve a certain amount of risk. Businesses can spend resources trying to avoid as much risk as possible by being cautious about introducing new products and services, opening new locations, or hiring additional workers. However, this approach could limit the organization’s future growth prospects while still not eliminating all the risks. Businesses face a variety of risks, including:

• Risk of violating laws or regulations
• Risk of property loss from sudden causes such as fires
• Risk of property loss and injuries from geographic perils, such as floods or hurricanes
• Risk of violating clients’ privacy should someone hack into computerized records
• Risk of business failure from competitive pressures

These are just a few of the risks organizations face. Those that do not prepare in advance for them will suffer serious negative consequences. However, organizations that do address the risks before losses occur and that make plans to seize the opportunities a loss can create will survive and even thrive.

Organizations can address risks in three ways. They can avoid a risk altogether (choosing not to manufacture a certain product, locating away from hurricane-prone areas, not hiring employees). They can reduce the risk of a loss occurring (having vehicles regularly maintained, implementing procedures to comply with regulations, installing computer security systems). Lastly, they can reduce the severity of losses that do occur (installing automatic sprinkler systems, implementing return to work programs for injured workers, creating a public relations plan to counter negative news reports). All three of these techniques are necessary, but to fully prepare, organizations need a risk strategy.

Risk management experts Mark Layton and Michael Corcoran write that a good risk management strategy will include procedures such as:

• Identifying the organization’s most basic strategic assumptions and asking whether they are true. Should the firm be offering a particular service or competing in a specific market? What are the risks that follow those strategies?
• Allocating resources appropriately between rewarded and unrewarded risks. Launching a new product line is a rewarded risk, because it might bring additional profits. Hiring a human resources consultant to ensure that the firm does not violate labor laws is an unrewarded risk, because it will not bring more profits but could save the firm from legal trouble.
• Focusing on the effects of potential losses instead of their numerous causes. How do the firm’s assets depend on each other, and how will a loss to one or more affect the others? With planning, can they function independently?
• Running different scenarios to see how the organization will respond to each. Are procedures flexible enough? What changes will produce more effective responses?
• Remembering that not every available tool to test risk preparedness is appropriate for a given situation. Strategic risk planning is not an exact science; there is no guarantee that taking certain steps will produce the desired result.
• Making risk management efforts efficient. This means promoting effective communications between managers, coordinating the work of different areas within the organization, and eliminating unnecessary duplication of procedures. As with any other part of an organization’s work, risk management should not be wasteful.

An organization that is implementing a strategic risk management plan must pay equal attention to financing its risks of loss. Our professional insurance agents can assist you in arranging a plan that combines appropriate insurance coverage and sensible deductibles and risk retention in a way that best meets your needs. Risk is an unavoidable part of business, but risk handled properly can spur your company’s growth.

According to a study conducted by the National Council on Compensation Insurance, younger workers have more injuries and illnesses than older workers; but older workers have higher costs per claim. The researchers discovered that age is an important factor in overall claim costs, but the significance of age on claims frequency has lessened. This has been interpreted to mean that age might not play an important role in future frequency trends. However, the relationship between age and claim severities is basically unchanged.

Factors associated with age, such as average wages, claim durations, lump-sum payments, injury diagnoses, and number of medical treatments, comprised a large part of the reason for the differences in the severity of claims between younger and older workers. The differences in wages and duration of claims were the principal reasons for the differences in the amount of payouts between younger and older workers. Differences in wages accounted for approximately one third of the differences in the amount of payout, while the differences in the duration of claims accounted for almost one half the difference.

Older workers experience more high-cost injuries, such as injuries to joints like rotator cuffs and knees. These were more commonly experienced by workers aged 45-64. Workers aged 20-34 more commonly experienced ankle sprains. Carpal tunnel syndrome and injuries to the lower back are among the top 10 diagnoses for workers of all ages. The researchers pointed out that the differences in the types of injuries only comprised about a quarter of the difference in medical severities between younger and older workers. The real factor influencing the difference in medical severities between older and younger workers was the significantly higher number and different mix of treatments within a diagnosis. This alone accounted for 70% of the difference.

Less than 10% of the difference in medical severities is due to a slightly more costly mix of treatments for older workers. This was reflected in small differences in the average prices of different types of medical services. The greater number and different mix of treatments also contribute to the longer duration of payments for older workers.

As for trends in loss costs, the researchers noted that the baby boomers’ impact was apparent when the data was viewed historically, but the major impact of this aging workforce has probably already occurred and employers should not anticipate that the aging workforce would present a major problem in terms of future claims costs.

The National Safety Council has estimated that employers annually lose 80 million work days to illnesses or injuries suffered on the job. The federal Bureau of Labor Statistics reported that, in a recent year, 1.2 million workers missed an average of seven days of work due to occupational health problems. The resulting cost in lost productivity, disability benefits, and Workers Compensation premiums is enormous. However, these are costs that employers can reduce with a little creativity. Often, treating physicians will release an injured worker for return to some work duties after a relatively short period of time. Although the worker might not yet be ready to resume their former duties, they can still perform some work for the employer. To enable this to happen, the employer needs a return to work program and policy.

The idea behind return to work programs is to provide temporary jobs that (ideally) take into account an injured worker’s physical capabilities, skills, and interests. A good program encompasses several objectives:

• Addressing factors — physical, environmental, emotional, knowledge — that prevent the employee from returning to work full-time.
• Focusing on what the employee can do rather than what they cannot do.
• Easing the transition from temporary work assignments to full-time regular work.
• Maintaining productivity by decreasing the number of lost work days.
• Improving the employee’s morale and increasing incentives for them to return to work and stay there.

The benefits to employers from return to work programs are many.

• They make it easier to retain valued employees and to obtain some production from those recovering from injuries.
• Because they help retain employees, they reduce recruiting, hiring, and training costs.
• They show the employer’s concern for the welfare of injured employees.
• They reduce the duration of disability payments to injured workers and might also reduce associated medical costs.
• They facilitate communication among the employer, the employee, and the health care provider.
• They make it more difficult for unmotivated employees to stay out of work.
• Over the long term, they reduce an employer’s Workers Compensation claim costs, making the employer more attractive to insurance companies and inviting competitive pricing.

Return to work programs also accelerate an employee’s recovery process. According to the California State Compensation Insurance Fund, half of all employees who stay out of work for six months or more never return to their former jobs. Those who are out for more than a year have only a 10% chance of returning. Most workers want to feel like they are productive and contributing. Getting an injured employee back to work early heightens those feelings of accomplishment and increases the chances that they will return to their old job eventually. It also helps to maintain job skills and reduces the adverse impact of the injury on families. A return to work policy should include the following elements:

• Employee eligibility criteria.
  Provisions requiring assignment of meaningful tasks to the employee, not busy work such as “counting paperclips.”
• Descriptions of the types of duties to which an injured employee might be assigned.
• Stated parameters for the length of time a temporary assignment will last and conditions for extension.
• Provisions covering situations where an employee returns to work and subsequently has to take additional medical leave.
• Provisions for alternative work arrangements acceptable to the employer, such as telecommuting.

Workers Compensation is a major part of personnel costs for any employer. Well-executed return to work programs can help employers reduce those costs, recover productivity that would have been lost, and keep good employees happy. That’s a good outcome for everyone.

Weather patterns have become increasingly erratic during the past several years. Heat waves, droughts, mudslides, and increased hurricane activity have become the norm. In 2004, four major hurricanes pummeled Florida; the Gulf Coasts of Louisiana, Mississippi and Alabama are still recovering from 2005’s Hurricane Katrina and its ensuing floods. Between these disasters and increasing attention from politicians and the media, the problem of global climate change has become a major issue. As a result, the insurance industry has begun to devise new products and strategies.

Some insurers are beginning to offer specialized “Alternative Energy insurance” policies. For example, one company is writing policies to cover alternative energy system performance. This policy insures against the risk that a deficiency in the design of alternative energy technology will result in the under-performance of a facility. The company designed to help owner-operators of facilities meet the needs of lenders concerned about their investments. Another company has broadened its coverage for commercial buildings to include alternative energy systems. It also will insure against loss of income when alternative energy systems suffer damage and extra expenses when the building owner must buy power from the grid while the system undergoes repair.

At least one insurer offers special coverage to encourage commercial building owners to replace destroyed buildings with new ones using green technology. It gives the property owner several green technology options, including:

• Non-toxic, low-odor paints and carpeting
• Energy-efficient electrical systems
• Interior lighting systems that meet independent energy efficiency standards
• Water-efficient plumbing systems
• Enhanced roofing and insulation materials to reduce heat loss

Anticipating less severe and less frequent losses, the same company offers rate credits to green building owners. It has found that most losses in traditional buildings are from electrical fires, heating and air conditioning system fires, and plumbing leaks. The company expects green technology to make these events less likely. Another insurer has introduced for commercial building owners a new policy that encourages green building. It features coverage for:

• The increased cost of green building alternatives
• The expense of re-engineering and re-certifying green buildings
• Vegetative roofs
• Additional time to restore operations so that building repairs can include green alternatives

Insurers are also educating their clients about the implications of climate change. Recognizing that courts could hold businesses liable for future environmental damage, insurers have worked with corporate boards and officers to encourage planet-friendly business practices. Their hope is that actions taken now will reduce the number and size of future liability insurance claims.

Although only a small number of insurers offer specialized policies for green construction now, the success of these products will encourage other companies to follow suit. Also, as green building technologies become widespread, the desire to attract and retain business will force insurers to compete with policies of their own. Insurance agents can identify companies that offer these coverages and make coverage recommendations to property owners. As businesses and households everywhere take steps to reduce their carbon footprints, make certain that your insurance coverage is keeping up with those steps.

Are you due for a Workers Compensation premium audit? Audits are how insurance rates are determined, and it’s possible that an audit will uncover information that can actually save you money. In any case, it pays to be prepared. These five tips can help you get ready.

1. Let your broker know when there are changes in your staffing, payroll, or areas of operation. This is important not just at audit time but all the time. Your rates are based on variable rating information, including the number of employees, job classifications, the states in which you operate, etc. Updated information results in more accurate premium assessments.
2. Get your records ready. Your auditor will need to see records such as federal and state tax returns, ledgers, checkbooks, contracts, and employee or contractor tax documents. If you prepare your records in advance, you’ll accelerate the audit process.
3. Make sure you break out various types of compensation in your records. For example, to set your premium, your broker considers pay but not contributions to employee benefits packages and other perks, so it’s important to make sure your records are clear on the various types of compensation. Also make sure overtime pay is clearly defined since it’s classified as regular pay for Workers Compensation insurance purposes.
4. Ensure that contractors have their own insurance. This is important not only from an audit standpoint but from a liability perspective as well. If an uninsured contractor has an accident while performing work on your behalf, you can be held liable. If an audit identifies contractors for whom you don’t have certificates of coverage, you can be charged for their premiums.
5. Remain on hand to answer questions. As your auditor reviews your material, he or she might have questions or need additional data. If you’re available to provide answers, your audit will be completed more quickly.

By following these tips, you’ll be more prepared for your Workers Compensation premium audit. A fast, efficient audit process can save time for both you and your auditor, so it pays to be prepared.

A plumbing contractor’s employee is soldering two lengths of pipe together when a fellow employee asks him to assist with another task for a moment. The first employee lays the soldering torch on a ceiling joist, forgetting that it is still hot. While he is away, the joist begins to smolder, then small licks of flame form and ignite combustible material in the ceiling. By the time someone notices, fire is consuming the ceiling. Firefighters’ efforts to extinguish the blaze causes water damage to portions of the building, and walls near the fire’s starting point suffer smoke damage.

The building owner will most likely hold the contractor responsible for the cost of repairing the damage. In turn, the contractor will look to his General Liability insurance policy to cover that cost. Will the insurance company pay for the repairs?

The Insurance Services Office’s Commercial General Liability Coverage Form states, “This insurance does not apply to … ‘property damage’ to … (t)hat particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the ‘property damage’ arises out of those operations … ” What does this mean, and how does it apply to an incident like this one? What does the form mean by the phrase, “that particular part”? Several courts have weighed in on this question.

A Tennessee court in 1975 ruled against an electrical contractor whose employee, while installing circuit breakers in a switchboard, caused a short circuit that destroyed the entire switchboard. The court said that the employee was performing operations on the switchboard, not just the individual circuit, and therefore liability coverage did not apply. Similarly, a Massachusetts court ruled against a cleaning contractor in 1989. The contractor was cleaning the bottom of an underground oil storage tank when an explosion occurred, destroying the entire tank. The contractor argued that the insurance should cover all of the damage except that to the bottom of the tank, but the court ruled that the entire tank was “that particular part” on which the contractor was performing operations.

Conversely, a Minnesota court granted coverage for a contractor that had been hired to clear trees and brush from a construction site but that also cut down trees on an adjoining property. The court said that, although the liability policy would not cover damage to property the contractor had been hired to work on, it did cover damage to the property of a third party. A New York court ruled in 1974 that a liability policy covered damage that occurred after the contractor had completed operations.

The courts have not established firm rules about what constitutes “that particular part” of property on which a contractor is performing operations. Case law will vary from one state to another. Because of this, contractors should discuss the exposure with one of our insurance agents. To reduce the chances of an uninsured loss occurring, an agent might recommend the purchase of a Builders Risk or Installation Floater policy. These policies cover property that the contractor is installing on a construction site while it’s in storage, in transit, on the job site, and during installation. They also usually cover property of others for which the contractor might be liable. Unlike the General Liability policy, there are no standard versions of these policies, so contractors must review them carefully and ask our agents questions about anything that is unclear.

The law of averages suggests that most contractors will accidentally damage a customer’s property at some point. Now is the time to make sure that there will be no insurance surprises when it happens.

Businesses have their employees travel on company business every day. A sales manager spends three days on the road visiting key customers. A hardware store employee drives to a wholesaler’s warehouse to pick up parts on order. An architect drives to a client’s location to review drawings for a proposed building renovation. Often, the employees drive their own vehicles on these trips. The business probably has its own Auto insurance to cover it should an employee have an accident while traveling on company business. What coverage does the policy provide for the employee?

If an employee causes injuries or damage to someone else while driving on company business, his own Personal Auto insurance policy will actually be first in line to pay the bills. A standard Personal Auto policy covers on a “primary” basis liability for accidents involving vehicles owned by the policyholder. This means that, if two or more policies cover the same loss (for example, a Personal Auto policy and a Business Auto policy), the personal policy pays for the loss until its insurance limits are exceeded. For example, if the amount of the loss is $500,000 and the Personal Auto policy provides Liability insurance for bodily injuries of up to $250,000 per person, the personal policy will pay all of its $250,000. The Business Auto policy will pay the remaining $250,000.

The personal policy covers the business as well as the employee. The standard personal policy covers any person or organization with respect to their legal responsibility for the employee’s acts or omissions. Suppose an employee, while driving on business, gets in an accident and severely injures the other driver. The court awards the other driver $500,000 and decides that the employee and the employer share responsibility, 50% each. The employee’s Liability insurance has a limit of $250,000 for injuries to one person. It will pay the full $250,000 — $125,000 each for the employee and the business.

Now coverage shifts to the Business Auto policy. Assume that this policy’s Liability insurance has a limit of $1 million for all injuries and damages from any one accident. It will pay $125,000 to cover the business’s liability for the accident (the business’s $250,000 share of the verdict minus the $125,000 paid by the employee’s policy). However, it will not pay the remaining $125,000 the employee owes. The policy’s terms state that it does not cover an employee if the auto involved in the accident is owned by the employee or a member of his household. The employee will be forced to pay the remainder out of pocket.

An employer that wants to protect its employees from situations like this can buy coverage for an additional premium based on the number of employees. A policy change (also called an “endorsement”) titled Employees As Insureds does just what the title implies: It insures employees for their liability while using their own cars. Even with this endorsement on the policy, the Business Auto policy will still pay only after the employee’s own insurance is used up. However, the employee will have coverage under the business policy for larger losses.

Any organization whose employees use their own cars in the business should discuss buying this additional coverage with our agency. Buying the endorsement will protect employees but might also hurt the organization’s loss record, which could result in higher premiums in the long run. Each organization must decide whether the benefits outweigh the risks. Regardless of the decision, this is coverage every organization should consider.