VIEWS KEEPING OUR EYES ON THE BALL REAL ESTATE AND HOTEL PRACTICE TABLE OF CONTENTS

Transcription

1 REAL ESTATE AND HOTEL PRACTICE VIEWS April KEEPING OUR EYES ON THE BALL The excitemet of ay game is i its upredictability. I busiess as i life, upredictability most ofte precipitates cofusio ad axiety. By keepig our eyes o the ball, we ca better avigate what may seem more like a mie field tha a playig field; we ca make wiser shortterm decisios that will serve as the foudatio for a successful log-term strategy. I this editio of Views, our experts provide our readers with actioable iformatio to help them stay ahead of the ucertaities of the game. The soft isurace market is expected to cotiue for the ear term, which is good ews for our cliets. Although predictios vary, the cosesus is that the 2010 hurricae seaso is expected to have above average activity due to weakeig El Niño coditios. Rob Lae, our Willis Bermuda cotract wordig expert, will address the issues ad advatages of cosiderig puitive-wrap coverage for such lies as excess liability ad employmet practices liability. Cyber Risks impact real estate, especially i the hotel sector which has custody of cosumer credit iformatio. Thomas Srail poits out that rectificatio costs are ot isigificat ad that isurace coverage specific to Cyber Risks loss exposures eeds to be cosidered. New this editio is the first of a series of articles o property loss issues authored by our property claim expert, Dave Passma. Our Willis evirometal expert, Mike Balmer, will address evirometal risks associated with real estate costructio ad reovatios. Tom Pegg of the Strategic Outcomes Practice completes this editio by alertig us to the severity ad meas of prevetio cocerig potetial employee ad third-party bodily ijury that ca result from arc flashes emitted by electrical power equipmet preset o most real estate property. We recogize that i 2010 our cliets will cotiue to focus o cotrollig costs ad positioig themselves to take advatage of the opportuities that cotiue to evolve. We will also all be tryig to figure out how govermet policy ad private eterprise will coverge to address the $1.4 trillio i commercial real estate fiacig that will mature betwee ow ad We believe that the resources ad stregths of the Willis Real Estate ad Hotel Practice alig with the eeds of our cliets as we keep our eyes o the ball, so our cliets ca keep theirs o the prize: safety ad security for themselves ad their customers. Bria Ruae ad Steve Sachs Natioal Practice Leaders Real Estate & Hotel Practice Willis North America TABLE OF CONTENTS Keepig Our Eyes o the Ball 1 Market Treds Update 2 The Isurability of Puitive Damages 3 a Primer Property Claims Pitfalls Isurig 4 to Value Credit Cards ad Data Breaches: 6 What Every Hotel Should Kow 2010 Hurricae Seaso 8 Pollutio Exposures ad Solutios 9 You Have t Cosidered Arc Flash 11

2 MARKET TRENDS UPDATE I a world where ucertaity ad chage ofte seem to be the oly thigs we ca cout o, the curret soft isurace market remais remarkably uchaged. We do ot believe the earthquakes i Haiti ad Chile, although tragic, or the storms i Europe i the first quarter of this year, will affect the tred toward decliig rates. MarketScout recetly reported that the soft market exteds ito 2010 as commercial rates keep fallig. The report oted that premiums were dow a average of 4% i both Jauary ad February ad our ow experiece with Jauary ad February reewals supports this assessmet. 1 The report oted that eve Directors & Officers isurace (D&O), which has bee rocked by the may suits that ca be expected to follow a ecoomic dowtur, is, for the first time i several moths, showig a rate declie. We see D&O rates fallig i particular for accouts that sustaied icreases i the last quarter of 2008 ad the first quarter of As the ecoomy has begu to recover ad the deleveragig process cotiues, the outlook is brighter for may real estate accouts ad isurace rates decliig o a year-over-year basis is a welcome part of that improvemet. At this poit it is difficult to predict precisely the impact o property rates ad capacity of the Chartis decisio to reduce capacity, o a accout-by-accout basis, for catastrophe perils. We will cotiue to moitor the situatio ad advise our cliets accordigly. The uderlyig reaso for the cotiued soft market remais uchaged: the supply of isurace. The idustry surplus was recetly estimated at $516 billio is more tha adequate to aswer the decreased demad resultig from the global ecoomic dowtur. The uderlyig reaso for the cotiued soft market remais uchaged: the supply of isurace. The idustry surplus recetly estimated at $516 billio 2 is more tha adequate to aswer the decreased demad resultig from the global ecoomic dowtur. Put aother way, good results for isurers are traslatig ito good ews for buyers: P&C cosolidated et icome through the first three quarters of 2009 improved to $16.9 billio, up from $4 billio through December Losses o uderwritig, at $19.8 billio through year ed 2008, dropped to $3.2 billio through Q The combied ratio for the first three quarters of 2009 improved to 100.7, dow from at year ed Isured catastrophe losses, through September 30, were estimated to be $22 billio i 2009, dow from $50 billio i No sigle loss caused more tha $3.1 billio i isured losses i I all, 2009 was a relatively quiet year for cat losses. 6 Reisurace rates, which ofte are a idicator of primary isurace treds, are softeig. 7 Some observers maitai that the market will harde i the comig year, ad while we disagree, we recogize that a major surplus-depletig evet could chage idustry dyamics virtually overight. Those who see a hard market o the horizo also poit to a recet report suggestig that oe of AIG s core isurace lies eeds billios more i reserves. The report oted, however, that whe AIG is excluded from the idustry data, all other compaies appear to have more tha eough reserves. 8 The buyer s market will persist i 2010 ad isureds will cotiue to reduce their cost of risk always a plus, but especially so i a time whe the primary focus is o ecoomic recovery. 2 Willis North America 4/10

3 THE INSURABILITY OF PUNITIVE DAMAGES A PRIMER Few thigs stoke greater fear i risk maagers tha ruaway puitive damages jury verdicts. The fear is well fouded, especially whe you add the difficulty i isurig such exposures. The potetial impairmet to a compay s balace sheet is very real. This article will discuss some of the products available ad touch o the advatages ad/or disadvatages of each i mitigatig this exposure. A. THE BERMUDA OCCURRENCES REPORTED FORM Puitive damages have historically bee icluded i the Damages defiitio of the Bermuda Occurreces Reported form ad, thus, historically have bee cosidered idemifiable uder the form. Such automatic puitive damages coverage has log bee cosidered a true advatage of purchasig coverage uder the Bermuda Form. B. THE PUNI-WRAP POLICY Sice the early 90s, Bermuda-based carriers have also offered policyholders a separate stad-aloe policy to protect them agaist awards for puitive damages where the domestic wrapped policy is otherwise prohibited from providig puitive damages coverage due to applicable statute, regulatio or case law. This policy, commoly referred to as the pui-wrap policy, is offered o a idemificatio basis ad is triggered by a judgmet i a court of law. Paymets made uder the domestic wrapped policy erode the limits of the pui-wrap policy. As such, the pui-wrap policy does ot provide a isured with additioal limits or coverage per se, but merely fills the coverage gap for puitive damages verdicts i those 20 or so states i which puitive damages are otherwise deemed uisurable. The Bermuda Occurreces Reported form does ot require a wrap, as coverage for puitive damages is otherwise afforded by the cotract. The wrap policy is offered oly as a complemet a gap-filler so to speak to a domestic policy that is otherwise prohibited from offerig such coverage. This pui-wrap alterative is offered by various excess isurace carriers Bermuda facilities; i.e. ACE (ACE Bermuda), Chubb (Chubb Atlatic), Chartis (Chartis Bermuda), XL (XL Bermuda) ad others. While there have oly bee two or three paymets made to date uder the Bermuda pui-wrap policies, there is equally o evidece to idicate that a Bermuda-based isurer has bee uable to idemify a isured for puitive damages due to some regulatory or legal prohibitio. Nevertheless, give this lack of precedet ad the recet heighteed regulatory scrutiy placed upo the isurace idustry, policyholders ad carriers alike have looked to alterative ways to isure agaist the ruaway puitive damages verdict. C. THE MOST FAVORABLE JURISDICTION ENDORSEMENT Oe such alterative ow beig offered by several domestic carriers is the Most Favorable Jurisdictio Edorsemet, which is iteded to allow the cotractig parties to choose the law of the jurisdictio most favorable to the isurability of puitive damages for purposes of determiig coverage for such puitive damages. Domestic carriers have bee largely successful i securig regulatory approval of such edorsemets ad have touted the edorsemet as a viable cotiued o page 4 3 Willis North America 4/10

4 cotiued from page 3 alterative to the pui-wrap policy. But is it? Ideed, ca two parties, otherwise subject to the laws ad regulatios of the U.S., cotract to apply the law of a specific jurisdictio simply for purposes of avoidig the prohibitio agaist the isurability of such damages by whichever court they fid themselves i? Oly time will tell. As a threshold matter, the edorsemet is offered at o additioal premium. Nothig i life is free the fact that it comes at o additioal premium may speak volumes about the edorsemet s value. Moreover, the edorsemet fails to take away the ucertaity of whether puitive damages would be covered by the policy what is meat by the laws of ay jurisdictio that is most favorable to the isurability of such damages? While regulators have approved it, it has yet to be iterpreted by a court of law, so the questio remais: will the product actually work? The Most Favorable Jurisdictio Edorsemets curretly available vary slightly from carrier to carrier; however, several of them cotai laguage statig that coverage may ot be available if a court of law i the jurisdictio i which eforcemet of the policy is sought does ot recogize such coverage. This laguage aloe potetially guts ay coverage otherwise offered by the edorsemet because it provides the carrier a automatic out o coverage as it seems to give complete discretio back to the courts. CONCLUSION As brokers ad cosultats to our risk maagemet cliets, we are tasked with assessig risk ad fidig viable isurace solutios for them. While the likelihood of beig hit with a puitive damages paymet, which caot be appealed away or reduced, is very small, the risk remais. Ideed, abset explicit puitive damages coverage, the policyholder has a iheret ad idetifiable gap i coverage, i.e., i those 20 or so states i which puitive damages are deemed uisurable. To those risk maagers who ask is there value i purchasig a pui-wrap policy? we say simply that i the ulikely, but possible, evet your compay gets hit with a puitive damages verdict ot otherwise isurable, we would ot wat to be i the shoes of the oe advisig the board that well we have a $20M verdict agaist us for which we re ot isured. If I m a board member, the first questio that comes to mid is, Could we have bee? Is there isurace for such a thig? The aswer is yes ad the ramificatios of such a situatio would likely be ucomfortable for the messeger. For more iformatio cotact Robert N. Lae, Esq., Claims & Coverage Practice Leader, Willis (Bermuda) Limited at , robert.lae@willis.com. PROPERTY CLAIM PITFALLS INSURING TO VALUE After a loss, a isured s expectatio is that they will receive the correct valuatio of the loss ad damages from their isurace compay. Developmet of that correct loss value ca take a lot of work ad effort by the isured ad their cosultats as well as the isurace compay adjusters ad their experts. But the expectatio is a two-way street the isurer expects that a correct value for the property at risk has bee reported before the loss so they ca calculate a proper limit of liability as well as a appropriate premium. Although the isured has a moral obligatio to report correct values ad has the tools (such as appraisals ad idexes) to do so, quite ofte the impact of iaccurate value reportig is ot realized util after a loss occurs, ad the it is too late to rectify. Although Blaket Limits of Liability for isurig multiple properties uder oe policy is usually cosidered the most appropriate methodology, questios regardig the reportig of correct values ca still arise followig a loss. Over the years, isurace compaies have developed various clauses cotaied i their policies which may limit their liability ad claim paymet if they determie after the loss that the isured property sustaiig the loss i fact was uderisured. The traditioal method isurers have utilized to esure a isured has reported correct values is the coisurace percetage. Coisurace is a policy coditio stated as a formula that requires a isured to maitai a certai percetage of isurace to value, ad ot maitaiig it could reduce the recovery after a loss has occurred. It is ot uusual for cotiued o page 5 4 Willis North America 4/10

5 cotiued from page 4 policies to require a isured to maitai 80%, 90% or eve 100% isurace to value. Aother more subtle ad more recet methodology isurers employ is the margi clause. A margi clause allows the isurer to pay up to a pre-agreed percetage over ad above the reported value. Margi clauses are usually 110%, 125% or could eve be as much as 150% of the reported value. At first blush, oe might cosider a margi clause to be beeficial ad a gift from the isurer. But as we said before, othig is free. A margi clause is actually a policy restrictio a isured eeds to be aware of. EXAMPLE The blaket limit for the five buildigs beig isured is $10 millio. Policy valuatio for real property is o a replacemet-cost basis. A buildig with a reported value at policy iceptio of $2 millio burs to the groud ad is determied to be a total loss. The margi clause is 110% ad the actual replacemet cost at the time of loss is determied to be $2.5 millio. Uder a blaket policy with o other qualifyig clauses, the isured should recover the full $2.5 millio replacemet cost, subject to the applicable deductible, of course. Uder a policy with a 110% margi, the isured will oly recover their reported limit of $2 millio, plus the 10% margi of $200,000 for a total of $2,200,000 ad will fid themselves with a shortfall of $300,000 before applicatio of deductible. A third methodology sometimes utilized is the occurrece limit of liability. This clause states that eve if the policy cotais blaket limits over all the properties beig isured, the isurer will pay the least of the followig: the adjusted loss, the total of reported values o the applicable statemet of values preseted to ad o file with uderwriters, or ay other amout subject to applicable limits or sublimits, such as a per-occurrece limit. Agai, uder a blaket policy if the loss amout is i excess of the reported value ad there are o other limitig factors, recovery will be limited to the reported value. O may occasios, Willis has bee able to have the uderwriter delete the reported value limitatio from the policy. Although most cliets uderstad their obligatio to report values i a accurate fashio, there are circumstaces which may preclude 100% compliace. After a log ad sometimes difficult loss adjustmet, o oe wats the surprise of fidig their recovery reduced by a amout due to iaccurate value reportig at the iceptio of the policy or whe the property is added to the existig policy. For more iformatio cotact David J. Passma, Natioal Director Natioal Property Claims, Strategic Outcomes Practice at , david.passma@willis.com. Developmet of that correct loss value ca take a lot of work ad effort by the isured ad their cosultats as well as the isurace compay adjusters ad their experts. Although the isured has a moral obligatio to report correct values ad has the tools (such as appraisals ad idexes) to do so, quite ofte the impact of iaccurate value reportig is ot realized util after a loss occurs, ad the it is too late to rectify. 5 Willis North America 4/10

6 CREDIT CARDS AND DATA BREACHES: WHAT EVERY HOTEL SHOULD KNOW DATA AND PRIVACY RISK WHAT ARE THE RISKS TO HOTELS? The iformatio age is all about iformatio: who has it, who eeds it, who wats it. Ad who wats it may ot always be parties etitled to it or who pla to use it i appropriate ways. Thus the terms idividual privacy ad persoal data strike a erve with risk maagers, GCs ad IT maagers. Of all the iformatio risk exposures data breaches, busiess iterruptio due to viruses, worms or hacker attacks, cyber extortio ad techiques such as phishig theft of persoal iformatio poses oe of the most worrisome ad potetially costly risks to hotels ad property maagers. Accordig to a recet report from Trustwave, 38% of its breach-ivestigatios i 2009 occurred at hotels, the highest of ay idustry. The most commo weakess exploited by attackers was security aroud poit-of-sale software. Several recet hotel breaches have bee publicized, icludig: Missig backup tapes for global hotel operator cotaiig 206,000 credit card ad Social Security umbers Major hotel chai aouces hacker accesses 480,000 credit card umbers Hacker steals data o 50,000 resort guests (icludig SSN, CCN ad bak accout umbers) Direct costs for a hotel breach, accordig to Poemo s 2009 U.S. Cost of a Data Breach Study, are $60 per breached record. The above losses ca be estimated from $3M to $28.8M. May hotels do the majority of their bookig olie. Compaies that egage i olie bookig gather persoal ad fiacial data i the process ad, as secure as a etwork or website might be, the collectio ad storage of persoal data carries uavoidable risks, such as: Privacy class actios from disclosure of cofidetial iformatio Travel agets ad other busiess parters ot able to complete systems-based trasactios Icome loss due to system breaches IT vedor failures or breaches Network ad privacy extortio threats Privacy regulatory actios, fies, pealties ad defese costs Credit moitorig ad otificatio costs followig privacy breaches INDUSTRY STANDARDS AND PRACTICES All orgaizatios processig credit card trasactios are required to comply with the PCI-DSS (Paymet Card Idustry-Data Security Stadard) process that tests their security stregths ad vulerabilities ad lays out a compliace program timelie. Hotels have a added layer of complexity, where your guests persoal iformatio, icludig credit/paymet card data, is shared/hadled by reservatios, property maagers/owers, frachisees, third-party paymet processors/baks ad others. Resposibility for a breach of private data may exted to multiple orgaizatios ad ivolve claims or suits betwee them. A hotel brad may also choose or recommed the poit-of-sale systems, paymet card processors, security vedors, etwork providers, ad reservatios/property maagemet systems for its frachisees/idepedet owers. These recommedatio/requiremets may be the basis for suits/claims i the evet of a data breach at a oowed locatio. cotiued o page 7 6 Willis North America 4/10

7 cotiued from page 6 RECENT LEGISLATION Recetly, legislators have madated steps that must be take to protect customer privacy ad cofidetiality. Federal, state ad local legislatio has set stadards, ofte striget, by which adequate protectio of electroic persoal iformatio ca be measured. The legislatio icludes: Gramm-Leach-Bliley Act (GLBA) madates security ad privacy stadards for fiacial trasactios. U.S. State Security Breach Notificatio laws require otificatio to idividuals affected by the release of cofidetial iformatio. State cosumer statues are utilized as the basis of privacy litigatio. EU Privacy Directive sets stadards for data sharig for EU atios. FACTA U.S. cosumer class actios, paymet card maskig requiremets. Miesota has established a law shiftig the fiacial resposibility for credit card security breaches to merchats o a strict liability basis. Five other states have similar legislatio pedig. Nevada ad Massachusetts have ew data-protectio laws addig additioal privacy requiremets ad obligatios. Hotels have a added layer of complexity, where your guests persoal iformatio, icludig credit/paymet card data, is shared/hadled by reservatios, property maagers/owers, frachisees, third-party paymet processors/baks ad others. Resposibility for a breach of private data may exted to multiple orgaizatios ad ivolve claims or suits betwee them. The cost ramificatios are cosiderable. I additio to the sigificat expese of the breach otificatio effort, hotels could be faced with the cost of providig credit moitorig ad call ceters to respod to iquiries. I some cases, hotels must cofrot class actios from lawyers who treat the otificatios as admissios of wrogdoig. GAPS IN YOUR CURRENT INSURANCE PROGRAM Most traditioal isurace policies do ot respod to these specific risks. Gaps ad exclusios i your Liability, Professioal, Frachise E&O, Commercial Crime, Property ad Media policies may ot provide you the eeded coverage for these ad other cyber evets. A thorough policy gap aalysis o your traditioal programs ca determie the extet of these coverage gaps. EXPANDED PRIVACY INSURANCE The isurace market has respoded to the chagig privacy exposures. Policies ca ow cover: Civil liability from failure to protect cofidetial iformatio i ay form or from ay media Negliget or itetioal release of persoal or corporate cofidetial third-party iformatio Customer or employee credit moitorig costs IT service provider data breach Public relatios expeses Defese costs, fies ad pealties icurred due to regulatory actios Cliet or customer privacy otificatio costs cotiued o page 8 7 Willis North America 4/10

8 cotiued from page 7 Protectio from the risks ad liabilities iheret i etwork computig through the use of techological safeguards, user traiig ad adherece to best practices form part of the equatio. Protectig your busiess fiacially is a equally critical step. A recommeded pla of actio: Review your techical ad iformatio security policy safeguards. Examie your curret isurace programs for coverage gaps. Review ad stregthe your cotracts with service providers ad vedors, specifically orgaizatios providig POS, paymet card, IT or security services. Review your cotracts with property maagers, frachisees, ad operators. Uderstad who is resposible for securig iformatio throughout the process. Desig a isurace policy that addresses your ucovered privacy ad etwork risk exposures. For more iformatio cotact Thomas Srail, Willis Executive Risks, E&O/Iformatio Risk Team at , tom.srail@willis.com HURRICANE SEASON Atlatic Basi hurricae activity is predicted to be above average accordig to Philip Klozbach, William Gray ad their colleagues at Colorado State Uiversity (CSU). I CSU s April 7, 2010 update, they predict that ext year s hurricae seaso will brig 15 amed tropical storms ad eight hurricaes, of which four could be major. The probability of at least oe major hurricae (Category 3+) strikig the U.S. has bee set at 69%. The followig table compares the updated 2010 forecast to the 2009 actual activity ad 50-year average (04/10) 2009 Actual Avg. TROPICAL STORMS HURRICANES MAJOR HURRICANES The CSU team expects dissipatio of the curret El Niño evet ad cotiuig warm tropical ad North Atlatic sea surface temperatures to cotribute to a more active 2010 seaso compared to 2009, which experieced the lowest storm totals i over a decade. The updated 2010 forecast is available by clickig here. Revised 2010 forecasts will be made o Jue 2 ad August 4. Twoweek forecasts will be issued durig the peak of the hurricae seaso from August to October of All forecasts will be posted ad available by clickig here. 8 Willis North America 4/10

9 POLLUTION EXPOSURES AND SOLUTIONS YOU HAVEN T CONSIDERED You ve heard from us i previous publicatios about the site pollutio exposures that haut may real estate owers, ad you ve most likely read pollutio claim examples that would cause cocer for ayoe who ows or operates commercial real estate, but what does it all mea? How does it traslate to takig meaigful steps to esure your compay is ot featured i the ext ifamous headlie? Asbestos, mold, lead-based pait, udergroud storage taks, storage of hazardous materials these are all traditioal exposures for hotel ad other real estate owers, ad while it is importat to ote that site pollutio policies are readily available to address them, the purpose of this article is to illustrate oe particular area of exposure you may ot have cosidered ad offer risk maagemet solutios to address these exposures. CONSTRUCTION/RENOVATIONS AND ENVIRONMENTAL RISK Reovatios are sometimes performed i oe part of the facility while other sectios remai operatioal. This icreases the risk of spreadig cotamiats to occupied sectios of the structure. Negligece by the cotractor or by oe of your employees could create a toxic situatio for guests or other third parties visitig your site. Additioally, actios to remediate or remove cotamiats could sigificatly impact operatios ad ca result i sigificat busiess iterruptio. EXAMPLE Cosider this case of Legioaires at a office complex. Substatial reovatio ad repair work was completed at a office complex. A large demad (over $1M) was made to the ower for bodily ijury sustaied by a busiess visitor who claimed to have cotracted Legioella while i meetigs over the course of a few days. Ivestigatio revealed that it was uclear whether or ot the complex s potable water system had bee chloriated prior to its opeig. Followig are some methods of maagig the evirometal risks which ca be ecoutered durig costructio or reovatio activities: OWNER CONTROLLED INSURANCE PROGRAM CONTRACTOR S POLLUTION LIABILITY (OCIP-CPL) If you are the ower of a site that will be udergoig sigificat costructio or reovatios, a OCIP-CPL ca be a useful tool i mitigatig certai cotractor-related risks. This policy covers the project ower ad all cotractors workig o a specific project ad provides coverage for bodily ijury, property damage ad clea-up costs for pollutio coditios geerated by the project. The pollutio coditio could arise from a exacerbatio of a ukow pollutio coditio or the creatio of a ew pollutio icidet at the job site. The policy icludes coverage for coditios o, uder or migratig from the job site. OCIP-CPLs are a preferred risk trasfer tool i the costructio risk maagemet area because: Havig owership cotrol of the policy gives the ower the luxury of kowig what limits are actually i place o the project versus relyig o the cotractors policies, which may have blaket aggregate limits rather tha project-specific dedicated limits. Whe a cotractor has a blaket or aggregate limit o their CPL policy, their other projects could suffer CPL losses that would result i lower CPL limits available for your project. Havig a OCIP-CPL policy with limits specifically dedicated to a specific project provides the comfort of kowig what limits are available at all times. This approach also puts the ower i the positio of kowig exactly what coverages are provided by the CPL policy rather tha hopig that the idividual cotractors CPL policy refereced o a certificate of isurace actually meet the coverage specificatios icluded i their cotract. Whe the project ower is the first amed isured, they ca esure compliace with policy coditios that are precedet to coverage, thereby ot relyig o others to fulfill these obligatios. All cotractors ad subcotractors of every tier are covered o a blaket basis. Policy premium costs ca be trasferred to cotractors ad subcotractors via deducts from their proposed costs which would have icluded CPL expese. cotiued o page 10 9 Willis North America 4/10

10 cotiued from page 9 Obviously, purchasig a OCIP-CPL policy provides the greatest measure of protectio for a ower of a site udergoig sigificat reovatio or costructio, but if that is ot a optio, other evirometal risk maagemet solutios iclude: Isist that all cotractors participate i a project-specific CPL policy obtaied by the geeral cotractor. Issues to cosider with this optio are: Ower is uable to egotiate ad secure specific types of exposures (i.e., Legioaires, mold, specific retetios). The ower ca request additioal isured status ad Waiver of Subrogatio i favor of the ower, but there could be a added cost for that, at the GC s discretio. The ower should also request that certai coverage extesios, such as trasportatio ad o-owed disposal sites coverage are icluded, but will be uable to determie by a simple review of the Certificate of Isurace (COI) if the coverages provided by the project-specific CPL are adequate. Esure the ower s iterest is covered o all cotractors blaket CPL policies. Issues to cosider with this optio are: Limits ca be exhausted by cotractors other work as detailed above, so the ower should review the certificate of isurace issued, request loss rus, ad request all cotractor s lists of work o had to determie if limits of the CPL appear adequate to cover all of the work beig performed. Agai, the ower ca request additioal isured status ad Waiver of Subrogatio i favor of the ower, but there could be a added cost for that, at the idividual cotractor s discretio. The big issue with this approach is that most cotractors ad their subs will iclude a charge for providig the requested coverage uder their blaket CPL policies, so this ca be a costly approach that provides less project-specific protectio. SITE POLLUTION POLICIES I order to most fully protect the ower from the Legioaires sceario described above ad other site-related risks, i additio to obtaiig CPL coverage, it would be prudet to cosider purchasig a site pollutio policy that would expressly iclude coverage for Legioaires ad also iclude coverage for Busiess Iterruptio. Aother reaso for cosiderig a site pollutio policy is that a CPL does t provide coverage for pre-existig pollutio coditios discovered durig costructio activities uless the pre-existig pollutio coditios are exacerbated by the cotractor s actios. A site pollutio policy ca be structured to provide coverage for pre-existig ukow coditios discovered durig the costructio process. There are may methods available to protect the iterests of a site ower from evirometal risks durig a costructio project. Willis team of evirometal risk specialists are available to first, assist you i risk idetificatio ad quatificatio ad secod, help you select the most beeficial risk maagemet tools to address those risks. For more iformatio, please cotact Mike Balmer, Evirometal Practice Leader, , michael.balmer@willis.com. 10 Willis North America 4/10

11 ARC FLASH The New Hampshire Uio Leader recetly reported that a cotractor s employee ispectig a breaker pael at a shoppig mall suffered secod- ad third-degree burs o his hads, face ad chest due to a fire. The fire forced the evacuatio of the mall ad the temporary closure of most of its stores for the rest of the day. The fire ad ijury to the cotractor s employee was due to a arc flash, the cause of which is still uder ivestigatio. The ijuries could have bee more severe if the perso ijured had ot bee wearig protective clothig. 9 Arc flash geerally refers to the dagerous exposure to thermal eergy released by a arcig fault o a electrical power system, ad i recet years, arc flash hazards have become a promiet safety issue i may idustries. Resultig temperatures ca reach 35,000 degrees Fahreheit. Approximately 2,000 workers are admitted aually to bur ceters to receive treatmet. The cost to employers ad isurers ca approach $10 millio for oe serious ijury. A Willis Techical Advisory Bulleti issued i July 2008 focuses o the causes ad meas of prevetio for this potetially severe employee ijury exposure. For more iformatio cotact Thomas F. Pegg, CIC, Strategic Outcomes Practice - Claim & Risk Cotrol, , tom.pegg@willis.com. CONTACTS Bria Ruae Director bria.ruae@willis.com 1 Soft Market Exteds Ito 2010 As Commercial Rates Keep Fallig, Natioal Uderwrite Property & Casualty, February 22, Pullig Away from the Pack, Barro s, Jauary 18, P&C Idustry Net Icome Makes Dramatic Turaroud, Natioal Uderwriter, December 22, Ibid. 5 Ibid. 6 Natural Catastrophe Losses Decrease i 2009: Muich Re, Busiess Isurace, December 29, Orderly Softeig, Willis Re: 1st View, December 30, Report Cites Big Shortfall i Reserves at AIG, The New York Times, November 30, Mall evacuated whe fire erupts ear food court, New Hampshire Uio Leader, March 13, Steve Sachs Director steve.sachs@willis.com DISCLAIMER Willis is a isurace cosultig ad brokerage firm. We are ot attoreys ad this publicatio is ot to be cosidered legal advice. Please cosult with your attoreys prior to icorporatig ay of our suggestios ito a actual cotract or agreemet. 11 Willis North America 4/10