Frequently Asked Questions
What is a waiver of subrogation and when is it required?
A waiver of subrogation is an agreement where your insurance company gives up its right to pursue recovery from a third party after paying your claim. This protects the third party from being sued by your insurer.
How subrogation works normally:
You have a loss: Someone else’s negligence causes damage to your property or injury covered by your insurance.
Your insurer pays: Your insurance company pays your claim.
Insurer recovers: Your insurer then pursues the negligent party to recover what it paid. This is subrogation.
You’re made whole: The recovery process doesn’t cost you anything beyond your deductible.
Why parties request waivers:
Landlords: Don’t want to be sued by tenant’s insurer if building issues damage tenant property.
General contractors: Don’t want subcontractors’ insurers pursuing them.
Clients: Don’t want service providers’ insurers making claims against them.
Business partners: Related parties working together may waive subrogation rights against each other.
Waiver of subrogation provisions:
Contract requirement: The waiver is typically required in the contract between parties.
Policy endorsement: Your insurance policy must be endorsed to permit the waiver.
Mutual waivers: Often both parties waive subrogation rights against each other.
Workers’ comp waivers: Particularly common in construction contracts.
Premium impact:
Minimal cost: Waivers of subrogation usually have minimal premium impact.
Pre-loss requirement: The waiver must be in place before the loss occurs to be effective.
Blanket waivers: Some policies include blanket waiver provisions for any party required by written contract.
Review your contracts for waiver of subrogation requirements and ensure your policies are endorsed accordingly.
What is an ACORD certificate form?
ACORD certificate forms are standardized insurance certificate formats used throughout the insurance industry. Understanding these forms helps you interpret certificates you receive and ensure certificates you issue are properly completed.
What ACORD is:
Industry organization: ACORD (Association for Cooperative Operations Research and Development) creates standard forms for the insurance industry.
Standard formats: ACORD forms are universally recognized, making insurance documentation consistent across carriers and agencies.
Multiple forms: Different ACORD forms serve different purposes.
Common ACORD certificate forms:
ACORD 25: The standard certificate of liability insurance. Shows general liability, auto, umbrella, and workers’ compensation.
ACORD 27: Evidence of property insurance.
ACORD 28: Evidence of commercial property insurance.
ACORD 855: Construction certificate providing additional detail for construction projects.
Reading an ACORD 25:
Producer: The insurance agency issuing the certificate.
Insured: The named insured on the policies.
Insurers: Insurance companies providing coverage.
Coverages: Each coverage type with limits, policy numbers, and dates.
Certificate holder: The party requesting the certificate.
Description of operations: Space for noting projects, additional insured status, and other details.
Certificate limitations:
Informational only: Certificates don’t modify policies or grant coverage rights.
Point in time: Certificates reflect coverage when issued; they don’t guarantee future coverage.
Standard language: Pre-printed language about cancellation notice is not a binding commitment.
Certificate vs. policy:
Certificate summarizes: The certificate is a summary; the policy controls actual coverage.
Verify with agent: If certificate contents matter to you, verify coverage with the issuing agent.
Endorsement review: For important requirements, review actual endorsements, not just certificate notations.
What is the difference between named insured and additional insured?
Named insured and additional insured are distinct roles on an insurance policy with different rights and responsibilities. Understanding the difference prevents confusion when addressing insurance requirements.
Named insured:
Policy owner: The named insured is the party that purchased the policy and is listed on the declarations page.
Full policy rights: Named insureds have complete coverage under all policy provisions.
Policy control: Named insureds can make changes to the policy, file claims, and receive premium refunds.
Premium responsibility: Named insureds pay the premiums.
Broad coverage: Coverage applies to all named insured activities covered by the policy.
Additional insured:
Extended coverage: Additional insureds receive liability protection under someone else’s policy.
Limited rights: Coverage is limited to liability arising from the named insured’s operations for the additional insured.
No policy control: Additional insureds can’t change the policy or control its terms.
No premium obligation: Additional insureds don’t pay premiums.
Conditional coverage: Coverage depends on the underlying policy remaining in force.
Practical examples:
Your company is named insured: On your own policies, you’re the named insured with full rights and coverage.
Landlord as additional insured: Your landlord gets protection under your policy for liability from your operations, but can’t change your coverage.
You as additional insured: When you’re added to a subcontractor’s policy, you get protection but don’t control their coverage.
Multiple named insureds:
Related entities: Parent companies, subsidiaries, and affiliates can be named insureds together.
Joint ventures: JV partners may be co-named insureds.
Partnerships: Partnership and partners may both be named insureds.
Understand your status on each policy: full named insured rights on your policies, limited additional insured protection on others’ policies.
What is umbrella insurance and why do contracts require it?
Umbrella insurance provides additional liability coverage above your primary policies. Many contracts require umbrella coverage because primary policy limits often aren’t sufficient for serious claims.
How umbrella coverage works:
Excess limits: Umbrella policies add coverage above your general liability, auto, and employer’s liability limits.
Trigger point: Umbrella coverage kicks in when underlying policy limits are exhausted.
Broader coverage: Some umbrellas also cover claims excluded by underlying policies.
Defense costs: Umbrella policies typically cover defense costs when they’re paying claims.
Why contracts require umbrella coverage:
Catastrophic protection: Serious accidents can exceed primary limits. A severe auto accident or major liability claim can easily exceed $1 million.
Large exposure: Companies with significant assets need protection beyond primary limits.
Indemnification backing: Indemnification obligations require insurance to fund them.
Industry standards: Many industries have settled on umbrella requirements as standard.
Common umbrella requirements:
$2-5 million: Common for moderate-risk contracts.
$5-10 million: Larger projects and enterprise clients.
$10 million+: High-risk industries, large construction, and major contracts.
Umbrella policy structure:
Underlying insurance: Umbrella policies require you to maintain specified underlying coverage.
Self-insured retention: For claims not covered by underlying policies, a retention (deductible) applies.
Follow-form: Many umbrellas follow the terms of underlying policies.
Annual aggregate: Total available coverage during the policy period.
Cost considerations:
Efficient coverage: Per-dollar, umbrella coverage typically costs less than increasing primary limits.
Scalable: Umbrella limits can usually be increased relatively easily.
Bundled pricing: Often priced with underlying coverage for efficiency.
What is wrap-up insurance and how does it work?
Wrap-up insurance programs, also called consolidated insurance programs, provide coverage for all participants in a construction project under one coordinated insurance program.
Types of wrap-up programs:
OCIP: Owner-controlled insurance program. The owner purchases coverage for all contractors.
CCIP: Contractor-controlled insurance program. The general contractor purchases coverage for subs.
Rolling programs: Programs covering multiple projects over time.
What wrap-ups typically include:
General liability: Covering all enrolled parties.
Workers’ compensation: For all workers on the project.
Umbrella/excess: High limits for the project.
Builders’ risk: Property coverage for the project.
Professional liability: Sometimes included for design errors.
Benefits of wrap-up programs:
Consolidated coverage: One program instead of many individual policies.
Higher limits: Project-wide limits often exceed individual contractor limits.
Gap elimination: Eliminates coverage gaps between contractors.
Cost efficiency: Bulk purchasing may reduce total insurance cost.
Simplified claims: One insurer for the project simplifies claims handling.
Participant responsibilities:
Enrollment: Contractors must enroll in the program to be covered.
Premium adjustment: Contractors remove project from their own policies and reduce premium accordingly.
Compliance: Follow program safety and reporting requirements.
Claims reporting: Report claims through the wrap-up program.
Bidding wrap-up projects:
Insurance exclusion: Remove insurance costs for covered items from your bid.
Credit calculation: Determine what to credit for coverage provided by the wrap-up.
Retained coverage: Maintain coverage for exposures not included in the wrap-up.
Enrollment timing: Understand when enrollment is required and how.
Wrap-up considerations:
Program quality: Evaluate the wrap-up insurer and administrator.
Covered exposures: Understand exactly what is and isn’t covered.
Completed operations: How long does coverage extend after project completion?
Deductibles: How are deductibles handled for enrolled contractors?
What notice requirements do insurance contracts have?
Insurance policies contain notice requirements that, if not followed, can affect coverage. Understanding these requirements ensures you don’t inadvertently jeopardize claims or compliance.
Policy notice requirements:
Claims notice: Most policies require you to notify the insurer promptly when you become aware of a claim or potential claim.
Occurrence notice: Some policies require notice of occurrences that might lead to claims, even before actual claims are made.
Lawsuit notice: Immediate notice when you’re served with a lawsuit is typically required.
Cooperation: Ongoing obligation to cooperate with the insurer’s investigation and defense.
Timing requirements:
Prompt notice: Many policies require notice ‘as soon as practicable’ or ‘promptly.’
Specific timeframes: Some policies specify notice within a certain number of days.
Claims-made policies: Claims must be reported during the policy period or extended reporting period.
Prejudice standard: In many states, late notice doesn’t void coverage unless the insurer was prejudiced by the delay.
What to report:
Known claims: Any demand for money or services.
Lawsuits: Any legal action naming you as defendant.
Potential claims: Situations likely to result in claims.
Incidents: Accidents, injuries, or property damage that could lead to claims.
Certificate notice provisions:
Cancellation notice: Certificates often state insurers will provide notice before cancelling coverage.
Endeavor language: Standard certificates say insurers will ‘endeavor to’ provide notice, but this isn’t guaranteed.
Actual endorsements: If guaranteed notice is required, specific endorsements may be needed.
Contractual notice requirements:
Client notification: Contracts may require you to notify clients of claims or coverage changes.
Timeframes: Contract notice periods may differ from policy requirements.
Documentation: Maintain records of all notices given.
When in doubt, provide notice. Late notice creates coverage risk; early notice rarely causes problems.
What should I do if a client’s insurance requirements seem excessive?
Sometimes clients request coverage that seems disproportionate to the work being performed. Knowing how to evaluate and respond to these situations helps you win business without accepting unreasonable risk.
Evaluating the requirements:
Industry comparison: Compare requirements to what similar clients typically request. Outliers may be negotiable.
Risk assessment: Consider whether the requirements match the actual risk your work creates for the client.
Cost analysis: Calculate what compliance would cost and whether the contract justifies that expense.
Coverage availability: Determine whether the required coverage is even available in the market.
Approaching negotiation:
Ask why: Understanding the client’s concerns helps you propose alternatives that address their needs.
Provide context: Explain your current coverage and why it’s appropriate for the work.
Offer alternatives: Propose coverage that addresses their concerns differently, perhaps with different limits or structures.
Industry standards: Reference what comparable vendors typically carry.
Phased approach: Suggest building toward their requirements over time.
When to walk away:
Uninsurable requirements: If coverage simply doesn’t exist or is prohibitively expensive.
Disproportionate costs: When compliance costs exceed reasonable profit margins.
Unreasonable risk transfer: When requirements shift inappropriate risk to you.
Documentation:
Record negotiations: Document all discussions about insurance requirements.
Written confirmations: Get agreed modifications in writing.
Contract alignment: Ensure final contract reflects negotiated terms.
Most clients prefer keeping good vendors to losing them over insurance technicalities. Professional negotiation often finds workable solutions.
What should I know about insurance audits?
Insurance audits review your actual exposure versus what was estimated when your policy was written. Understanding audits helps you prepare and avoid unexpected premium adjustments.
Why audits happen:
Accurate premium: Insurance is priced on estimates. Audits true up premium to actual exposure.
Verification: Insurers verify that exposure information is accurate.
Common policies audited: Workers’ compensation, general liability, and auto policies are frequently audited.
What auditors examine:
Payroll records: For workers’ comp, actual payroll compared to estimated.
Revenue records: For liability policies using revenue for rating.
Job classifications: Verify employees are properly classified.
Subcontractor records: Verify subcontractor insurance, which may affect your premium.
Vehicle counts: For auto policies, actual vehicles versus estimated.
Audit outcomes:
Additional premium: If actual exposure exceeded estimates, you owe additional premium.
Return premium: If actual exposure was below estimates, you receive a refund.
Classification changes: Auditors may reclassify employees, affecting rates.
Preparing for audits:
Accurate records: Maintain organized payroll, revenue, and subcontractor records.
Classification documentation: Document job duties supporting classifications.
Certificates of insurance: Maintain subcontractor certificates showing their coverage.
Segregated data: Separate payroll by job classification.
Minimizing audit surprises:
Accurate estimates: Provide realistic estimates when policy is written.
Mid-term adjustments: If business changes significantly, request mid-term premium adjustments.
Ongoing communication: Keep your agent informed of significant changes.
Classification review: Periodically verify employee classifications are correct.
Audit disputes:
Review findings: Examine audit results carefully.
Documentation: Provide documentation supporting your position.
Agent assistance: Your agent can help resolve disputes.
Appeal process: Insurers have processes for disputing audit findings.