1You Don’t Cry

Over Spilled Milk

(But You May Have to Pay for It)

2Reimbursement

vs Duty to Defend

3Acceptable

vs Unacceptable Commercial

Drivers

(& Why It Matters)

4Top 5 Ways to Reduce

Your Workers’ Compensation

Costs

You Don’t Cry Over Spilled Milk –But You May Have to Pay for It

– By Matt Dinverno, Commercial Insurance Advisor

(See “SPILLED MILK” on page 3)

“Don’t cry over spilled milk” is a phrase I’ve heard hun-dreds of times. I frequent-ly read headlines about large legal settlements over spilled coffee or other per-plexing liability scenarios. As an insurance profession-al, with insurance protection and clients’ exposures on my mind, I think about what would happen if someone did spill milk. Could a com-plex legal system determine that “spilled milk”, the thing I’m not supposed to cry over, is considered a “pollutant”?

The standard ISO General Liability policy covers every cause of loss, unless it is specifically excluded. Unfor-tunately, Exclusion f. within the Coverage section does just that.

The same policy defines Pollutants as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. Waste includes materials to be recycled, reconditioned or reclaimed.

If this is the definition and your current general liability policy excludes coverage for all Bodi-ly Injury and Property Damage arising out of the actual, al-leged or threatening discharge from any site you occupy, rent or own as a result of pollution scenarios, you may be leaving yourself wide open for uncov-ered claims.

Although it seems illogical, milk could be deemed a pol-lutant by ISO’s definitions. Yes, spilled milk is a now a pollution event.

Why does this matter? You are covered – right??

Although certain endorse-ments can provide “give-backs” and add coverage back in, you will need to con-struct your policy to cover le-gal defense, clean-up costs, environmental consultants, business income loss, fees to move tenants or other expenses that impact your business.

Exposures are common. We walk by them every day and

think nothing of them. I know what you are thinking: I’m in property management (con-struction manager, painter, owner of a trucking or recy-cling business), why should I have to be concerned about pollution? Where’s my risk?

Reimbursement vs. Duty to DefendBusinesses purchase insurance to pro-

vide financial protection against ex-posures due to the business operations, employees, and litigation matters. Gener-al liability, property, auto, and work comp are traditional policies - all protect the entity, the commercial business, due to injury or property damage.

Protecting the Executives – For Busi-ness Decisions (Non-Injury Matters)

Executives are able to protect them-selves, individually, for non-injury, non-property damage matters through Directors’ & Officers’, Employment Prac-tices Liability, Cyber Liability, Crime, and other specific insurance products. The policies protect the decisions of the offi-cers, owners, and managers, as well as the decisions made by staff, contractors, and others on behalf of the organization.

Defense in Executive Risk ClaimsInsurance protection for D & O and EPL is offered under two different de-fense options:

1. Duty to Defend: The carrier is contractually required to respond to all claims, will pay expenses and liabilities, and bill the client for their responsible amount (deductible).

2. Right but Not the Duty to Defend (Re-imbursement) Indemnification Policy: The carrier has the right but not the duty to respond to all claims. The carrier will re-view the matter and requires approval for various points of the matter. The carri-er must affirm the firms used for defense, approve of the defense direction, and must approve any and all settlements. The policy is subject to a self-insured re-tention, payable before the carrier will in-cur any costs for defense or settlement.

The majority of smaller companies are offered a “duty to defend” policy by the insurance carriers. The insurance com-pany prefers to control the defense and any discussions, settlements, or denials. Smaller organizations may lack time, re-sources, or adequate ability to handle

such matters. A smaller firm’s involve-ment may unintentionally create a large liability for the insurance carrier above the deductible. Common matters and internal procedures by insurance com-panies allow for efficiency and cost savings in handling matters for smaller companies. The deductible amounts are often minimal.

Larger privately held organizations and publicly traded organizations most commonly purchase coverage on a “re-imbursement” basis. The policy allows flexibility by the client to handle matters under their deductible and more auton-omy with response to frivolous matters or take direct control of matters not covered (fraud, intentional acts). The insurance carrier seeks to be involved in all aspects in the event they are later defending or liable above the retention. The retention amount is often much high-er than a right & duty to defend policy.

Assigning Defense Counsel (Panel Counsel)

Right & Duty to Defend: Generally, most duty to defend policies have the contract assign the right to appoint counsel to the insurance company. Some exceptions are made to this rule, which is custom-arily negotiated at the policy placement/renewal. Panel counsel are used by most insurance companies for these matters. The law firms negotiated reduced rates in exchange for case volume and are of-ten retained as in-house counsel. Inter-nal expenses are greatly reduced with the matters and the firms act as litigation managers for the carriers.

Reimbursement Right but Not Duty: The policies offer more flexibility to the in-sured, as the contract shifts the duty of defense to the insured for the matters. However, the carrier still retains the right to approve the defense counsel. Nego-tiation of the counsel should be done at policy inception, with agreed upon rates and attorneys assigned (outside of con-flict matters). Insurance carriers are in-

creasingly insisting on panel counsel for reimbursement policies as well, citing the cost savings and aligned outcomes for the carrier. Some exceptions to coun-sel assignment at the time of claim can be made, depending on the carrier and circumstances of the claim.

Pros & ConsEach client’s circumstances dictate which option may be best suited for the policies. Each year, cash flow, employ-ee engagement, and outside counsel changes may cause a business to ad-just its policy preferences. Additionally, the insurance carriers and overall insur-ance market conditions may limit what options may be available to the insured. There is not a right or wrong defense op-tion, each have their specific attributes:

Right & Duty to Defend PROS

• Defense and response required by carrier, regardless of the nature (doesn’t guarantee coverage, still subject to terms and conditions of the policy)• Carrier handles all matters and final adjudication proceedings• All costs, expenses, and defense covered by insurance company• Litigation is managed by the carrier through its conclusion

Right & Duty to Defend CONS

• Carrier controls the final determination of settlement, course of action• Some matters may damage reputation of the client but inexpensive for the carrier, causing a business issue going forward for the business• Carrier handles all matters and final adjudication proceedings• Counsel is assigned and controlled by insurance carrier

2 Brown & Brown of Detroit

LOSS SCENARIOS:

• HVAC systems leak fumes into rooms causing sickness, or worse, delaying openings and impacting operation

• Renovation materials or stored chemicals omit odor when stored in your buildings and incapacitate residents and staff

• Liability claims result from transportation of materials while on and off covered premises

• Water run off can be deemed a pollutant to the various portions of the path of the water

• Leaking storage tank or materials leaching on the property

Litigation, clean-up costs, and allega-tions can drag out for years and final numbers are hard to confirm. A.M. Best’s Market Review (Global Insur-ance Credit Ratings & Information Services) reported that the net of en-vironmental expenses in the property and casualty markets in 2012 was $42 billion dollars. Understanding the sce-narios that may impact your business is essential.

Finally, make sure you work with a company that addresses how the li-ability transfers from your underlying policy to the umbrella policy. It is far too common to see a Total Pollution Exclusion with give backs in the un-derlying policy and a Total Pollution Exclusion in the umbrella. That policy construction oversight reduces your available limits in the event of a cata-strophic claim and can be devastating to the business you work so hard to protect.

The next time someone spills milk, think of us, Brown & Brown of De-troit, Inc. We are here and ready to help clean up the policy mess that someone else may have created.

Please contact us at 586-977-6300 for a policy review and pollution coverage analysis.

SPILLED MILK (cont. from page 1)

By: Brian Pilarski, Commercial Insurance Advisor

Reimbursement Right but Not Duty to Defend PROS

• Client retains duty to defend, more latitude under the retention limit• More flexibility in counsel selection (carrier depending, decreasing in 2016-2017)• Carriers have final say but state the client’s preference in counsel “must not be reasonably withheld”• Settlement, under retention, in the right of the client (insured)• Litigation is managed by the client through its conclusion, with carrier involvement

Reimbursement Right but Not Duty to Defend CONS

• Carrier retains the right to refuse defense• No parameters on refusal, only it must not be unreasonably withheld• Client must front litigation costs through the retention• Carrier still must approve any settlements or decisions on the matter, which may frustrate client or counsel• Client must coordinate litigation through adjudication

“Is this driver acceptable?”

“If not, why?”

HIT THE BRAKES:Acceptable vs. Unacceptable Commercial Drivers[ & Why It Matters ]

By: Brian Pilarski, Commercial Insurance Advisor

“They told me they only had one ticket – a couple of years ago!!!”

(See “HIT THE BRAKES” on page 4)

3

A weekly scenario for us and our clients. With distracted driving now the number one cause of accidents, it’s especially important to en-sure you’re hiring safe drivers.

Commercial auto differs from personal insur-ance criteria. A driver is either “in” or they are “out” for eligibility under a commercial policy. No point system or scale of pricing exists with commercial auto insurance. What is accept-able or unacceptable?

Exceptions are made and these are not univer-sal, but most insurance companies employ the following criteria:

UNACCEPTABLE DRIVERS: • Drivers with three or more moving violations in the past 3 years • Drivers with one at-fault accident and one violation in the past 3 years (when not the same incident)

• Drivers with a suspended or expired license • Drivers with any serious violation in the past 5 years. Serious violations include, but are not limited to:

▶ OUIL/OWIL/DWI/DUI – driving while impaired or under the influence of drugs or alcohol ▶ Careless/reckless driving ▶ Excessive speeding (20+ MPH over) ▶ Leaving the scene of an accident ▶ Driving while license suspended or revoked ▶ Using a motor vehicle for the commission of a felony ▶ Other violations considered serious by state laws ▶ Drug crime

Insurance costs are top of mind for all compa-nies. The expense and the hassle of insurance often creates a dislike for the process neces-sary to best manage the program. At times, companies don’t feel they have much control over the cost, which it is a variation of market forces they don’t believe they can influence.

Workers’ compensation is one line of insurance coverage where employers have a great deal of control over the final cost they pay for the insurance. There are multiple opportunities throughout the year to directly reduce costs on the insurance, both short term and long term.

Workers’ compensation coverage is mandated by the federal government, with the authority and administration delegated to each individ-ual state. The nuances of these state varia-tions is another topic of discussion, for now, we will talk about the ways to save costs and control your “price destiny”.

1. PROPER CLASSIFICATION: Many auditors closing out a work comp year have overly interpreted classification rules, often taking an engineer and making them an industrial code because they walked into the production area. Talk with your agent to ensure the common-sense approach is used to properly classify your work force and pre-pare for the audit questions. The rate differ-ence could be as much as 200% higher from office to shop.

2. TRAINING & AWARENESS: When hiring a new employee, the training and use of all safety procedures will help es-tablish best practices. The first impression of safety will set the tone for the job, provid-ing a sense of seriousness to the workplace. Awareness training, reminders, and on the spot correction of safety violations should be continuous to keep the employee cognizant of hazards. This awareness will help avoid mindless injuries (and therefore costs).

A general statistical rule in risk management: 600 near misses equates to 10 minor claims and leads to 1 major claim. Awareness elimi-nates the 600 near misses, lowers the minor, and helps prevent the major claims.

3. CLAIMS MANAGEMENT:In the event an injury occurs, properly man-aging the claim can reduce costs of that claim by as much as 60%. Prompt management of the injury or illness means insisting that care be sought immediately, and reporting to the carrier and risk manager in a timely manner. During the recovery period, communication with the injured employee is a must, with light duty work alternatives the best way to engage the employee and keep compensa-tion costs down. 4. EXPERIENCE MODIFICATION MANAGEMENT (EMR):The claims experience, payroll, and class codes all intersect in a formula that applies a pricing factor to companies’ premium costs. The formula has many nuances that allow em-ployers decision-making authority on ways to better manage the factor and provide a pos-itive impact to their work comp costs. Work with an agency that can offer mod manage-ment techniques. Brown & Brown of Detroit clients who have made decisions with mod management in mind have saved $250,000+ in premium over a 3-year period of time.

5. CULTURE:Collectively implementing steps one through four will create a “safety culture” amongst your team. The attention to the safety, claims, and management of the work comp program will show the team the company takes this seriously. The well-being of the employee is most important- after all, everyone wants all employees to get home safely each day. The attention to detail and open communication will show the team, by example and action, that workplace safety is taken seriously.

To learn more about cost saving strategies on workers’ compensa-tion for your organization, please contact us or visit our website to readabout our consultative approach to insurance solutions.

(586) 977.6300www.bbdetroit.com

TOP 5 WAYS TO REDUCEYOUR WORKERS’ COMPENSATION COSTS

HIT THE BRAKES (cont. from page 3)

What’s the Big Deal? Negligent Entrust-ment of an Auto Hiring employees with good driving records goes beyond being able to easily insure them. An organization can be found guilty of negli-gent entrustment for allowing someone with an unsafe driving record to operate a com-pany or personal vehicle while on company business. This could have serious legal and financial ramifications for the company, so it’s extremely important to have a formal driver safety program implemented.

Negligent entrustment of an auto is a cause of action in tort law where one party is held liable for negligence because they “negligently” provided another party with a dangerous instrumentality. The doctrine of law is as follows:

Plaintiff (injured party) who invokes that doctrine must present evidence which creates a factual issue whether the owner knew, or had reasonable cause to know, that he was entrusting his car to an unfit driver likely to cause injury to others. Furthermore, in order to impose liability upon the owner, the plaintiff must prove that the negligent entrustment of the motor vehicle to the tortfeasor was a proximate cause of the accident

To help our clients avoid legal issues sur-rounding drivers, we help facilitate driver hir-ing programs along with ongoing policies to impose current drivers adhere to the proper driving standards. Highlights of our program could include:

• Checking driving records of all potential new hires • Annually check the driving records of any employee who may drive for the company in any capacity (company OR personal vehicle) • Implement safe driving training/ education • Maintain consistent discipline standards when driving violations occur, in a company driving policy

We can help companies control this emerging risk. Contact a Brown &

Brown of Detroit Advisor at (586) 977.6300 to learn more about

protecting your business.

By Brian Pilarski, Commercial Insurance Advisor

We were pleased to bring you the latest issue of The Advisor. We hope you found this newsletter interesting and informative. If you have any questions or topics that may interest you for our next issue, please contact us at:

Brown & Brown of Detroit35735 Mound Road, Sterling Heights, MI 48310

Ph: (586) 977-6300 • www.bbdetroit.com4