National Lumber and
Building Material
Dealers Association
NLBMDA
Risk Management Newsletter
August
2004
What They Do on Their Own Time
Is Their Business; Or Is It?
Enhancing Your Company's
Insurability (Part 1)
There are Contracts and There are
Contracts (Part 1)
Your employee is running late as he
quickly returns to the shop for some
materials he has forgotten. As he passes
through a school zone, he fails to notice a
car slowly pulling to stop in front of him.
He suddenly brakes, but can't stop in
time. A young mother and child are
critically injured.
Your driver is cited for speeding and
careless driving. Within days, both he and
your company are named in a lawsuit. As
the owner of the business, you find
yourself on the witness stand facing the
family's attorney. He asks if you knew that
your driver had received three citations
for speeding in the last two years. How
would you respond?
In many states, the personal driving
records of employees can be used in
litigation against employers if those
employees are involved in accidents with
company vehicles. The harsh reality is
that what employees do on their own time
can become your business.
Every business owner may benefit
from establishing a Motor Vehicle Report
(MVR) Program. The good news is that
an MVR Program is easy to establish.
Here are some simple steps.
1) Establish and communicate firm
and fair standards of driving performance,
both on and off the job.
2) Order MVRs on potential new hires
and annually on drivers.
3) Compare the MVRs to the standards for safe driving that you have
established.
4) Document performance, counsel
drivers and restrict access to vehicles if
necessary.
- Mike Russell is a field manager for
Federated Mutual Insurance Company in
Owatonna, MN; [email protected]
Ideally, every property and casualty
insurance company wants to insure a risk
of noncombustible construction that has
a complete, fully functional sprinkler
system. Its city or town would have a fullpaid fire department, and the business
would have a Fortune 500-type safety
budget with a department dedicated
specifically to safety. Sadly, this type of
risk is a rarity in the building materials
class of business.
Purchasing insurance for your
business is not just about determining the
amount of coverage you want and hoping
that you don’t have a claim. Protecting
and enhancing the insurability of your
operation is about implementing the
appropriate programs, policies, and
procedures within your operation that
reduce the risk of a claim.
So what can you, the business owner,
do to enhance the insurability of your
operation?
In this 4 part series we will examine
your business practices to see if your
company has, or needs to implement,
programs that address four basic areas:
1) Senior Management’s Commitment to Safety
This statement is easy to say and to
put on paper, but sometimes it’s difficult
to implement as part of your daily work
culture. Any company can hire an outside
consultant or purchase a CD Rom to
develop a safety manual or policy to
comply with federal, state, or local
regulations. But what most insurance
companies are looking for is upper
management’s day-to-day commitment
to safety. The precise form of a formal
written safety manual or policy is not as
important as its clarity in stating
management’s sincere desire to provide
a safe work place. The policy should
contain a statement from the president
and be signed by the president. The
policy should clearly communicate
management’s intention to provide a safe
workplace, control accidents and
operating costs, and comply with federal,
state, and local regulations. It should
outline what the employees can expect
from management and what is expected
of the employees.
Next time we will discuss the second
program your company should be
implementing to enhance its insurability. Greg Pianko is the loss control manager
for the ILM Group in Indianapolis, IN;
[email protected]
Every day we deal with contracts of
some type. Whether we want to or not,
whether we are conscious of it or not.
They take place in many forms, oral,
written and implied. Just selling our
products is a form of contract. Purchasing insurance is one type of contract that
most of us are familiar with in our
business and personal life. We pay
money in exchange for promises outlined
in the written policy or contract.
Also in business we often enter into
contracts for the purchase of goods or
services, or the sale of them. These are
the ones that can alter our businesses in
many ways. They can strain business
relationships or cost considerable time
and money if not handled or drafted
carefully. Too often, they are signed and
agreed to without any knowledge of how
a dispute can be resolved.
One purpose of the contract is to
outline what each party is to deliver
(money, product, services, etc.). What
most parties fail to delineate is how
differences and problems can be
resolved. This is a serious oversight.
Outlining how a dispute can be
resolved can save considerable time and
money. Most importantly, it can save
business relationships.
Choosing dispute resolution options
is serious business. If nothing is
chosen, it leaves legal action (suit) as a
poor substitute. ADR (Alternative
Dispute Resolution) should be considered.
These include mandatory mediation,
arbitration and appraisal. Not only are
these time and expense savers, but
recent studies have shown that people
(businesses) that use ADR in a dispute
are more likely to have an amicable
ongoing relationship.
In future articles we will discuss in
detail these ADR options. - Joseph W.
McCrea is SVP-Claims at Pennsylvania
Lumbermens Mutual Insurance Company; [email protected]
Improve Your Bottom Line - Attend
the Risk Management Meeting
The agenda for the Risk Management
Committee meeting on September 23 at
The Breakers in Palm Beach, FL promises
to provide dealers with information on how
to mitigate risk and ultimately improve their
bottom line. All dealers who are looking for
new ideas on better managing safety,
contract negotiations and insurance
coverage are encouraged to attend. For
the complete agenda and to register go to
http://www.dealer.org/nlbmda/events.htm,
or contact T.J. Cantwell at [email protected].
Copyright 2004, NLBMDA. All rights reserved.
See page 2 for more . . .
Thanks to the NLBMDA dealers,
MSC members and contributing
expert authors for making this
newsletter possible! If you want to
receive this newsletter send your
information to [email protected].
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Business Risk Exclusions Do Not
Bar Coverage for All Construction
Claims
Reducing OSHA and Safety
Liabilities for Installed Sales
Acts of Terrorism...
Are You Covered?
In general, Contractors General
Liability policies insure against liabilities
created by personal injury to third parties
and damage to their tangible property or
loss of use of such property. They do not
insure against damage to the insured’s
own property or to the business risk of
honoring contractual or warranty obligations related to repair and replacement of
defective products sold and delivered by
the insured. A number of exclusions
codify this principle, for example, the
“Your Work/Your Product” (also known as
the “Business Risk”) Exclusions, the
“Impaired Property” Exclusion, and the
“Sistership” Exclusion for product recall.
Insurers frequently rely upon cases
such as Weedo v. Stone-E-Brick, 81 N.J.
233 (1979) to deny coverage for claims
arising from alleged defects in an
insured’s product or work even where the
product is incorporated into a building or
other structure. In Weedo, the insured
was hired to apply a stucco coating to the
outside of a house. When the stucco
began to crack, the homeowners hired a
different contractor to “remove the stucco
and replace it with a proper material” and
sued the original contractor for the costs
of the re-work. The New Jersey Supreme Court held that the Business Risk
Exclusions precluded coverage for
defective work “where the damages
claimed are the cost of correcting the
work itself.”
Thus, the key issue in construction
defect insurance cases is whether the
insured can identify damage to property
other than its own. If a contractor
supplies defective windows resulting in
rain damage to carpeting, the damage to
the carpeting is covered but the cost to
replace the windows is not. Of course,
the issue is rarely this black and white. In
particular, construction defect complaints
are usually broadly and generally drafted.
This can aid the insured, since the
insurer must defend unless it can
demonstrate that the complaint cannot be
read to assert third party damage.
Also, an insured may be entitled to
coverage if it demonstrates that the
integration of its work or product into a
larger product, such as a building,
caused damage to that larger product.
This concept is commonly referred to as
the “incorporation doctrine.” While the
law on this subject is unsettled, there is a
developing trend toward allowing
coverage for these types of construction
defect claims. Therefore, before
accepting an insurers’ automatic denial of
coverage, you must carefully analyze
both the allegations of the complaint and
the underlying facts to identify third party
property damage.-Lynda Bennett, Esq. is
a director with Lowenstein Sandler PC in
Roseland, NJ; [email protected]
Many building material dealers are
exploring additional areas of Installed
Sales. Some dealers are just now
thinking about starting their first. What
started out years ago as adding a storm
door, cabinet, or light fixture has now
developed into the installation of almost
every product being sold. Some of the
simpler handy man type of projects such
as replacing a storm door or window
might have limited liabilities, but even
they can be surprising. When getting into
roofing, full window replacement, siding,
framing, insulation, and others, you are
really becoming a contractor. The term
Installed Sales really doesn’t tell the
entire story. Taking on these major
projects is no different than starting your
own construction company. Many of the
experts on Installed Sales have discussed the pros and cons of forming a
separate company or making it part of
your existing business. You might want to
go beyond consulting your lawyer and
also talk with your insurance company as
well as someone who is well versed in
safety, both General Industry and
Construction.
Regardless of what some say,
subcontracting does not relieve a dealer
from OSHA and other safety liabilities.
Under the Multi-employer worksite
polices your company may get cited by
OSHA even if you don’t have an employee currently on the jobsite! In your
yard all of the employees are relatively
close by for you to supervise. Drivers are
in and out all day, so you still see them
sometimes. When Installed Sales
employees are added they might only be
in the yard for short periods of time or
maybe not for days at a time. If you
subcontract the work the actual installing
employees may never be in your yard.
So how do you monitor your risks?
When any of your Installed Sales projects
involves work over 6’ off the surface you
may be getting into OSHA Fall Protection
Regulations. Are you familiar with those
regulations? Are there differences
between fall protection on a ladder at 7’, a
scaffold at 9 ½’ or a roof at 13’?
If you don’t know the answers to
these questions NLBMDA can help. Join
us for our next teleconference; Reducing
OSHA and Safety Liabilities for Installed
Sales on September 30, 2004. If you are
currently offering Installed Sales or are
contemplating adding them, you can’t
afford to miss this presentation. Call
800-634-8645 or go to www.dealer.org for
details. - Ron Koons is co-owner of
Rosako Safety in Middletown, IN;
[email protected]
If you’re like most members of our
Association, when the words terrorism
and insurance first became popularly
linked after 9/11/2001, you didn’t think
your lumberyard was much of a target for
a high-jacked jetliner. The recent news
involving the fire at a large pro-dealer
lumberyard in Utah and the possibility
that eco-terrorists set the blaze, causing
over one million dollars in damage,
should convince you to become quickly
educated about your policy and whether
you’re kicking the dirt in disgust or turning
it over to re-build should catastrophe hit
your business.
Prior to 9/11/2001, insurance policies
usually covered acts of vandalism which
weren’t defined as ‘acts of war’, which, of
course, basically didn’t exist in this
country. After 9/11, Congress passed
legislation, which provided governmentbacked coverage for those types of acts
since it was decided no carrier could
carry the financial burden alone. This
coverage, known as the Terrorism Risk
Insurance Act or TRIA, defined ‘certified’
acts of terrorism. So, although this type
of coverage may be offered to you, and
it’s assured by the government, it does
not include all domestic acts of terrorism,
but neither does your insurance policy in
all cases. You can buy coverage for other
types of terrorism (‘non-certified’), none,
or all. Exclusionary language in your
policy on this matter can be tough to
wade through but these are the times
that demand a phone call to your agent or
broker. - Gary Raven is not an agent or
broker, he is VP for Enviromental Health
and Safety at Builders First Source in
Dallas, TX;
[email protected]
NLBMDA * 40 Ivy Street, SE *
Washington, DC 20003
800-634-8645
Get more risk management
resources! Send the name
and contact information of
all employees in charge of
risk management to
[email protected] or call
NLBMDA at 800-634-8645.
They will be included in a
network of industry risk
managers and receive the
latest tools to help reduce
risk.
Copyright 2004, NLBMDA. All rights reserved.
The opinions, views, and interpretations
expressed in this publication do not constitute
legal advice. Questions and concerns
regarding your company’s compliance with
Federal or State regulations and laws should
be directed to your legal counsel.
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