Alberta Risk Advice by Cielito Villanueva

Contractors involved in operations for oil & gas companies tend to have a mountain of liability concerns that is unique to their industry. One of the main liability exposures is pollution.

Limited Pollution Liability Coverage: A Solution?

Depending on the insurance company, some form of pollution coverage is included or available for purchase as an endorsement on a policy. In this example, the limited pollution liability endorsement from one particular company covers bodily injury or property damage arising out of an unexpected or unintentional spill, discharge, emission, dispersal, seepage, leakage, migration, release, or escape of pollutants, provided it results in injurious presence of pollutants in or on land, the atmosphere, drainage or sewage system, watercourse, or body of water

AND

provided the escape of pollutants is detected within 120 hours after the start of the escape of pollutants and is reported to the insurance company within 120 hours of escape. One might ask how the insurance company can verify when the escape began so to err on the side of caution, one should report this immediately upon discovery.

Drift Liability

Drift liability is also another coverage that is included or available for purchase and will cover bodily injury or property damage arising out of an unintentional emission, dispersal, migration, release, or escape of pollutants arising out of operations that involve the spraying of chemicals, such as pesticides or herbicides.

The examples above are only a translation of the actual wordings. That being said,  it is most prudent for contractors to sit down with a broker to review the coverage, limits, limitations, and exclusions contained in their commercial general liability policy. This way they can verify if they have some form of pollution coverage–coverage that might satisfy the requirements of a future job.

Often times, a municipal, provincial or federal government, otherwise known as an obligee, may require a contractor to provide a guarantee instrument before hiring them to do a job. The two guarantee instruments usually requested are either a surety bond or an ILOC (Irrevocable Letter of Credit).

Here’s an explanation of the two types:

ILOC (Irrevocable Letter of Credit)

By choosing to obtain an ILOC, you are receiving a letter from the bank that declares that you are “good for” a particular amount of money (this amount varies depending on the project). The ‘irrevocable’ name implies that it cannot be cancelled by anyone but the obligee. This letter of credit is held by the obligee and in the event of a claim, the obligee can draw on these funds at their discretion. It will be up to the contractor to pursue the obligee if they feel a claim is frivolous.

The main drawback of the ILOC is that the bank locks the full amount of the ILOC in cash.  For example, if you are required to have an ILOC for $100,000, then the full $100,000 will be held by the bank and inaccessible to you.

Surety Bonds

A surety bond is a three party agreement involving a principal (the contractor obtaining the bond), an obligee (the party requiring the bond of the principal), and a surety (the surety company who is backing the bond).  In the event of a claim, the surety will investigate a default of the contract, and if a default is confirmed, the surety pays out to the obligee.  In short, you as the principal, are using the financial resources of the surety to cover you, while only having to pay premium on the bond (in some high risk/bad credit cases some collateral may be required).

It should be noted that a surety bond is a form of credit and not insurance. One of the advantages of a surety bond is that it is also considered a default instrument; this will ensure that no payout is made for frivolous claims. Should a payout occur, the principal is obligated to repay the surety company for the entire amount paid out.

Which is More Costly?

It can be assumed that surety bonds are more expensive than ILOC’s, but this may not be completely true. For the sake of simplicity, let’s continue to use the $100,000 amount as an example:

An ILOC generally costs 1% a year or $1,000 for the $100,000 letter.

Generally a surety bond will fall in the 1-3% range or $1,000-3,000 in our example.

On the surface, surety bonds seem more expensive, but let’s dig deeper into the real costs. First and foremost, with the ILOC, the $100,000 is locked up by the bank who is earning interest from this $100,000 and not you. With the 3.5-4.5% money market average, you are leaving $3,500-4,500 on the table. On top of this lost income opportunity, you have no access to this money should another opportunity, or crisis, come you way.

On the other hand, there are no hidden costs attached to a surety bond, and you are free to hold, invest, or use your money as you wish.

If you qualify for a surety bond, it is clearly the better choice, and gives your business more opportunity and flexibility for the future.

Have you ever considered what it would cost to reproduce the documents in your business? I’m not talking about the cost of the paper and ink, but the actual information contained in the documents. For instance, if your company has a large fleet of vehicles and drivers, you will most likely have a set of driver’s abstracts. Go to any vehicle registry and you will quickly find out they are not cheap to order. What about the cost to reproduce manuscripts, leads lists, blueprints, safety manuals, certificates, or permits?

What is the solution?

Storage: Store your valuable papers in a fire and water proof safe or cabinet, onsite or better yet, offsite.

Electronic Back-Up: Scan your documents and save them in electronic format on a local hard-drive and a USB flash drive that you keep in your briefcase

Copy: Copy your valuable papers and store the copy offsite or in a safety deposit box

Additionally, you may have an added feature in your company’s liability policy where there is coverage for valuable papers up to the limits stated. There are some packages that include up to a $50,000 limit on the costs to reproduce valuable papers lost in an insured peril such as a fire, sewer back-up, or even theft. Talk to your broker for details on this coverage, but also make sure you protect them as well by taking a SEC.

In today’s era of fast-food, instant online quotes, and video-on-demand, we tend to forget about the simple things, like good service. For instance, what are the qualities of a good insurance broker? I’m not talking about a great broker, just a plain and simple good broker. Here are some qualities to look for:

Prompt replies. A good broker responds to emails, faxes or voice messages by at least the next business day.

Answers every question. A good broker should never skip over any of your concerns.

Documents your requests or needs. This supports the last trait because a good broker doesn’t need to have a photographic memory, but they should be genuinely concerned and writing it down is a sign of concern for your needs.

Always seeking your satisfaction: A good broker will always ask how satisfied you are.

Keeps you “in the loop”: A good broker should give you an estimate on when you can expect an answer, a resolution, policy documents, etc, .They will also follow up with you if they foresee any delays.

Respects your time: A good broker will place high value on your time. This means showing up for an appointment on time, giving you sufficient notice for delays or cancellations, and during your meeting, a good broker will let you know how long the meeting should take and let you know when the meeting has gone past the proposed conclusion.

No excuses. A good broker should not bombard you with excuses, no matter how true. A good broker will also take accountability for their actions with a sincere apology and not play the blame game.

Simple and straightforward. A good broker will be honest about what is needed, when it is required, and what the possible consequences are for not complying. A good broker will communicate this in a simple and straightforward manner.

With all that in mind, a good broker is also human and mistakes can happen, but as long as they are consistent with the above qualities, everything else is secondary.

Cielito V

When it comes to running a restaurant, there will always be the desire to increase profits, but what about the need to cut costs? One can save on supplies, on equipment, basically on any element that has a price attached to it. As a result, more and more owners and managers are working harder and smarter by doing the research that will boost profits. However, there are some that don’t do the work required to maximize their dollars for many reasons: they can’t be bothered, they completely trust their existing suppliers, or they just don’t know where else to look. Fortunately, there is one place to stretch your dollar without ever sacrificing quality: your restaurant insurance policy.

Below are just a few tips on how to get a better rate on your restaurant insurance policy:

• Check to see if your insurer recognizes certain safety programs or offers a discount, and then get your company or staff certified in the program. The savings in premium coupled with minimizing potential losses and adding a layer of professionalism to your establishment is well worth the expense.
• Ask your alarm monitoring company for a current copy of your alarm certificate and submit the copy to your broker requesting any relevant discounts. Many companies offer up to a 10% discount.
• If you’re an established restaurant that practices a high degree of cleanliness and safety standards, had no claims or losses, and have never been canceled or had payment issues with an insurance company, you may qualify for specialized programs that offer comprehensive coverage at a heavily discounted rate that is usually reserved for the large chains. Contact your broker if they have access to these specialized programs.

In any event, whether you are looking to increase profits by increasing your volume of sales or jacking up your menu prices, you might also want to review your restaurant insurance policy. It might be well worth the little amount of effort.

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I have noticed recently that there seems to be a growing trend in consulting, training, or coaching. Although each of them provides a unique service, a lot of consultants have one thing in common: a written agreement with their clients but even a contract or waiver/release written by the best lawyer couldn’t guarantee that a client won’t file a lawsuit. In fact, it is a democratic right to make a claim if a person feels they have suffered financial and emotional damages. Moreover, today’s society is becoming more litigious. People are becoming more opportunistic. So much so that rarely is one company named in a suit, but several are named in hopes that one of them will be held liable.

But why should a consulting business be concerned if they are only providing advice or recommendations, and not forcing a client to do whatever it is they are consulting them to do?

As a consultant, you are marketing yourself as an expert in solving a client’s specific problem. Regardless of what your contract states, a client is paying you to satisfy a need. Don’t get me wrong, a lot of times if a need is not met all you will probably get is a complaint and perhaps some lost referrals. But what if a client feels that as a result of following your advice they have suffered financial or general damages such as pain and suffering or inability to perform certain functions? What if they present this to a lawyer who feels they might have a case? If it is filed in small claims court you could defend yourself, but if you don’t want to take the chance or if it doesn’t end up in small claims then you have to consider hiring a lawyer to defend you no matter how trivial the case may be. I don’t think I need to state the obvious, but the costs to defend yourself can easily exceed the actual damages sought by the claimant.

Do you set aside money for legal defense for your business? If yes, how much are you prepared to lock away? If no, then you’re like most businesses because it’s not possible to predict how much you will need to put away for future legal defense costs. You could set aside $1,000 a month starting today, but if you get sued in four months you will have only $4,000 to defend yourself. In this case, you better hope the claim is low or judged in your favor fast, but realistically you’ll need more than hope; you’ll need a plan.

So what can a consultant do to plan for the often high costs to defend claims?

As a consultant, you would be wise to secure yourself with an Errors & Omissions Policy, also known as Professional Liability. Not only is an E & O Policy for doctors, lawyers, architects, or engineers, but it is also for other professionals who may be exposed to claims made by clients–frivolous or not. Additionally, you should ask your commercial insurance broker to give you specific details of the coverage for defense costs such as the dollar amount limit. More importantly, your broker will explain more of the benefits of an E & O Policy specific to your consulting business.

In essence, claimants are motivated to sue because it often does not cost them a dime as their attorney will collect their fees after a settlement or judgment in their favor, but a defendant does not have that luxury. So whether you feel you have no exposure to liability, you are certainly exposed to the costs to defend.

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When was the last time you looked at your insurance policy? Have you ever considered if the deductibles in your policy reflect your insurance philosophy? To be specific, ask yourself if you believe that insurance is a maintenance contract. For instance, let’s say you have minor damage on your shop’s entrance from an attempted burglary. You get an $1100 estimate to repair the entry locking mechanism and broken glass. The policy deductible for your shop is $500. You decide that since you’ve been paying premiums for the last five years with no claims that you will let the insurance cover the remaining $600 and you’re perfectly entitled to do so. A few months later on your renewal you notice your premium went up by $800 so you’re infuriated because you feel that you are being penalized for a claim that you had every right to make. But hold on a second. The insurance company did not raise your premium; they merely did what they had every right to do which was to remove the claims-free discount. Was the claim worth it? Some might feel it is and they are the ones who feel that insurance is a maintenance policy.  To claim any minor losses they encounter; a philosophy that is neither right nor wrong, but I can almost guarantee they are not paying the lowest premium possible.

On the other hand, there are those who believe that they want to go through years and years of paying the least amount of insurance premium while maintaining effective coverage. These folks are the ones who carry high deductibles which gives an additional deductible discount on top of a claims-free discount. Their insurance philosophy is that they will only ever expect to use their insurance in a catastrophe. For example, an electrical fire in a shop causes $35,000 in direct physical damage as well as an additional $115,000 in losses due to the business being shut down for three months for repairing the damaged section of the shop. This totals $150,000 in damages for which the shop owner paid a $2500 deductible. The following year his policy renews at $1,000 more per year and will remain so for the next three years for not having a claims-free discount.  So after years of paying low premiums he paid out a $2500 deductible and $1,000 in higher premium for the next three years which totals an additional $5,500 out of pocket. Was that loss worth claiming? To the shop owner it was because the insurance company paid out $147,500 to repair their shop and replace the lost revenue for being closed for three months.  One must be convinced that this scenario gives clarity to the benefits of an insurance policy.

In the end, both philosophies exist and both are very valid, but only you can decide which philosophy to go with. When you have given it a great deal of thought, get in touch with your broker to make the necessary changes that reflect your philosophy.

Sooner than later, the insurance market will harden as catastrophic losses increase and the resulting claims rise. Additionally, the increased competition throughout the past several years has driven premiums down; at some point, insurers will need to replenish their pool of funds from which to pay claims if they expect to stay out of the red. If new business is not enough to build a bigger pool, insurers will look to the next logical avenue: increasing premiums. When this will happen can only be speculated, but it is inevitable.

In spite of this seemingly negative news, you can look at this as an opportunity to “hedge” the future increase in premiums by investing the current savings you are getting in today’s soft market towards improving your risk management policies, towards a safer work environment, upgrading equipment such as a UL300 automatic fire-suppression system, or researching cost-effective methods of controlling loss. You should also look to solidify a relationship with an insurance company through a broker who will be in a better position to negotiate for you as the insurance company’s comfort level of your business improves with time and with your efforts in reducing loss. This also means playing ball and providing your broker with the information being requested by the insurance company. Your broker will commit to making insurance transparent to you, but it also means that you need to make your business transparent to the insurance company.

All in all, there are many things you can do to put yourself and your business in a better position when the hard market arrives. Talk to your broker about any concerns you may have and they may provide you with more details in preparing for the inevitable.

Cielito V

In insurance terms, risk is the possibility of suffering financial loss by partaking in business activities that are intended to generate profit. The more services and products you offer, or the more territories you cover and the more revenue you generate, the greater the risk. Think of your business as a person: one who locks themselves in a room and disconnects themselves from the outside world lowers their risk of accidental injury while one who is always connecting with people, partaking in many activities, and traveling all over the world increases their risk of accidental injury.  The difference between the two individuals is that the one who is active and in constant motion will most likely be rewarded financially–not always but more likely than not. Now replace the person with a business and the same principle applies.

So with that said, how does a business protect themselves so they can take the risks necessary to discover success?

By implementing a risk management strategy or reviewing their existing one. More importantly, by understanding how the commercial insurance policy fits into the risk management picture and how to get the most out it. For instance, when was the last time you asked your insurance broker to sit down with you to review your insurance policy? They can make recommendations and give you advice to explore the areas of risk in which you can control the losses as well as reduce your costs in premiums by exploring different coverages, limits, and deductibles. Whether you actually use the advice is up to you, but the service is absolutely free. Depending on the agency, your broker will even go to your place of business to address any concerns you might have about loss exposures. You will never know unless you ask, and even then, the risk would be nothing, but the reward could be everything.

In T.S. Eliot’s famous words, “Only those who will risk going too far can possibly find out how far one can go.”

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