News
IN THIS ISSUE:
What Is An Adequately Insured Subcontractor?
Not All Subcontractor Agreements Are Created Equal
Small Claims Impact On Your Experience Rating
The Motor Carrier Act of 1980
Fall Protection
Whether you are a general contractor hiring subcontractors or a subcontractor performing work for general contractors, it is becoming increasingly important to fully understand what is meant by the term "Adequately Insured Subcontractor." Until recently, most insurance companies would find $500,000 to be an adequate limit for general liability coverage as long as a proper certificate of insurance was on file and coverage was in force for the subcontractor during the period that the subcontractor worked for the general contractor – or named insured.
More and more discussions are taking place with, and in some cases mandatory requirements are coming from, insurance companies stating subcontractors' general liability limits must be at least equal to the named insured's general liability primary limits for the period that the subcontractor works for the named insured. Since most general contractors must carry a primary limit for general liability of at least $1,000,000 per occurrence/$2,000,000 general aggregate in order to qualify for their umbrella policy, the resulting mandate is all subcontractors working for general contractors would also need to carry primary general liability limits of at least $1,000,000 per occurrence/$2,000,000 general aggregate.
Failure to require adequate general liability insurance limits from subcontractors will result in additional premiums charged to the general contractor at audit time, which will be passed on in some form to the subcontractors. The rates and premiums will usually be based on the classification and payroll applying to the specific work performed for the general contractor by the subcontractor. If the payroll cannot be determined, many carriers have chosen to charge some percentage of the total subcontract price, depending on whether the subcontract includes labor and material or labor only.
In any event, if you are a general contractor hiring subcontractors to perform work for you, it is recommended that you require at least $1,000,000 per occurrence/$2,000,000 general aggregate primary limits on general liability in order to have a limit equal to your own primary liability limits. If you are a subcontractor working for a general contractor, it is strongly recommended that you increase your primary liability limits to at least $1,000,000 per occurrence/$2,000,000 general aggregate at your next renewal, if you have not already done so.
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Whether you are a general contractor or a subcontractor, the agreements you sign with other construction firms could unexpectedly cost you and/or your insurance company. Your insurance was designed to protect you and the unintentional property damage and/or bodily injury caused by your business operations. Careful consideration regarding who is indemnifying whom is important to establish proper protection.
In addition, you should be aware of a provision in your commercial general liability policy called the "Transfer of Rights of Recovery Against Others to Us”. This means that once you file a claim with your insurance company, they “step into your shoes” and assume all your rights. For example, if they find it necessary to file a claim, subrogate, or take another party to court to protect your rights, and/or recoup monies, they have that right.
This is also done to keep your losses minimal and your insurance affordable. If your loss ratio is too high, your insurance premiums can increase and in some cases the insurance cancelled. Subrogation and other forms of legal action allow your insurance company to recoup these losses and ultimately keep your loss ratio as low as possible. However, when you sign contracts or agreements that hold other people harmless or waive your rights of subrogation against others, you are blocking your insurance company's rights as well. Many of these agreements are unavoidable, but you should be aware they exist.
If you are a general contractor or a subcontractor who also subcontracts, these agreements are essential protection because they work in reverse as well. That means when your subcontractor signs an agreement to indemnify you and hold you harmless for claims arising out of their actions, their insurance company is also obligated to comply. Their insurance company "stands in their shoes" and can do no more.
Subcontract agreements come in all different shapes and forms. Some are very extensive while others barely get the job done because they do not contain proper insurance and indemnification clauses. If you want to make sure your subcontract agreement is capable of doing what it should (protect your interests), you should consider collaboration between your attorney and an insurance professional capable of assisting with the process.
Employers often ask whether or not they should pay small workers’ compensation claims themselves rather than submitting the claim and subsequent invoices to their insurance carrier. As recent as a decade ago, agents were recommending employers “self insure” small medical-only claims to reduce their experience modification factor. The National Council on Compensation Insurance (NCCI) recognized this as a negative trend for employers.
First, employers are paying a premium to have their losses adjusted by the workers’ compensation carrier. Second, most carriers utilize medical review services to reduce invoices for usual and customary allowances. Third, not submitting those invoices meant employers were not realizing the savings of preferred provider networks that insurance carriers had set up.
Recognizing the inherent problems with not reporting claims, NCCI changed the way it calculates the experience mod. By discounting medical-only claims by 70%[1], they effectively took away the “penalty” for reporting small, medical-only claims. For example only $300 of a medical-only claim with a $1,000 payout will impact the experience mod whereas the prior formula had the entire $1,000 factored into the equation.
When dealing with a small, medical-only claim, the impact on the experience mod is minimal at best. By continuing to self-pay small claims employers may actually be spending more money than if they had submitted the invoices for review and payment by the workers’ compensation carrier. At best, the savings on an employers’ premium is minimal if there are any savings at all.
Even with this knowledge, some employers continue to self-pay small medical-only claims. This practice is acceptable as long as the employer has been educated and understands the impact and properly reports all incidents. By doing calculations with an employers’ experience mod, we can advise whether this practice is cost-effective and/or having a positive impact on the mod.
1 The 70% reduction only applies to medical-only claims. If there is any sort of indemnity payment (lost wages, permanent partial impairment, etc.), the entire claim value (subject to capping for a catastrophic loss) impacts the experience mod.
The Act requires certain motor vehicles to carry minimum limits of insurance coverage to satisfy public liability and environmental restoration claims that may arise from accidents while transporting property. This financial responsibility requirement portion of the Act has the most far-reaching effects on the insurance and risk management community. Minimum limit requirements differ according to the type of property and the type of motor carrier used to transport the property.
The degree of financial responsibility imposed is affected by the status of hauled cargo as hazardous substances or materials. Determination of that status is made by reference to the Hazardous Materials Tables found in Title 49 of the Code of Federal Regulations. The tables contain a list, subject to frequent updating and revision, of more than 15,000 materials and chemical compounds classified by the federal government as hazardous for purposes of enforcing the Motor Carrier Act. Private carriers must, even in the absence of the Motor Carrier Act, comply with laws requiring them to identify hazardous commodities in their vehicles. It is the motor carrier's obligation to obtain the required limits of financial responsibility. There are four types of motor carriers listed on the schedule of limits.
Type 1 carrier is for-hire transportation of non-hazardous property in interstate or foreign commerce using a vehicle with a Gross Vehicle Weight (GVW) of 10,000 pounds or more and are required to carry a liability limit of $750,000 per accident.
Type 2 carrier is for-hire and private transportation, for interstate or intrastate commerce, and they transport using a vehicle with a GVW of 10,000 pounds or more and are required to carry a liability limit of $5,000,000 per accident. The materials they transport fall into the following main categories:
- Hazardous substances, listed in Title 49, that are transported in cargo tanks, portable tanks, or hopper-type vehicles with a capacity of more than 3,500 water gallons.
- Compressed gas or liquefied compressed gas in a containment system with a capacity of more than 3,500 water gallons.
- Class A or B explosives that are transported in bulk.
- Poison gas in any quantity.
- "Highway route controlled quantities" of radioactive materials as defined in Title 49.
Type 3 carrier is for-hire and private transportation of oil listed as a hazardous substance, or of any hazardous waste, materials, or substances (as defined in Title 49 of the CRF) not included in Type 2. Their cargoes are transported interstate in any quantity, and intrastate when transported in bulk. They transport using a vehicle with a GVW of 10,000 pounds or more and are required to carry a liability limit of $1,000,000 per accident.
Type 4 carrier is for-hire and private transportation in interstate or foreign commerce of any quantity of class A or B explosives; any quantity of poison gas; or a highway route controlled quantity of radioactive materials as defined in Title 49 of the CFR. They transport using a vehicle with a GVW of 10,000 pounds or less and are required to carry a liability limit of $5,000,000 per accident.
The MCS-90 endorsement can be used by insurance carriers to provide automobile liability insurance to assure compliance, within the limits stated on the endorsement, with Sections 29 and 30 of the Motor Carrier Act of 1980 and the rules and regulations of the Federal Highway Administration and the Interstate Commerce Commission. Although most contractors are not considered to be under the motor carrier operating authorities, there may be instances when they are transporting hazardous materials as found in Title 49 and, in the event of an accident that results in a spill, may benefit from having the MCS-90 endorsement on their policy.
Conventional fall protection such as guardrail systems, personal fall arrest systems, or safety net systems have continually proven to be the best options for protecting employees from exposed sides and edges. 29 CFR 1926 Subpart M (fall protection), 1926.501(b) (1) unprotected sides and edges states:
- Each employee on a walking/working surface (horizontal and vertical surface) with an unprotected side or edge which is 6 feet (1.8m) or more above a lower level shall be protected from falling by the use of guardrail systems, safety net systems, or personal fall arrest systems.
There is no safe distance from an unprotected side or edge that would render fall protection unnecessary, but OSHA has determined that for limited activities, warning lines systems in combination with other measures are an appropriate alternative to conventional fall protection systems. These activities include low-slope roof work, some leading edge work, precast concrete erection and residential construction.
For example, roofers working on low-sloped roofs could use a warning line of 6 feet to keep employees away from the edge. This should be used in combination with safety monitors due to the recognized feasibility limitations during roofing work.
Other activities that do not fall into the category of low-slope roof work, leading edge work, precast concrete erection, and residential construction do not have the option of using the warning line at 6 feet. The use of a warning line 15 feet from the edge can be used, but outlined conditions must be met:
- The warning line is 15 feet or more from the edge.
- The warning line meets or exceeds specifications in 1926.502(f) (2).
- No activity is conducted in the area between the warning line and the edge.
- The employer effectively implements a work rule prohibiting employees from passing the warning line.
There are certain activities that may be performed in a Controlled Access Zone. Those include, overhand brick laying and related work, activities that are part of a fall protection plan for leading edge work, precast concrete and residential construction. Activities outside these may not use a Controlled Access Zone instead of conventional fall protection, even in combination with a warning line system 6 feet from the edge.