Masonry Magazine April 1986 Page. 23
Insurance:
The Crisis Facing Us All
by WALTER T. DERK
Walter Derk is MCAA's insurance consultant with Fred S. James & Co. of Illinois in Chicago. This article is adapted from his address before the 36th MCAA Educational Conference in St. Petersburg Beach. Fla.. on March 4, 1986.
The insurance business is indeed in chaos-for every commercial insurance buyer. If it seems like your business is being hardest hit, it's far worse for architects/engineers, doctors, municipalities, accountants, insurance people and... lawyers. And it will get worse before it gets better. Maybe a small improvement in 1987, not in '86.
I will concentrate on liability insurance here because it has created the biggest bumps. (At the MCAA Conference in St. Petersburg, I asked for a show of hands from those who had just renewed their business coverage in January or February, and saw none, which means that those present are in for another surprise before long.) The large CIGNA Group (Connecticut General/Aetna) added $1.2 billion to their open claim reserves, which constituted a 28% increase and producing for 1985 the largest loss recorded by a property & casualty insurance company. This was perceived as a signal that further rate increases are on the way and confirmed by other insurance companies posting large reserve increases as well.
Aside from the cost factor, the next kick to come is called the new Commercial Liability Insurance Policy-no longer called Comprehensive, since it clearly is less protection than is provided by the older forms. I suggested that it would pay the audience to come away from the meeting with a better understanding of just two things: Coverage triggers and Insurance Services Office (ISO) Form CG-2503.
First, we had an "accident" to trigger coverage under liability policies. Coverage applied if the accident took place during the policy year.. no matter when it came to light or a lawsuit was filed. It did the job, until the need arose to cover slow-moving accidents which did not happen all at once but over a period of time-fumes, seepage and other gradual causes. "Occurrence" coverage was born. The policy said that all exposure to one cause was considered one loss. It, too, did the job... until asbestos victims and their employers began suing everyone-including Aetna, Hartford, Travelers, the Mutuals, everyone.
When Aetna contracted 30 or 40 years ago to provide "x" limits of liability during any one policy year in return for "x" dollars of premium, they never dreamt that courts 30 or 40 years later, in search of a nice, deep pocket, would rule that all of those years' limits would be made available to pay in 1985 dollars new claims priced at 1945 premium levels once. Accounting books which had been closed for years were suddenly opened again, with disasterous results. Clearly something had to be done to limit Aetna's liability to one time per loss, and in more predictable dollars. "Claims made" general liability coverage was born.
For example, a 4-1-85/86 occurrence policy will cover liability claims which are caused in that timeframe, regardless when you learn of them or when suit is filed. If that policy is renewed 4-1-86/87, for the first time on a claims-made basis, it will cover liability claims which are "made," i.e., reported during that timeframe but excluding any which were caused before 4-1-86. That is the retroactive date, and it should remain constant at 4-1-86 thereafter. If it doesn't, or if you go back to an occurrence form of policy at some point in time, you have to buy "tail coverage," or an extending discovery period, to avoid gaps in coverage.
The situation is complex enough that I see no choice than to saddle your insurance professional with those problems and to get his/her recommendations, preferably in writing.
Another big change is that now for the first time, all of your general liability coverage will be subject, whether occurrence or claims made, to an aggregate limit per year. Use it up and you're bare unless your Umbrella excess liability policy drops down to fill the gap.
The old Comprehensive general liability forms issued to contractors at stated limits of liability were applicable to each project site away from the contractor's owned premises. Under the Commercial liability form there is no similar condition. It is vitally important therefore to be certain that your policies are extended by issuance of endorsement ISO CG-2503 or equivalent, to restore those separate limit conditions for each project site. Not everyone knows of the existence of this endorsement yet, and it is therefore all the more important to be certain you have it.
Umbrella excess liability policies have gone up higher than any except professional liability insurance, but our biggest problem is finding enough to buy, at any any price. Some forms of coverage no longer fit the term "Umbrella." having become simple high-limit excess policies covering claims in excess of a stated retention, whether or not insured. This is one way out of a difficult problem created by variances in underlying primary liability insurance contracts.
Considerable audience discussion followed at the St.
continued on page 44
MASONRY-MARCH/APRIL, 1986 23