ERISA Coverage: Understanding Your Firm’s Protection

ERISA Coverage Explained

ARTICLE

ERISA Coverage:
Understanding Your Firm's Protection

ERISA Coverage Explained

How sure are you that your firm has adequate insurance coverage to protect your firm’s assets and minimize risks?

Over a 13-year period, engineering firm PBSJ Corp. experienced $42 million in losses due to employee theft. The legal tussle that ensued with Federal Insurance Company1 exemplified the complexities surrounding insurance coverage, as PBSJ Corp. was met with the reality that their coverage fell short of recouping their losses. The company eventually went bankrupt.

Enter: Employee Retirement Income Security Act of 1974 (ERISA) coverage.

Administered by the U.S. Department of Labor (DOL), ERISA mandates fidelity bonding to protect private sector employee benefit plans from mismanagement and abuse of funds, which could include theft, forgery, embezzlement and larceny, among others. It’s mandatory to insure the plan to facilitate recovery of covered losses. ERISA coverage must be acquired from approved insurers listed by the Department of the Treasury. Conditions for obtaining bonds from underwriters at Lloyds of London may also apply. Neither the plan nor any interested party should have significant financial interest in the insurer or reinsurer.

To bond or insure your Plan Assets?

There are two insurance mechanisms to provide the coverage required by ERISA. A fidelity bond protects the plan assets from employee theft. Fidelity insurance, commonly known as Crime, provides broader coverage including theft of plan assets by third parties. Crime is regularly confused with Fiduciary Liability, which is protection from breach of fiduciary duty by the people that are administering the plans. As a company grows, it is common to outsource the management of plans to a third party.

Who is covered?

Anyone handling plan funds or property is required to be bonded unless exempted under ERISA. This includes plan administrators, trustees, employees and service providers with access to plan funds or decision-making authority that poses a risk of loss due to fraud or dishonesty.

Each person must be bonded for at least 10% of the funds handled in the preceding year, with minimum bond amounts set by ERISA, explained further below. Bonds should cover losses for each plan named on the bond. Plans can pay for the bond using plan assets, as ERISA’s bonding requirements aim to protect the plan itself.

Understanding the intricacies of ERISA fidelity bonding is paramount for companies looking to ensure comprehensive coverage in the event of fraud or dishonesty. The following is guidance on understanding and obtaining the right ERISA coverage.

What To Know About ERISA Coverage

Securing adequate insurance coverage is crucial for protecting your firm’s assets and minimizing risks. Collaborating closely with your insurance broker is essential to creating tailored and comprehensive protection. You should work with your broker to:

1.   Learn the places where your ERISA coverage can be found.

Misconceptions surrounding ERISA bonding can lead to unnecessary or duplicate coverage. Many Crime policies already include ERISA coverage, especially if the insurer is U.S. Treasury listed.

ERISA coverage may also be integrated into your business owner’s package (BOP) policy, particularly for smaller firms. Since the ERISA coverage is provided with a barrage of other coverages on a BOP, unless your broker is actively checking in with you on your plan asset size, we often find new clients are underinsured.
It is critical that ERISA coverage matches the evolving asset size of your firm. Work with your broker to determine any existing ERISA limits.

Avoid duplication of coverage so that you do not end up paying double the cost. Many auditors may mistakenly seek an ERISA bond, not realizing this is not the only place the coverage is found. For example, the below table shows the coverage on a Crime policy.

2.   Determine the right coverage amount.

Failure to bond ERISA to the required amount could result in negligence claims of the Fiduciary, underscoring the importance of aligning coverage with asset size. The DOL states that individuals handling plan funds must be bonded for at least 10% of the funds they managed in the previous year. The bond amount cannot fall below $1,000, nor can the DOL mandate bonding for more than $500,000 per plan official, or $1 million for plans holding employer securities.

It is possible for your limit to be more than what is stated above if a person handles funds for more than one plan. Typically, if our clients purchase Crime, the ERISA Fidelity coverage will be at a much higher limit, i.e., $2 million, $5 million, $10 million or more.

3.   Tailor your Crime coverage to fit your needs.

ERISA Fidelity is just one coverage provided by a Crime policy. More generally, it provides for employee theft of company assets, but it also can provide for employee theft of third party assets. Evaluate your Crime limit in relation to the amount of money you have in any one bank account.

Many companies are often misled by the protection afforded by the FDIC, not realizing that banks are held liable to a negligence standard. Coverage for third party assets is not automatically included; it must be underwritten based off employee exposure to third party assets and can often be contractually required.

There are often sublimits provided by a Crime policy, namely for social engineering and invoice manipulation. With the ability to trick employees to misdirect funds, more and more this will become a heightened risk. Partner with your broker to make sure you are adequately protected, either by working to increase the sublimit or by purchasing excess coverage outside of the Crime policy.

Crime can also be provided as part of an Executive Risk package policy providing the Fiduciary Liability mentioned above, but also liability for Directors & Officers and Employment Practices (harassment).

Protect Your Company

By proactively engaging with your insurance broker and leveraging their expertise, you can navigate the complexities of ERISA coverage with confidence, ensuring robust protection for your firm’s assets against potential risks and liabilities. Greyling’s consulting and insurance professionals can advise design professionals, design-builders, contractors, and owners/developers on these risks and risk mitigation strategies.

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AUTHOR

Kristen Walker

KRISTEN WALKER, CRIS, LEED

SENIOR VICE PRESIDENT

[email protected]

(770) 220-7691

Kristen is a client executive and broker with Greyling, a division of EPIC. She is experienced in the unique coverage needs of both contractors and design firms. She works with mid-sized to large clients, many with global exposure and complex insurance programs.

Kristen founded the Greyling | EPIC sponsored Women in A/E/C Networking Events that provides a forum for relevant industry topics to be discussed by leading and up-and-coming women in a relaxed environment.

Kristen joined Greyling in 2012. Prior to that, she was a Senior Underwriter at Zurich focusing on both project and practice professional liability policies for owners, contractors, and designers. Kristen holds Construction Risk and Insurance Specialist (CRIS) and Leadership in Energy and Environmental (LEED) Green Associate designations.

Designing with Intelligence: AEC Best Practices for Using AI

AEC Best Practices for Using Artificial Intelligence

ARTICLE

Designing with Intelligence: AEC Best Practices for Using AI

AEC Best Practices for Using Artificial Intelligence

While the potential for Artificial Intelligence is vast, there are inherent risks tied to AI deployment

Artificial intelligence (AI) is making its way into virtually every industry, and the architecture, engineering and construction (AEC) sector is no exception.

Technological advancements have always been integral to the industry, from the introduction of spreadsheets, computer-aided design, optimization algorithms, building information modeling, to parametric programming. Now, as AI takes center stage, new improvements in project design, safety, site inspection, quality assurance, compliance, cost controls, efficiency, and schedule optimization are all within reach in the near term.

According to 55% of directors at AEC firms, the greatest barrier to creating business value with AI is identifying the right use cases. Additionally, there are standard digital concerns around cyber risk, data security, data privacy, IP infringement, and trust with machines making decisions based on algorithms. There is also a potential for unintentional biases to be embedded in the process, posing a threat to project outcomes.

The bottom line? While the potential for enhanced precision and efficiency is promising, AI introduces a layer of complexity regarding accountability. Allowing AI to operate without proper oversight and ethical considerations could lead to legal, financial, and reputational consequences for AEC businesses.

Legalities Of AI in Professional Design

Design professionals have operated within a regulatory framework that mandates that licensed professional whether engineers, architects or planners make design decisions and are held to account that those decisions are in compliance with building codes and other legal requirements. As professionals they are entrusted with the protection of public safety.

As AI assumes a more prominent role, defining the boundaries of professional responsibility becomes a nuanced and challenging task. AI systems may promise faster and more effective decision making, but questions of accountability arise:

  • If an AI-driven system fails to deliver the intended outcomes, who shoulders the blame?
  • Is it the AEC professional who implemented and oversaw the AI, the AI developer, or perhaps a combination of both?

Consider the following scenario: An AI algorithm can process images collected by a drone of an existing structure, say an offshore platform, evaluate the structure for signs of fatigue, and design repairs. For the structure to be repaired, a professional engineer by law needs to be in responsible charge of the design of the repairs. How does the professional engineer execute his/her responsibility to be in responsible charge of the work in this scenario?

Legalities Of AI in Professional Design

Best Practices for Engaging AI in Your Work

Approaching AI use mindfully is the key to reducing risk. Be sure to apply the following best practices if you’re considering using AI to create business value:

  • Avoid overpromising the client on what can be delivered with AI. Care needs to be taken not to redefine the standard of care. Never promise perfection, reduced errors, or faster delivery, but instead be realistic about the capabilities and limitations of this technology, as well as the cost.
  • Secure enough fees and time to execute the engineer’s statutory responsibilities as the “engineer of record.” AI tools may be deployed on the project, but a licensed professional still needs to take responsibility for the final work product.
  • Be clear when services are no longer professional design services. Use the appropriate contracting terms and conditions and risk transfer methods. Do you have resources in place to deliver to the service level agreement for digital services?
  • Make sure you have the right staff and/or consultants in place, in addition to appropriately curated, good quality data to deliver your service when using AI. Without good data, most AI algorithms deliver poor results.
  • Address licensing, ownership, and maintenance issues around data and computer models explicitly in your contracts. Be sure to develop an Acceptable Use Policy for all users of your business’s software and technology products.
  • Perform due diligence on your vendors and subcontractors. If external parties are using AI to deliver services to your organization, make sure to include indemnity in your risk transfer agreements.

Gaps and Overlaps in Insurance Coverage

The rapid advancement of technology is presenting opportunities for traditional designers to expand their services from pure professional services into the realm of what should be considered technology services. Architects and engineers are increasingly developing technology tools for their clients that sometimes are natural extensions of their design services, but sometimes extend into offering pure tech services or software products. Many firms are seeing this evolution of services to be a desirable expansion of their portfolio. These firms need to carefully consider their risk management protocols and insurance coverage.

  • Technology Errors and Omissions (E&O) policies are designed to provide coverage for companies involved in selling technology products or offering IT consulting services. These policies typically cover acts, errors, or omissions in the performance of technology services, defects or deficiencies in technology products, and failures in the performance of the products or services in accordance with a contract. It’s important to note that Tech E&O policies complement, rather than substitute, a Professional Liability (PL) policy for AEC firms.
  • This can be a strange place for the AEC professional, full of new risks and exposures — IP infringement, media exposures, corporate and employment impacts by AI-driven decision making — that require a mindful examination of your firm’s coverage portfolio. Every business’s needs will be different. It is your broker’s job is to assess and address any emerging risk associated with new and added tech.
As the AEC industry embraces the transformative power of AI in 2024, mindful engagement, working closely with your broker, and adhering to best practices becomes paramount. Greyling’s consulting and insurance professionals can advise owners/developers, design-builders, contractors, and design professionals on project risks and risk mitigation strategies for this future state of work.

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AUTHOR

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Leo Argiris, PE

EXECUTIVE MANAGING PRINCIPAL

[email protected]

(678) 824-8568

Leo Argiris is Managing Principal of Greyling Insurance Brokerage. Mr. Argiris is responsible for leading client and employee engagements, risk management consulting, and business development. Argiris brings over 39 years of experience in driving growth and managing day-to-day operations for large, international engineering and design firms. He is seasoned in delivering bottom line results that involve successful collaboration across organizational divisions, empowering teams, and developing leaders. He also has subject matter expertise relevant to the design and construction of complex projects and has served as forensic engineer and expert witness for multiple high-profile construction project disputes.

Prior to joining Greyling, Argiris was with Arup – an ENR Top 50 global engineering and design firm – where he served most recently as Principal and Chief Operating Officer for the Americas Region. In this role he managed operations across 14 offices in North & South America with over 1,700 staff and approximately $500 million annual revenues.

Argiris is a knowledgeable and well-respected leader in the global design and construction industry. He brings his leadership, project management, and risk management experience to provide Greyling clients with guidance based on decades of practical engineering experience and effective corporate advice.

Argiris holds a Master of Engineering from the Albert Nerken School of Engineering at The Cooper Union, where he serves as an adjunct professor, and an M.B.A. from the Zicklin School of Business at Baruch College.

Standard of Care

Standard of Care

ARTICLE

Standard of Care

Standard of Care

The standard of care is the adopted standard of performance for architects and engineers

The standard of care for design professionals is a common law concept from early court cases that evolved over time to become the adopted standard of performance for architects and engineers. The common law standard of care for design professionals is defined as the ordinary and reasonable care usually exercised by a member of that profession, in the same place and at the same time, on the same type of project, under similar circumstances and conditions. The common law standard of care does not require perfect performance.

There are four elements that a claimant must assert in order to state a claim for professional negligence against a design professional:

  • Duty – there must be a duty owed by the design professional to the party bringing a claim;
  • Breach – there must be a breach of the applicable standard of care by the design professional;
  • Damages – there must be actual damages; and
  • Causation – there must be a causal connection between the design professional’s failure to perform in accordance with the standard of care and the actual damages sustained. In other words, the damages must have occurred as a result of the design professional’s breach of the standard of care.

Professional liability insurance policies presume that the insured’s professional services will be judged based upon the common law standard of care. The common law standard of care exists by operation of law, independently from any contract, based upon the relationship between a design professional and their client. Most professional liability policies exclude from coverage any liability that an insured assumes under a contract that would not exist in the absence of such contract (contractual liability exclusion). Also, most professional liability policies exclude any liability arising from any express warranty or guarantee unless the insured’s liability arises as a result of a breach of professional duty and would have existed absent such express warranty or guarantee (express warranty/guarantee exclusion).

Given the above, design professionals should be careful when negotiating professional services agreements to ensure that they are not agreeing, by contract, to perform to a higher level than the common law standard of care. Examples of a higher standard of care include the following: 1) committing to exercise the “highest” level of care, 2) acquiescing to deliver instruments of service “free of defects or errors”, or 3) stating that, during construction administration, the design professional will ensure that the contractor meets all details of the plans and specifications.

Agreeing to an elevated standard of care may result in your professional liability insurance carrier denying coverage based on the contractual liability exclusion and the express warranty/guarantee exclusion. Moreover, a heightened standard of care could make you more susceptible to an uninsurable breach of contract claim. Courts have held that a design professional who binds by contract to a higher standard of care will be held to such elevated standard. In CH2M Hill Southeast, Inc. v. Pinellas County, 698 So.2d 1238, 1240 (Fla. 2d DCA 1997), the court held that if a design professional agrees by contract “to perform duties beyond those required by ordinary standards of care, the quality of that performance must comport with the contractual terms.”

By agreeing to a “highest” standard of care in a professional services contract, you may subject yourself to liability for breach of contract (an uninsurable loss) even though you were not negligent. For example, if, in a lawsuit brought by your client, you prevail on a negligence count but lose on a breach of contract count, the professional liability insurer may not cover the loss on the grounds that it was specifically excluded from coverage.

Standard of Care when reviewing contracts

When presented with an owner-drafted professional services contract, you should strike any express warranties or guarantees of performance. If an owner-drafted contract contains requirements potentially exceeding the common law standard of care or possibly creating uninsurable warranties or guarantees, and the owner refuses to revise or delete, you will want to include disclaimer language such as:

There are four elements that a claimant must assert in order to state a claim for professional negligence against a design professional:

  • Notwithstanding any provision in this Agreement to the contrary, Design Professional expressly disclaims all express or implied warranties and guarantees with respect to its performance of professional services, and Owner agrees that no provision herein shall be interpreted to require a standard of performance by Design Professional that is greater than the applicable common law standard of care.
  • Design Professional warrants that it shall perform the services in accordance with the applicable professional standard of care. No other express or implied warranties or guarantees are created related to this Agreement or the professional services to be provided.

Owner-drafted professional services agreements often include a provision that the design professional “shall comply with all laws, regulations, codes and ordinances.” Such a clause is problematic because it could be interpreted as the design professional agreeing to comply with laws, regulations, codes and ordinances that the design professional reasonably believed did not apply to the services being provided. If you agree to absolute compliance with “all laws, regulations, codes and ordinances”, and are later found liable to the owner for breach of contract, professional liability insurers could disclaim coverage due to the contractual liability and warranty/guarantee exclusions. You should tie any obligation to “comply with laws” to the standard of care. Recommended examples are as follows:

  • Design Professional shall exercise its professional skill and care consistent with the standard of care to provide a design that complies with applicable laws, regulations, codes and ordinances.
  • The Design Professional shall make reasonable professional efforts, consistent with the standard of care, to comply with applicable laws, regulations, codes and ordinances.
  • Subject to the generally accepted professional standard of care, Design Professional’s designs shall comply with applicable laws, regulations, codes and ordinances.

conclusion

Great care should be taken when reviewing and negotiating professional services agreements to ensure that there is no guarantee or warranty of performance beyond the common law standard of care that could jeopardize your professional liability coverage. Greyling is available to assist in reviewing and revising proposed agreements so that the standard of care conforms to that which is insurable under a professional liability policy and there are no uninsurable express warranties or guarantees.

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AUTHOR

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Sally Bright, JD

SENIOR CLIENT ADVISOR/ATTORNEY

[email protected]

Sally Bright is a Senior Client Advisor/Attorney with Greyling Insurance Brokerage and Risk Consulting, a division of EPIC. As the professional liability claims lead, Sally uses her legal background in the delivery of industry-leading risk management services to Greyling’s professional services and construction clients, including claims management and advocacy, contract review and negotiation, and training.

Sally is an experienced construction litigation defense attorney who has represented both design professionals and contractors in a variety of construction-related disputes, including professional liability and commercial general liability matters. She has over twenty years of legal experience as a defense attorney in the metro Atlanta area.

Originally from Columbia, Maryland, Sally is a licensed attorney in Georgia and Maryland. She earned her undergraduate and law degrees from the University of North Carolina at Chapel Hill.

FDOT Bulletin EOM 23-01

ARTICLE

FDOT Bulletin EOM 23-01: Review & Analysis

FDOT Bulletin Attempts to De-risk Design-Build Project Delivery with Project-Specific Professional Liability Insurance

FDOT released an Engineering and Operations Memorandum on February 28, 2023, updating their design-build requirements (“the Bulletin”). You can download it here: EOM23-01.

The stated goal of the Bulletin is as follows:

The Department has maintained a very successful Design-build program over the past 20 years. The Department has noticed fewer firms pursuing Design-Build projects and bids on these projects have been coming in increasingly over the Department’s estimates. In an effort to ensure the program remains successful the Department has met with industry and the feedback received is that the amount of risk being put on the Contractors is driving them to make the business decision to not pursue these contracts. These changes are being made to address these concerns.

The Bulletin addresses risk issues in several areas including geotechnical risk and professional liability risk. In this publication, we at Greyling Insurance Brokerage & Risk Consulting, a Division of EPIC, offer suggestions for engineering firms and other design-build project participants to augment the Bulletin’s Project Specific Professional Liability insurance-related design-build requirements. By addressing additional key factors and underwriting conditions, we believe that firms can more fully meet the FDOT’s and industry’s shared goal of significantly mitigating the risk of FDOT Design-Build projects for engineering firms. Despite the Bulletin’s updates to FDOT’s design-build requirements, engineering firms will still need to proactively manage the project risk assessment process and the placement of Project Specific Professional Liability (PSPL) insurance with design-builders. Why should this matter to design firms and construction companies interested in doing business in Florida? The short answer is opportunity. In January of 2023 Governor Ron DeSantis announced the Moving Florida Forward Infrastructure Initiative which envisions $7 billion in spending to complete 20 large highway projects (see image below) over the next 5 years. This is in addition to the planned FDOT Five-Year Work Program from 2023 to 2028 with a total projected cost of $58 billion. You can view additional information on the tentative five year plan by visiting the FDOT Work Program and Budget.

Map of the planned Moving Florida Forward Infrastructure Initiative

Benefits of the Change

The changes in the Bulletin relating to professional liability risk and its implications provide some material benefits:

  • PSPL will now be required on many design-build projects in Florida, and the State will bear the cost of the policy premium within the bids submitted by design-builders. This is good news, but bear in mind that the complexity of the PSPL market, coordination of coverage, and the realities of policy language require scrutiny by design firms (see “Additional Aspects to Consider,” below).
  • The limits of insurance specified in the Bulletin seem appropriate for general classifications of complexity and construction values (see tables below).
  • There is clear focus on creating more certainty around geotechnical reports (subsurface conditions) and addressing (limiting) contractor responsibility for cost overruns.

PSPL LImits

Low Complexity Projects

Total D-B Original Contract Price
Minimum Coverage Limits
Up to $100 Million
At Design-Build Firm’s Option
$100 to $250 Million
$10 Million PSPL coverage
$250 to $500 Million
$20 Million PSPL coverage
More than $500 Million
$30 Million PSPL coverage

High Complexity Projects

Total D-B Original Contract Price
Minimum Coverage Limits
Up to $100 Million
$10 Million PSPL coverage
$100 to $250 Million
$25 Million PSPL coverage
$250 to $500 Million
$40 Million PSPL coverage
More than $500 Million
$50 Million PSPL coverage

Additional Aspects to Consider

Using the Bulletin as a starting-off point, we at Greyling offer the following additional points for engineering firms to consider in order to more fully capture the holistic nature of risk and, particularly risk-transfer-via-insurance, associated with design-build:
  • A highly detailed specification of the terms of the PSPL policy should be tailored for an engineering firm’s project involvement.
  • An extended reporting period duration (typically of 3-5 years) should be specified.
  • Strategize internally, with the assistance of an experienced insurance broker, the foreseeable situation that the limited PSPL market refuses to underwrite a particular project or contractor, or the situation where the FDOT or the design-builder balk at the proposed pricing, which is now commonly several factors of policy limits. A process to address this situation between FDOT and the design-builder should be developed early on in case such a contingency arises during negotiations.
  • Engineering firms and contractors alike should take particular note of the fact that both PSPL policies (procured by the engineer) and Contractor’s Protective Professional Indemnity (CPPI) policies (procured by the contractor) typically contain Insured-Versus-Insured Exclusions that negate coverage for claims between the contractor and engineer and vice-versa. Greyling clients should be aware that being named on the same policy as the contractor will effectively prevent the PSPL or CPPI policy from responding in the event of a claim made by the contractor against the engineer. This will place the engineer’s primary practice policy front-and-center (remember that all PL policies have eroding limits and are not separately designated for one project) and expose the firm to potentially uninsured risk. Because the largest claims that engineers face at this time are those from contractors on design-build projects, prudence dictates that engineers be the only named insureds on their PSPL policies. We recommend that firms address with us the common PSPL Insured-Versus-Insured Exclusion and how the contractor may not be able to use the PSPL policy for a claim against a named insured design professional in the hopes of prosecuting a covered claim. All parties who will be named insureds on the PSPL need to understand the consequences of this exclusion and should negotiate over whether to request its removal from the PSPL (if removal is commercially available) policy and what that will mean (e.g., erosion of the policy limits by either defense costs or indemnity in a claim by the design-builder against the engineer; inevitable increased premiums should the insurer agree to remove this exclusion).
  • Firms should negotiate with design-builders and the FDOT risk exposures such as cost overrun exposure created by the contractor based on quantity growth as design develops or due to the contractor’s bidding and procurement practices (the Bulletin does not address the other underlying causes of design-build risk for an engineering firm beyond greater subsurface risk uncertainty). We submit that adoption of true Progressive Design-Build would likely alleviate this recurring risk issue that has become one of the industry’s leading driver of claims.
  • Firms should bear in mind that many PSPL placements entail cost and schedule audits that commonly generate significant additional premiums at policy termination; firms should bring to FDOT’s attention that it needs to be prepared to pay not only for the upfront costs but for these continuing costs as well.

Recommendations

If you or your firm are planning to engage in Design-Build with FDOT or a design-builder bidding on an FDOT project post-EOM23-01, we would make the following recommendations:
  • Coordinate with the design-builder before the PSPL is priced so that the design-builder can have input on carrier, terms, extended reporting period, etc., before the policy and price are submitted to FDOT.
    • Greyling can provide indicative pricing and terms for this purpose based on our extensive experience with PSPL products, carriers, and numerous clients who have been active in design-build.
  • Coordinate with the design-builder to include an extended reporting period in the PSPL quote.
    • Based on the project type, Greyling can recommend an appropriate extended reporting period.
  • Coordinate with the design-builder to determine how to communicate with FDOT that limits MAY NOT be available exclusively to FDOT in order to mitigate potential claims against an engineering firm’s underlying primary practice policy.
    • Greyling provides solutions to this issue.
  • Because no updated procedures can be all things to all situations, firms will need to continue to follow best practices to mitigate these risks.
    • Greyling provides focused risk management seminars for design-build risks from both the design firm’s and the contractor’s perspectives.
  • A teaming agreement complete with a “term sheet” containing agreed-upon terms, conditions, and definitions (e.g., indemnification, standard of care, estimated quantities, bid price contingencies) between engineer and design-builder should be generated as early in the process as possible – preferably prior to responding to an RFP, SOQ, etc. – to address the most critical (and contentious) contract terms.
  • Greyling has extensive experience assisting clients with both contract review and providing sample teaming agreements with a comprehensive set of terms subject to negotiation and discussion between the parties, including methods to deal with cost overruns that may emanate from preliminary design documents.
  • Address with the design-builder and the FDOT whether the PSPL will cover just the design team or also provide Contractor Professional Protective Indemnity (CPPI) coverage for the design-builder.
    • Greyling provides brokering, counsel, and advice to designers and contractors on PSPL, CPPI, and the entire menu of project-specific products that are available in the marketplace.
  • Proactively confront the reality that PSPL policies routinely require self-insured retentions (SIRs) and deductibles of at least $1 million. Many engineering firms’ and their subconsultants’ SIRs are not nearly as high as $1 million. So, what happens when design firms and their subs that have five-figure or six-figure SIRs find themselves covered by a PSPL policy that requires that they satisfy a $1 million SIR before the policy will provide coverage?
    • Greyling can assist firms who are facing high SIRs under a PSPL by placing “deductible gap” coverage (separately or via endorsement) to bridge the gap between the firm’s everyday SIR or deductible under its primary practice policy and that required by the PSPL.
  • Negotiate with the FDOT in an effort to have the premiums and costs associated with procurement of “deductible gap” coverage borne by the FDOT as a reimbursable cost associated with the now-mandatory PSPL under the Bulletin.

Conclusion

The policy changes implemented in the Bulletin mitigate, to an extent, the risks inherent in design-build for engineering firms, and signal that the FDOT, and perhaps other institutions and project owners, is not only aware of the level of risk associated with design-build but is taking steps to address those concerns. The recommendations and analysis provided in this publication provide engineering firms with tools to enhance the advancements made in the Bulletin until such time that FDOT policy is further refined through implementation of its new approach to PSPL and design-build risk overall.

Contact Greyling Insurance Brokerage & Risk Consulting today and come be EPIC with us.

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AUTHOR

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Roger Guilian, JD

SENIOR VICE PRESIDENT

[email protected]

(770) 7670-5331

Roger Guilian joined Greyling Insurance Brokerage & Risk Consulting, a division of EPIC Insurance Brokers & Consultants, bringing 24+ years of litigation and risk management experience to the Architects & Engineers team. In his role, Roger develops legal and legislative initiatives that are critical to large design firms and the construction community, provide risk avoidance and management consulting to Greyling clients and associates, and support Greyling’s expansion of the ACEC Business Insurance Trust program.

Roger Guilian entered the engineering and design professional space in August 2004 when he became General Counsel of Volkert, Inc., an ENR Top-100 civil engineering firm, after a rewarding and successful sixyear career in private practice. Prior to going in-house, Roger was an active litigator, trying dozens of insurance defense jury trials, and litigating hundreds of suits to favorable pre-trial resolutions. During 18- year in-house experience, Roger gained extensive experience and knowledge in matters affecting risk and legal exposure to engineers, their firms, and other design professionals, including contracts risk management, professional liability insurance, and defense of errors & omissions claims.

Roger is a 1995 magna cum laude graduate of The University of Alabama and a 1998 graduate of The University of Alabama School of Law where he excelled as an advocate on the Law School’s championship Trial Advocacy Competition teams. Roger is deeply engaged in industry and engineering associations through which he has cultivated a nationwide network of friends and colleagues in the design professional insurance and risk management space. Roger currently serves on the American Council of Engineering Companies (ACEC) Risk Management Committee, ACEC Business Resources & Education Committee, ACEC Management Practices Committee, and the American Bar Association’s Construction Law Forum. Roger served as a Trustee on the ACEC Business Insurance Trust from 2020-2022, was an active contributing member of the ACEC Legal Counsel Forum from 2007-2022, and chaired the Alabama State Bar Construction Law Section in 2018.

Roger is a member in good standing of the Alabama State Bar and the Bar of the Supreme Court of the United States.

Progressive Design-Build Fundamentals

Progressive Design Build

ARTICLE

Progressive Design-Build Fundamentals

Progressive Design Build

A Design-Builder Selected on qualifications Rather than price

This is the first in a series of articles that will discuss progressive design-build and the unique considerations it raises for owners/developers, design-builders, contractors, and design professionals.

Progressive Design-Build (PDB) is an emerging delivery method that combines the best aspects of the design-build and construction management (CM) at-risk models. It differs from traditional design-build in that the design-build team is picked through a request for qualifications early in the project planning stage before the scope of the project has been defined. The team then collaborates with the owner through all stages of design, from programming all the way through the preparation of construction documents. While all design-build projects are “progressive” to some degree, what sets PDB apart is that the owner’s selection of the design-builder is based more on qualifications than cost and occurs earlier than in traditional design-build.

Typical Progressive Design-Build Timeline

As with the CM at-risk model, PDB includes a robust preconstruction effort, and, as the design progresses, the project team establishes a Guaranteed Maximum Price (GMP) based upon an agreed level of completion of the construction documents. Compared with the traditional design-build model, in which the scope of work already may be largely defined at the start of the project (often based upon programming and design prepared by a separate architect retained by the owner), the early and ongoing collaboration among the owner and the design and construction team in PDB can enhance scope and cost certainty and reduce the potential for change orders and disputes.

PDB projects typically are divided into two phases. Phase 1 includes programming, budget and design development, preconstruction services, and development of a GMP. Phase 2 includes design completion, construction, and construction administration. The parties will need to agree on the contract format. It can be a single integrated agreement that covers both phases or separate agreements for each phase (although the parties should agree on the format for the Phase 2 agreement as early as possible).

PDB Example - Harvey Milk
San Francisco International Airport has been a leader in progressive design-build and recently used it for successful delivery of the Harvey Milk Terminal 1 Boarding Area B, a 619,150 sq. ft. concourse with 25 gates.

PDB is attractive because the owner, design-builder, and architect each maintains a high level of involvement throughout the project, with regular opportunities to provide feedback and adjust the scope and design. This collaborative approach allows for greater flexibility and collaboration than traditional design-bid-build, CM, or design-build delivery methods. However, owners, contractors, and design professionals considering PDB should keep the following in mind:

  • PDB requires an active and engaged owner. Throughout the project, the owner is involved in the decision-making process and works closely with the design-builder. The owner must have personnel who have the time and ability to engage in that process meaningfully.
  • PDB requires not only that each party is willing and able to fulfill a very active ongoing role, but that each party adopt a collaborative mindset and shed old behaviors. PDB will not work if each party falls back on the behaviors they might use under traditional project delivery methods.
  • Things do not always go as planned and it is possible that the owner and the design-builder will not be able to agree on a GMP. The contract should address what will happen in such an event. The owner will want to include an “off-ramp” that will allow it to use the construction documents for the construction and completion of the project. The design-build team likewise will need to address this in its scope of services and in the agreement between the design-builder and architect.
To set up a PDB project for success, the project team can take several steps, including:
  1. Build a strong team: PDB projects require a high degree of collaboration, so it is important to assemble a team with the right experience, expertise, and mindset to ensure success.
  2. Define the scope of work: Clearly defining the project requirements and scope will help avoid changes and associated cost increases later in the project. Close coordination throughout the design phase can reduce the opportunities for scope creep.
  3. Establish clear communication channels: Regular communication and collaboration between the owner and the design-build team are critical for project success. Design charettes, regular team meetings, and accurate/timely meeting minutes and reports will help keep everyone on the same page.
  4. Ensure quality control: The design-build team should establish quality control processes throughout the project to reflect the agreed design and scope and ensure that design changes do not negatively impact construction quality, costs, or schedule. Proactive design management by the design-builder is crucial.

PDB can create an ideal environment for the owner, design-builder, and architect to succeed. With the early involvement of the design-builder and architect, the owner enjoys more control over scope, quality, cost, and schedule. The expanded collaboration and communication inherent in PDB also benefit the design-builder and architect by reducing opportunities for disputes and claims. However, to be successful, all parties must recognize that PDB takes a different set of skills and requires a different level of commitment than traditional design-build.

Greyling’s consulting and insurance professionals can advise owners/developers, design-builders, contractors, and design professionals on project risks and risk mitigation strategies for progressive design-build projects, including tools to assist clients with go/no-go decisions, best practices, teaming, prequalification, and benchmarking for professional liability limits for design-build and design assist subcontractors. When it is time to insure a project, our insurance team can explain how progressive design-build fits in with clients’ existing insurance policies and can offer the best value for project-specific coverages, including commercial general liability, professional liability, builder’s risk, and Contractor’s Protective Professional Indemnity.

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AUTHOR

Trey Moye

TREY MOYE, JD

SENIOR VICE PRESIDENT

[email protected]

(770) 752-2792

Trey’s legal career was dedicated exclusively to the construction and design industry and he represented owners, developers, contractors, and design professionals involved in significant projects around the world. He also represented clients in prosecuting and defending claims in litigation and alternative dispute resolution, including matters in Europe, the Middle East, Asia, Latin America, and the Caribbean.

He has been involved in almost every kind of project, including aviation, transportation, power, industrial, manufacturing, oil and gas, mining, healthcare, life sciences, pulp and paper, data centers, commercial, hospitality, sports and entertainment, distribution, warehousing, and education. His experience includes every form of project delivery and he has led legal teams on significant design-build, PPP, EPC, and IPD projects. Trey brings this broad perspective and experience to his work with Greyling clients to address the full range of contract negotiation and drafting, insurance and bonding, contract administration, subcontracting and procurement, environmental, and claim and dispute issues that can arise.

On a daily basis, Trey assists clients in managing risk and developing and implementing best practices. With his substantial experience in structuring construction transactions, he regularly advises clients on contract terms and risks and ensures that our clients’ insurance programs effectively address those risks. He is a believer in proactive solutions and helps clients assess risks and develop policies, practices, and training not only to manage and mitigate risk but to enhance project performance.

Drone Coverage

ARTICLE

Drone Insurance

HELP! I CRASHED MY DRONE! Do I have insurance coverage for this?

You have been hired to perform an aerial survey of a wooded site. The site is expansive and will require 3 days to survey. On this day in late October, the sky is clear blue with no rain in the forecast. Conditions are perfect for your 4-person drone crew, consisting of a pilot, flight controller, and two visual observers. The drone executes its mission without issue until the return leg of the flight plan when it makes a hard, uncontrolled landing . . . CRASH! The unmistakable sound of the drone falling through the trees can be heard by the crew. Luckily, no one is hurt and no property other than the drone itself are damaged. The crew performs reconnaissance to recover 99% of the drone and LiDAR sensor parts; only 2 blades from the rotors cannot be found. Upon closer inspection, the drone itself is obviously going to be a total loss, but the more expensive payload seems to have held up well.

Hopefully you bought insurance and maintained a good relationship with your vendor and/or manufacturers. All these resources will provide assistance to get your drone operations back up and running to mitigate impending financial loss resulting from the drone crash.

Here are your next steps:

  • Contact your insurance broker, who will put your insurer on notice of a claim.
  • Start collecting the following items, which may be requested by the insurer in adjusting the claim:
    • Written account of the events that led to the crash including date/time of loss, contact info, drone/part serial numbers, and witness information
    • Pilot’s Part 107 License (recurrent exam results if license is more than two years old)
    • Copy of the purchase agreement
    • Flight log data
    • Estimate(s) obtained to repair damage and/or replace
  • Notify your drone vendor and/or the manufacturer directly as they will be needed in order to obtain the last 2 items above. The drone manufacturer will be able to retrieve the flight log data to determine the cause of the crash. Both the drone and payload manufacturers will most likely be responsible for repairing and re-calibrating of the equipment in order to maintain any warranties.
  • Review your contract with your client. What are the delay notification provisions and is the drone crash excusable or not?
Risk Management Consideration #1
Site Safety and Raising the Standard of Care

On a construction site, the General Contractor is responsible for site safety. Architects, Engineers, and other Construction personnel on a site are expected to notify the General Contractor of any unsafe conditions they observe and act if a person is in immediate danger. If a drone is regularly taking pictures or videos of a site that capture evidence of a site safety issue or a defective condition, is the custodian of that drone and its work product on notice of the condition? Engineers, for example, may have an ethical duty to immediately report site safety issues and a contractual obligation to report to the owner defective conditions that they knew or should have known of. If they do not, there may be liability ramifications. A drone may raise the expectations of an owner that defective conditions will be found, thereby raising the standard of care when drones are used. Consider a bridge inspection where drones can now easily see areas of a bridge that were either difficult or impossible to see before this technology. The public now has increased expectations of bridge safety, so if there is a bridge failure, even more scrutiny will be placed on the engineer that did not observe an issue by using a drone. Conversely, if an engineer does not identify corrosion of back welds when using a snooper truck is the standard of care violated when a drone easily could have seen the issue?

What happens next?

Expect a significant downtime that will occur to your drone operations during this adjustment process. First, the manufacturer needs to determine the malfunction that led to the crash and an estimate of the repair cost, potentially requiring the vendor to facilitate this interaction if you did not buy direct. Once a determination has been made, the insurer will either deem the drone a total loss or approve repair to the drone. A similar process will be needed for any payload that was attached to the drone. This process could take anywhere from one to three months. Your relationship with the vendor and manufacturer will be key if you will need replacement equipment, mitigating loss of income while your equipment is either repaired or replaced as business interruption is currently not an available insurance coverage for drones.
Risk Management Consideration #2
Privacy Violation

Maintaining privacy can be a real issue when it comes to drones. Although the drone is being used to perform a certain mission, it may inadvertently capture information outside of its scope. The intended mission may also come into question given that a drone may be able to capture information someone is trying to hide. In the case of Long Lake Township v. Maxon, the 4th Amendment came into question, which protects people from unreasonable searches and seizures by the government. The Township had hired a drone operator to determine if an illegal salvage yard had been created on the Maxon’s property, which resulted in a civil action against the property owner where photographs from the drone were used as evidence. On appeal, the State of Michigan published an opinion that “persons have a reasonable expectation of privacy in their property against drone surveillance, and therefore a governmental entity seeking to conduct drone surveillance must obtain a warrant or satisfy a traditional exception to the warrant requirement.” In this case a warrant would have allowed the Township to perform a legal search of the property. Land disputes can also be hotly debated between hostile parties where one may be tempted to hire a drone operator to collect evidence. Since a drone is not allowed to fly over people that are not actively participating in the operation of a drone, it is therefore important to obtain site access agreements from adjacent sites when performing drone flights. The two policies that respond to privacy concerns are:

  1. Personal Injury coverage of a drone policy will protect an insured from false arrest, detention, or imprisonment; malicious prosecution; wrongful eviction; slander; libel; and invasion of privacy (https://www.irmi.com/).
  2. Network and Privacy (Cyber) Liability provides protection if confidential information is accessed during a flight or via stored information on your servers or in the cloud.

In determining causes of drone malfunction, Bobby Watts, owner of drone manufacturer Watts Innovations says most of what he has seen is user error. However, each time there is an incident with a drone, the manufacturer will look at the cause and try to prevent a similar event from happening, user error or not. Drone technology is constantly evolving with commercial use of drones in the Architecture and Engineering industry occurring within the past 10 years, which means user and manufacturer are both still learning. The drone manufacturers will typically warranty the performance of the drone outside of user error, so exclusions like electrical malfunction on an insurance policy may be covered by your manufacturer’s warranty.

No matter the intensity of the crash, LiDAR sensors will need to be recalibrated in order to accurately perform on future flights. My-Linh Truong, Unmanned Division Manager of RIEGL USA says depending on severity of impact, that typical turnaround time once received at their facility in Austria can be a matter of weeks.

Physical Damage coverage is the part of a Drone insurance policy that will respond in the above scenario. This coverage extends to the hull (drone), the payload (sensor, camera, etc.), and the ground equipment (controls, batteries, etc.). All the above is scheduled onto the insurance policy, so you can pick and choose what you want to insure. Any equipment acquired in the middle of a policy year would need to be endorsed onto the policy, unless you can secure “blanket” coverage, which does not have the same administrative burden of scheduling all changes mid-term. Premium for Physical Damage coverage can range from 7-10% of the value of the drone and payload; 1-3% for the ground equipment. Deductibles vary from 5-10% of value.

A scenario that is most likely to create a severe loss is when a 3rd party is involved. For example, if the drone had crashed into a car driving down the highway, both property damage and bodily injury could result. Liability coverage of a drone policy would respond to this situation. Limits for this coverage from an insurer typically range from $1M-$5M+. At the $5M mark, a separate Umbrella insurer will typically extend their policy over that of the drone policy. Premium for the liability coverage on a drone policy is about $400-$500 per drone.

Risk Management Consideration #3
License Requirements to Perform Surveys

A consideration when subbing drone work is the qualifications of the drone operator. Some state professional organizations are starting to pass laws and bring disciplinary action against unlicensed companies when performing aerial surveys. Professional Liability is a common coverage carried by an engineering company, but it is not as prevalent by companies who only perform drone work. If a claim for negligence is alleged, the engineer that hired the drone operator may be left holding the liability as the firm that has the bigger pocket. As laws vary by state, check with the state where the drone work is being performed to see if a professional license (i.e., registered land surveyor or professional engineer) is required. If it is, require any drone sub to maintain professional liability as well.
If you decide you do not want to own your own drone, but rather contract to a company experienced in drone operations, your standard General Liability policy will normally protect you. To confirm if you are appropriately covered, review the aircraft liability exclusion to see if it only excludes your ownership or supervision of a drone. In the standard ISO CG 00 01 policy form (see aside) any type of owned drones are excluded (company or employee), but vicarious liability a company would have for the hiring of a third party to fly a drone on their behalf would be covered. A number of our clients who do not own their own drones have still purchased drone insurance either for the liability of employees flying personal drones on project sites or to insulate their General Liability policy from the exposure of a subconsultant. Minimum premium for a non-owned drone liability policy is $1,250. To further protect yourself, require the following from a drone subcontractor:

  • Drone liability including your company as an additional insured on a primary and non-contributory basis with waiver of subrogation against your company.
  • Contractual requirement for the drone operator to hold you harmless from any damage to the drone while in contract to you.
  • Workers Compensation
  • Professional Liability (see Risk Management Consideration #3)
  • Cyber Liability (discussed below)
A coverage that a lot of drone operators do not initially consider is Cyber Liability. A drone policy will extend coverage to your liability for Personal and Advertising injury if you misuse or abuse the information you obtain in your drone operations. However, it will not protect from a privacy breach. Given the highly sensitive and precise data that drones can collect, the US government and an increasing number of businesses will not permit use of foreign manufactured drones because of privacy concerns. A Network and Privacy Liability policy, commonly called a “Cyber” policy provides liability protection to you and your clients should a bad actor steal information you collect through your drone operations. A common practice for a bad actor is to sit unsuspected in your systems until they avail themselves of enough information to cause you or a third-party harm. So even if you are not the ultimate target, you could be the conduit to a bigger event. For instance, a drone survey of a pipeline, power grid, or water treatment system could result in catastrophic loss should the information collected get into a bad actor’s hands. Cyber Liability is suggested either if you are flying or hiring someone else to fly a drone on your behalf. Greyling recommends a Cyber Limit of $5M for all drone operators and $10M if highly sensitive information is being handled.
Use of drones

Our Recommendation

Greyling recommends all Architecture, Engineering, and Construction firms establish a company policy on drone usage. If you want to discourage use of drones, a statement should be added to your employee handbook to the effect that drones are not permitted either by an employee or sub on any project site. If you plan on hiring a sub to fly a drone, contractual requirements, including insurance, should be clearly identified so that as much risk is passed to the drone operator as possible. For companies that fly drones, a specific UAS policy should be drafted that contains specifics such as your Scope of Operations, Authority and Licensing Requirements, Operating Procedures, and any specific rules the employees should follow when in possession of a drone.

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AUTHOR

Kristen Walker

KRISTEN WALKER, CRIS, LEED

SENIOR VICE PRESIDENT

[email protected]

(770) 220-7691

Kristen is a client executive and broker with Greyling, a division of EPIC. She is experienced in the unique coverage needs of both contractors and design firms. She works with mid-sized to large clients, many with global exposure and complex insurance programs.

Kristen founded the Greyling | EPIC sponsored Women in A/E/C Networking Events that provides a forum for relevant industry topics to be discussed by leading and up-and-coming women in a relaxed environment.

Kristen joined Greyling in 2012. Prior to that, she was a Senior Underwriter at Zurich focusing on both project and practice professional liability policies for owners, contractors, and designers. Kristen holds Construction Risk and Insurance Specialist (CRIS) and Leadership in Energy and Environmental (LEED) Green Associate designations.

Workers’ Compensation Coverage Explained

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Workers’ Compensation Coverage Explained

What you need to know to protect your Firm

Workers’ compensation is a statutory scheme in each state that establishes the liability of employers when employees are injured in the course of employment, limits recovery against such employers to payment of workers’ compensation benefits (with limited exceptions), and outlines the covered losses and expenses an employee is entitled to receive when injured. For most employers in most states, the risk of a workers’ compensation claim is transferred to an insurance company, which pays claims under the policy in accordance with the applicable state’s statutory requirements in exchange for the employer’s premiums. Workers’ compensation applies based on where an employee resides and would receive benefits in the event of an injury. However, if an employee is temporarily working in another state, i.e., visiting a project site they may be able to claim benefits in the home or temporary state and often choose based upon the state that has the better paying benefits. Below we address when to add a state to your workers’ compensation policy.

Workers’ compensation policies have two coverage parts:

  • Part One (often referred as coverage A) provides workers’ compensation coverage. This provides medical and indemnity (lost time) benefits for an injured employee.
  • Part Two (often referred as coverage B) provides employers liability coverage. This coverage is for claims from workers who have suffered a job-related injury or illness not covered by workers’ compensation coverage. Part Two or B also covers damages to an employee’s spouse, parent, or child as a result of the employee’s injury, i.e., loss of consortium.

What does it mean to waive subrogation?

A common coverage feature, and frequent contractual requirement in the construction industry, is for workers’ compensation insurers to “waive subrogation” against specified parties. When an insurer, like a workers’ compensation insurer, pays a loss to an insured, the insurer is “subrogated” to the rights of the insured. As a result, the insurer can pursue other potentially responsible persons or entities to recover the insurer’s loss payment. Most insurers will agree to waive this right pre-loss, often on a “blanket” basis where required in an insured’s contract. Because monopolistic jurisdictions (see below) insure workers’ compensation losses with state funds, these states do not permit waiver of subrogation with respect to claims paid in those states. New Jersey, though not monopolistic, also does not permit waiver of subrogation. Therefore, it is important to explain when agreeing to contracts with employees performing work in these states to not agree to waiver of subrogation, or clearly tie meeting such a requirement to what is legally permitted by using a phrase like “where permitted by applicable law.”

Learn the Laws of the states where you and your agents operate

Just like traditional workers’ compensation insurance, timing of purchasing monopolistic workers’ compensation coverage is tied to when payroll is reported to the state. In every state, schemes for unemployment insurance and workers’ compensation will eventually align, so that if one is in place, they will be looking for the other. Many states also have reciprocity with other states so that if an employee has to work away from their state of residence for a short period of time, you do not need to add a new state’s coverage immediately – and this also applies when someone moves, so the addition is not often immediately required. There are exceptions to this, however, such as in New York where it is expected that coverage is put into place immediately. You should become familiar with the workers’ compensation laws in states in which your employees frequently visit to determine if you need to add coverage to your policy on an “If Any” basis even if no permanent employee resides in the state. Greyling recommends that if an employee is in a state for longer than 30 days, either consecutively or cumulatively during a year, that you should discuss adding coverage for that state. For the monopolistic states, we can assist you with getting coverage started, but it is the employer’s responsibility to directly place and maintain coverage with the state.

Monopolistic Jurisdictions

In four states – North Dakota, Ohio, Washington, and Wyoming – an employer cannot buy workers’ compensation from any insurer other than a state-sponsored insurance fund. Because of this state-created monopoly in these four states for workers’ compensation insurance, they are referred to as monopolistic jurisdictions. In these monopolistic states, workers compensation policies do not include coverage for employers’ liability coverage (i.e., Part Two or B). To receive employers’ liability coverage, which is often required by contract, an endorsement amending the policy can be attached to an “All Other States” workers’ compensation policy or commercial general liability policy if you do not have employees in states other than the monopolistic states.
Below are the links where you can purchase coverage for these states:

North Dakota – North Dakota Workforce Safety & Insurance
https://www.workforcesafety.com/

Ohio – Ohio Bureau of Workers Compensation
https://info.bwc.ohio.gov/

Wyoming – Wyoming Department of Workforce Services
https://dws.wyo.gov/dws-division/workers-compensation/ng

Washington – Washington State Department of Labor and Industries
https://www.lni.wa.gov/

Be sure to manage your exposure

It is important that you manage your potential workers’ compensation exposure through subcontractors you hire, which can be companies and individuals (like 1099 independent contractors). Most likely, a company will have workers’ compensation, but you still need to collect certificates evidencing coverage as this is not always the case. If a company is small, such as a couple employees or even one, a number of states do not require the company to purchase workers’ compensation as an owner can elect out of having the coverage. If a company does not have workers’ compensation, an insurer will charge you for the exposure at audit unless the company is not required to have the coverage and has provided written documentation stating an election to not carry and rejecting coverage you provide on their behalf. Most independent contractors do not have workers’ compensation and should be given the same treatment. However, you may elect to provide them the coverage, especially if they are acting as a supplement to your employees and the state may even require it.

Employees Traveling Abroad

If an employee is traveling outside of the US either on a business trip or for an extended period of time, Greyling recommends securing a foreign package policy that provides the casualty coverages that you are used to domestically, including commercial general liability, commercial auto (primary or excess), and workers’ compensation along with some enhanced benefits such as repatriation and accidental death & dismemberment (AD&D) benefits. A US workers’ compensation policy can extend the extraterritorial rights of an employee’s state of hire internationally, but since the minimum premium of a foreign package can be as low as $1,500, we typically recommend the latter.

Workers’ Compensation Claim Reporting Lag Time (by Michelle Miller)

When an employee reports an on-the-job injury, the employer’s swift response often has a dramatic impact on the outcome of the claim. From the outset, it is important to be mindful of the variance of workers’ compensation laws from state to state. For example, in some jurisdictions, even an offhand complaint of pain by an employee obligates the employer to fully investigate whether the complaint is work-related. Upon notice of a claim, the first priority should be reporting the claim to the carrier to eliminate any potential coverage problems, and so that there can be a discussion about available treatment options, investigation, and general defense strategy. From there, the employer’s investigation should commence as soon as possible, to include an interview and/or written statement from the employee claiming an injury, statements from other employees who may have been involved or witnessed the incident, and review of any video footage available. Delays in gathering this information can often result in a weaker recollection of events, which could compromise the investigation. Ultimately, the employer’s ability to minimize the impact of an on-the-job injury claim often depends on how quickly the employer takes action once the claim is reported.

 Michelle Miller, J.D., Principal/Consultant at MCM Workplace Solutions

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AUTHORS

Kristen Walker

KRISTEN WALKER, CRIS, LEED

SENIOR VICE PRESIDENT

[email protected]

(770) 220-7691

Kristen is a client executive and broker with Greyling, a division of EPIC. She is experienced in the unique coverage needs of both contractors and design firms. She works with mid-sized to large clients, many with global exposure and complex insurance programs.

Kristen founded the Greyling | EPIC sponsored Women in A/E/C Networking Events that provides a forum for relevant industry topics to be discussed by leading and up-and-coming women in a relaxed environment.

Kristen joined Greyling in 2012. Prior to that, she was a Senior Underwriter at Zurich focusing on both project and practice professional liability policies for owners, contractors, and designers. Kristen holds Construction Risk and Insurance Specialist (CRIS) and Leadership in Energy and Environmental (LEED) Green Associate designations.

Kent Collier

KENT W. COLLIER, JD

MANAGING PRINCIPAL

[email protected]

(770) 220-7692

Kent provides day-to-day service to Greyling clients regarding insurance and risk issues in the architecture, engineering, construction, environmental, and legal service fields. He brokers practice and project specific insurance placements for A/E, construction, and law firms across the country. Drawing on years of experience as a construction attorney, Kent is heavily involved in his clients’ recognition, reporting, and resolution of insured claims.

Kent performs risk management consulting for clients including preparation and presentation of educational seminars, compilation and analysis of risk surveys, drafting and negotiating professional services contracts, and answering various client questions concerning legal, insurance, and risk issues impacting the construction and engineering industry. He has experience presenting continuing education training to staff regarding risk management, contracts, and insurance topics.

Top Ten Things You Need to Know About the Cyber Insurance Market

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Top Ten Things You Need to Know About the Cyber Insurance Market

Every Organization Should be on High Alert

Until recently, cyber insurance was easy to obtain, based on very little underwriting information. Coverage was broad and negotiable. Premiums were reasonable. These were the “glory days”! In early 2021, the cyber market abruptly changed. Increasing frequency, severity and sophistication of cybercrime – specifically ransomware – pushed the market into a sudden tailspin. Below are the top 10 things you need to know about the cyber insurance market today:

RATE, RATE and MORE RATE: Increasing Premiums
 Companies and firms are experiencing premium increases at renewal of upwards of 50%, depending on company size, industry and security risk profile. In many instances, the increase is in the double digits – 100%+. Having strong network security and data privacy controls is an expectation, not a basis for a discounted premium.

SKIN IN THE GAME: Increasing Retentions Connected to Revenue
 Underwriters are using retentions and deductibles as a way of spreading or sharing the risk with the Insured. Often, the Retention is set based on the annual revenue of the company. Underwriters want to be sure the retention/deductible is set as one that the Company could pay in the event of an incident.

BACKING AWAY ON LIMITS: Decreased Capacity
 For the first time since the introduction of cyber insurance, we are seeing the market backing away on limits they are willing to offer. Today, most markets will only offer a maximum limit of $5,000,000 on a primary layer of insurance.

EXIT STAGE LEFT: Carrier Exiting the Market
 In stark contrast to the glory days of the cyber market when we saw carriers entering the market frequently, today, we are starting to see carriers exit the market.

NOT AS HUNGRY: Changing Underwriting Appetite
 In the glory days of cyber market, carrier appetite could be described as being insatiable. Today, carriers are reevaluating their appetites in multiple ways, including classifying more industry verticals as “high risk”.

MFA, MFA, MFA: Enhanced Underwriting
 There are basic controls that underwriters now “expect” to see. The list is long but just to name a few: Multi-factor Authentication (MFA), Network Segregation/Segmentation, Regular/Frequent Data Backups, Backups stored in more than one location, Regular/Frequent Security Awareness Training for Employees, Endpoint Detection and Response (EDR) etc.

JUST SAY NO: Declinations More Frequent
 Underwriters are no longer racing to gain market share and are far more risk adverse than they were in the glory days. They are engaging in comprehensive, technical and strategic underwriting that results in more declinations.

PERFECT STORM: Market Saturation
 The current state of the cyber insurance market means most insurance brokers are conducting a full marketing exercise on most accounts. A basic demand for cyber insurance has increased as well. The cyber insurance markets are overwhelmed with a flood (maybe tidal wave is a better way to describe it!) of applications.

TIGHTEN THE BELT: Coverage Tightening
 Again, the current condition of the cyber market was triggered, largely, by a significant increase in frequency, severity and sophistication of cybercrime attacks – specifically, ransomware. As a result, most cyber insurers now impose co-insurance and/or sub-limits on coverage for ransomware attacks which extends to all areas of the cyber policy that are triggered by the attack.

PRESSURE: Cyber First Responders Under Pressure
 The increase in frequency and severity of claim activity is also taking its toll on cyber first responders: claims professionals, breach coaches, cyber extortion negotiators, computer forensic vendors, public relations (PR) firms, etc. Anyone involved in the initial response to the cyber incident is inundated right now with sheer volume.

If your firm is confronted with cyber risk issues, please don’t hesitate to contact us for a solution.

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AUTHOR

Kristen Walker

Kristen Walker, CRIS, LEED

SENIOR VICE PRESIDENT

[email protected]

(770) 220-7691

Kristen is a client executive and broker with Greyling, a division of EPIC. She is experienced in the unique coverage needs of both contractors and design firms. She works with mid-sized to large clients, many with global exposure and complex insurance programs.

Kristen founded the Greyling | EPIC sponsored Women in A/E/C Networking Events that provides a forum for relevant industry topics to be discussed by leading and up-and-coming women in a relaxed environment.

Kristen joined Greyling in 2012. Prior to that, she was a Senior Underwriter at Zurich focusing on both project and practice professional liability policies for owners, contractors, and designers. Kristen holds Construction Risk and Insurance Specialist (CRIS) and Leadership in Energy and Environmental (LEED) Green Associate designations.

Cybersecurity Tips for Executives and Boards of Directors

Cyber Security

ARTICLE

Cybersecurity Tips for Executives and Boards of Directors

Every Organization Should be on High Alert

With the ever increasing levels of malicious cyber activity, including ransomware, phishing, and virus attacks, the leadership of every firm should educate and inform their team members. Every organization—large and small—must be prepared to respond to potentially disruptive cyber-attacks. Here are a few tips. Shields up!

Reinforce
Reinforce Basic Cyber Hygiene. Conduct regular vulnerability scans; conduct penetration testing – consider engaging ethical hackers/bug-hunters; perform necessary patching; ensure endpoint security tools are in place and ready; implement or reconfirm Multifactor Authentication (MFA) is in place; check your back-ups and test your restoration process.

Assess
Assess Supply Chain Risk. Collateral damage from cyber-attacks targeting Ukrainian government websites may disrupt shipping lines and logistics firms; monitor and evaluate connectivity from foreign geographies, especially Ukraine and Russia – consider implementing temporary IP geo-blocking.

Review
Review Incident Response and Business Continuity Plans. Conduct drills; make sure all crisis response team members are aware of their role and designate alternates in case primary team members are unavailable; reconnect with or retain legal/breach counsel and cyber security firms for incident response services.

Evaluate
Evaluate Risk Transfer Mechanisms. Review cyber insurance policy and any other potentially applicable insurance products; review contracts with vendors, business partners and other third parties; ensure you and all key members of the organization have hard copy versions of your cyber insurance policy.

Connect and Communicate
 Participate in information sharing groups within your industry sector; connect with regional Cybersecurity and Infrastructure Security Agency (CISA) representatives and the local Federal Bureau of Investigation (FBI) field office.

Train and Practice
 Conduct holistic tabletop exercises with all key organization members; increase the frequency and complexity of phishing exercises and employee training.

If your firm is confronted with cyber risk issues, please don’t hesitate to contact us for a solution.

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AUTHOR

Kristen_Walker

Kristen Walker, CRIS, LEED

SENIOR VICE PRESIDENT

[email protected]

(770) 220-7691

Kristen is a client executive and broker with Greyling, a division of EPIC. She is experienced in the unique coverage needs of both contractors and design firms. She works with mid-sized to large clients, many with global exposure and complex insurance programs.

Kristen founded the Greyling | EPIC sponsored Women in A/E/C Networking Events that provides a forum for relevant industry topics to be discussed by leading and up-and-coming women in a relaxed environment.

Kristen joined Greyling in 2012. Prior to that, she was a Senior Underwriter at Zurich focusing on both project and practice professional liability policies for owners, contractors, and designers. Kristen holds Construction Risk and Insurance Specialist (CRIS) and Leadership in Energy and Environmental (LEED) Green Associate designations.

Telematics for Engineering Firms

Telematics for Engineers

ARTICLE

Telematics for Engineering Firms

Telematics for Engineers

What are the Insurance Premium Savings?

A question often asked by clients considering implementation of telematics technology is how much insurance premium savings they will get upfront to offset the cost of implementation. Unfortunately, the answer is not a simple one and varies by insurer. Most underwriters pricing Commercial Auto Liability and Excess/Umbrella Liability agree that insureds need to demonstrate an improved loss history over time that correlates with the proper use of telematics data before premium credits are considered. This report summarizes insurer positions and provides a guide to the proper implementation and utilization of telematics data to improve loss experience.

Increased frequency and severity of nuclear auto liability verdicts, defined as jury awards in excess of $10 million, have shaken businesses and insurance companies over the past five years. Even though these claims most often involve trucking and transportation companies, the construction industry is not immune and has seen a significant uptick in auto losses.

In an insurance marketplace that continues to harden particularly for Commercial Auto Liability and Excess/Umbrella Liability, how can engineering firms with both large and small fleets of vehicles differentiate and have more control over current and future cost of insurance? Is telematics the ultimate answer?

Fleet GPS Tracking

What is Telematics?

Telematics is the integrated use of telecommunications and information processed by computer systems. The increased capacity of telecommunications networks and the raw power of the internet’s cloud fueled the adoption of telematics in recent years.

IBISWorld reported that there are 316 Fleet Telematics Systems businesses in the US as of 2021, an increase of 19% from 2020. The number of businesses in the Fleet Telematics Systems industry in the US has grown about 20% per year on average over the five years between 2016 and 2021.

Nationwide’s latest Agent Authority survey revealed that four out of ten construction firms are currently utilizing telematics. The overall market size of the fleet telematics systems industry in the US measured in revenue is $6.6B in 2021 with significant growth expected in the next five years.

Telematic features are expanding and often include the following menu of options to choose:

  • GPS fleet tracking
  • Equipment and asset tracking
  • Electronic logging device (ELD)
  • Dashcam
  • Dispatch and scheduling
  • Proof of delivery
  • Roadside assistance

One of the most valuable features is the visibility of vehicles that comes with GPS tracking. Knowing the whereabouts of each vehicle by monitoring the movement and location during business and after hours is a great benefit for engineering firms looking to maximize use of the vehicle fleet. Other important benefits include reduced maintenance and fuel costs, ELD compliance, and use of data to improve employees’ driving habits.

Implementing Telematics: A Client’s Perspective

One of our clients recently finished the implementation of telematics on close to 900 vehicles. Their fleet of vehicles drive 32 million miles per year. Understanding that auto liability exposure with a fleet of this size represents the single largest risk exposure the firm faces every day. Consequently, our client asked for our assistance in evaluating telematic options and features to purchase.

Before going through full implementation, our client decided to start a pilot program. A selected group of thirty drivers and vehicles from different regions was chosen. Drivers’ behavior started to show improvement about a month after the pilot started. Initially, there were a significant number of alerts due to speeding and harsh braking or acceleration events. Another challenge encountered during the pilot was that most employees were concerned about being tacked after hours when driving company vehicles for personal use.

After four months in the pilot program, our client moved to full implementation and has experienced exceptional results. Speeding, incidents, and harsh braking or acceleration alerts dropped a staggering 90% within a year following the company-wide execution of the program.

A key reason for this success was the consistent enforcement of fleet safety protocols and proper use of the telematics data. Employees now have driving safety scores with financial rewards tied to it, have access to training with individual coaching sessions as often as needed, and understand that driving safely is a core component in their scope of employment.

What About Insurers? Telematics and Pricing Considerations

A key role of an insurance broker is to understand the insurers’ underwriting appetite and position on telematics to be able to negotiate the best results on behalf of clients.


Increased frequency and severity of nuclear auto verdicts and social inflation have had a significant impact on auto and excess liability premiums. Commercial auto liability rates have been on the rise for the past five years averaging 10 to 15% annual increases. Not a surprise, but Excess/Umbrella Liability losses started to pile up and significant rate increases began two years ago. According to The Council of Insurance Agents & Brokers Commercial Property & Casualty Market Report Q1 2021, Excess/Umbrella results show an average of 20% rate increases while Auto Liability rate increases were closer to 10%.

We interviewed underwriters of major insurance companies writing Commercial Auto Liability and Excess/Umbrella Liability about their view on telematics. Here are some of the highlights:

Interview Highlights

“Telematics definitely makes a difference when I am looking at an auto exposure. I always like to see a fleet safety program in place, but telematics as part of that program is a major plus.”

“Telematics only matters if the insured can demonstrate how they are utilizing the telematics with their employees. Reviewing the findings monthly, actively using the data, holding them accountable and having a discipline plan in place. Just simply having telematics in place doesn’t do much in our eyes unless the insured is using it in a meaningful way. We have seen accounts with telematics perform very poorly and some perform very well.”

“Telematics are always a positive risk characteristic, and our company does take that into account when we review a risk. The challenge with telematics is whether the risk is actually ‘using’ the data they receive from telematics. We also look to see if the entire company management is fully engaged in using telematics data.”

“We are finding that risks will have access to the data, but not actually use it to improve their fleet safety, driver’s list, or maintenance of their vehicles. As a result, we evaluate how the data from telematics is actually implemented when we review a risk.”

“Doing telematics on paper is not good enough for getting insurance credit. Data improvement and correlation needs to be shown. Don’t implement use of dashcam until driver behavior is improved.”

“Telematics, especially with video recording, can help reduce claim volume in multiple ways. Most accidents are rear end collision or sideswipe/intersection accidents. Fraudulent claims can be reduced, employee driver generally feels the need to pay closer attention, and a dispute over who ran the red light or made a lane change causing an accident can be greatly reduced (if employee is driving properly)”

How Can We Help You Implement a Telematics Program?

There are numerous options and vendors selling telematics. Your insurance broker should guide you through each step in the evaluation process including:

  • Help you set goals and identify your needs
  • Research providers and engage risk control resources available from your broker and insurers
  • Demo finalists before selecting the option that best fits your needs
  • Select the telematic features you are interested in (GPS tracking, ELD, dashcam, etc.)
  • Develop a pilot program before full implementation
  • Help your firm differentiate your risk profile from peers in the insurance marketplace

We recommend that firms with small and large fleet of vehicles consider telematics. If done correctly, we believe the benefits outweigh the challenges of execution of a program and technology cost. A strong return on investment (ROI) should be realized short term after implementation of telematics due to improved fuel economy, reduced vehicle maintenance costs, increased productivity, and enhanced safety.

A cultural shift needs to happen where employees understand that driving safely is a core component of their work. For telematics to be successful, the company leadership needs to be fully engaged, monitor and enforce acceptable performance of employee’s driving behaviors, and periodically review the effectiveness of the program.

Telematics is certainly a tool that can help your firm mitigate risk and set you apart for more favorable and stable insurance premiums.

Implementing Telematics

Other Collision Prevention Technology

Greyling/EPIC signed a partnership agreement with Mobileye, a company that specializes in advanced driver assist systems such as lane departure and forward collision warning. These systems are designed to make a driver better in real-time by preventing collisions. In our experience, the implementation of this technology drastically reduced our client’s collision involvement and virtually eliminated at-fault collisions. This product should be considered by firms with fleet size of 20 vehicles or more.

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AUTHOR

Matias_Ormaza 2

Matias Ormaza, CRIS

MANAGING PRINCIPAL

[email protected]

(770) 220-7687

Matias Ormaza is a Managing Principal and Broker with Greyling Insurance Brokerage. He negotiates and places coverage for large design firms and design-builders. He works with clients that have global operations and revenue from $100 million to more than $1 billion. He is experienced in the unique coverage needs of design firms and has negotiated a wide range of large and complex project-specific policies for professional liability, pollution liability, wrap-ups and builders risk programs.

Matias is Risk & Insurance 2018 POWER Broker Award Winner in the Construction Industry. He holds the Construction Risk and Insurance Specialist (CRIS) and the Management Liability Insurance Specialist (MLIS) professional designations.