Risk management: sweat the small stuff.
Because of the nature of risk, camp directors and most other business managers use insurance policies as their primary means of transferring risk. Protecting the assets of your organization is a serious matter worthy of attention to detail. However, we see many insurance policies with fundamental, structural problems, involving such "small stuff," but nonetheless critically important issues as the Named Insured and Additional Insured status in liability insurance policies.
What does it mean to bethe Named Insured?
Named Insureds on insurance policies can be persons, partnerships, corporations, unincorporated associations, or limited liability companies to whom the insurance policy is issued. In order to qualify to be Named Insured under a policy, the entities must be owned by the same financial interest or have some financial interest in the property or operations being conducted. It is common for camp businesses to have many entities listed as Named Insured on an insurance policy. Maintaining an accurate listing of Named Insured entities on these insurance policies can be a real challenge.
Insurance policies are contracts. Under these circumstances, it is important to have all of the entities listed, their names properly spelled, and their legal status appropriately noted. The entity listed first has some special rights and duties. The first Named Insured is responsible for paying the premium and is the contact for communication with the insurance company. In addition, the first Named Insured is responsible for keeping all of the other Named Insured's advised about the policy. This is a critical role.
Why is it important for directors to monitor the Named Insured on their policy?
Insurance representatives make mistakes. Sometimes owners and directors forget to advise insurance representatives about a new interest that should be listed as Named Insured. On occasion, insurance companies have inadvertently omitted one or more Named Insureds from a policy or renewal. Mistakes like these and others can lead to gaps in risk transfer, delayed loss adjustments, and possibly uninsured losses.
When was the last time you checked your insurance policies to make certain all of the individuals and other legal entities that should be shown as Named Insureds are correctly listed?
Risk Management and Insurance Terminology Is Precise
Confusion over the meaning of risk management and insurance terms can lead to policy structure and coverage problems. For example, you use a neighboring camp's ropes course. You bring your staff to supervise your campers and conduct the program. You sign a contract. The insurance clause in the contract asks you to add the ropes course owner to your camp's liability policy as an additional named insured. Can you do it? No. This is an impossible request. The proper terminology is Additional Insured, not additional named insured.
What does Additional Insured mean?
Additional Insured status on liability insurance policies is not automatic. A specific request must be made to the insurance company and an endorsement issued changing the insurance contract to include the Additional Insured's interest.
Some insurance companies have a type of automatic arrangement, which provides Additional Insured status to individuals and organizations when required by contract or agreement. This is not a standard approach.
When a person or organization is added as an Additional Insured, the insurance coverage purchased by the Named Insured is extended to the Additional Insured laterally. The limits of insurance, along with the exclusions, terms, and conditions of insurance coverage purchased are simply extended to the Additional Insured party, no more, no less. But, there is a tangible benefit to being an Additional Insured.
How would my insurance respond to an Additional Insured in the event of a claim?
In our ropes course example, if one of your campers was injured as the result of your staff's negligence and sued your camp and the ropes course owner, your policy would respond for both organizations. In this situation, your camp liability insurance policy would be primary insurance for you and the ropes course owner. The liability insurance purchased by the owner of the ropes course would be secondary to yours if brought into this hypothetical claim at all. Their insurance would not insure to your benefit. This example highlights one of the advantages of being an Additional Insured. It also identifies a risk management problem when your camp is asked to name someone or some other organization as an Additional Insured.
Dilution of Limits Risk
How much liability insurance should you carry when you have multiple Additional Insured parties on your liability insurance?
This is a critical question with no right answer. The proper limit of insurance will be different for each camp business. But, one of the critical issues underlying this question is the risk of diluting your camp's liability insurance limits when many organizations are included as Additional Insureds.
What does this mean?
General liability insurance policies have limits stated for each occurrence and general aggregate. The each occurrence limit applies to all injuries or damage arising out of one occurrence or event. This limit is typically one million dollars. The general aggregate limit is the most the insurance company will pay for liability for all injuries or damages arising out of all occurrences in any policy period, typically twelve months. The general aggregate limit on camp liability policies may be one to five times the occurrence limit.
In order to conduct a particular program, your camp is asked to provide two other organizations with Additional Insured status. An accident occurs. Let's assume your camp carries the typical one million dollar each occurrence limit of liability. Because of the Additional Insured status provided to these two other organizations, your liability insurance policy has to respond to them as primary insurance. If many people are injured, or the injuries to a few are serious, your one million dollar occurrence limit might not be sufficient to respond to the two organizations with Additional Insured status and also to your camp's liability in this scenario. The risk of diluting limits of liability with multiple Additional Insureds is one reason why camps buy Umbrella or Excess Liability insurance.
Under what circumstances should a camp director add an Additional Insured to the camp's insurance?
Directors should be cautious about adding persons and organizations to their camp's liability insurance as Additional Insured. However, there are some instances when it is entirely appropriate. Some examples are:
* owners of real estate on the policies of tenants
* lessors of equipment, such as photocopy machines, telephone systems, or postage meters on policies of leasees
* volunteer workers
Beyond these few generally standard, accepted situations, directors are advised to consult with their insurance advisors.
When should a camp director ask to be an Additional Insured?
Directors should request Additional Insured status on policies of all subcontractors used to conduct camp programs. For example, if you take your campers to an outside riding academy for trail riding or riding instruction, the camp should be an Additional Insured on the riding academy's liability policy. The same request should be made of white water rafting outfitters who guide trips for you.
Ask these subcontractors if they carry insurance during your precamp discussions with them. Some of these organizations have lost their insurance coverage in the current, hard insurance market. Secure a certificate of insurance to confirm your Additional Insured status and determine the limits of liability they carry. The limit of liability should be at least equal to yours, preferably one million dollars.
Furthermore, it is advisable to ask for Additional Insured status on the policies of any contractors who come on your property to do any excavation, plumbing, heating, electrical, or construction work. A certificate of insurance should be secured from these businesses, too.
What Should You Do Next?
Take action and make a plan. If you haven't reviewed the Named Insured on your insurance policies lately, take some time now to do so. Make corrections as necessary. Do you know how many entities have Additional Insured status on your liability policy? Are the entities correctly listed? Is the list current or are organizations shown who should no longer be listed? Are you satisfied with the limits of liability your camp carries under the circumstances? If you have asked yourself these questions and developed the answers, congratulations on being focused and "sweating the small stuff" in your risk management and insurance program. If you don't know the answers to these questions, don't worry. There is plenty of time before next summer to re-focus and reorganize your risk management efforts to include these details.
Ed Schirick is president of Schirick and Associates Insurance Brokers in Rock Hill, New York, where he specializes in providing risk management advice and in arranging insurance coverage for camps. Schirick is a chartered property casualty underwriter and a certified insurance counselor. He can be reached at 845-794-3113.
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|Date:||Nov 1, 2003|
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