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Wrap-up Insurance Programs for Construction Projects

Wrap-up Insurance Programs for Construction Projects

Insuring all of the risks associated with large-scale constructions projects can be a daunting task for the parties involved. The traditional insurance approach requires each party to procure and maintain separate coverage. Generally, the contractor and subcontractor then include the cost of insurance, plus a mark-up, in their project bids. 

Typically, risk is then pushed downstream—from owners to general contractors, and from general contractors to subcontractors—through contractual indemnifications, contractually mandated minimum insurance requirements and additional insured provisions.

While this approach may be customary for the parties involved, it is not without complications. Due to the number of policies and insurers involved, the traditional approach creates the potential for unforeseen liability gaps to emerge. Some parties may have inadequate limits, gaps in coverage or no insurance at all. Furthermore, because there are various insurance companies covering one project, each claim has the potential to cause costly and time-consuming cross litigation.

As an alternative to having each party obtain separate liability policies, project owners and general contractors can turn to a wrap-up insurance programs to manage their risks.

What is Wrap-up Liability Insurance?

Sometimes referred to as controlled insurance programs (CIP), wrap-up insurance programs are centralized insurance and loss control programs intended to protect the project owner, general contractor and subcontractors under a single insurance policy or set of policies for the construction project.  

Insurers typically offer two types of wrap-up programs based on the party sponsoring the program:

  1. Owner Controlled Insurance Program (OCIP): Under an OCIP, the project owner sponsors and controls the program. Accordingly, the project owner is the first named insured, and the general contractor, subcontractors and other participants are named insureds.
  2. Contractor Controlled Insurance Program (CCIP): Under a CCIP, the general contractor sponsors and controls the program. The general contractor is the first named insured, and the subcontractors and other participants are named insureds. Depending on the program, the project owner is either an additional insured or named insured.

While wrap-up programs are most frequently used for large, single-site projects, a rolling wrap-up can be used to insure multiple projects under one program.

Wrap-up programs are designed to reduce the overall cost of insurance by providing what amounts to volume discounts for the entire project.

What Types of Coverage Do Wrap-up Programs Provide?

Although each wrap-up program is designed to meet the needs of the specific project, most programs insure employer’s liability, general liability and excess liability exposures for claims arising from the construction project at the construction site during the policy period. 

In many instances, builder’s risk, environmental liability, contractor default and other types of insurance can be included under a wrap-up program. Professional liability coverage can also be added to insure architects, engineers and other design professionals working on the project.

Liability occurring away from the project site is generally excluded under wrap-up programs. Accordingly, subcontractors, suppliers and vendors conducting off-site manufacturing or the assembling of building components may be excluded from the program. Claims arising from goods or materials in transit are often also excluded, preventing haulers and truck drivers from being covered under the program.

Wrap-up programs typically do not insure specific operations such as blasting, demolition or other high-risk operations. However, each program is different, and it is critical for program sponsors to be familiar with exactly what is and is not covered.

Benefits of Wrap-up Programs

Wrap-up programs can provide a number of benefits, including the following:

  • Potential cost savings: Wrap-up programs are designed to reduce the overall cost of insurance by providing what amounts to volume discounts for the entire project.
  • Consolidated coverage: Under the traditional approach, by which parties procure their own insurance, the project owner and general contractor can set minimum insurance requirements for downstream participants. However, it can be difficult to determine whether contractors and subcontractors have obtained the correct limits and types of coverage. By contrast, under wrap-up programs, the controlling entity exerts greater control over the types, scope and limits of coverage.  
  • Higher limits: Most wrap-up programs have very high limits. If a major disaster occurs at a project and is not covered by a wrap-up program, the responsible contractors may not have adequate limits to cover the claim. Thus, the owner or general contractor may be on the line for the difference. However, if the project is covered by a wrap-up program, the limit should be sufficient to cover the incident.
  • Centralized safety and risk management: Program sponsors, working in conjunction with their brokers, the insurer and safety professionals, can maintain centralized safety and risk management services. Doing so can reduce the frequency and severity of injury and property damage claims, thereby reducing insurance costs for the project.
  • Efficient claims processing: Because a single insurer is the control point for managing claims, the process tends to be more efficient under wrap-up programs.
  • Reduced disputes among insured parties: By covering all of the parties on a project under one policy, wrap-up programs reduce coverage disputes and subrogation issues between insureds and insurance carriers for covered claims that occur on the job site.
  • Access to projects: For contractors and subcontractors, wrap-up programs can provide them with access to projects that they may not have otherwise been able to properly insure.  

Potential Drawbacks

Because wrap-up programs often offer a broad range of coverage for many entities, they can be expensive to obtain. However, program sponsors are typically able to reduce costs by selecting higher deductibles or by distributing premium costs to all parties covered under the policy.

Since wrap-up programs tend to encompass several types of coverage for a number of different organizations, program sponsors generally inherit administrative tasks. Beyond purchasing the wrap-up program, sponsors may be required to review and approve program documents, meet with underwriters and review claims. To address these issues, plan sponsors can designate or hire individuals to help administrate the programs, which can add to overall costs.

While wrap-up programs often result in cost savings, like any insurance policy, they are subject to market fluctuations. Accordingly, potential cost savings should be carefully considered.

Additional Information

Reith & Associates Insurance and Financial Services Limited understands that implementing a wrap-up program can be a complicated process.  There is no “one size fits all” model, and each program needs to be properly analyzed and tailored to meet a project’s specific needs.

If you are interested in insuring your next construction project with a wrap-up program, contact Reith & Associates Insurance and Financial Services Limited today and we will take the time to walk you through your coverage options.

Dan Reith, Principal Broker
Dan Reith, Principal Broker

Dan Reith
Principal Broker
Reith & Associates Insurance and Financial Services Limited
https://reithandassociates.com/

Nikki Johnson No Comments

Home-Based Business Coverage

If you conduct business in your home, insuring your business properly is part of a solid risk management plan. We can help!          

What Protection Does It Offer?

Common coverages for home-based businesses include personal business property, professional liability, business income, personal and advertising injury, loss of business data, crime, theft and auto coverage. Depending on the type of options may be available.

Coverage Options

Based on your business needs, you have three basic coverage options to choose from, depending on your level of risk:

  1. Homeowners Policy Endorsement. This provides the least amount of coverage and, therefore, is not ideal for most home-based businesses (depending on the level of risk).  While it may provide enough coverage for a freelance writer with one computer and no business foot traffic, it’s not enough for someone who employs others, has clients visiting his or her home or has valuable business equipment and/or inventory.
  2. In-home Business Policy. More comprehensive than a homeowners policy endorsement, in-home business coverage is a stand-alone policy that provides higher amounts of coverage for business equipment and liability.
  3. Business Owners Policy, or BOP. A BOP bundles property and liability insurance into one policy. Created specifically for the small- to mid-size business, a BOP covers your business property and equipment, loss of income, extra expense and liability. It is the most comprehensive property and liability option. It does not include health or disability insurance, which are available as separate policies.

What’s Your Risk?

While most homeowners insurance policies do cover a limited amount of business equipment—computers, copiers and printers, to name a few—it’s likely that what you own is worth more than your policy’s limits. Also, your homeowners liability insurance probably won’t cover any injuries that may occur to the employees or clients that you have on your premises. What’s a home-based businessperson to do?

We’re Here to Help

Properly insuring your home-based business is crucial to protecting both your business and your home. At Reith & Associates Insurance and Financial Services Limited, we understand the small business owner’s personal and business needs, and can help you tailor coverage that’s as unique as the products and services you provide. Contact Reith & Associates today to learn more about how we can help you insure your livelihood.

Reith & Associates Insurance and Financial Services Limited
http://www.reithandassociates.com/
519-631-3862

Nikki Johnson No Comments

Cyber Risks & Liabilities

By: Dan Reith
Principal Broker
Reith & Associates Insurance and Financial Services Limited

COVID-19’s Impact on Cyber Threat Activity

Cybersecurity crisis emerged as a result of the 2020 global health crisis as cybercriminals posed an increased threat to the safety of individuals and organizations. Experts are seeing an uptick in cyber threat activity as workforces continue to move to the digital landscape.

Increased Individual Attacks

In 2020, cybercriminals capitalized on fear surrounding the pandemic by producing COVID-19-related scams that trick victims into opening malicious links and attachments. Cybercriminals create fake COVID-19-related content, such as local and regional health updates, or knowledge of cures and treatments. The pandemic has created an opportunity for cybercriminals to exploit human curiosity and concern, which has led to an increase in cyberattack victims.

There’s also been an increase in phishing scam campaigns where cyber threat actors craft convincing copies of government websites and official correspondence. These attacks prey upon populations who are anxious and less likely to be skeptical of emails and other links regarding COVID-19.

Increased Organizational Attacks

As cybercriminals continue to exploit human vulnerability and individual fears surrounding COVID-19, the sudden increase in organizations with employees working from home has allowed cybercriminals to capitalize on cloud-based technologies that didn’t exist before. Research has found that companies became less secure in 2020 due to hastily deployed remote work solutions.

The Canadian Centre for Cyber Security predicts that ransomware will continue to target health care and medical research facilities as the global health sector continues to mitigate the COVID-19 pandemic. Cybercriminals taking advantage of the health crisis have the ability to jeopardize patient outcomes and public health efforts.

Another ransomware trend that emerged in 2020 is known as “double extortion,” where cybercriminals maximize their chance of a profit by threatening additional abuse of the compromised data, including auctioning or selling it.

It’s more important than ever that organizations take a proactive approach to their cybersecurity measures as well as educate employees on the risks of cyber threat activity.

Human Error as a Cybersecurity Threat

The IBM Cyber Security Intelligence Index Report found that human error is a major contributing cause in 95 per cent of cybersecurity breaches. Human errors are unintentional actions or a lack of actions by employees and users that cause or allow a security breach to happen.

Human error can typically be separated into two categories:

  1. Skill-based errors—These errors occur when a user makes a small mistake when performing familiar tasks and activities. While they know what the end result is supposed to be, they make an error due to memory lapse, mistake or negligence.
  2. Decision-based errors—This type of error occurs when a user makes a faulty decision as a result of not having the necessary level of knowledge, not having enough information about the specific circumstance or not realizing inaction is a type of decision.

These mistakes and lapses in judgment can lead to cybersecurity attacks that put organizations in jeopardy. Cybercriminals know that technical security measures are only effective when humans properly utilize them.

The following are examples of how human error can be exploited:

  • Misdelivery—Misdelivery is a common threat to corporate data security and happens when a user sends something to the wrong recipient. Employees should take care to double-check all fields of information before hitting send.
  • Password issues—According to the National Centre for Cyber Security, 123456 is the most popular password in the world, and 45 per cent of people have the same password for multiple online services. Strong, unique passwords should be encouraged among employees.
  • Patching—Software developers are constantly working to detect exploits in programs and send software updates when one is discovered. Users and employees should immediately implement the update to remain protected against threats.

Addressing human error is key to reducing an organization’s chance of being successfully targeted. Educating workforces on mitigating cybersecurity threats can empower them to actively look out for and report new threats they may encounter.

What Is a Deepfake and What Is at Risk?

A deepfake refers to a doctored video or audio recording that looks and sounds like the real thing. While manipulating video is nothing new, deepfake technology could give anyone the ability to distribute misleading and false information.

As technology advances, it’s becoming harder to discern what is real or fake on the internet, and machine learning models are beginning to have trouble detecting the forgery. While there are certain signs that make it easy for the naked eye to spot a deepfake, including a lack of eye blinking or shadows that look wrong, experts predict that deepfakes will continue to advance in sophistication. Soon, the utilization of digital forensics will be the only possibility for detection.

If deepfakes become unidentifiable, it could lead to inherent mistrust and jeopardize faith in a shared, objective reality. In addition, there is the threat of those who might seek to weaponize this technology for political or malicious purposes.

Nikki Johnson No Comments

Privately Owned Company Directors & Officers Insurance – Coverage in Action

By: Dan Reith BA(Hons) CAIB
Principal Broker
Reith & Associates Insurance and Financial Services Limited

With today’s emphasis on corporate transparency and accountability, an organization’s directors and officers face a countless number of exposures. Regardless of your company’s size or mission, the legal costs associated with a lawsuit can be devastating for both the organization and your directors and officers.

Many wrongly assume that directors and officers (D&O) insurance is only necessary for publicly traded companies. However, privately held organizations can just as easily fall victim to lawsuits that can impact the company, its officers and board, marking D&O insurance a must!

Claims Scenario: Floored by a Breach of Duty Lawsuit

The company: A private flooring installation company worth approximately $20 million.

The challenge: A Manitoba-based flooring company with less than 15 employees was recently the subject of a lawsuit. A competing flooring company sued the insured, alleging purposeful contract interference.

Specifically, the competitor accused the company of diverting contracts and sought direct and consequential damages, including lost profits, punitive damages and attorney fees. As a result, the insured and its directors and officers were taken to court.

Private company D&O insurance in action: The case above alleges a wrongful act—an act that falls directly on the insured’s directors and officers. Thankfully, D&O insurance provides coverage for alleged or actual acts, which helps organizations respond to various types of litigation.

This is particularly important when you consider that the defence costs and mediation expenses for the above case reached $193,000. Without D&O insurance, the small-sized flooring company, as well as its directors and officers, would be forced to pay for the defence out of pocket.

Claims Scenario: Investing Gone Wrong

The company: A private company specializing in business process outsourcing.

The challenge: A private company works with several Fortune 500 brands and helps manage their shipping and customer care divisions. Recently, shareholders targeted the private company, alleging fraud and misrepresentation.

These shareholders claimed they were told the money they invested would be used to acquire smaller enterprises—bolstering the organization’s outsourcing capabilities. Using the shareholders’ money, the company would purchase these enterprises with the promise of doubling the original investment. However, when several of these acquisitions failed, shareholders claimed the directors and officers did not conduct the proper due diligence to ensure they were making the right decisions.

Private company D&O insurance in action: Despite their reasonable and best efforts, the directors and officers of the insured company failed in a high-risk, high-reward scenario. As a result, they were sued for negligence and possible fraud.

The company was taken to court—a process that went on for months and led to immense legal expenses. At the end of litigation, the D&O policy limits of $2 million were nearly exhausted but helped ensure the financial longevity of the company and its leadership.

Learn More About D&O Insurance for Private Companies

Many private organizations don’t believe they need D&O insurance. This can be dangerous thinking, as just one D&O claim can drain the personal assets of a company’s leadership team.

The current litigation climate for private companies presents an unending and potentially devastating challenge. Following a financial crisis, error, business interruption or similar incident, management can be held liable. Without the proper coverage, directors and officers would have to face claims brought on by competitors, customers, business partners and regulators on their own, likely with minimal success.

The Benefits of D&O Insurance for Private Companies

  • Legal Cost reimbursement—D&O polices can provide legal cost coverage for a variety of claims.  Specifically, D&O insurance can provide companies following allegation of wrongful acts, financial mismanagement, errors in judgement and negligence.  D&O lawsuits can occur without warning, it is critical that private company leaders arm themselves with the right policy.
  • Peace of Mind—D&O claims can come from a variety of courses including employees, clients, contractors and government bodies.  For private companies, claims from creditors and competitors are particularly common.  D&O insurance ensures that private company leaders are protected regardless of where claims originate, providing timely and effective coverage.
  • An improved ability to attract new leaders—Simply put, having a strong D&O policy in place makes board seats more attractive.  This is because purchasing insurance shows prospective leaders that you take D&O risks seriously and are prepared to protect them.
  • Coverage for regulatory exposures—Regulator agencies are increasing their scrutiny of private companies, making D&O insurance all the more important.  Paying the cost of a lawyer to defend a director or officer against a government enforcement action is expensive, and private company D&O insurance policies can help with these types of expenses.

To learn more about D&O insurance and other ways to keep your organization’s leadership team safe from litigation, contact your insurance broker today.

Talk to an Expert!

Reith & Associates Insurance and Financial Services Limited

519.631.3862

http://www.reithandassociates.com/


Nikki Johnson No Comments

Cyber Risks & Liabilities in 2021

By: Dan Reith BA(Hons) CAIB
Principal Broker
Reith & Associates Insurance and Financial Services Limited

Technology was forced to rapidly advance in 2020 due to the global health crisis, which found organizations scrambling to adapt to remote working. HR technology was no exception. With the implementation of virtual onboarding processes, the creation of fully-automated payroll systems and more, HR technology adjusted to the needs of organizations in 2020.

HR technology will continue to be vital for the advancement of companies in 2021 in the four areas mentioned below.

Digital Solutions for Remote Work

As organizations continue to navigate the virtual landscape, digital solutions are essential. Keeping an eye on productivity while still fostering collaboration is possible by managing workflows and streamlining processes. Integrating platforms that offer niche solutions for digital collaboration is key moving forward. Document sharing, online chats and video conferencing can help with keeping projects on track.

Software-as-a-Service and Cloud-based HR

Organizations with cloud-based systems already in place were able to seamlessly transition from the office to working from home. For those relying on outdated technology, the shift was a bit harder. In 2021, HR should include cloud-based and software-as-a-service (SaaS) solutions to stay on top of the evolving digital landscape. These solutions allow for comprehensive employee management online, including talent acquisition, virtual onboarding, performance management and payroll.

AI-powered Talent Management

Sage People found that 56 percent of organizations plan to adopt artificial intelligence (AI) into their recruitment process in the next 12 months, compared to just 24 percent who utilized the capability in 2020. AI-powered talent management can include resume assessments and candidate ranking. AI can also schedule and conduct video-based interviews that can predict how well a candidate will fit the role.

Digital Learning

Job seekers are prioritizing educational opportunities as they search for their next career move. Employers should attract talent by implementing online education platforms as an indication of investment in their employees’ careers. Digital learning solutions are overtaking classroom-based learning, and this trend will only continue into 2021.

What Is Internet of Behaviours and How Will It Be Prevalent Going Forward?

Internet of Behaviours (IoB) is the leveraging of data to influence behaviour. Organizations utilize available data to predict and influence human behaviour. Gartner predicts that by 2023, 40 percent of the global population will be tracked digitally in order to influence behaviour.

However, IoB is already here and prevalent in many areas of daily life, including:

  • Facial recognition
  • Location tracking
  • Big data

And while IoB offers several benefits (e.g., convenience of having synced digital devices), the collection of this behaviour-focused data leaves sensitive data at risk for cyberattacks. Property access codes, delivery routes, bank access codes and more are susceptible to cybercriminals.

Businesses should be vigilant and proactive in their cybersecurity efforts to ensure that data is secure and protected. Consider introducing cybersecurity training and awareness programs in your organization in order to stay ahead of cybercriminals.

TOP CYBER THREATS FOR 2021

As the world continues to rely more and more on technology, the need to address threats to cybersecurity becomes increasingly important. With 64 percent of organizations already having experienced web-based attacks, here are seven cybersecurity threats to be aware of in 2021:

  1. Phishing — Phishing occurs when a hacker tricks someone into providing sensitive information or accessing malware by using a false identity. This can happen through email, social media accounts and more.
  2. SMS-based phishing — This form of phishing, sometimes referred to as “smishing,” occurs through SMS text messages. The attack only happens after the link within the text message is opened. While emails are typically able to identify a phishing scam and filter it out, text messages with bad links can still come through.
  3. PDF scams — These scams occur when a PDF attachment in an email or messaging platform contains a link to malware or ransomware. Scammers know people are more likely to open a PDF attachment than a website link, especially if it’s been labelled as a statement balance or press release.
  4. Malware and ransomware — Malware and ransomware can lead to hijacked software, frozen systems, and lost and stolen data. Businesses often keep data on servers that are connected to the internet, and all it takes is one crack in a company’s cybersecurity for hackers to attack and access that data.
  5. Database exposure — Customer contact information, financial records and identity records are all susceptible to hacking and theft when servers aren’t properly protected.
  6. Credential stuffing — Credential stuffing aims to gain private access through the utilization of stolen login credentials. The most common occurrence of credential stuffing happens when the same login information is used for multiple websites and accounts.
  7. Accidental sharing — Accidents happen. But when accidents contain confidential and sensitive information, company cybersecurity can be at risk. This type of threat is usually the result of human error rather than a hacker or malware issue.

Experts predict that, by 2023, cybercriminals will be stealing nearly 33 billion records per year. Learn more about protecting your organization against these cybersecurity threats by contacting Reith & Associates Insurance and Financial Services Limited today.

Nikki Johnson No Comments

Non-Profits: Employment Practices Liability & Donated Funds

By: Dan Reith
Principal Broker
Reith & Associates Insurance and Financial Services Limited

No employer wants to believe that their employees or volunteers would take legal action against them, especially in a non-profit organization. Unfortunately, over the past decade, Employment Practice Liability (EPL) has become one of the largest risks faced by organizations in both the non-profit and for-profit sectors. While these types of claims hurt any organization’s bottom line, they can be especially detrimental to non-profits that rely on donations to make up a large portion of their revenue stream. Donors want their money to be used to help your organization’s cause, not to pay off mistreated employees. In some cases, donors have actually sued non-profits over how their donations were used. To protect your organization against potential liability, it is important that you minimize EPL claims while accurately documenting the use of donated funds.

Donated Funds

A large number of non-profits rely heavily on donations to support their mission. To continue to receive this kind of support, non-profits need to be careful how they spend donated funds, as donors have become more and more scrutinizing of the organizations they give to. Recently, there has been an increasing trend of donors taking legal action against non-profits for misusing donations. Not only is the legal aspect of this expensive, but it can also hamper the ability to build relationships with new donors in the future, further costing an organization. It is extremely important that you record how donated funds are used in case your spending practices are ever called into question.

In situations involving EPL claims, donated funds must be properly managed to avoid backlash from donors. It should come as no surprise that donors may not be happy if their donations are used to cover part of a payout that results from your organization’s poor internal practices. The last thing you want is for an employee’s legal action to spark litigation from donors. The problem is, non-profits that rely heavily on donations may have no other means to cover damages awarded to an employee. To avoid these complications, it is important to stop EPL claims with good employee practices before they have the chance to turn into lawsuits.

Employment Practices

More and more employees are taking legal action against their employers for what they see as discriminatory practices in the workplace. With the potential costs they may bring, an EPL claim can be incredibly damaging to a non-profit organization, especially a small one. Implementing appropriate employment practice standards to stop harassment and discrimination will reduce the chances that an employee can make a successful claim, while also creating a positive atmosphere throughout your organization.

Start by outlining the kinds of behaviours that will not be tolerated so they are clear to all employees. Define what will constitute harassment and discrimination so it cannot be left up to interpretation after the fact. The standards you develop should apply to every level of employee no matter what position he or she holds. Equal enforcement means that every employee will be treated the same way, reducing the chance that an individual can claim they were singled out. The program should also encourage communication. Many times, employees who are having problems take legal action because they do not know what other routes to take. Having a program in place to handle employee concerns can help rectify a situation before it becomes a legal issue. Most importantly, make sure the guidelines you establish are followed. If they are in place but it is widely known that they are not enforced, they will be less effective in preventing claims.

It is important to extend these same policies to any volunteers you have working at your organization. EPL claims made by volunteers exist in a legal grey area largely defined by the extent of the volunteer’s involvement with the organization. While most of the time, volunteers have no legal base for a claim, it is still important to treat them with the same respect as any other employee. This not only protects your organization, but it also provides a positive work environment for those donating their time.

Retaliation

It is also important to note that retaliation comes into play in more than 25 percent of EPL claims. Retaliation can enter when an employee who has brought a claim against the employer feels that he or she has been punished in the workplace for his or her actions. This could take the form of position reassignment, failure to promote or even termination. An employee who originally may not have had a strong case could gain ground by showing that his or her employer retaliated against the initial claim. The addition of a retaliatory claim can increase both the potential payout to the employee and his or her chance for success.

To protect yourself from further legal action, you must be very careful when dealing with employees who have filed EPL claims. Do not make any rash decisions regarding the employee’s state in your organization. If the employee must receive disciplinary action for other work issues that are not related to his or her EPL claim, make sure to accurately document the reasons for the discipline. It is important that you can prove that you were not acting in retaliation for the earlier claim. When in doubt, contact your legal counsel for help in handling the situation in a way that does not invite additional liability.