9/1/2004 1

Insurance Insurance

RequiremenRequirements ts

in Contractsin Contractswww.doa.louisiana.gov

9/1/2004 2

PURPOSE OF PURPOSE OF WORKSHOPWORKSHOP

Limit State’s liability

Necessity of insurance requirements

L.R.S. 38:2195

9/1/2004 3

TYPES OF BIDS OR TYPES OF BIDS OR CONTRACTSCONTRACTS

IFB - Invitation for Bids

RFP - Request for Proposals

CONSTRUCTION

PRINTING CONTRACT

SOLE SOURCE

EMERGENCY

9/1/2004 4

WHAT’S NEEDEDWHAT’S NEEDED

Coverages

Limits

Hold-Harmless Agreement?

9/1/2004 5

TYPES OF TYPES OF COVERAGECOVERAGE

Workers Compensation and Employers Liability

Maritime Liability

Commercial General Liability

Automobile Liability

Property Damage Coverage

Bond Coverage

Crime and Fidelity

Wet Marine Coverage

Aviation Coverage

Medical Malpractice

9/1/2004 6

STANDARDIZATION STANDARDIZATION OF FORMSOF FORMS

1. Insurance Services Organization

ISO Standard Forms:

CG 00 01 [10 01] -- CGL

CA 00 01 [10 01] -- Auto

2. Manuscript FormsCompany-written

9/1/2004 7

ADVANTAGES OF ADVANTAGES OF STANDARD POLICY FORMSSTANDARD POLICY FORMS

Set rates using pooled data

Coverage generalizations

Comparison of policies

9/1/2004 8

ADVANTAGES OF ADVANTAGES OF STANDARD POLICY FORMSSTANDARD POLICY FORMS (Continued)(Continued)

Case law scope of coverage

Simplified claims-settlement

9/1/2004 9

Commercial General Commercial General Liability FormsLiability Forms

OCCURRENCEOCCURRENCE

CLAIMS - MADECLAIMS - MADE

9/1/2004 10

ISO Occurrence ISO Occurrence FormForm CG 00 01 10 01CG 00 01 10 01

July 1, 1999 July 1, 2000

Will pay these sums that the insured becomes legally obligated to pay...

DISCOVERY PERIOD

Occurrence during policy period

NO TIME element when claim is reported/paid

Statute of limitations

9/1/2004 11

ISO Claims-Made ISO Claims-Made FormForm CG 00 02 10 01CG 00 02 10 01

July 1, 1999 July 1, 2000

Will pay these sums that the insured becomes legally obligated to pay...

DISCOVERY PERIOD

Claim made DURING policy period or extended reporting period.

9/1/2004 12

ISO Claims-Made ISO Claims-Made FormForm (Continued) (Continued)

1. BASIC EXTENDED REPORTING PERIOD:

60 days - no additional premium

2. SUPPLEMENTAL EXTENDED REPORTING PERIOD:

Up to 200% additional premium

DOES NOT REINSTATE OR INCREASE LIMITS

9/1/2004 13

COMMERCIAL COMMERCIAL GENERAL LIABILITYGENERAL LIABILITY

1. Premises Operations

2. Off Premises

3. Products and Completed Operations

4. Contractual

5. Personal Injury and Advertising

Liability6. Broad Form Property

Damage

7. Watercraft

9/1/2004 14

Coverage BCoverage BPersonal Injury & Personal Injury & Advertising LiabilityAdvertising Liability

Personal Injury:

Other than bodily injury

False arrest Malicious prosecution Wrongful entry Libel or slander Violation of privacy

9/1/2004 15

Coverage CCoverage CMedical PaymentsMedical Payments

A. Medical expenses for accidents:

1. On premises you own or rent

2. On ways next to premises you own or rent

3. Because of your operations

9/1/2004 16

Coverage CCoverage CMedical PaymentsMedical Payments(Continued)(Continued)

B. Reasonable expenses for:

1. First aid

2. Medical, surgical, x-ray, dental services

3. Ambulance, hospital, nursing, funeral expenses

9/1/2004 17

Common CGL Common CGL ExclusionsExclusions

Pollution

(Asbestos and hazardous wastes)

Workers compensation, unemployment benefits, etc.

Aircraft and watercraft over 26 feet

9/1/2004 18

Common CGL Common CGL ExclusionsExclusions (Continued) (Continued)

Intentional Acts

Automobile Liability

Some Professional Liability

Property Damage to Property 1. You own, 2. Loaned to you, 3. In your care, custody

and control

9/1/2004 19

PROFESSIONAL LIABILITYPROFESSIONAL LIABILITY(Errors and Omissions (Errors and Omissions Coverage)Coverage)

ACCOUNTANTS

ARCHITECTS

ENGINEERS

MEDICAL PROFESSIONALS

ATTORNEYS

HAZARDOUS ACTIVITIES

9/1/2004 20

BUSINESS AUTOMOBILEBUSINESS AUTOMOBILEPOLICY CODESPOLICY CODES

1 Any auto

2 Owned autos only

3 Owned private autos only

4 Owned autos other than private autos

5 Owned autos subject to no-fault

6 Owned autos subject to a compulsory uninsured motorists law

7 Specifically described autos

8 Hired autos only

9 Non-owned autos only

9/1/2004 21

Owners Protective Owners Protective Liability (Liability (OPL)OPL)

Protects the employer of an independent contractor

Employer can be liable for contractor’s negligence

9/1/2004 22

WORKERS WORKERS COMPENSATIONCOMPENSATION

Per Labor Code of the State of Louisiana

Disability Benefits Updated annually in Sept.

9/1/2004 $438 max

$117 min

9/1/2004 75% of average salary (from

Dept. of Labor)

9/1/2004 23

BID BONDSBID BONDS

Guarantee the good faith

of the bidder

L.R.S. 38:2241 (A) (2)

9/1/2004 24

PERFORMANCE AND PERFORMANCE AND PAYMENT BONDSPAYMENT BONDS

1. Financial protection

2. Prompt completion upon default

3. Defective work / materials

4. Payment of bills

L.R.S. of 1950

Title 38

Chapter 10

Sections 2241 to 2248

9/1/2004 25

““ADDITIONAL INSURED”ADDITIONAL INSURED”

I. BLANKET ADDITIONAL INSURED ENDORSEMENT

Example:

“The State of Louisiana is added as an additional insured on the above liability policies.”

9/1/2004 26

““ADDITIONAL INSURED”ADDITIONAL INSURED” CONTINUED CONTINUED

II. LIMITED ADDITIONAL INSURED ENDORSEMENT

Example:

“The State of Louisiana is added as an additional insured as regards the (sole) negligence of XYZ contractor.”

9/1/2004 27

““ADDITIONAL INSURED”ADDITIONAL INSURED” CONTINUED CONTINUED

III. NAMED INSURED ENDORSEMENT

(Owners Protective Liability)

Example:

“The State of Louisiana, as the owner, is added as a named insured on the above policy.”

9/1/2004 28

WAIVER OF WAIVER OF SUBROGATIONSUBROGATION

SUBROGATION:

The right of one who has taken over another’s loss to also take over the right to pursue remedies against a third-party

NOTE:

ORM will NOT accept contract language which allows waiver of subrogation with regard to damage to State-owned property

9/1/2004 29

HOLD-HARMLESS HOLD-HARMLESS AGREEMENTSAGREEMENTS

Deductibles

Under-insured

Exclusions to insurance policies

9/1/2004 30

TYPES OF TYPES OF HOLD-HARMLESS HOLD-HARMLESS AGREEMENTSAGREEMENTS

All liability, except that arising out of the sole negligence of the agency (State)

All liability without regard to fault

Own negligent acts (Contractor)

Agrees to share responsibility when both parties contribute to a loss

9/1/2004 31

COMMON ERRORSCOMMON ERRORS

Neglect to review certificates

Using old insurance requirements

NO insurance requirements in bid

Insurance Company Ratings - taking company’s word on it

9/1/2004 32

COMMON ERRORSCOMMON ERRORS CONTINUED CONTINUED

Neglect to review policies for exclusions

NO hold-harmless agreements

Not enforcing rating requirements

Leaving some insurance requirements out

of bid

9/1/2004 33

UNACCEPTABLE UNACCEPTABLE INSURANCEINSURANCE

Risk retention groups (unless A.M. Best rated)

Self-insurance funds (except WC)

Companies rated below insurance requirements

Claims-made coverage (some exceptions)

9/2000 34

FINANCIAL RATINGS OF FINANCIAL RATINGS OF INSURANCE COMPANIESINSURANCE COMPANIES

COMPANY

COMPANIES

RATED

APPROX. NO. OF ANALYSTS

COST FOR

RATING

A.M. Best

(1906)

2,500+

100

500

Standard and Poor

(1983)

1,200 – 1,800

30

15,000 – 28,000

Moody (1986)

1,000+

9

25,000

Duff and Phelps

(1986)

Less than 1,000

7

17,000

Weiss (1989)

Less than 1,000

7

None

A.M. BESTA.M. BEST20032003 Property/Casualty Property/Casualty RatingsRatings

RATING DESCRIPTION NUMBER PERCENT A++ Superior 150 6.7 A+ Superior 312 13.9 A Excellent 739 32.9 A- Excellent 485 21.6

Subtotal:

1,686

75.1

B++ Very Good 193 8.6 B+ Very Good 147 6.5 B Fair 78 3.4 B- Fair 37 1.6

C++ Marginal 20 0.9 C+ Marginal 7 0.3 C Weak 6 0.3 C- Weak 8 0.4 D Poor 14 0.6 E 33 1.5 F 17 0.8

Subtotal:

560

24.9

NR-1 Insufficient Data 421 51.0 NR-2 Insufficient Size/Operating

Experience 104 12.6

NR-3 Rating Procedure Inapplicable

232 28.1

NR-4 Company Request 22 2.6

Subtotal:

887

100.0

9/1/2004 36

BEST’SBEST’SFinancial Size Financial Size CategoriesCategories

Companies By Class

Financial Size

Class

Adjusted Policyholders’

Surplus # % (In thousands of dollars) I Up to 1,000 181 6.1% II 1,000 to 2,000 198 6.6% III 2,000 to 5,000 325 10.9% IV 5,000 to 10,000 296 9.9% V 10,000 to 25,000 327 11.0% VI 25,000 to 50,000 213 7.1% SUBTOTAL 1,540 51.6%

VII 50,000 to 100,000 217 7.3% VIII 100,000 to 250,000 358 12.0% IX 250,000 to 500,000 194 6.5% X 500,000 to 750,000 78 2.6% XI 750,000 to 1,000,000 82 2.8% XII 1,000,000 to 1,250,000 64 2.1% XIII 1,250,000 to 1,500,000 30 1.0% XIV 1,500,000 to 2,000,000 118 4.0% XV 2,000,000 or more 299 10.0%

2,980 100% 2003 A.M. Best Company, Inc.

9/1/2004 37

BOND COMPANY BOND COMPANY RATINGSRATINGS

www.fms.treas.gov/c570/c570.html

9/2002 38

DEPARTMENT OF DEPARTMENT OF INSURANCEINSURANCE

Regulates insurance companies licensed to do business in

Louisiana

DOMESTIC COMPANIES - 28

FROM 1978 TO 2002

583 insurance companies under rehabilitation or liquidation

9/1/2004 39

CAPITALIZATION CAPITALIZATION REQUIREMENTSREQUIREMENTS

Insurance Company Capitalization:

$2,000,000 1989 $3,000,000

Premium Limited By Law:

4 times policyholders surplus

Example:

$3,000,000 X 4 = $12,000,000

Exposure to company = $100 millions

9/1/2004 40

Louisiana Insurance Louisiana Insurance Guaranty Guaranty AssociationAssociation

LIABILITY {CGL & Auto}

$150,000 per claim - $100 ded.

$300,000 per accident - $100 ded.

WORKERS’ COMPENSATION

Follows law - limits do not apply

PLUS

Unearned premium up to $10,000 (in addition to above limits)

9/1/2004 41

PROOF OF COVERAGEPROOF OF COVERAGECertificates of Certificates of InsuranceInsurance

State’s Form (State Designed)

Accord Form (ISO Designed)

Manuscript Form (Company Designed)

9/1/2004 42

BEST’SBEST’SKey Rating GuideKey Rating Guide

Property/Casualty Edition

A.M. BEST COMPANYOldwick, NJ 08858

Phone: (908) 439-2200Fax: (908) 439-3296

www.ambest.com

9/1/2004 44

ORM ORM WebsiteWebsite

www.state.la.us/orm/orm

Click on Underwriting

Click on Procedures Manual for Insurance

Requirements in Contracts