Construction Insurance Bulletin

Hold harmless agreements have become standard parts of construction contracts. In a hold harmless agreement (also known as an indemnity agreement), one party (the indemnitor) agrees to pay for damages assessed against another party (the indemnitee) for its liability for injuries or property damage arising out of the project. There are three basic forms of hold harmless agreements and they have different implications for a contractor’s Liability insurance.

Broad Form: The indemnitor assumes all liability for accidents arising out of the project, regardless of who was at fault. Under this form, a subcontractor pays for its own sole negligence, its joint negligence with a general contractor for an accident, and the sole negligence of the general contractor. Therefore, an electrical contractor is liable if an employee injures another sub’s employee with a dropped tool; if an employee leaves materials in a walkway at the GC’s direction, causing another sub’s employee to trip and injure himself; and if the scaffolding, set up by the GC for the electrician to use, collapses on top of another sub’s employee. Many states prohibit this form of agreement unless the indemnitor finances the assumed liability with an insurance policy.

Intermediate Form: The indemnitor assumes all liability for accidents arising out of the project except for those where the indemnitee is solely negligent. Under this form, the subcontractor pays for all accidents in which it is at least 1% liable. In the above examples, the sub would not assume liability for the incident involving the scaffolding, but it would assume liability for the dropped tool and the materials left in the walkway.

Limited Form: The indemnitor assumes liability for accidents arising out of the project, but only to the extent of its own liability. Under this form, in an accident where each party was 50% liable, the sub would owe 50% of the judgment amount to the GC. In the case of the materials left in the walkway, if the jury held each party 50% liable and the award was $100,000, the GC would pay the $100,000 and the sub would owe the GC $50,000.

The ISO Commercial General Liability Coverage Form excludes coverage for injuries or damage for which the insured is obligated to pay damages because it assumed liability in a contract or agreement. However, the form makes an exception for liability assumed in “insured contracts,” including parts of contracts where the insured assumes the tort liability of another party to pay for injuries or damages to a third party. This exception gives a subcontractor insurance coverage for liability it assumes in a hold harmless agreement, if the injury or damage occurs after the contract’s execution. The policy will cover the GC’s attorney fees if the hold harmless agreement requires the sub to pay for them.

Another way for a sub to insure assumed liability is to add the GC as an additional insured under the CGL policy. However, it is important to understand that ISO changed its additional insured endorsements in 2004 so that they do not cover an additional insured for its sole negligence. This could be a problem if the contract contains a broad form hold harmless agreement. In the above examples, the additional insured endorsement would not cover the GC for the scaffolding accident even with the broad form agreement in place. To recover, the GC would have to make a claim for damages under the insured contract coverage.

Contractors should work closely with their attorneys to ensure that they understand the terms of hold harmless agreements. They should also consult our insurance agents to determine how their Liability insurance will apply to the agreements. The time to identify and eliminate coverage gaps is before the job starts and an accident occurs.

The commercial insurance market can often be a difficult place for contractors. The insurance industry goes through market cycles; companies that are eager to insure contractors today might have no desire to do so when their losses mount and the market tightens. Because of this uncertainty, larger contractors often consider alternative markets for financing their risks of loss. One alternative is a captive insurance company, which is created and owned by one or more non-insurance companies to insure the owners’ loss exposures. Other options include self-insurance (paying losses out of pocket) and insurance options such as dividend plans, large deductible plans, retrospective rating plans, risk retention groups, and purchasing groups.

According to Business Insurance magazine, there were more than 5,200 captive insurance companies operating in 2008, falling into several types. Single parent captives are owned by one company. Group and association captives are owned by multiple entities. For example, groups of contractors could form captives to insure themselves and others.

Businesses that cannot afford the capital requirements of a captive can “rent” one from an insurance company or reinsurer, allowing them to share in the risks and the profits. Captives often use what is called a “fronting” mechanism, where an insurance company or reinsurer issues and administers the policies and handles the claims, and the insured businesses pay for the losses. Captives may insure the risks of their major owners only, or they may also insure other organizations.

Large companies might choose to self-insure; groups of companies in particular industries might band together to self-insure the risks of the group. For example, in some states groups of contractors have formed trusts to self-insure for Workers Compensation losses. Companies can also choose to partially self-insure by purchasing a large deductible program (one with a deductible of $100,000 or greater per occurrence) for Workers Compensation. Retrospective rating plans, while still insurance policies, are closer to self-insurance in that the final premium includes the amount of the business’ losses during the policy term, subject to a minimum and maximum. Dividend plans are types of insurance policies that typically offer the business the chance of receiving a portion of the premium back via a dividend should losses fall below a specified level. Risk retention groups are groups of businesses in the same industry that have created an insurance company for liability coverage. Purchasing groups are groups in the same industry who band together to buy Liability insurance from one insurance company.

Each alternative has advantages and disadvantages. Captives can offer tax advantages, they cut out the portion of the premium spent on insurance company overhead and profit, and they give the owners control over risk management. However, they must meet large capital requirements to comply with state laws, and fronting arrangements still require insurance company involvement. Self-insurance, large deductible, and retrospective plans reduce premium costs, give businesses some control over their loss costs, and provide incentives for safe operations, but they can also be a drain on cash flow and their ultimate costs can be hard to predict. Contractors who can predict their future losses with reasonable accuracy might find these plans advantageous.

Because all of these options require contractors to finance at least some losses themselves, they should have access to significant financial resources before using any of them. Also, the options can be complex. Contractors should consult with our professional insurance agents to investigate each option’s implications for the business. Traditional insurance is no longer the only financial protection option available to contractors, but it would be unwise to jump into an alternative without learning the facts.

The Department of Labor’s BLS National Census of Fatal Occupational Injuries for 2007, released in August 2008, showed that highway incidents were still the primary cause of on-the-job deaths, accounting for almost one out of four fatal work injuries. Although they remained the most frequent type of work-related fatality, the number of highway incidents fell by more than 3% in 2007, the lowest level since 1993.

Falls were again the second leading cause of workplace death. The number of on-the-job falls increased three percent in 2007, with 835 employees dying in this manner. Falls have increased by 39% since the census began in 1992. The increase in falls was driven by increases in falls on the same level as well as falls from non-moving vehicles. However, fatal falls from roofs fell from 185 fatalities in 2006 to 161 in 2007.

On-the-job homicides rose from the fourth to the third leading cause of death, claiming the lives of 610 workers. Just over 80% of those workers were victims of a shooting. However, the number of workplace homicides in 2007declined by 44% from the high of 1,080 reported in 1994.

Being struck by objects ranked fourth, with 504 fatalities. The number of employees who were fatally injured from being struck by objects represented a 16% decline from 2006, marking the second year of a downward trend in this category.

Deaths from fires and explosions decreased from 202 in 2006 to 151 in 2007, representing the lowest totals ever since the census began. Fatalities caused by exposure to harmful substances or environments were also lower in 2007. All of the sub-categories within this type of fatality showed decreases except for one. The death toll from drowning/submersion increased by 13%.

The data also revealed some other key findings:

• Overall, nine out of 10 fatal work injuries involved workers in private industry. Service-providing industries in the private sector recorded 48% of all fatal work injuries in 2007, while goods-producing industries recorded 42%.
• In the construction industry, fatalities fell. However, construction continued to produce the most fatalities of any industry in the private sector.
• The four occupations with the highest fatality rates per 100,000 workers were fishers and related fishing workers with a fatality rate of 111, logging workers (86), aircraft pilots and flight engineers (67), and structural iron and steel workers (46).
• Thirty states reported lower numbers of fatal work injuries in 2007 than in 2006, 19 states and the District of Columbia reported higher numbers, and one state was unchanged.

Construction can be dangerous work. The majority of injuries to workers and members of the public are relatively minor; the injured persons fully recover in short order. However, catastrophic injuries, while rare, can devastate a person’s life, cost enormous amounts of money, attract unwanted media attention, and harm a contractor’s reputation and business.

There is no single definition of catastrophic injury. Organizations might define it in dollar terms, such as an injury that incurs liability of $250,000 or more. Others might define it in terms of the injury’s severity — a broken arm might not be considered catastrophic, but a crushed or severed arm might be. Still others might define it in terms of a change in an individual’s earning capacity — an injury that prevents a person from working or reduces his wages for less than a year might not be considered catastrophic, but one that permanently reduces or eliminates earning capacity might be.

Whatever the definition, there are some things a contractor can do to manage a claim effectively. A few steps the contractor can take before an injury occurs can pay dividends later:

• Plan ahead. Most construction businesses are too small to have their own risk management departments, so form a partnership with one of our agents experienced in insuring construction risks and obtain coverage from a company with expertise in handling construction claims.
• Form good relationships. Many companies that insure contractors are willing to have a meeting involving the customer, agent, loss control and claims staff. Take advantage of this and form good working relationships with the people who will respond to a severe claim. If the contractor uses a third party administrator for claim handling, meet in advance with the appropriate staff and get their contact information.

After a loss occurs, the company can do several things to manage the claim:

• Work with our agent, insurance company, and others to evaluate the claim and prepare possible legal defenses.
• In cases where the contractor’s liability is clear, make quick contact with the claimant and the family. Work with the medical facilities to ensure that the claimant does not receive a bill.
• Be truthful with the claimant, family, investigating authorities, and the media.
• Begin the claim investigation as soon as possible to determine the facts and build a defense strategy.
• In cases where the contractor’s liability is unclear, identify possible legal defenses. These can include contributory negligence on the part of others, no negligence on the contractor’s part, intervening causes, product defects, and others. Use these defenses to get the contractor dismissed from the case.

Good communications are the keys to successfully managing a catastrophic injury case — with the claimant and family, medical providers, insurance adjusters, and other interested parties.

• Be prepared to answer the claimant’s questions or to find the answers. Frequent and meaningful communication with the claimant should assure him that the company cares about his situation. A claimant who feels that someone is paying attention to his needs is less likely to hire a lawyer.
• Working with medical providers will keep the contractor informed as to the claimant’s progress, expected therapies and treatments, and projected length of disability.
• Work with the insurance company and medical providers to minimize and resolve disputes.
• Stay involved with the insurance company’s handling of the claim. The company’s goals might not be the same as the contractor’s.

No contractor wants to see someone harmed because of construction operations. However, severe injuries can and do occur on job sites. With careful pre-planning, proactive involvement after the fact, and prudent claim management, a contractor can do the right thing by the claimant and protect his business at the same time.

With increasing regularity, construction project owners are creating Owner Controlled Insurance Programs (OCIPs) to cover many of their loss exposures during projects. These programs, also known as “wrap ups,” are insurance policies that cover all construction and contractors working on the site. They allow owners to control the insurance program instead of relying on the contractors to purchase adequate insurance. In theory, owners pay less for the coverage “in bulk” than the individual contractors would pay on their own. Also, OCIPs often include an integrated owner-contractor safety program designed to reduce the frequency and severity of losses. Finally, with everyone covered under one program, questions over which contractor may have been responsible for a loss become irrelevant.

Contractors who have contracts for jobs involving OCIPs need to consider several factors. What firms, operations and locations will the OCIP cover? OCIPs often do not cover truckers, vendors, suppliers, and contractors doing high-hazard work like demolition. They may also exclude coverage for contractors below a certain number of employees or payroll. Does coverage extend to locations off the primary job site, such as storage facilities, fabrication sites, and staging areas? Does it cover contractors’ employees when they must travel off the site to obtain supplies, tools or documents?

Another consideration is when the program’s coverage ceases. If it provides Completed Operations coverage, how long will it last? Some OCIPs may provide coverage for up to three years after the completion date, but state law or contract indemnification clauses may extend a contractor’s potential liability beyond that. The contractor should verify that its own Liability policy will supplement the OCIP.

A major issue is the scope of the OCIP’s coverage. It might provide Liability coverage only, liability and Workers Compensation, or coverages in addition to those two. It will probably not cover automobile liability, so the contractors will need full coverage for this risk. Does it cover damage to the work and pollution liability? The contractors will need individual Builders Risk or Installation Floater policies and Pollution Liability coverage otherwise.

The adequacy of the insurance limits is another important consideration. The combination of the primary and excess limits should be high enough to fund any catastrophic losses. Do the limits apply separately to each location or to all locations collectively? Does the policy reinstate them annually or do they apply in aggregate to the whole project? How many parties (owner, contractors) are sharing the limits?

Because each contractor will continue to carry individual coverages for other work, it is important to determine how the OCIP will coordinate with them. The contractor should obtain assurance that the OCIP coverage will be primary and that its own policies will be excess. The contractor may also need Difference in Conditions coverage to fill in gaps left by the OCIP, such as property losses from flood or earthquake. The contractor’s insurance company should reduce its premium in recognition of the OCIP’s primary coverage.

The contractor also needs to consider whether the OCIP makes it responsible for any deductibles or penalties. Will the contractor be responsible for deductibles from all losses or only those for which it is liable? If it’s the latter, how will the owner determine which contractor is responsible? Will the liability question extend to “no fault” coverages like workers’ compensation?

Whenever an OCIP is involved in a project, the contractor should review the requirements very carefully and ask these and many other questions. The contractor should work closely with our insurance agents to ensure that any coverage gaps are filled and that the limits are adequate. OCIPs are an inevitable part of the construction industry today. Contractors who handle them properly can limit the financial risk they present.

Several factors influence how much a contractor pays for Business Auto insurance. The amount of insurance purchased, the firm’s loss history, employees’ driving records, the condition of the vehicles, deductible levels – all of these have a major effect on the policy premium. However, the way the insurance company classifies the vehicles also impacts the premium in very significant ways.

Under the rating rules for Business Auto insurance, insurance companies use three factors to classify a vehicle: Its gross vehicle weight, how the business uses it, and the normal radius of its operation. The size classifications are:

• Light – 0 to 10,000 pounds gross vehicle weight
• Medium – between 10,000 and 20,000 pounds
• Heavy – between 20,000 and 45,000 pounds
• Extra-heavy – More than 45,000 pounds

The heavier a vehicle, the higher its premium due to the increased potential for severe losses.

The use classifications relevant to contractors are:

• Service – Vehicles used to transport the business’ personnel, tools, equipment and supplies to or from a job location. Only vehicles that the business parks at job locations for most of the working day or uses to transport supervisors between job locations get the service classification.
• Commercial – Construction vehicles that are not eligible for the service classification.
  Service vehicles, because they are parked for most of the day, qualify for a lower premium than do commercial vehicles.

The radius classifications are:

• Local – Not regularly operated beyond a 50-mile radius from where the business garages them.
• Intermediate – Operated within a radius of between 50 and 200 miles.
• Long Distance – Operated within a radius of more than 200 miles.

The larger the radius, the more miles the vehicle is likely to be driven and the higher the premium.

The rules also contemplate the type of contractor that uses the vehicle, though the rating factors tend not to vary greatly from one type to another.

The rating rules have charts showing the mathematical factors that apply for different combinations of size, use and radius. The insurance company multiplies these factors by its basic premium for the vehicle. For example, the factor for Liability insurance for a light service vehicle (a pickup truck) with a local radius might be 1.0. The company will take the basic premium for a truck (for example, $500) and multiply it by 1.0. Conversely, the factor for a heavy commercial vehicle (a dump truck) with a local radius might be 1.50. Multiplying this factor by the $500 basic premium produces a premium $250 higher. This vehicle is on the road more than the pickup and has the potential to cause more severe injuries and damage in an accident, so the premium is higher.

Different factors apply to the premiums for comprehensive and collision coverages, and the effect might be the opposite of that for liability coverage. For example, the factor for the pickup truck might be 1.0 but the factor for the dump truck might be only 0.80. This is because a heavier vehicle should be able to withstand a crash better and sustain less damage than the lighter one. The rules base comp and collision premiums on the original cost of the vehicle, so the dump truck’s higher initial value will offset the lower factor to some extent.

It is important that a business provide accurate information about its use of a vehicle to the insurance company. Vehicles that spend most of the day on the job site should get the lower-rated service classification. Insurance companies can verify a vehicle’s weight through independent sources and its radius by examining lists of work on hand, but they will rely on information from their agents for the use classification. The business that gives its insurance agent detailed information about all its operations is a business that will pay a premium that accurately reflects its loss potential.

A severe property loss, such as damage from a fire or explosion, can cause significant financial hardship. Although most companies have Property insurance in place to protect themselves against such losses, the income lost during a shutdown can be even more devastating. Without the right coverage in place, the company might suffer a blow from which it will be difficult to recover. Business Interruption insurance might be the one thing that keeps the company in business.

The standard Business Interruption policy promises to pay for business income lost due to a necessary suspension of operations caused by loss of or damage to the business premises. For coverage to apply, the cause of loss must be one the policy insures against, such as fire, lightning, windstorm, or aircraft. It is important to understand that “business income” does not necessarily mean “profits.” The policy defines “business income” as the net income (profit or loss before income tax) that the firm would have earned, plus continuing normal operating expenses. Therefore, the policy will not bail out a company that was headed for a period of unprofitability. If the company was expecting a $100,000 loss and continuing expenses (including payroll) of $150,000, the most the policy will pay is $50,000 ($150,000 expenses less $100,000 loss.)

When a loss occurs, the insurer will determine the actual loss the business sustained. To do this, it will examine the company’s financial statements for the time periods leading up to the loss. It will determine which costs were fixed, such as debt payments, permits, and salaries. It will also separate out costs tied directly to sales, such as the cost of producing goods not yet produced. Finally, it will calculate the company’s expected profit or loss for the period. The sum of expected profit or loss and normal continuing expenses equals the actual loss sustained.

The actual period of the loss might differ from the period the insurer calculates. The insurer will pay for business income lost during the “period of restoration.” This period begins 72 hours after the damage occurs to the premises. It ends on the date the damaged property should be repaired, rebuilt or replaced with reasonable speed and similar quality or on the date when business resumes at a new permanent location, whichever is earlier. If the business owner is slow to approve architectural plans or if rebuilding takes longer because the owner decided to make improvements, the insurer will not pay for the entire period of loss. Also, the insurer will reduce the loss period if the company can reasonably take steps to shorten it. These steps might include using temporary facilities, shifting work to undamaged sections of the building, or adding work shifts to make up for lost production.

If the company has to spend extra funds to reduce the amount of lost income, the insurer will cover at least some of them. Examples are additional rent for a temporary location, express shipping charges necessary to get machinery in place sooner, and increased construction costs to hasten the repairs. The insurer will not pay more than the amount of income the company would have lost, and it will only pay for expenses that actually reduce the business income loss.

Many options are available with Business Interruption insurance, having to do with the length of the recovery period, amounts available each month, required amounts of insurance, and others. To help determine those options that a firm might need, a thorough discussion with one of our insurance agents is in order. This coverage is too important to a firm’s survival for anyone to treat it casually.

Construction contracts typically require a subcontractor to name the general contractor as an additional insured on the sub’s Liability insurance policy. It is not unusual for the contract to require this coverage for claims arising out of both the sub’s ongoing and completed operations. The GC is vulnerable to lawsuits arising out of the sub’s ongoing work and from flaws in the finished project. Consequently, subcontractors need Completed Operations coverage for additional insureds.

However, the insurance industry several years ago took steps to eliminate Completed Operations coverage from the policy form most commonly used to cover additional insureds. The 1985 edition of ISO form CG 20 10 provided coverage for the person or organization listed on it for “liability arising out of ‘your work’ for that insured by or for you.” The Commercial General Liability policy defines “your work” as work or operations performed by the named insured or on its behalf and materials, parts and equipment furnished in connection with the work. Courts interpreted this to mean that additional insureds had coverage for the contractor’s completed operations. In 1993, ISO announced that it was revising the CG 20 10 form, stating that it had never intended for the form to provide this coverage. The form now stated that it provided coverage for liability arising out of the named insured’s ongoing operations. ISO also introduced a new form, CG 20 37, which covers the additional insured for liability arising out of the named insured’s work and occurring away from premises the named insured owns or rents.

To illustrate how these endorsements apply, assume an electrical contractor is responsible for installing the wiring in an office building under construction. Part of the job involves connecting automatic thermostats in each individual office to a master heating and cooling control. The contractor’s employees secure the wiring to building studs using staple guns. While securing wire, an employee becomes distracted by a colleague who interrupts him to ask where a tool is. He accidentally squeezes the trigger on the staple gun while it’s pointed at another contractor’s employee, causing painful injuries. The injured employee sues the general contractor and the electrical contractor. The electrical contractor’s CGL policy includes endorsement CG 20 10 and lists the GC as an additional insured. Because this accident happened during the electrical contractor’s ongoing work for the GC, the policy will cover the GC.

Now suppose that the electrical contractor finishes the job and leaves the site with no plans to return. The GC accepts the electrical work as delivered. As the building nears completion, the GC tests all its systems. During the electrical test, loose wiring on the second floor sparks and ignites insulation in the wall, causing a fire that damages parts of two floors. The building owner sues the GC for the damage and rents lost due to the delay. Because the electrical contractor no longer had ongoing operations for the GC, endorsement CG 20 10 will not apply. Instead, the policy would have to include endorsement CG 20 37 to cover the GC.

Note that neither of these endorsements would cover the GC if the GC was entirely responsible for the losses. For coverage to apply, the electrical contractor must be at least partially liable.

All contractors should discuss their contractual obligations with our experienced insurance agents. The agent can advise on which insurance companies are willing to provide the needed coverage, what they will charge, and how they will handle claims. Most contractors need completed operations coverage for their additional insureds. Make sure that you have it before the job starts or the loss occurs.

Construction sites are often plagued by vandalism, arson, and theft. Equipment and building materials are expensive. The added cost of insurance, delays, and replacing machinery and materials affects your site and your clients’ deadlines. Take these positive steps to minimize the costly impact of damage to your job site and to take a bite out of these losses.

Know Your Work Area

If you’re completing a job in an unfamiliar location, contact the local police and ask how extensive crime is in the area. Tell them what you are doing and ask if they can send a patrol to check out the job site occasionally, especially if you aren’t planning to employ on-site security.

Inventory Your Equipment

Have a detailed inventory and monitoring system in place for all your equipment so you can track everything on the site. Use an etching tool to etch serial numbers onto equipment and tools. Have prominent and easily identifiable company logos on your machinery and big ticket items. Small tools are especially vulnerable to theft, so a site supervisor or foreman should monitor what tools are going to which employees. The tools should also be logged in at the end of the workday.

Use GPS Tracking Devices and Ignition Cutout Switches

For expensive machinery, such as heavy equipment or big generators, consider that GPS technology has made great strides. You can now get small tracking units that will not only advise you when items are being used but will also provide its location. You can also add alarm features that will let you know when the equipment leaves its designated work area. Another good feature is to disable heavy machinery and vehicles with ignition cutout switches, which effectively immobilize them.

Lighting and Fencing

A well lit job site will dissuade impetuous vandals and give thieves pause. Use light motion detectors or infrared triggers that will automatically alert intruders and local neighbors that the area has been breached. Studies have also shown that a chain-link fence also makes a better deterrence than most other barriers because it protects a site while offering outsiders a clear view of the site. If a chain-link fence is not possible, then enclose designated storage areas for construction material and tools, flammables, or hazardous items.

Access Control

There should only be one way in and out of the site. The more access points you have to the job site, the harder it is monitor who and what is coming and going. Have your employees park off the job site, if possible.

Plan Deliveries and Installation

Fully or partially installing certain items when they arrive can help prevent damage to or loss of expensive items. Items such as HVAC systems, plywood, doors, and windows, for example, are more likely to be stolen or vandalized the longer they are left lying around.

Use Security Cameras, Security Guards, Dogs and Signs

The use of cameras can enhance your job site’s level of security dramatically. The presence of a security guard or guard dog brings even more protection to the site. Make sure you have plenty of signs that announce your site is under surveillance — even if it actually isn’t.

Employ Proper Lock-Up Procedures

Have key employees perform your lock-up at the end of the workday. They should ensure that that all equipment and tools are in their designated places and that all locks, doors, and windows are secured. Additionally, designated personnel should confirm that ignition keys have been removed from all vehicles and that gas and oil tank caps are locked.

Use Your Neighbors

Asking people who have visual view of your site to keep an eye out can also increase your chances of preventing loss or damage. Consider offering a small reward as an incentive, if their information leads to an arrest or prevents a loss. Common sense, good planning, and organization can go a long way towards reducing theft, vandalism, and arson on job sites. Taking these positive steps can save you a lot of money, grief and time on a project.

Insurance companies design policies to cover their customers’ risks of accidental loss. A contractor excavating earth on a city street hits an underground telephone cable and knocks out service to a few thousand businesses and homes. A supermarket employee has partially mopped a floor when a manager summons him to help at the cash registers. A customer trips and falls over the mop left on the floor. All of these are accidents, not injuries or damage that the businesses or their employees intended. Insurance will cover these incidents, but what about situations where the harm might not have been accidental?

The standard Commercial General Liability insurance policy provides coverage for “occurrences,” defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Therefore, for the policy to apply to a specific incident, the incident must be an accident. Moreover, the policy goes on to state that it does not apply to bodily injury or property damage “expected or intended from the standpoint of any insured.” The questions of whether incidents were accidents and whether an insured expected or intended resulting injuries or damages have been fodder for the courts for years.

Courts in every state have tried to develop a precise meaning for the term “accident.” The definitions vary somewhat, but they all seek to evaluate the responsible person’s intentions. For example, one state defines accident as an “unintended and unforeseen injurious occurrence.” Another state holds an incident to be accidental if the insured did not intend the resulting damage, even if he intended the specific act. Still another calls an accident, “something out of the usual course of things … not anticipated and not naturally to be expected.” Therefore, it’s an accident when a painting contractor sprays paint all over 10 parked cars because he intended to operate a spray-painting gun but did not intend for the wind to blow the paint on the cars.

Courts settle the question of whether a person intended harm to occur when they determine the facts of a case. However, they tend to rule that harm resulting from some actions can never be accidental. The high court in one state held that an act is not accidental when it is so “inherently injurious” that it is certain to result in an injury. An example of this type of conduct is firing a weapon at close range. Other states have held that a court can infer that someone intended to cause an injury only when a reasonable person can reach no other conclusion. Therefore, if two conclusions are possible and only one of them points to intent to cause harm, the court must assume that the person did not intend harm. The CGL policy would provide coverage for the person in this situation.

Public policy prevents insurance companies from insuring people against liability for injuries or damages they intentionally cause. Otherwise, people could commit these sorts of acts with little risk to themselves. Besides, businesses pay good money to insure themselves against accidents. It is unfair to these organizations when intentional injury claims raise the cost for everyone.

However, proving what someone’s intentions were at a particular moment is difficult. If your organization has an incident that you believe might result in a liability claim, you should report it to your insurance agent as soon as possible. Let the insurance company investigate, and know that your insurance is there to protect you from the consequences of true accidents.