Mitigating Risk with Insurance and Contract Language Susan M. Olander

Transcription

1 Mitigating Risk with Insurance and Contract Language Susan M. Olander Vice President and General Counsel Federated Rural Electric Insurance Exchange March 6, 2014

2 Contracts with Outside Contractors You have the responsibility for managing contracts with a variety of vendors, both big and small. You see a lot of different contracts cross your desk that are drafted by lawyers for these outside contractors, and management wants you to make sure that the terms in the contract are appropriate and that the cooperative is not at risk for damages caused by the outside contractor.

3 Big Question What language and requirements should be in my contracts to mitigate the risks associated with hiring outside contractors and to ensure that my cooperative is protected?

4 Overview Specific contract terms and conditions Indemnification Certificate of insurance Additional insured Waiver of subrogation Insurance requirements Types of insurance Commercial General Liability Workers Compensation Inland Marine Builder s Risk Professional Liability

5 What is risk? Risk, in insurance terms, is the possibility of a loss or other adverse event that has the potential to interfere with an organization s ability to fulfill its mandate, and for which an insurance claim may be submitted

6 Risk Management What can go wrong? What will we do, both to prevent the harm from occurring and in response to the harm or loss? If something happens, how will we pay for it?

7 Risk Management If something goes wrong, how does the cooperative ensure that it is protected and the contractor is responsible for the liability and costs arising from his performance under the contract?

8 Indemnification An agreement to compensate another party for loss or damage Protection the contractor provides for any losses that occur as a result of the contractor s work Specific contractual obligation

9 Indemnification Key Language [Contractor] agrees to defend, pay on behalf of and hold harmless [Cooperative] and its directors, officers, agents, and employees from all claims of whatsoever nature or kind, including those brought by employees of [Contractor], its agents or subcontractors, including any employees of subcontractors, arising out of or as a result of any act or failure to act, whether or not negligent, in connection with the performance of the work to be performed pursuant to this contract by [Contractor], its employees, agents, and subcontractors. [Contractor] agrees to defend and pay all costs in defending these claims, including attorney fees.

10 Indemnification Key Language Defend, pay on behalf of and hold harmless Cooperative and employees All claims of whatsoever nature or kind Acts or failure to act Whether or not negligent In connection with performance Defend and pay costs, including attorney fees

11 Insurance Requirements - Contract Further, [Contractor] agrees to maintain public liability and property damage insurance (including automobile, public liability and property damage insurance) to cover the obligations set forth above. The minimum insurance limits shall be $ bodily injury and property damage. [Cooperative] shall receive a minimum 30 day notice in the event of cancellation of insurance required by this agreement.

12 Insurance Requirements - Contract Coverages required (standard) General liability, property damage, auto liability, workers compensation, contractual liability Limits required Bodily injury per person/aggregate Property damage Combined single limit Workers compensation statutory limits

13 Insurance Requirements in Contract [Contractor] shall furnish a certificate of insurance to [Cooperative] showing that the above obligations and requirements are provided for by a qualified insurance carrier and showing [Cooperative] as an additional insured on such insurance.

14 Insurance Requirements in Contract Certificate of insurance Verify coverages and amounts Check policy expiration dates and get updated certificates as needed Ensure listed as a certificate holder Notice of cancellation Should receive notice of cancellation 30 days in advance from either the agency or the insurance company This should be spelled out in an endorsement as most of the new certificates of insurance do not have this language

15 Insurance Requirements - Contract Cooperative named as an additional insured Noted on certificate of insurance, but Specific endorsement attached to the policy is the preferred documentation Gives the cooperative rights of the insured with regard to claims

16 Pitfalls in a Contract Inadequate documentation Terms or agreements not contained in the contract but contemplated by the parties All changes should be in writing Waiver of subrogation Failure to enforce Safety violations Work not performed correctly

17 Specialty Insurance Pollution liability Professional liability Patent infringement liability Information security liability Inland marine Builder s risk Off-site repairs

18 Example #1 You hire a paper shredding company to pick up all your paper and dispose of it in a secure manner through cross-cut shredding. You are negotiating the contract and have included an indemnification clause. What insurance coverages and limits do you want the shredding company to maintain?

19 Example #1 General liability Property damage Auto liability Workers compensation Contractual liability Information security liability

20 Example #2 You hire a company to take infrared photographs of your lines to gauge the health of the grid and reduce outages. The company will fly the lines in a helicopter to take these photographs, and one of your employees will accompany them. What insurance coverages and limits do you want this contractor to maintain?

21 Example #2 General liability Property damage Workers compensation Contractual liability Aircraft or non-owned aircraft liability insurance

22 Case Study Contract crew working for cooperative was upgrading electrical distribution lines in city park. Contract crew completed work on a Friday afternoon and was leaving the park when a transformer slid off of the digger truck, landed on the asphalt street and ruptured. The contract crew loaded the transformer back on the truck and proceeded to their own storage area.

23 Case Study Saturday morning, a passing police officer saw the oil spill and identified it as a diesel oil spill. He contacted the local fire department. They arrived and proceeded to wash the fuel spill with high pressure water from a nearby fire hydrant. When the wash down was complete, the police and fire departments left the scene.

24 Case Study On Sunday afternoon, the cooperative became aware of the possibility of an oil spill on the street. On Monday morning, the cooperative obtained an oil sample of the ruptured transformer. The sample tested at 360ppm contaminated.

25 Timeline Friday afternoon transformer slides off and ruptures Saturday morning police notice and call fire department Sunday PM cooperative has first notice of potential spill Monday AM cooperatives takes and tests oil sample

26 Timeline When insurance carrier calls back to the cooperative, the CEO/GM relates that he has an expert and no help is necessary Insurance carrier contacts EPA, who recommends wipe samples and use of a commercial solvent until desired levels are reached

27 Timeline Cooperative CEO/GM contacted again he reiterates he will follow his remediation expert s advice Contractor has no insurance coverage Contractor has no financial resources Cooperative insurance limits for pollution coverage are $500,000

28 Timeline Wednesday AM remediation expert recommends three blocks of asphalt be removed for disposal Friday PM removal is complete 101 tons of asphalt have been removed and sent to Utah for disposal Total cost - $1,100,000

29 Case Study Issues Verbal agreement between cooperative and contractor No written documentation regarding insurance or indemnification Contractor did not have pollution coverage Lack of prompt communication from cooperative to insurance company Lack of communication with EPA

30 Summary Defined risk Specific contract terms and conditions Indemnification Certificate of insurance Additional insured Waiver of subrogation Insurance requirements

31 Types of general insurance Commercial general liability Property damage Auto liability Workers compensation Contractual liability Specialty insurance Pollution liability Professional liability Patent infringement liability Information security liability Inland marine Builder s risk Summary

32 Contact information Questions Susan M. Olander , x103 (office) (cell)