Home » About SCM » Blog

Personal Exposure: A Detailed Review Makes All the Difference

John Doe lives in an affluent Southern California community and owns multiple homes.  He is considered  a high net worth individual with many assets and interests.  Mr. Doe was previously insured with a director writer, but upon thorough review by SCM’s Personal Risk Management team, the following issues were uncovered and appropriate solutions were put in place:

  • Mr. Doe’s custom built homes, primary and secondary, were reviewed regarding replacement cost. Taking into account the high level of customization in his primary home, which included imported materials, wall murals, ornate woodwork and detailed craftsmanship, the home was assessed to have a rebuilding cost of $7,500,000. The direct writer, however, had insured it at only $4,000,000 because they had not factored in the additional costs associated with the quality of the home.
  • Mr. Doe also has three staff members:  a nanny, a  housekeeper and a captain for his boat.  In addition to Workers Compensation insurance, Employment Practices was added to his protection to cover Discrimination, Harassment or Wrongful Termination.  Employment Practices coverage was not available with the direct writer.
  • With the direct writer, Mr. Doe’s excess liability limit was $1,000,000, but his net worth stood at approximately $85,000,000. This made Mr. Doe a considerably easy target, as liability claims are often the most detrimental in nature for high net worth individuals.  Higher limits were strongly recommended by the SCM team.  The deductible on the home policy was increased from $1000 to $5,000, additional home credits were applied, and the premium savings were used to increase the Umbrella to $25,000,000. Mr. Doe paid the same premium he did with the direct writer, but for an additional $24,000,000 in protection with a higher deductible.  High net worth carrier deductibles are waived on losses over $50,000.

The particular case of John Doe is a reminder that a thorough and on-going approach to personal risk analysis is the key to meaningful insurance solutions.

Raise your hand …

… if you know what to do in the event of a disaster!  As the kids head back to school, it’s also a good time for the rest of us to review some important matters.  Though the idea of creating a disaster plan is often put on the back burner, we are constantly reminded that it truly needs to be a priority, just ask the people in Napa, CA who are still digging out from last month’s 6.0 earthquake.  Do you have a plan in place?  Do your family members know where to meet if home is not an option?  Do you have food and supplies ready for your pets?  The following links provide a guide to implementing a plan, along with what to do before, during and after an earthquake.  Take just five minutes to review them and make sure you and your family are ready.




Managing Green Construction Contract Risks

As energy costs continue to rise and building standards become more environmentally rigorous, it’s not uncommon for construction projects to specify sustainable building practices or “green” building principles. However, capitalizing on the trend to build green can quickly turn your profit margin from black to red if you don’t have a clear understanding of your additional contract exposures.

What is Green Construction?

According to the Environmental Protection Agency, green building is the practice of creating structures and using processes that are environmentally responsible and resource-efficient throughout a building’s life cycle from siting to design, construction, operation, maintenance, renovation and deconstruction.

These structures meet specific objectives that protect the occupant’s health, are more energy-efficient, use resources more effectively and provide business tax incentives.

How is Certification Achieved?

To uphold green building standards, the U.S. Green Building Council created the LEED (Leadership in Energy and Environmental Design) program, which outlines standards for building using natural resources, recycled or healthy materials.

The LEED system evaluates projects based on design, construction and operation, serving as the voluntary national standard for sustainable buildings. It uses a checklist and point system of recommended practices where achieving various point levels can certify the building as having achieved silver, gold or platinum status. These practices involve such issues as efficient water and energy use, the reuse of waste materials, and the use of renewable and regionally produced products.

The LEED certification standards are rigorous and a simple misstep, such as not following a project’s material recycling or erosion plan, can put a project’s certification in jeopardy.

How Can I Manage My Contract Exposures?

From managing delays to guaranteeing certification, the following offers some common contract considerations and ways to minimize liability risks.

1.  Limit Contract Warranties

It’s true that green building leads to operational cost savings, healthier work and living spaces, and increased tax incentives, but it’s important to limit warranties to those expressly provided in the contract. If you oversell the benefits that you can deliver, you could face alleged fraud or false advertising charges.

Additionally, no single party is responsible for meeting a construction project’s certification goals, and certification is typically regulated by a third party over which you have no control. Therefore, never guarantee the level of certification on a project. Instead, warrant that the work will meet project specifications and accepted industry standards.

2.  Reduce Delay Risks

Anticipate unexpected delays, such as a shortage of green materials or lack of skilled workers, by updating the contract’s force majeure clause to shift the risk allocation for these types of delays to the owner.

Also specifically define in the contract what is meant by substantial completion, and don’t tie it to a project’s certification status. Obtaining certification may take up to a year after substantial completion of a project is reached. Therefore, it is also advisable to revise the contract if it restricts payments to you based on certification status.

3.  Define Consequential Damages

While many traditional construction contracts include mutual waivers of consequential damages, it is unclear if the courts consider lost tax incentives, decreased energy savings, decreased water bill savings, etc. as consequential damages. To ensure that these types of sustainable construction damages are waived, include them in the clause waiving consequential damages.

4.  Retain Right to Cure

Green building projects often use new, unproven materials and technologies, which may lead to future maintenance and performance issues. Spell out in the contract who is responsible for a component’s maintenance or malfunction, or what happens if a manufacturer goes out of business. Additionally, incorporate a clause which states that you retain the right to cure any alleged defective work, materials or equipment prior to the owner hiring another contractor to repair the work.

While this article focuses on common contract considerations, the process of taking a green building project from conception to use is complex. SCM’s Construction Division is available to assist  in identifying unique exposures and providing potential methods to manage or transfer risks. 

Risk Control Helps a Client Play it Safe

The warehouse manager of a logistics company and a valued SCM client recently shared the following testimonial about the service he received from the firm’s Risk Control Team:

“Based on the feedback provided by Tess Focardi and Lindsay Curran after a recent walkthrough of our company, we were able to immediately implement stricter standards and create a safer work environment.  This, in turn, ensured more favorable terms with the carrier and saved our company both time and money.  Tess and Lindsay are incredibly professional and diligent in their work product.”

SCM’s Risk Control Team is comprised of Randy Eliopulos (Risk Control Director), Veronica Kimble (Risk Control Manager), Tess Focardi (Risk Control Manager) and Lindsay Curran (Risk Control Consultant).  The team is available to provide our clients with a variety of risk management services, including Job Hazard Analysis, Ergonomic Evaluations & Training, Simulated OSHA Inspections, Post Accident Investigation Training and much more.

Dining Out Becomes Pricier with Minimum Wage Hike

Restaurant owners and consumers, alike, are being affected by the recent minimum wage increase.  While employees welcome the extra income, many restaurants are being forced to raise menu prices.  Expect to see price hikes at fast food chains, as well as fine dining establishments.



Is Your Business Prepared for a Product Recall?

From vehicles to pharmaceuticals to food products, what might risk managers learn from mass media coverage of product recalls? For manufacturers of all types of consumer goods, they might serve as a wake-up call to the potential impact of a product recall event and a lesson in what should be done immediately to prepare for potential exposures. According to the U.S. Consumer Product Safety Commission, there were nearly 39,000 consumer product-related injuries in 2010, resulting in numerous lawsuits.

The federal government mandates more than 1,000 recalls each year. Not including voluntary recalls, which are unrecorded, that’s an average of almost four recalls a day. Costs from a product recall or contamination can easily become many millions. In addition to the physical expense of a recall, falling sales due to poor consumer confidence, brand rehabilitation expenses and potential shareholder lawsuits may also contribute to long-term losses.

Despite recall frequency and the potential for extraordinary costs, most companies don’t adequately plan, prepare and practice for – or buy insurance to protect against – product recall events. In addition to proper insurance coverages, careful planning is essential in managing the risk of a recall.

Types of Exposure

There are two categories of exposure for a company faced with a product recall incident: first-party operational losses to the company and third-party liability losses to injured persons.

Unlike third-party losses, first-party loss is often overlooked. In addition to initial recall expenses, the potential long-term losses from the damage to a company’s reputation and loss of sales may continue for months or even years. Since these losses can be catastrophic, this article focuses on ways to manage first-party incident exposures.

Misconceptions and Considerations

It is a common misconception that product recall is covered under a general or product liability policy. Those coverages do a good job of covering bodily injury and property damage but generally exclude contamination and recall events. The addition of a product contamination or product recall policy protects your bottom line by covering the direct costs of recall, but transferring the risk is only one part of closing the recall exposure gap.

Regardless of size, every company offering consumer products – and sometimes those that offer products intended for commercial and industrial use – should establish solid product risk management policies and procedures for handling a recall or contamination event.

Understanding Three Basic Perils

It’s helpful to understand the three basic contamination perils when designing a risk management program that provides the best protection for the least cost.

Malicious tampering (intentional contamination) is prone to publicity, so it may seem common. In reality, malicious tampering is rare, but when it strikes, it tends to be a very severe loss. Managing this risk exposure can be difficult, as motives vary widely.

Accidental contamination is an unintentional error in the manufacturing, packaging or storage of a product. This includes mislabeling of ingredients, contamination by a foreign object or chemical, etc. This peril is the most common, but the majority of incidents are discovered prior to shipment. Therefore, these events receive very little publicity. As opposed to malicious tampering, this peril has very high frequency but usually relatively low severity. While most accidental contaminations are small events, historically the largest losses have been due to accidental contaminations.

Product extortion is the most difficult peril to characterize. Its frequency is between that of malicious tampering and accidental contamination. Its severity, however, is more difficult to quantify. Most extortions are amateurish hoaxes, but may evolve into outright tampering cases, which can be very costly.

Pyramid Defense

Think of your risk management plan as a pyramid that outlines a series of defenses to counter the threat of a product incident. The first line of defense is the base of the pyramid. What actions can be taken to eliminate the majority of threats, such as unwanted bacteria, disgruntled employees, malfunctioning equipment, sloppy suppliers or lax testing? Put that in the first tier (bottom) of the pyramid. Any threats that escape being eliminated by the first tier should be addressed by the second, and so on. As the pyramid rises, the plan becomes more specific and more effective at isolating and eliminating product incident threats.

Tier 1 – Total commitment to quality. The good news is that most of what can be done to protect against a product incident occurs in the area of product quality assurance and control. Commitment to turning out the highest quality products day after day is the best countermeasure to the threat of a product recall crisis. This dedication to quality should be evident in every aspect of business, from manufacturing to marketing. The logic is simple: If the product can’t leave the plant in a contaminated state and the packaging is designed so that tampering is difficult to accomplish or obvious once done, the odds of experiencing a major incident are considerably reduced.

Tier 2 – Prepare with a contingency plan. It is essential to have a plan in place before a crisis arises. Research indicates that the first 48 hours of a major product incident are more crucial than the next 48 days. Every company should have a workable product recall and crisis management plan.

Tier 3 – Focus with training. Contingency plans aren’t of much use if they haven’t been tested and honed under simulated conditions to ensure the plan works.

Tier 4 – Respond with expertise and decisiveness. Even with a good team and a good plan, there is a place in a recall crisis for professional consultants.

Tier 5 – Transfer risk where possible. Even the best companies who are prepared for a recall can suffer substantial financial losses. In spite of all precautions, a large-scale public recall may cost millions of dollars in extra expense, lost profits, lost inventory, lost shelf space and lost market share. If it comes to this, the last line of defense is a solid product recall insurance program – one that indemnifies for the host of extra expenses and losses in revenue that come with product withdrawals.

Product Recall Insurance

Insurance for first-party losses caused by product tampering and contamination incidents are broadly labeled as product recall insurance. Product recall policies help to cover the additional costs of a recall, including product loss, costs to withdraw the product from market, product disposal, product testing, overtime wages and crisis management — costs that can be devastating because they arise at a time when a company’s revenues are typically hardest hit.

There are several coverage forms, each designed to isolate some component of first-party product exposure. SCM works with you to ensure your product recall policy provides indemnity for:

Recall expense. This out-of-pocket expense is associated with executing a large-scale product withdrawal. It includes costs like extra temporary employees, overtime, public safety messages, special testing and handling, destruction and disposal costs and crisis management and/or PR consulting fees.

Replacement cost. As the name implies, this is the cost of replacing any product that had to be destroyed. This includes the cost of materials, labor and overhead directly associated with producing the product.

Lost profits. This indemnifies the insured for profits, which would have been earned on the withdrawn products and also for profits that would have been earned on future product sales but which were not earned because of resultant future sales declines. This is usually limited to a specified time period.

Brand rehabilitation expense. Most underwriters will also indemnify the insured for necessary rehabilitation of the recalled product’s consumer image. This includes costs like extra advertising, extra expense to rush a new product to market and special promotions to rebuild public trust in the manufacturer and its products.

In addition to transferring risk, thorough risk management practices are essential to minimize the exposure and the cost of a recall event. The product recall insurance marketplace is highly specialized. Our team of experts can help secure the coverage you need and collaborate with you develop a business contingency plan that meets your specific needs.

Employing Minors in Construction

Minors between the ages of 15 and 17 who are employed in construction have a seven times greater chance of being fatally injured than their peers working in other industries. Because of the dangerous nature of the field, the Department of Labor (DOL) imposes restrictions on the type of work and number of hours that minors are permitted to perform in construction. Become familiar with these regulations to stay in compliance with federal law. Of course, state laws may have stricter laws regarding the employment of minors. Always consult your local jurisdiction before beginning employment.

Minors Under 16 Years of Age

Those under 16 years of age may only perform office or sales work in the construction industry. They may not be employed on a construction site. The federal rules also limit the number of hours and times of day that such youth may be employed.

Minors Age 16 and 17

Those employed at age 16 or 17 may work on construction sites, but there are several tasks or jobs that are deemed hazardous for them to perform, such as:

  • Working in occupations involving mixing, handling or transporting of explosive compounds
  • Driving a motor vehicle or working as an outside helper (17 year olds may drive automobiles and trucks on an incidental and occasional basis if certain criteria are met)
  • Riding on most construction elevators and operating or assisting in the operation of cranes, hoists, forklifts, Bobcat loaders, front-end loaders, backhoes and skid steer loaders
  • Loading, operating and unloading most trash compactors and balers
  • Operating power-driven woodworking machines and metal forming, punching and shearing machines – including portable machines
  • Operating power-driven circular saws, band saws, chain saws, reciprocating saws, guillotine shears, wood chippers and abrasive cutting discs – including portable machines
  • Working in wrecking, demolition and shipbreaking
  • Working in roofing and on or about a roof
  • Working in excavation

This is not a complete list of hazardous occupations, and there are some exceptions provided for 16- and 17-year olds who are apprentices and bona-fide student learners.

Those Over 18

Individuals age 18 and older may perform any work in construction.

Recommendations for Employers

In addition to understanding labor laws, there are additional steps you can take to protect young workers:

  • Recognize potential hazards
  • Eliminate any issues present in your workplace that could injure a young worker
  • Make sure that equipment used by workers is safe and legal
  • Supervise young workers
  • Be certain that young workers are appropriately supervised at all times
  • Inform supervisors and adult workers of the tasks that teens should not perform
  • Make sure that young workers are appropriately supervised at all times
  • Label the equipment that teens cannot use, or color-code their uniforms so that others know they may not perform certain tasks
  • Periodically verify through supervisors that teens are obeying safety practices
  • Provide training
  • Educate young workers to ensure that they recognize hazards and are competent regarding safe working practices
  • Training should include how to prepare for fires, accidents, violent situations and protocol for injuries. Teens need to know that they have a right to file a claim to cover their medical benefits and lost work time if they are injured
  • Have young workers demonstrate that they can perform assigned task safely and correctly
  • Use the buddy system
  • Implement a mentoring or buddy system for new young workers. Have either an adult or an experienced teen worker act as a buddy, and answer questions to help the inexperienced worker learn the ropes of the new job
  • Check equipment safety
  • Develop an injury and illness prevention program
  • Work with supervisors and experienced staff members to create a comprehensive safety program that includes an injury and illness prevention initiative
  • Identify and solve safety and health problems that arise or typically have been an issue in the past

Please visit www.youthrules.dol.gov for more information about employing minors in construction.

Source: DOL

The Repercussions of GM’s Recall

GM’s recall of 3.4 million cars will likely put a little extra cash into the pockets of auto dealers, however, re-sale values are sure to drop for consumers :


Food for Thought

Grocery stores are stocked with thousands of products that claim to be “all natural,” but today’s stringent requirements are forcing manufacturers to be more selective in their choice of words when promoting food products – see the following article. Mislabeled products can cost a company millions of dollars and a damaged reputation. SCM’s Food Industry experts are available to assist with managing the inherent risks faced by the food industry.

All-natural claims become risky business





ACA Deductible Limits Repealed

On April 1, 2014, President Obama signed the “Protecting Access to Medicare Act of 2014″ into law. The new law mainly focuses on Medicare reimbursement rates for doctors. A small, easily-overlooked provision of the law retroactively eliminates the Affordable Care Act’s (ACA) annual deductible limit for health plans in the small group market.

The ACA’s annual deductible limit was effective for plan years beginning on or after January 1, 2014, but many small employer plans were not required to comply with the limit due to an actuarial value exception created by the Department of Health and Human Services (HHS). The repeal of the ACA’s deductible limit is retroactively effective to the date of the ACA’s enactment in March 2010. Due to the repeal, small employers will have more flexibility to select health plans with higher deductibles. The new law does not affect the ACA’s out-of-pocket maximum, which applies to all non-grandfathered health plans for plan years beginning on or after January 1, 2014.

Source: Zywave Communications


column image