Three Ways to Transfer Legal Liability for Your Products

Whether you are a business bringing a new, exciting product to market or a 20 year-old firm selling the latest version of a successful product line, certain risks face you. Users of the product may suffer injuries or damage to their property. These accidents may stem from inappropriate use of the product, such as using a lawn mower to trim hedges. However, some products may be dangerous under normal use by untrained or inexperienced operators. Furthermore, vendors or contractors who sell or install a product may modify it or otherwise affect its performance. These changes can increase the chances that the product will cause injury or damage, and that can land the manufacturer in a courtroom. However, there are steps the firm can take to transfer the risks of financial loss from these incidents.

First, the manufacturer should require, as part of its contracts with contractors, that those parties name it as an additional insured on their liability insurance policies. If the contractor is at least one percent liable for the accident, the endorsement gives the manufacturer rights to coverage under the policy for amounts necessary to settle a lawsuit. Perhaps more importantly, it covers the cost of defending the firm against the suit. These costs are often substantially higher than the cost of the settlement. The contracts should require the other party to give the manufacturer certificates of insurance showing that the liability policies include this coverage.

Assume, however, that either the other party neglected to have the manufacturer added as an additional insured or for some reason the insurance company denied coverage under the endorsement. If the company pays for the settlement on behalf of its insured (the contractor), it has a legal right to try to recover its payment (subrogate) from the manufacturer or its insurance company. To prevent that from happening, the contract between the manufacturer and the other party should require the contractor to waive subrogation rights. The waiver of subrogation will bind the insurance company, preventing it from going after the manufacturer. The ISO liability insurance policy implies that the insured can waive subrogation rights at any time before a loss occurs. However, if the manufacturer wants no doubt as to whether a waiver applies, it should require the other party to add a specific endorsement to its policy, waiving the insurance company’s subrogation rights.

One commonly used technique for transferring liability is requiring a contract to include an indemnity agreement, also known as a hold harmless agreement. Such an agreement will require the contractor to indemnify the manufacturer for the costs of any suits resulting from that party’s work for the manufacturer. For example, assume Contractor A installs a turbine made by Manufacturer B in a power plant and the turbine malfunctions, injuring several employees. Under this agreement, A would indemnify B for the costs of the ensuing lawsuits. Contractor A’s liability insurance should provide coverage for this if it does not contain an absolute contractual liability exclusion. An experienced contract attorney can help develop the appropriate language for this agreement.

Because some of these techniques involve modification of insurance coverage, the manufacturer should consult with an insurance agent. Some insurance companies may require the manufacturer to have these techniques in place before they will offer coverage, while others may accept the account without them but may offer reduced premiums if they are in place.

Contractual arrangements are no substitute for providing a safe, quality product. However, since accidents are possible no matter how many precautions are taken, manufacturers are well advised to use these techniques to lower the chance of financial loss.

Make a Contract to Keep Your Teen Driver Safe

The U.S. Department of Transportation reported that 3,490 drivers between the ages of 15 and 20 years old died in motor vehicle crashes in 2006 and an additional 272,000 were injured. Drivers in this age group accounted for 12.9 percent of the drivers involved in fatal crashes and 16 percent of the drivers involved in police-reported crashes.

Drivers between the ages of 15 and 20 years old have the highest rate of fatal crashes among all age groups including the elderly. The risk of being involved in a fatal crash is three times greater for teens than for people between the ages of 65 to 69.

Lack of driving experience and taking unnecessary risks are the two main reasons for the high crash rate among teens. However, both of these issues can be addressed, and their impact on a teenage driver’s safety significantly reduced when parents assume a proactive role in their teenagers’ driver education.

One of the best ways to accomplish this is by drawing up a driving contract between you and your teen driver. Teendriving.com offers the following advice about what to include in your contract:

·   Specify which car(s) the teen is allowed to drive – The car should have a driver’s side airbag, a good safety rating, and be easy to maneuver

·   Make the teen responsible for gas, oil changes, tire pressure checks, regular maintenance requirements, and keeping the car clean inside and out.

·   Have the teen agree to pay for insurance – Paying insurance costs with a part-time job provides some incentive for avoiding reckless behavior.

·   Specify that the teen must follow these rules or be subject to some agreed upon, pre-determined penalty:

1.      Always obeying the speed limit and traffic laws.

2.      Always wearing seat belts and making sure that all passengers are buckled up before driving.

3.      Never driving after drinking or using drugs – The contract should state that teens are not allowed to drink and drive, have alcohol in the car, or even be a passenger in a car with a driver who has been drinking or using drugs. Assure your teen that they can always call you to come get them if they are stranded at a gathering.

4.      Not driving with friends in the car – Teens should not be allowed to drive with friends or even younger siblings in the car for the first six to twelve months of having their license unless an adult is also in the car.

5.      Not using cell phones or texting while driving.

6.      Letting you know where they are going and when they plan to return.

7.      Maintaining curfews – Set realistic curfews, but also tell teens that if they are running late, it’s always better to drive safely than speed to make up the minutes. They should call you if possible to let you know they are on the way home. 

What We Have Here Is a Failure to Communicate: Improving the Claims Process

Occasional severe injuries are an unfortunate part of the construction business. When they happen, a contractor may be looking at a very large lawsuit and will seek coverage under its liability insurance policy. Undesirable side effects of liability insurance claims include disputes between the contractor and the insurance company. Bad feelings can begin with the claim notice from the contractor, build with a letter from the claim adjuster listing every policy condition that might mean no coverage for the claim, exacerbate when the adjuster balks at the defense attorney’s bills, and erupt during negotiations over a settlement.

A contractor cannot control a claim adjuster’s actions, but there are things that can be done to influence the adjuster’s behavior for the better, minimize areas of disagreement, and make the whole process a little smoother.

Claim adjusters find it frustrating when they receive initial claim notices that provide limited information. When giving the initial notice of a liability claim to its insurance company, the contractor should provide at minimum the following information:

* Basic information, such as the date and location of the loss, names of injured persons, nature of injuries, and so on.

* If the contractor has already hired defense attorneys, an explanation of its reasons for selecting that firm. For example, a particular firm may have significant experience defending contractors of the same type; the notice to the insurance company should state that.

* A statement of what the contractor expects from the company during the claim process. This should present several questions for the company to answer, such as whether the attorneys will act as the conduit for information between the contractor and the company, whether the company will hold an early meeting with the contractor to discuss the case, and the confidentiality of certain communications.

It is a good idea for the contractor to seek an in-person meeting with the claim adjuster within the first few months after making the initial notice. This meeting will separate the contractor’s claim from the dozens of other cases on the adjuster’s desk. It will facilitate exchange of information, introduce the adjuster to the attorneys, educate the adjuster about the case, and allow both sides to discuss their expectations for the claim process, such as frequency of updates and the payment schedule for the attorneys.

Even with a detailed initial notice and an early meeting, disputes between the contractor and the company may still arise. If the two parties can specifically define the issues, they can limit the disagreements and focus on producing a successful claim resolution. Even if they disagree on whether the policy will cover the claim, a specific description of each side’s concerns can help narrow the areas of disagreement and reduce uncertainty. Therefore, it is in the contractor’s interest to be specific about its questions and concerns in all communications with the company. This should give the company an incentive to be clear about why it might not cover the claim. Armed with this information, the contractor can more easily decide how to proceed next, whether that will be to mediation, appeals to the company’s management, litigation, or other alternatives.

During this process, the contractor should not overlook his insurance agent as a resource and advocate. Agents deal with claim situations on a daily basis and can provide valuable information on what to expect and ways to make the process easier. Workplace injuries are upsetting and disruptive; ensuing lawsuits are stressful and take a contractor away from his real business. Following these steps can reduce the amount of stress and help bring the claim to a conclusion that all parties can live with.

Are You Guilty of DWT – Driving While Texting?

Are you guilty of sending text messages from behind the wheel? If you are, you’re not alone.  Although hard statistics on the practice are scarce, it’s clearly a growing problem. More than 150 billion text messages are sent annually, and a substantial percentage of those are sent from the driver’s seat.

Anything that takes a driver’s attention off the road increases the likelihood of an accident, including talking on a cell phone, eating, applying make-up or shaving. But text messaging may be especially dangerous since composing and sending a message requires a driver to look at the phone or device rather than at the highway and surrounding traffic for an extended period of time.

Texting while driving has been identified as a factor in several accidents, with police linking the time phone text messages were sent with the occurrence of fatal automobile crashes. It seems an especially prevalent practice among the young: One insurance company survey found that 19% of drivers admit to sending text messages while driving, and an alarming 37% of drivers between the ages of 18 and 27 engage in the practice.

The problem has become widespread enough for some states, including Washington and Oregon, to take notice and consider legislation that makes driving while texting a crime. Activists are lobbying to include specific texting-while-driving provisions in existing laws that prohibit hand-held electronic devices to be use on the road.

In fact, a recent Harris Interactive poll revealed that 89% of Americans support legislation to ban texting while behind the wheel. And 91% of respondents believed that people who text and drive are just as dangerous as drunks on the road.

What can you do about this problem?  Stay safe by resisting the temptation and encouraging others to do the same.

The Devil’s in the Details of an OCIP

With increasing regularity, construction project owners are creating Owner Controlled Insurance Programs 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 its insurance agent 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.

Is a Home Security System Right for You?

We are a nation of conspicuous consumers, filling our homes with all kinds of electronics from computers to Wii consoles. While all of these gadgets are designed to make staying at home more fun, owning them can make your home an attractive target for burglars. According to 2006 FBI crime statistics, 66.2 percent of all reported burglaries were home break-ins. The average dollar loss per burglary offense in 2006 was $1,834. If you have a lot of expensive personal belongings, installing a home security system may be a good idea.

In addition to protecting your valuables, you may also want to consider the need to protect your family’s safety. FBI statistics show that 63.1 percent of all home burglaries in 2006 happened during the day. What would happen to you and your family if a burglar attempted to break in while you were home? Installing a home security system provides you with peace if mind, knowing that your loved ones are protected.

When you are tying to decide if you should install a security system, here are some other things you should consider:

  • Are you living in a high-crime area? – Long time residents in a neighborhood know the likelihood of their home being burglarized. If you live in a high-crime area, you probably need a security system. If you’ve just moved into a neighborhood, do some research to find out how high a risk there is for being burglarized so you can determine if you need additional security.
  • Is your home inviting to burglars? – There are certain circumstances that mark your home as a target, such as living in a ground floor apartment, being surrounded by thick bushes and trees, having old doors and windows that are easy to break into, or living on a poorly-lit street where people are seldom around. If any of these descriptions apply to your home, you may want to consider a home security system.
  • How expensive is it to own a system? – There are a number of security systems to choose from, with a wide range of prices. Keep in mind that the more sophisticated the technology, the higher the price. However, you should be able to find something within your budget that will give you the protection you need.
  • Does your homeowner’s insurance offer a discount if you install a system? – Most insurance companies will give you a premium discount if you install any kind of home security system. The amount of the discount will depend on the type of system you choose. If you install a home security system that has monitoring services, the discount can range up to 20 percent. Check with your insurance agent to see what your insurer offers.
  • Are there steps you can take to minimize the need for a security system? – There are some low tech ways to burglar proof your home, such as, installing dead-bolt locks, replacing hollow doors with doors made of metal or solid hard wood, installing a wide-angle peephole in the door, replacing old or cracked windows, installing removable rods to prevent windows from being opened, and pruning bushes and trees that surround your house.

Injuries May Be Catastrophic, But They Need Not Be Fatal to Your Construction Business

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 may define it in dollar terms, such as an injury that incurs liability of $250,000 or more. Others may 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 may 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 effectively manage a claim. A few steps the contractor can take before an injury occurs may pay dividends later:

  • Plan ahead. Most construction businesses are too small to have their own risk management departments, so form a partnership with an insurance agent 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 the 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.

Think Twice Before Leaving a Child Unattended in a Car

According to www.kidsandcars.org, as of December 2007, 942 children in the U.S. were involved in accidents because they were left unattended in or around a car. Of that total, 231 resulted in fatalities.

Tragedies like these can be prevented if parents exercise some extra caution. Here are a few tips to help keep your child safe:

  • Teach your children that they should never play in the car without adult supervision.
  • Lock your car and put the keys in a place where your children can’t find them.
  • Place something you need like your cell phone, handbag, or briefcase on the floor in front of the back seat when you get into the car. This forces you to retrieve the item when you arrive at your destination and you will be reminded of your child, quietly sleeping in the back seat.
  • Keep rear fold-down seats closed to help prevent children from getting into the trunk from inside the car and open the trunk whenever you reach your destination. A child can easily slip inside an open trunk and hide. Install a trunk release mechanism and teach your older children how to use it.
  • Keep a large teddy bear in the child’s car seat when it’s not occupied. When the child is placed in the seat, put the teddy bear in the front passenger seat. The teddy bear on the front seat will serve as a reminder that the child is in the car seat.
  • Don’t ever leave a child in a car since it can quickly heat up, especially on a hot, sunny day. Children can easily become dehydrated and suffer from heat exposure, even if the windows are partially open. No matter how short a time you plan to be out of the car, take your child with you.
  • Teach older children how to disable the driver’s door locks if they become trapped inside the car.
  • Take your children out of the car before getting the groceries, dry cleaning, etc., when you get home.
  • Be sure that child care providers check to make sure that children aren’t left in their car or van.
  • Call 911 immediately if you see a child alone in a vehicle.

Don’t Let a Slow Economy Stop Risk Management

The recession that started in December 2007 has had a major impact on the construction industry. The demand for new homes has collapsed along with the general housing market. Owners of commercial projects have put them on hold, either due to lack of financing, cash flow problems, or lack of demand for the space. While surviving may seem like the top priority for contractors, a period of economic slowdown might be the perfect time to take steps that will plant the seeds for long-term profitability.

One step with an immediate payoff is using equipment more efficiently.  Are employees making unnecessary trips up and down ladders to retrieve tools and materials? Consider using scaffolding or scissor lifts, which will allow the worker to bring all necessary materials in one trip while also keeping him safer than a ladder would. 

Now may be an excellent time to review contracts with an eye toward inserting clauses to improve worksite safety. For example, you might want to require tools with safety enhancements, specific fall protection measures on scaffolding, footwear that meets a specific protection standard, or eye protection. Improved safety practices will reduce liability insurance claims and make the business more attractive to insurance companies, resulting in lower rates.

During a slow economy, you probably have downtime between projects. Use this time to think about how to improve safety on the next job. Meet with the general contractor to discuss ways to prevent accidents. Meet with the subcontractors who will bid on the work. Ask them about how they will prevent accidents from happening. Take their answers into consideration when you evaluate their bids.

Don’t forget training. A downturn affords you time you didn’t have before to train employees on safety, different types of projects (such as environmentally sensitive jobs), and more efficient work processes. When the recovery comes, you will be in a position to bid on more and different jobs and your safety practices will make you attractive to general contractors.

Along with training, consider replacing outside safety consultants with your own jobsite superintendents. Give the supers the training they need to effectively manage worksite safety. This will give you stronger supers, allow for immediate safety improvements on the job, and save money that would have been spent on consultant fees and higher insurance premiums.

Arrange meetings with the loss control professionals at your insurance company. Ask them to evaluate your worksites, provide training materials, or even to come in and discuss loss prevention with your workers.

If your safety record is already solid, talk to your insurance agent about changing to a loss-sensitive insurance rating plan. These plans, which normally apply to workers’ compensation insurance but can also apply to other coverages, adjust your premium based on your loss experience during the policy term. Very large contractors may want to consider a retrospective rating plan, which bases the final audit premium almost entirely on the contractor’s loss experience during the term. Contractors with sound safety practices stand to benefit enormously from this type of approach.

The economy will eventually rebound. When it does, the companies that were proactive during the slowdown will reap handsome rewards in the form of more contracts, higher revenue and greater profits. By investing in efficiency, safety and training, contractors will be poised for future growth. The economy is at a standstill; your business shouldn’t be.