Action Over Exclusion

This exclusion is best understood by first looking at what a "third-party-over action" is. If a worker is injured his sole remedy is supposed to be worker's compensation. However there may have been a third party that contributed to the claim. This would usually be the general contractor since the GC is responsible for safety at the work site. It could however also be the owner of the property being worked on.

I'll give two scenarios. Let's say an employee for a landscape company is mowing a lawn. The homeowner has a particularly ill tempered dog that is normally kept in a dog run. On this particular day the homeowner decided to let the dog inside then he left the font door open. The dog runs out of the house and bites the employee of the landscaper. Since the injury was on the job his medical bills are paid for by worker's compensation. If the employee then sues the homeowner that is the third-party-over action.

In a similar way an employee of a subcontractor injured at a job site could file a suit against the general contractor alleging that the job site was not safe. In this case the GC would be the third-party that is being sued because the employee of the sub cannot sue his employer directly for a work related injury. The Action Over Exclusion would exclude coverage for such a claim.

In the case of a subcontractor if he signed a Hold Harmless Agreement or Indemnification clause he could see the claim coming back to his general liability policy via a Cross Suit from the general contractor regardless of whether or not the GC's policy had the exclusion. If the subcontractor's policy also has an Action Over Exclusion there would be no coverage from the subcontractor's policy either.

As a general contractor this is a really big exclusion since every employee of each subcontractor could be a potential claim if he is injured. A general contractor however will usually require some sort of Indemnification Agreement or Hold Harmless Agreement from his subs to prevent this transfer this type of claim.

As a subcontractor the contract becomes the more important issue since his employees cannot sue their employer directly for an on the job injury. If the subcontractor assumes the liability from the GC via a contract he could see such a claim coming back to him.

The International Risk Management Institute (IRMI) defines
third-party-over action as:
“A type of action in which an injured employee, after collecting workers’ compensation benefits from the employer, sues a third party for contributing to the employee's injury. Then, because of some type of contractual relationship between the third party and the employer, the liability is passed back to the employer by prior agreement. Depending on the nature and allegations of the action, coverage may be afforded under the contractual liability section of the employer's commercial liability policy or the employers’ liability section of the employer's workers’ compensation policy.”

Admitted vs Non-Admited Carriers

There are many carriers that are admitted in California that are not domiciled in California. The state where a carrier is domiciled is where their offices are physically located. Probably most of the admitted carriers in California are domiciled elsewhere. A carrier is only domiciled in one state but can be admitted in many states. Thus a "California Admitted Carrier" can be domiciled in another state than California

California Admitted carriers participate in the California Insurance Guarantee Association or CIGA. Non-Admitted carriers do not participate in this fund. .

Non-Admitted carriers are also referred to as Surplus Lines carriers. They typically write risks that Admitted carriers will not write. This is why we see so many non-admitted carriers in the construction industry.

The California Department of Insurance maintains what we call the LASLI list which is the LIST OF APPROVED SURPLUS LINE SUPPLIERS. You can see this list here. This is an important list when dealing with Non-Admitted carriers and you should verify that the carrier is on this list if you are going with a non-admitted carrier.

The stability or size of an insurance carrier is not directly related to whether it is Admitted or Non-Admitted. There are many A++ XV carriers that are non-admitted that use industry standard forms just as there are Admitted carriers that are B rated and much smaller in the financial size category and some use manuscript forms (non industry standard or non ISO forms). It is often a matter of whether a particular carrier decides to operate in California (or any other state) as Admitted or Non-Admitted. Some carriers operate as Admitted in other states but Non-Admitted in California. We have seen carriers that switched from being Admitted to non-admitted such as companies that are sister companies with one being admitted and the other non-admitted that moved business from the Admitted to the Non-Admitted carrier when the insurance market was very hard.

Possibly one of the reasons carriers do this is that it gives them more leeway in changing rates than if they were admitted. It makes it more possible for them to remain competitive and raise rates (as we say in the hard market) or lower them (as we have seen lately) faster than if they were Admitted carriers. This is especially important for the types of risks that surplus lines carriers typically insure.

Additional Insured Endorsements. What are they?

What is an Additional Insured Endorsement? Is this is the same as an Additional Insured Certificate?

Any endorsement to a policy is a change to the insurance contract. When an entity is added as Additionally Insured to your policy they are given the right to make a claim directly against your policy. This is because they are an "insured" on the policy. A certificate of insurance is basically a statement about what should be in the policy. If an Additional Insured Certificate is issued but the policy does not have the required endorsement then it is basically false. 

There are several types of AI endorsements. The CG 2010 11/85, CG 2010 10/1 and the CG 2010 10/93 are the three most common. Other endorsements are usually modifications to one of these types generally referred to as "Manuscript AI Endorsements." Recently the CG 2033 and CG 2037 have become widely utilized.

Of the three endorsements the cg 2010 "11 85" has stronger wording. An entity added with an 11/85 is an additional insured for "your work". This means that even after you have completed the job, even years later, the AI can make a claim directly on your policy for a liability claim. The 11/85 endorsement is increasingly hard to obtain. Some claim that it is even gone but we still see it being issued for commercial work. Update: (2012-2013) - Despite all of the predictions that the 11/85 endorsement would be going away it has proven to be a continually referred to and used endorsements. Several carriers have once again started to include the 11/85. The intention of the Insurance Services Office was to replace the 11/85 with a combination of CG 2033 and CG 2037. These two endorsements are still pretty much the same thing as the 11/85 but the 11/85 continues to be the go-to endorsement. 

The 10/93 form provides the AI coverage for "your ongoing operations". In this case the AI would only be able to make a claim directly during the time that your project or operations are ongoing. After the job is completed their status as additional insured is no longer in force. The 10/01 is very similar to the 10/93

With this in mind one should be conservative with endorsement requests and they should only be made when required by a written contract.

(Feb 2010) Lately we have seen an increased willingness for 11/85 equivalent endorsements to be issued for remodeling operations. While this wording is still not available for new residential 11/85 equivalent wording is available from some carriers for remodeling and service jobs.

Regarding the question of, "What does and Additional Insured Endorsement Cover?" , the only correct answer to the question is, "It depends on the language of the endorsement."

For a comprehensive list of articles on the subject of Additional Insured Endorsements click here.

To learn what Blanket Additional Insured Endorsements are read this article. 

(CG20101185,CG 20 10 11/85, CG2010, CG 20 10, CG20101093, CG 20 10 10/93, CG 20 33, CG 20 37)

Avoid paying too much.

How do you avoid paying too much for insurance?

The best approach is to find a broker who knows and is familiar with the type of work you perform and who understands the underwriting process and how policies are rated. Then, provide your broker with an accurate survey of your exposures; gross receipts, payroll, number of full time and part time employees and sub-cost. As well as all of the other details asked for about your company. Keep in mind that your policy will run 12 months into the future and your estimates are for future work (you will also be asked about past amounts as well). You should also be alert to any offer that seems too good when compared to other quotes that are available. The most expensive insurance there can be is one that provides no coverage when there is a claim regardless of how cheap it was when you bought it.

Things to watch out for:

• Are are all of the fees disclosed?
  • Typical fees are, Policy Fee, Inspection Fee and Broker Fees.
  • For non-admitted carriers there will also be a tax.
• Does the payroll include any owner that is active in the field?
• Are the Gross Receipts and Subcost correct?
• Is the name of the carrier disclosed?
• Does the policy have a Sunset Clause?
• Is it a Manifestation Form policy?
• Is it a Claims Made policy?
• Look at these actual proposal samples for examples of what to look out for.

Be careful of an insurance proposal that does not disclose all of the fees. Insurance brokers are expected to make full disclosures of premiums and fees but some still do not do this. Watch out for a proposal that is based on less exposure than what you have. We have seen some quotes where the broker took the gross receipts or payroll estimates and cut them in half. This can be very expense as the resultant rate is often higher based on the lower estimated annual gross receipts or payroll. If the policy is audited the you can end up paying an inflated rate for the coverage. Remember that just about every policy you will be offered is subject to audit at the company's discretion. Audit premiums can be quite a shock if the original policy was based on inaccurate figures.

This brings up the point of the estimated figures to base the rating on. The best approach is to be as accurate as possible, being careful not to be over optimistic about the estimated numbers. If you do less than you project you will have paid more than you should have. Many policies are only upward on audit. At the same time, if you low ball the numbers you will most likely be given a higher rate and when you have your audit you will be paying more than you would have if your estimates were accurate. And, if the figures are very far off you run the risk of being accused of misrepresentation and no coverage in the event of a claim.

The proposal that you are given should disclose the rating basis and the carrier that is being offered. We have seen contractors spend thousands of dollars on down payments without even knowing who the carrier was. You would never buy a car without knowing the make, why buy insurance without knowing the carrier?

Finally the type of policy will affect the price. Traditionally coverage for contractors is on an Occurrence Form. In recent years a Modified Occurrence form has appeared. Be sure you understand the implications of this type of policy form. There is also a Claims Made form and policies with Sunset Clauses. If your broker cannot easily explain the differences to you consider a broker who understands the differences.