The Insurance Crunch
Aggressively minimizing products liability risk
can save your business thousands of dollars.
by John F. Graham
The insurance purchasing market for material handling dealerships and
related industry members is about to get expensive. Anywhere from a 5% to
25% increase in premium was mandated by the property and casualty
insurance companies for the year 2000. Those increases could be compounded
in 2001.
There are several reasons for the drastic measures. Insurance pricing has
steadily declined over the last 10 years due to extensive price
competition. This decline in pricing along with dramatic losses in the
products liability and automobile liability lines of business have taken a
toll. Consequently, insurance companies will increase their underwriting
profits to allow stronger stock pricing security for their shareholders,
merge with another carrier or just get out of the commercial liability
business altogether. The last of these alternatives has become a realistic
option, thereby shrinking market availability. To further compound the
problem, Lloyds of London is projecting a dramatic reinsurance pricing
increase in 2001.
With all of this in mind, distributors must secure ways to keep their
businesses as attractive accounts or be prepared to increase the bottom
line. The number of insurance markets is starting to dwindle, and
distributors can enhance their position greatly by instituting effective
risk management procedures.
One area where distributors can take steps is minimizing the risk of
products liability claims. A positive attitude by management is a must. In
the long run, distributors will save their companies thousands of dollars
in premium and man-hours spent testifying for cases tried by third parties
who are actually responsible for injuries and losses.
Distributors have the greatest exposure to products liability claims in
the rental or leasing of “used” equipment. The more the employees of a
dealership “touch” a rented or leased forklift, the greater a
distributor’s liability, since servicing the equipment increases
responsibility for greater care. Keep in mind that most products liability
claims are caused by operator negligence. Even if a dealership has not
serviced the piece of equipment, it can still be brought into a claim as a
defendant.
The following examples represent certain types of products liability
litigation claims that have taken place over the last few years.
Case:
Manufacturer’s Defect
The claimant, an employee of a packaging company, was working in a
warehouse with a HiLo. He suffered an unclassified severe injury allegedly
resulting from a manufacturing defect in the equipment.
As all allegations in the suit are manufacturing defects, the manufacturer
accepted indemnification and agreed to pick up the defense.
The case was received in suit. Reserves amount to $10,000 PA-01 and
$10,000 Expense. The total paid to date is $2,837.24 Expense.
Case:
Responsibility for Training
The claimant was involved in an accident while backing up a lift truck as
he looked forward. His hand was outside the cage, resulting in amputation
of the fingertip and a fracture in the middle and ring fingers of the
dominant hand.
The suit is the client’s first notice of a claim, and includes a demand
for $100,000. The complaint reads of a manufacturer defect. The claims
adjuster is looking to the manufacturer for indemnification and defense.
Copies of the purchase agreements between manufacturer and the distributor
will be obtained. The deposition of the plaintiff will be obtained and the
lift examined to document driver error.
The lift was rented to E.G. White and shipped to Muddy Creek, Inc. (names
are fictional), placing comparative negligence on White and Muddy Creek
for allowing the lift to be used without proper instruction. After initial
discovery, a Summary Judgment will be pursued based on the fact that the
distributor is the seller only.
Reserves include $10,000 PA-01 and $10,000 Expense. No amount has been
paid to date.
Case:
Employee Negligence
Employed by a window-washing company, the plaintiff suffered injuries
after falling from a one-man lift that was provided by a local
distributor. The lift is equipped with aluminum outriggers that slide into
the corners for stability. For an unknown reason, the plaintiff removed
the outriggers, making the equipment unstable, which resulted in a fall in
which the plaintiff suffered fractures to the left cheek, sternum, left
arm, left leg and a lacerated spleen. The client also instructs on the use
of the equipment and has the instructed party sign an affidavit. The
signature on affidavit is not the plaintiff’s.
Defense counsel feels that the defense of misuse is strengthened by the
fact that the employer advises that co-workers of the plaintiff warned him
not to remove the outriggers. A witness statement on file from a co-worker
indicates that he was familiar with the lift and suggested that the
claimant use the outriggers. The claimant stated, “No. C’mon.” There
was no supervision and the job did not require supervision, as claimant
had been a window cleaner for 18 years. Claimant got on the lift and
raised it without the outriggers to approximately 35 feet. The lift tilted
to the left, and the claimant fell.
In New York, comparative negligence applies and it would appear that the
injury was a result of the plaintiff’s own negligence. However, there is
a section of New York law that protects workers on a scaffold and makes it
difficult to use a worker’s negligence against him. The court has
pointed out that it is not the plaintiff’s duty to guarantee his own
safety on the job by implementing appropriate safety devices. It is a
requirement imposed to the owner, not the worker. The supplier of the
equipment does not appear to be addressed in the case law.
The plaintiff’s employer has been brought into this action. However,
under New York’s Grave Injury statute, a third party can sue the
employer if an employee’s injury is grave. We are researching if the
plaintiff’s injury meets the standard of “grave” injury. Liability
does not rest with the client.
Reserves amount to $15,000 PA-01 and $20,000 Expense. To date, $14,547.55
has been paid.
Preventive
Measures
Normally, driver error in the operation of a forklift is the result of
improper training by the employer of the operator who purchases, leases or
rents a forklift. The Occupational Safety and Health Administration (OSHA)
requires the employer, lessee or renter to provide the necessary safety
training. Normally, a warehouse forklift operator may be 18 years of age
or slightly older, so the maturity of the youthful operator comes into
question. This is the area of greatest exposure, where death or permanent
injury can often occur.
Another area of concern is the servicing of a forklift, especially rented
or leased equipment. As indicated earlier, the more a piece of equipment
is “touched,” the greater the responsibility of the distributor for
its safe operation. That is why the servicing of used or rented equipment
on a short-term basis poses a greater risk of litigation than selling or
leasing a new forklift. Liability for injuries caused by new equipment can
be transferred to a manufacturer through the manufacturer’s agreement
with the distributor to defend the distributor for liability claims as a
result of manufacturer’s defects.
In each of the three cases above, the reserves were only the initial
amounts set by the insurance adjuster. These legal suits may entail
millions of dollars for the dealer liability if the dealer does not take a
thorough and aggressive preventative approach to loss minimization. Lease
or rental agreements between the distributor and the renter should be
worded as to require the renter’s insurance company to cover the
distributor for liability under the renter’s liability insurance policy.
The proof of this coverage is normally provided through a certificate of
insurance, whereby the distributor is named as an additional insured for
liability up to certain limits, usually one million dollars per claim. It
is important to understand that these documents only provide a defense to
help mitigate a distributor’s liability.
This procedure can save a distributor substantial premium dollars since
defense coverage is transferred to another insurance carrier. Distributors
should make sure that the certificate of insurance is not issued to the
dealership’s leasing manager as “proof of insurance” by the lessee,
but rather provides the proper liability insurance coverage as stated in
the lease or renter’s agreement.
Forms 1 and 2 are sample documents that distributors can review with their
insurance agents to implement a loss minimization procedure.
By taking an aggressive approach to loss minimization, distributors will
not only save thousands of premium dollars, they will also make their dealership
an attractive, well-managed, concerned business to the insurance marketplace.
Form 1. Insurance Requirements For Rented Equipment
The following format is recommended when a dealership advises customers
who will rent its equipment. The letter should be on the dealership’s
corporate stationery.
SAMPLE COPY
Dear Sir/Madam:
Customers renting equipment from (YOUR CORPORATE NAME) should be aware
that our Rental Contract indicates that you, as lessee, are fully responsible
for liability and physical damage insurance coverage. Your insurance
policies will be the primary coverage while the equipment is on rental.
When you advise your Insurance Carrier of a rental, please ask your
insurance agent to issue a Certificate of Insurance naming our dealership
as an Additional Insured under your General Liability policy, with limits
of $1,000,000 Per Occurrence /$2,000,000 General Aggregate/$2,000,000
Products/Completed Operations Aggregate. In addition, please list us
as a Loss Payee under your Inland Marine policy for the full value of
the equipment for full protection against physical damage. A complete
description of the equipment being rented must be indicated on the Certificate
of Insurance. This includes year, manufacturer, model number, serial
number and valuation.
If your Package policy indicates that your “towed” equipment is to be
covered under your Automobile Liability rather than Equipment floater,
kindly name us an Additional Insured under this Automobile policy.
Your Certificate of Insurance must state that (YOUR CORPORATE NAME)
will be given thirty (30) days prior written notice in the event of
policy cancellation.
Please be advised that insurance information will be required before
rental equipment can be released. Please furnish (YOUR CORPORATE NAME)
with one of the following options:
• A Certificate of Insurance as described above
• Name of Insurance Agency with telephone number
• A Blanket Insurance policy to cover all rentals.
Note: We suggest you contact your insurance agent to release your coverage
when the rented equipment has been returned. If rental will occur over
the renewal date, forward the new Certificate of Insurance within thirty
(30) days of expiring policy.
Sincerely, Rental Manager:
Form 2. Addendum To The Manufacturer’s Rental Agreement For Indemnification
And Insurance Procurement
TO BE ATTACHED TO YOUR PRESENT RENTAL AGREEMENT FORM
This Addendum shall constitute part of the Contract between ________,
Lessor and ________, Lessee. In the event of any inconsistency between
the terms of this Addendum and the annexed lease agreement, the terms
of this Addendum shall govern and control.
INDEMNIFICATION
To the fullest extent permitted by law, the Lessee shall indemnify and
hold harmless the Lessor and all of its agents, servants and employees
from and against any and all claims, damage, losses and expenses, including,
but not limited to, attorney fees, made by anyone, including employees
of the Lessee, arising out of, or resulting from, the operation, maintenance
and use of the equipment rented under this agreement, provided that
such claim, damages, loss or expense is attributable to bodily injury,
sickness, disease, death, or to injury to or destruction of property,
including the loss of use resulting therefrom, to the extent that it
is caused, in whole or part, by the negligent acts or omissions of the
Lessor, Lessee, or anyone directly or indirectly employed by them or
anyone for whose acts that may be liable, regardless of whether such
claim, damage, loss or expense is caused by the sole negligence or partial
negligence of the Lessor, its agents, servants and employees.
INSURANCE PROCUREMENT
A. Lessee shall provide and pay for all risk insurance against physical
loss or damage to units in an amount equal to the full insurable value
of the equipment. Such policies shall name the lessor and its assigns
as additional insureds as their interest may appear.
B. Lessee also agrees to provide and pay for, at its own cost and expense,
comprehensive general liability insurance, including contractual liability
coverage, which insures both the Lessee and the Lessor and their agents,
servants and employees for any and all claims, accidents, liability,
damages, loss and expenses arising out of or in any way resulting from
the operation, maintenance and use of the equipment rented under this
agreement, that results in bodily injury, sickness, disease, death,
or injury to or destruction of property, including the loss of use resulting
therefrom. The insurance herein shall be primary insurance for the Lessor
and Lessee and shall be in the amount not less than $1,000,000 combined
single limit for bodily injury and property damage, with any applicable
aggregate limits unimpaired up to the $1,000,000 CSL.
C. Lessee shall furnish Lessor with Certificate of Insurance evidencing
the coverages set forth above, which shall provide thirty (30) days
prior written notice by registered mail to Lessor of any cancellation
or change reducing coverage. The Certificate of Insurance shall specially
state that the lessor is an additional insured under the Lessee’s policy
of insurance as reflected in Paragraph B above, and that the coverage
for the Lessee is primary coverage, and not excess to or concurrent
with any other insurance coverage that may be available to the Lessor.
The insurance so provided shall be effective during the period from
the moment of delivery of each unit under the lease to Lessee until
the moment of possession to Lessor or his authorized representative.
Lessor: ________________
Lessee: ________________
By: ____________________
By: ____________________
Dated: _________________
LESSEE PROVIDES THE LIABILITY INSURANCE DESCRIBED BELOW
Liability Insurance Coverage:
Insured’s Name: __________________________________
Address: ________________________________________
Agent: __________________________________________
Address: ________________________________________
Telephone: ______________________________________
Name of Carrier:__________________________________
Policy No: ___________________
Eff. Date: ____________________
Check Coverages:
Split Limits:
_____Bodily Injury $_____ Per Person/ $ ______Per
Accident
_____Property Damage $ _______ Per Accident
Combined Single Limits:
_____Bodily Injury / Property Damage $ _______
Each Occurrence/Aggregate |
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