Property Casualty Insurance

Insure the machine and the money

For those of you who are in a dealership trade or manufacturing trade, take a minute think about each of your locations as an ATM machine that spits out a certain amount of dollars every single day. These dollars are used to pay for expenses like employee salaries, rent or mortgage payments, accounts payable, advertising, and anything that is not spent is profit that you get to keep in your pocket.

Most insurance policies will rebuild your ATM machine if it is damaged or if it burns down, but many owners fail to think about insuring the dollars that get pumped out of the machine each day. Without that steady stream of income, where will the money come from to pay the employee’s salaries while you are rebuilding?

Business income coverage is supremely important to businesses like grocery stores, auto dealerships, machine shops, and building material dealers – types of businesses that have a heavy revenue burden at the business location. In contrast, specialized contractors like plumbers, HVAC, and electrical contractors for example don’t need this coverage since they drive most of their income from jobsite’s away from the insured building. If a machine shop burns down, they are effectively out of business. But if an office of a plumbing contractor burns down, they can operate out of their truck until they can find a new location to set up.

There are some key things to think about when evaluating the business income needs of your business.

First, what limit do you need?

It’s important to take a look at your P&L and Balance Sheet when making this decision. If all of your revenue is brought in through a retail or manufacturing location then you should consider unlimited coverage or a limit of “actual loss sustained,” to insure you’re made whole after a loss.

Secondly, what is your deductible or coinsurance cost?

Each carrier treats their business income policy a little bit different. By reading the fine print, you will find that some carriers add endorsements to this policy that states you may be liable for a certain portion of the claim via a deductible or coinsurance.

Third, if you have multiple buildings or locations, does the policy blanket the coverage?

Blanketing means that each building is covered under a single limit. Blanketing can be by location, with all buildings at one address under one blanket, or it can have a blanket on the entire policy with all locations included. In some instances, you will find very small limits on buildings that should have a bulk of the limit applied.

In summary, many generic policies will have a small business income limit tied to their property coverages, but it’s certainly a smart move to ask for more. The cost for blanket actual loss coverage is a fraction of the total property insurance cost and its benefits far outweigh the investment. In my opinion, insure the money machine and the money it produces.

 

I recently partnered with a Machine Shop in Marion North Carolina that specialized in machining parts under 10 inches in diameter and in a tight tolerance grouping. After completing a policy audit, my team and I found that their new agent had changed the work comp code they were classifying themselves in when he signed up their account last year.

I don’t generally point fingers, but this was either a devious act to help get the total insurance package cost down to make the option look more attractive, or it was a plain ignorance to which code he should have used for the scope of work they were doing.

Moving forward, let’s use the following guidelines to assist in selecting the appropriate workers compensation class codes for classifying a machine shop risk. Keep in mind that scopes should always be consulted.

•Start with the assumption that the machine shop risk belongs in Machine Shop NOC code 3632.

•If the business does a variety of types of machining, manufacturing, repair or job shop work, the appropriate code is 3632.

•Code 3632 anticipates assembly.

•Automotive machine shops are classified to class code 3632.

•Scopes provides a list of work comp class codes that are somewhat related in nature to codes 3632 and 3629, but are not assigned to those codes.

•NCCI has identified Code 3629 as a frequently misclassified code. To clarify its use, the term "precision" has been removed from the Scopes Manual description and references to tolerance requirements have also been removed. The new description is "Machined Parts Mfg. NOC." Under new Scope guidelines, code 3629 only applies to risks that machine single-piece parts for others that meet all of the following: ◦Business operations or parts manufactured are not described by another code

◦No assembly of single-piece machined parts. (Assembly operations are defined as including, but not limited to: welding, fastening, inserting, pressing, and the joining of springs, ball bearings, gears, or other parts or components to any other part or component.)

◦No casting, forging, stamping, forming, or fabrication

 

•A risk can't have both the machined parts code 3629 and the general machine code 3632 on the same workers compensation policy for the same location unless the operations are actually separate and distinct businesses that meet the Basic WC Manual requirements for a second basic class code.

•A mass production machine shop that manufactures single-piece parts and that also does job shop work would probably be classified into the general machine shop code 3632 due to the job shop work, unless the job shop work is extremely limited.

•The name of the business should not be used to determine the correct work comp code that applies to the business.

•The machined parts code 3629 and the general machine shop code 3632 are both NOC codes, therefore neither class code is applicable if there is another more specific class code that applies. For example, a mass production machine shop that meets the requirements of code 3145, Screw Mfg, would apply code 3145, even though the risk also meets the requirements for code 3629.

•If the business makes a mass production product, check Scopes to determine if there is a specific code for it. An alpha type search (i.e. metal, gears, etc) in Scopes may lead to a specific class code. For example, pump manufacturing goes into code 3612, gear manufacturing into code 3635, and screw manufacturing into code 3145.

•Sometimes the type of machines used to make the product will give a hint of the correct work comp classification. For example, if the risk uses a majority of screw machines to make the product, code 3145 may be the appropriate work comp class code, even if screws are not the actual product.

•Code 3113 Tool Mfg.-Not Drop or Machine Forged-NOC is only applicable when the risk makes tools and dies for others. Code 3113 is not applicable to insured's that make tools, dies, or machine fixtures for use by their own business, even if they are made in a separate department.

•The same class code is normally used for both manufacturing and repair. For example, use code 3635 for both gear manufacturing and also gear repair. However, if a significant amount of other job shop work is done beside the gear work, then code 3632 would apply instead of code 3635.

•Quality control employees should be classified into the governing machine shop class code because quality control employees do not meet the Basic WC Manual definition of clerical employees.

•Driver code 7380 applies to employees who pick up or deliver items to customers. If those employees also do machine shop work, their payroll would be put into the highest rated classification of the jobs they do, unless separate payroll records are kept.

•When work is done at the customer's location, apply code 3724 to that work, including driving to and from the customer's location.

 

As a machine shop owner, it is extremely important to understand the role of coinsurance in your current commercial property insurance contract. Not know what your coverage requirements could really set you back in the event of a major claim.

Let's take a look at what coinsurance could mean for you. I'll start with the definition and formula and will move into a few examples.

Property Coinsurance Formula, If Carried Insurance is Less Than the Required Insurance

Amount of Recovery = Value of Loss x Amount of Carried Insurance/Amount of Required Insurance – Deductible

Property Coinsurance Formula, If Carried Insurance is Greater Than or Equal to the Required Insurance

Amount of Recovery = Value of – Deductible

Example # 1

Aaron Peacock’s Machine Corp of Boone North Carolina partially insures a property worth $700,000 for $495,000. The policy requires 100% of its value to be insured (aka 100% coinsurance) for full coverage, and has a $5000 deductible. Since the amount of insurance the company should have carried is 1.0 X $700,000 = $700,000 we will use that number in the denominator of our equation. If Aaron Peacock’s Machine Corp suffers a $100,000 loss the formula would work like this to figure out how much the company will receive from the insurance company:

$100,000 x $495,000/$700,000 - $5000 = $65,714.29

Example # 2

Peacock Tool Company in Hickory North Carolina insures their property for $650,000 and their building is valued by ISO at $700,000. They have a 90% coininsurance clause in their contract which means they need to be insured to at least to 90% of the replacement cost of $700,000. Here is the formula if Peacock Tool Company has the same $100,000 claim and they also have a $5000 deductible:

$100,000 - $5000 = $95,000

Notice that we did not multiply the coinsurance penalty to the claim amount. This is because $650,000 satisfied the minimum limit required which in this case is $630,000 ($700,000 [replacement cost] x .9 [90% coinsurance requirement from contract])

It’s important to know that the building value is determined at the time of a claim by a 3rd party organization.

Testimonials

Aaron is fantastic at explaining important coverages. I feel well protected and can sleep much better at night knowing what I have insured.

David Lytle

Universal Machine, Marion NC

About Me

Feel free to reach out. My email is aaron@aaronpeacock.com or call 828-434-3215. My office is in Boone NC and I service the North Carolina counties of Watauga, Wilkes, Avery, Ashe, Alleghany, Mitchell, McDowell, Caldwell, Catawba, and Burke. I can sell life insurance nationwide. Please contact me with any questions.

Small business owners across the US today have a tornado of expenses that seem to pile up and expand at an ever increasing rate. One of those is expenses that seem to be the most uncontrollable at times is the commercial insurance package and workers compensation.

Often times I hear “but Aaron, its work comp all the same? Don’t I pay a flat rate per $100 of payroll and I am protected against an employee injury?”

Yes and Yes. If you are a responsible employer and you have adequate coverage on your employees, you will have insurance for employee medical expenses for work related injury, employee lost wages due to work related injury, and protection against your liability as the employer for any negligence that could have contributed to the injury (up to a set limit as described in part B of your work comp policy).

I can hear you thinking: “if that’s your answer, then how can I save money on my work comp?”

Let’s dig in. Here are the big 5

  1. Safety and the Experience Modification Factor
  2. Claim Management
  3. Modified Duty Return to Work
  4. Self-Insurance & Deductibles
  5. Drug Free Workplace Credits

I recently watched an awesome video about the metrics you can use to track work comp success rates. Since I focus on business that pay under $2M in total work comp premium, I will leave out some metrics. The metrics I recommend are:

  1. Sales (Gross Revenue) to pay for a claim
  2. Cost Per Full Time Employee
  3. Lag Time
  4. Return to Work Ratio
  5. Number of employees out of work right now

In future articles I will dig into each area of savings and each metric. Be sure to check back soon for more info.

Despite the cheesy title of this article, the silica exclusion in your general liability, work comp, and umbrella polices are no something to gloss over. Take this nation-wide law firm that specializes in silicosis liablity claims:

http://www.silicosis-lawfirm.com/

Or this one that specializes in silicosis related work comp claims:

http://www.silicosis.com/

The amazing thing is that these attorneys are winning. Check this $7,000,000+ claim that was awarded in Mississippi: https://www.aboutlawsuits.com/silicosis-lawsuit-verdict-for-sandblaster-6938/

Here is a $30 Million Dollar Settlement for a miner:

http://www.reuters.com/article/us-safrica-silicosis-settlement-idUSKCN0W61L7

Here is a sheet of the top types of business that are exposed to the claims. Some big ones are countertop installers, quarry operators, masonry contractors, concrete workers, machine shops, special trade contractors, and any company who provides services to dwellings and other buildings. Some other lesser known types of business that are at risk are auto service, auto dealers, and boat dealers.

Let’s break down how profitable this niche is for them. The have built a specialty website for the injury, they have invested hundreds of thousands if not millions in advertising dollars in the search terms “silica”, “silica dust”, “Workers Compensation Silica Dust”, “Silica Dust Homeowner inhalation”, etc check it out…it’s all public information. Just google each term and tell me who shows up.

I already know what you’re thinking: But Aaron, I’m just a small business owner in a mountain town just outside of Boone North Carolina…there is no way I’ll ever get a claim like that.

I’ll tell you this, the world is filled with stories of people saying that it would never happen to them. Just know that it does. In my time servicing Western North Carolina, I’ve seen several multi-million dollar claims and I promise you that I have not seen the last.

If you would like to see what a silica dust exclusion looks like and what you can do about it, just shoot me an email. My contact info is below.

Aaron Peacock    828-434-3215

aaron@aaronpeacock.com

Today I received a call from one of my long time clients who was madder than hell about an accident his wife was involved in. An elderly woman had accidently pressed the accelerator in her 4Runner instead of the brake when pulling into a parking spot and plowed into my client’s vehicle causing $8,500 in damage. You see, Mr. Smith (not his real name) is a plumbing contractor in a small mountain town in Boone North Carolina who has worked his ass off his entire life and had just purchased this Chevy Tahoe for his wife – it was the first new vehicle she had ever owned.

Mr. Smith raised one of the recurring questions I get from insureds suffering auto damage. He asked “I understand that the woman who hit my parked car is liable for the damage. But what about the depreciation? What happens when I trade it in or try to sell it and they see the CARFAX report?”

He asked because he intuitively understood the fact that when a vehicle is damaged in an accident, the resale value will be less than a vehicle that has not been in an accident...even if the vehicle has been repaired to 100% of its previous state. In legal terms, the damage resulted in reduction or “Diminution Of Value” in the marketplace, even though repairs have been made. Insurance professionals call this a “D.O.V. Claim” and there are steps to take to ensure you get made whole.

First off, the definition of “diminished value” can be confusing. There are three types that are defined here by the partners at Matthiesen, Wickert & Lehrer in South Carolina:

Immediate Diminished Value

This is the loss in value that results immediately after an accident before any repairs are made. It is the difference in market value immediately before and after an accident caused by a negligent tortfeasor. In many states, this is the measure of damages for injury to personal property.

Inherent Diminished Value

This refers to the loss in value of a vehicle that remains after it is completely and professionally repaired. It is the loss of value that results from the simple fact that the vehicle has been in an accident. This type of diminished value is also known as “stigma damage.” Given two identical vehicles on a car lot, the one which has not been involved in an accident is preferable to the one which has been damaged and repaired.

Repair-Related Diminished Value

This refers to the additional loss in value to a vehicle which results from incomplete or poorly-performed repairs. It could include simple cosmetic damages that remain after repair or major mechanical or structural deficiencies.

You can read their full article here:

https://www.mwl-law.com/a-primer-on-diminution-in-value-claims/

Please note that inherent diminished value is the most common form used by insurance companies. There are two types of inherent diminished value claims, both of which can use the tips below:

1.First-Party Claims: These are claims made by the vehicle owner against their own insurance company 2.Third-Party Claims: These are claims made by the vehicle owner against another person for negligently causing damage to the owner’s vehicle.

Here are my 5 tips when making a diminished value claim.

5 TIPS WHEN MAKING A DIMINISHED VALUE CLAIM

1. Don’t file until the vehicle is fully repaired

Picture this: In Mrs. Smith’s haste, she files a DOV claim immediately after the accident. She already has the repair estimate of $8,500 from her local Chevy dealer and the dealer was kind enough to give her trade in values for the vehicle from before the accident and after the accident so she could reference them when discussing the claim with us, her insurance carrier. The difference from pre to post accident trade in value is $3750 after the car was repaired 100%. The insurance company representing the driver that hit Mrs. Smith’s Tahoe may very well accept that initial estimate of $3750 on the spot.

Here is the concern with that. What if the damage exceeds the estimate? What if instead of simple body damage, the frame is bent and the transmission is out of alignment? In that case the perceived damage to this vehicle in its future owner’s eyes is much worse than body repair. It’s important that you wait until you know the full extent before you file. By waiting for the final repair to be completed you can have much more confidence that you are getting a fair value for the depreciation.

2. Make sure your vehicle is repaired with OEM Parts

For new vehicles like Mr. and Mrs. Smith’s it’s important that the vehicle is repaired with parts made by the original equipment manufacturer (OEM). Often times, repair shops will try to install generic or aftermarket parts to keep the repair cost down. Many insurance companies will encourage this as it will decrease their costs in the claim.

When working with the claims adjuster, you need to keep stating that you expect your vehicle to be restored to its “pre-loss condition”. Be prepared for a lot of pushback.

3. Gather evidence of your vehicle’s the lost value

Let’s circle back to my insured’s claim. They did a good job of getting the trade in value differences (even though she should have waited until after the vehicle was repaired). Additionally I would encourage her to shop multiple dealers for trade in information while making sure to disclose the damage.

On top of dealerships, please advertise the vehicle independently and record the offers made. Craigslist, autotrader.com, cars.com, carsguru.com are the big 4.

4. Negotiate

The insurance company is out to keep their premiums low for all of the policy holders so they will always try to minimize their losses. With this in mind, you need to know that whatever they offer to you is negotiable.

Let’s play out an example. If your estimated loss in value is $3750 like my clients, you should file a claim for $6000. They will offer you $2000. You need to provide evidence (gathered from the previous step) that your car has lost much more than $2000 and you expect to be made hole for this loss. The insurance will never come up to the $6K, but they may get to the $3750 that will make you whole.

5. Be prepared to sign a release

Finally, once you come to an agreeable number, the insurance company will ask you to sign a release. This form will state that the insurance company is no longer liable for any additional losses. Before you sign this, make sure you are ok with the settlement and what it represents.

 

If this is a situation you are facing, please feel free to contact me at any time. I’d love to help in any way I can.

All the best,

Aaron Peacock

828-434-3215

704-236-5598

aaron@aaronpeacock.com

Recent Insurance Claims from Specialized Contractors

People ask me this question all the time: "yea, but really Aaron. How often does that actually happen?" Its gotten to the point that its almost comical. Here's a list my company has compiled of our most recent claims for specialized contractors. This is just from our book of business in the construction industry....from masonry and concrete guys, to grading, paving, HVAC, Plumbing, Electrical.

Take a look for yourself! The claims are outrageous:

[read more="Read more" less="Read less"]

Property

Amount Paid/Reserved Situation
$2,452,000 Property: Fire caused damage to the insured's building and inventory. Cause of the fire was unknown. Building $1.32M, BPP $1.12M, and Business Income $5K.
$504,000 Property: Burglary and theft of personal property.
$224,000 Property: Hail Damage to metal roofs and A/C units on seven insured buildings
$177,000 Property: Wind damage to roof and interior water damage.
$172,000 Property: Tornado destroyed insured building and personal property.
$120,000 Property: Water damage from one of the rental units above the insured's location. The tenant did not carry insurance.

Systems Breakdown

Amount Paid/Reserved Situation
$24,000 Mechanical Breakdown: Insureds water jet cutting table malfunctioned and is no longer working.
$24,000 Artificially Generated Electrical Current: Power surge damage to numerous electrical and computer items.
$14,000 Artificially Generated Electrical Current: Insured had a power surge causing damage to various pieces of equipment.
$6,500 Artificially Generated Electrical Current: Brown out/power outage caused the control panel to go down in press.

 

Inland Marine

Amount Paid/Reserved Situation
$580,000 Installation Floater: Insured had supplies stored at an off premises warehouse and the warehouse caught on fire causing damage to some of the supplies.
$250,000 Specialty Trade Contractors Extension: Insured misinterpreted HVAC plans and incorrectly installed components. Errors were noted during the construction and corrected.
$165,000 Contractor's Equipment: Hydraulic line burst and started the insured's excavator on fire.
$125,000 Borrowed, Leased, Rented or Hired BPP: Insured borrowed crane to move A/C unit and tipped it over - operator error by insured's employee.
$75,000 Installation Floater: Theft of copper tubing and wire, tools, equipment and other property from jobsite - these claims represent the greatest frequency of any loss dealing with all contractor TOBs.
$55,000 Borrowed, Leased, Rented or Hired BPP: Insured rented two pieces of equipment to customer and they were never returned. Insured failed to obtain proper identification of customer.
$35,000 Specialty Trade Contractors Extension: Insured incorrectly read blue prints and installed the wrong A/C units in the wrong place on roof.
$8,000 Specialty Trade Contractors Extension: Insured ran wiring for a UPS system. The terminals were reversed and when breaker was energized, the unit smoked.
$3,000 Specialty Trade Contractors Extension: Insured installed pump motor and caused a power surge to it.

 

Inland Marine - Contractors Extension Endorsement

Amount Paid/Reserved Situation
$250,000 Contractors Extension Endorsement: Insured misinterpreted HVAC plans and incorrectly installed components. Errors were noted during the construction and corrected.
$101,000 Contractors Extension Endorsement: Insured installed fire alarm system with different material than was outlined in the job specifications. The insured had to tear out and redo the work.
$57,000 Contractors Extension Endorsement: Electrical contractor's employee had four separate faulty workmanship losses where he incorrectly installed wires to transformer and flex connections, installed wrong compression fittings and wire, installed wrong throat fittings and did not install correct size pigtails on light fixtures.
$35,000 Contractors Extension Endorsement: Insured incorrectly read blue prints and installed the wrong A/C units in the wrong place on roof.
$20,000 Contractors Extension Endorsement: The state inspector is not approving that breaker boxes that the insured installed in a multi-unit building. The inspector is stating the insured should have installed residential boxes rather than commercial.
$8,000 Contractors Extension Endorsement: Insured ran wiring for a UPS system. The terminals were reversed and when breaker was energized, the unit smoked.
$4,000 Contractors Extension Endorsement: Insured installed ten feet of 3" pipe, rather than 4" pipe, which could cause plumbing problems in the future. The homeowner would like this repaired which involves tearing up the basement floor.
$3,000 Contractors Extension Endorsement: Insured installed pump motor and caused a power surge to it.
$3,000 Contractors Extension Endorsement: Insured installed a furnace that was wired wrong and they fried the control panel.

 

Crime

Amount Paid/Reserved Situation
$35,000 Crime: Employee theft of 401(k) contributions.
$3,200 Crime: Employee theft of copper cable and lugs.

 

General Liability

Amount Paid/Reserved Situation
$1,000,000 Operations Liability: Insured was working on a commercial building construction site, responsible for erecting wall panels and structural steel components. The insured's employee was cleaning up at the end of the day, pushing debris off the floor to a dumpster sitting on the ground below. A metal stud missed the dumpster and landed on the claimants head/shoulder. The claimant had shoulder surgery and is suffering from a closed head injury. He has not worked since the accident.
$1,000,000 Products-Completed Operations Liability: Carbon monoxide poisoning resulting from unit insured installed and serviced
$685,000 Operations Liability: Insured hit a gas line while performing work at a jobsite causing a gas leak. One home exploded and several others nearby sustained damage.
$685,000 Operations Liability: Insured installed a new bathroom. The fitting on the tub leaked causing water damage.
$630,000 Operations Liability: Insured employee was soldering piping in the wall of a condo building when the building caught on fire.
$525,000 Products-Completed Operations Liability: Plumbing and heating contractor was hired to install a furnace and AC in a rural home remodel job. They also installed the gas lines in the home to the furnace, stove, and fireplace. Four years after the project was completed a fire broke out in the home. The home was completely destroyed. The homeowner and three of her grandchildren were killed in the fire. Allegations against our insured centered on faulty installation, failing to check the gas lines for leaks, and failing to properly ground the system.
$465,000 Products-Completed Operations Liability: Insured installed plumbing drain. Later, the drain failed due to improper installation of the waterproofing membrane, which resulted in damage to electrical lines and other items.
$304,000 Operations Liability: Insured serviced electricity to a new home under construction and when the power company hooked up the electricity the home started on fire and was destroyed.
$263,000 Operations Liability: Insured employee stepped on a sprinkler pipe causing pipe to break resulting in water damage to residential units.
$124,000 Products-Completed Operations Liability: Insured was subcontracted to install plumbing in a new home and the water supply line in the main floor bathroom was not tightened down enough and the line started leaking. The claimants were not home for seventeen days resulting in serious water damage.
$100,000 Products-Completed Operations Liability: Insured performed service work on a customer's furnace and late the furnace malfunctioned causing soot damage and carbon monoxide poisoning.
$46,000 Pollution Liability: Insured was a glazing contractor hired to caulk around windows on a multi-story office building. The Insured was using a 60' boom lift to reach the glass. The hydraulic hose on the boom lift broke unbeknownst to the insured and 55 gallons oil hydraulic fluid leaked onto the sidewalk, parking lot, and adjoining lawn. Steam cleaning was needed to remove the stains from the concrete and three feet of surface dirt had to be removed and replaced. Significant costs were incurred to clean up the hydraulic oil spill.

 

General Liability - Fungi or Mold

Amount Paid/Reserved Situation
$25,000 Fungi or Mold: Insured customer alleges mold and water damage.
$14,000 Fungi or Mold: Duct work, which the insured had installed, has fallen down and created mold damage.
$8,000 Fungi or Mold: Insured performed work on a shower valve. The claimant alleged it leaked for 16 months, but the damage does not support this. Claimant is also claiming respiratory injury from mold.
$5,000 Fungi or Mold: A leak in HVAC caused damage to claimant's ceiling and possible mold.
$2,000 Fungi or Mold: Insured was making repairs. Water was not shut off and caused damage to carpet and molding.

 

Additional Insureds

Amount Paid/Reserved Situation
$41,000 Products-Completed Operations Additional Insured: Insured was a subcontractor in a residential development consisting of 166 homes. Water damage to the homes began being noticed five years after they were completed. Many areas were identified as potential sources for the water leaks, including roofing, plumbing, exterior grading, siding, and landscaping. A lawsuit was filed alleging numerous construction defects against the general contractor, who was a national home builder, as well as nine subcontractors, including our insured. Total damages sought were in excess of $3 million. Damages related to our insured's work were approximately $300K. The GC was listed as an additional insured (AI) that included products completed operations under our insured's policy. The GC demanded we share in their defense as they were listed as an AI under our insured's policy. The case was settled for $300,000. The defense costs to defend our insured were $48,000. In addition, we had to pay another $41,000 towards the GC's defense.
$200,000 Products-Completed Operations Additional Insured: Our Insured contracted with a large fuel refinery operator to work on a steam cleaning system used to clean their refinery tanks and equipment. Pursuant to the contract, our insured had the refiner listed as an additional insured (AI) that included products and completed operations under our policy. After our work was completed, the refiner contracted with another company to perform the cleaning services. An employee of the company retained to do the cleaning was severely burned while using the system installed by our insured. He filed a lawsuit against the refiner alleging it was negligent in failing to provide an adequate safety program, failing to perform maintenance on the system, and failing to comply with OSHA standards. Even though the safety issues were the responsibility of the refiner and did not involve our insured, the refiner was able to tender the defense of this suit to our insured because they were listed as an AI including products and completed operations on our insured's policy. The AI exposure forces the insured's policy to defend the refiner, which is expected to exceed $200,000.
$32,000 Ongoing Operations Additional Insured: Our Insured was a plumbing subcontractor in a development consisting of 21 condominium buildings, each containing nine units. The construction was completed over the course four years. The developer was a national home builder. A construction defect lawsuit was filed against the developer as well as numerous other contractors, including our insured. The allegations were very vague especially regarding our insured, but the developer was able to tender the claim to our insured because the builder was listed as an additional insured (AI) under our insured's policy. The AI endorsement naming the developer only provided coverage to the AI arising out of ongoing operations. Since this claim arose from operations that had been completed six years prior, we did not have to pay for the builder's defense. The other three subs. that had provided AI coverage on a completed operations basis, however, were stuck paying a share of the developer's defense. We settled on behalf of our insured for $32,000 and our insured was dismissed from the lawsuit. The developer settled the suit against them for $3.7 million. The developer incurred in excess of $400K in defense costs, which the other three subs with AI obligations were forced to share. Had our insured's policy provided the AI completed operations coverage, they would have had to pay $80,000 for the defense of the builder. In this scenario, limiting the AI exposure to only ongoing operations, resulted in a savings of $80,000.

 

Business Auto

Amount Paid/Reserved Situation
$1,000,000 Auto Liability: Heating and cooling contractor employee was driving a company van on his way to a service call. Employee ran a red light in a 45 mph zone and struck claimant's vehicle. The employee was talking on a cell phone at the time of the accident. The claimant was a coffee shop owner. She suffered a fractured vertebra which required cervical fusion. She claims she is unable to operate her business.
$1,000,000 Auto Liability: An electrical contractor allows a service technician to drive the company van to and from work. The insured employee was heading home at 5:30 p.m., traveling in the right lane of a two lane highway, with his cruise control set at 60 mph. He dropped something on the floor and bent over to pick it up. When he looked back up, he saw the claimant driving a motor scooter directly in front of him. He was unable to stop and struck the scooter. The claimant was thrown from the scooter and later died from her injuries. The insured driver has no idea why he did not see the scooter prior to the accident.
$450,000 Auto Liability: Employee was driving to a job site at 10:30 a.m. He was not familiar with the area and in the process of looking at various addresses as he passed by, failed to notice a stop sign. He ran the stop sign going 40 mph and broadsided the claimant vehicle. Insured driver was not on the driver's list. His MVR was ordered after the accident and it came back clear. The claimant suffered several facial fractures and had neck surgery. There will be some permanent scarring on his face.
$1,000,000 Auto Liability: Plumbing and heating contractor employee, age 74, was driving service van when he failed to see vehicle in front of him stop for red light and rear ended the claimant vehicle. There were four people in claimant vehicle and all were injured. Driver's MVR contained no violations.
$750,000 Auto Liability: Insured owner, age 59, was involved in rear end accident at 7:30 a.m. He was not working on the day of the accident, although he was driving company vehicle. He could not recall to the police what happened or why he was on the road at that time. He was charged with DUI. His MVR revealed another accident and subsequent DUI charge one year earlier. The claimant was a 35 year old paramedic. She underwent cervical fusion and is unable to perform her duties as a paramedic.

 

Workers Compensation

Amount Paid/Reserved Situation
$3,300,000 Work Comp: 48-year old millwright employee was on a scissor lift, which was raised six feet in the air. Despite a requirement to wear a harness and being a certified safety trainer, he chose not to wear the harness that was available to him. He climbed onto the railing of the lift and while stepping from the railing to the silo that he was working on he apparently lost his balance and fell backward striking his head and upper back. The employee suffered multiple compression fractures of the spine and severe head injuries. It was initially believed he would not survive. The employee has not returned to work and long term treatment will be required.
$797,000 Work Comp: Employee was a 41-year old plumber installing a pipe vent in a vaulted ceiling. He cut through the ceiling with a reciprocating saw and laid the saw on the roof. He went down the ladder and when he came back up, he bumped the cord causing the saw to slide down the roof and fall through the opening. The saw struck him next to the right eye and he fell off the ladder. He was taken by ambulance to the hospital. He developed an infection and died of a massive stroke eight days after the injury.

 

Employment Related Practices Liability

Amount Paid/Reserved Situation
$25,000 Age Discrimination & Wrongful Termination: Employee suffered non-work related injury that caused him to be off work two months. Employee returned to work with doctor's okay, but employee didn't seem able to handle the physical requirements of the heating and cooling installer position. No physical ability testing conducted. Insured put employee back to work.

Insured received complaints from other employees about the employee's work. When work slowed down employee was laid off. Insured indicates lay off was with intention of bringing him back when work picked up again, but it never really did. Investigation showed insured did not lay off two younger employees with less seniority.

Employee alleged age discrimination. Employee was hired at age 59 and was 62 when laid off. Investigation indicated that employee was referred to as "old man" by co-workers.

Defense attorney believed that had the insured implemented job requirement testing in place that the claim would not have occurred. Observations of the employee following his return to work indicate that although he had a doctor's release to return to work, that he would not have been able to complete/pass the physical requirements necessary to perform the HVAC installer position.

$11,000 Discrimination & Wrongful Termination: Employee alleges he was terminated because of his gender (male), race (white) and age (66). Employee indicates he was terminated by female supervisor and replace with a younger native american male. Employee filed a charge with the state human rights agency and received a probable cause finding.

 

Business Errors & Omissions

Amount Paid/Reserved Situation
$600,000 Faulty Workmanship/Design: Insured completed work on boiler project for a large hospital. The city provided the design and the architect was through the general contractor. It was later determined that the system was not providing the necessary heat to the hospital. There was some inefficiency noted in the design of the system, as well as questions regarding the size of the piping used by the insured. Although the insured followed specs, potential liability existed as they didn't use their professional expertise to question the specs.
$500,000 Faulty Workmanship: The insured was performing HVAC upgrades at a duplex and there was a fire.
$300,000 Faulty Workmanship: Insured installed solar panels at a commercial retail location three years ago. The panel box caught fire causing interior damage. It appears there was an issue with the panel box that was manufactured by a separate entity.
$209,000 Faulty Workmanship: Insured installed heating system which failed to work properly.
$80,000 Faulty Design: Insured hired to design a chiller system to cool down melted rubber. The insured designed and installed a 50-ton chiller. After the job was complete, the claimant began complaining that the rubber was not being cooled down as quickly as was needed. It was determined that a better system would have been designed using a 100-ton chiller. Insured had to redo the system using a bigger chiller. The additional costs for the larger cooler are not covered.
$79,000 Faulty Workmanship: Insured was a plumbing subcontractor at the claimant's building. Water leaks are occurring at connections between galvanized and plastic pipes. No water damage, but joints must be redone.
$79,000 Faulty Workmanship: Insured subcontractor performed faulty pipe insulation which caused condensation and water damage. Pipes had to be reinsulated.
$78,000 Faulty Workmanship: Water piping installed by insured now leaking and needs to be fixed.
$73,000 Faulty Workmanship: Insured's customer's geothermal heat pump failed due to rock damage.
$71,000 Defective Materials: HVAC unit sold and installed by insured is defective and must be replaced.
$69,000 Faulty Workmanship: Insured installed new equipment on top of building and did not seal flashing properly causing roof to leak.
$60,000 Improper Design: Claim for inadequate design of a digital media recording system installed in claimant's residence.
$57,000 Faulty Workmanship: Insured wired processing plant, switchgear blew up and caused fire at plant.
$50,000 Faulty Workmanship/Design: HVAC system installed by insured is not functioning properly, lack of adequate cooling in many areas of the building.
$42,000 Faulty Workmanship: Insured's completed installation of HVAC system was faulty. It needed to be removed and replaced. The claimant's/tenant's operations are on-hold until repairs can be completed. Business income loss claimed by the tenant of the building.
$36,000 Defective Materials: Insured installed several defective light fixtures from manufacturer in a commercial building. The fixture manufacturer never admitted fault, so we were unable to fully subrogate the loss. The cost to redo the job was $225,000. The manufacturer agreed to supply all of the replacement equipment, so our insured's cost was only their labor.
$25,000 Faulty Workmanship: Insured was electrical contractor on grain dryer project that was completed a year ago. Now a fire occurred at grain dryer site causing extensive damage, including the need to replace the insureds work.
$15,000 Faulty Workmanship: Electrical contractor installed the wrong type of wiring.
$15,000 Faulty Workmanship: Plumbing contractor installed sewer pipe which backed up in the office building.
$14,000 Improper Design: Electrical contractor prepared the design for an intensive care unit at a hospital. They mistakenly omitted electrical receptacles in the design.
$12,000 Faulty Workmanship: Insured installed a heating unit on the roof of a building and it was the wrong unit.
$10,000 Faulty Workmanship: Insured installed thermostats in building and had to go back and change height.

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Aaron Peacock

Aaron Peacock

Hi, I'm Aaron and I'm a marketing representative for Federated Mutual Insurance Company - a Ward's Top 50 and an A.M. BEST A+ Superior rated insurance carrier. After my wife was severely injured in an accident involving a distracted driver, I've found one of my passions in life is to help educate people about the Danger of Distracted Driving and have started speaking to businesses in Western North Carolina on implementing the Federated Insurance DriveS.A.F.E. program. Click here to read more...

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