Fenn & Fenn Insurance Practice Inc.

Saturday, May 01, 2010

Commercial Insurance and Risk Management Question to you.

I am always interested in changing the status quo.  Sometimes we need to ask the insurance buyer what needs to change to improve their risk management and insurance buying experience. Here I put the question then to you. 

As a business insurance buyer, please consider and reply to the following:
1) When did you last see your insurance broker? 
2) Do you get renewal quotes with time to review them, ask questions and then make an informed decision?
3) Do you feel your insurance broker asks enough information about your company, too much or too little?
4) Are you comfortable that your insurance covers you against major corporate risks? 
5) Is the insurance placement process time consuming or frustrating for you?
6) What amount of time does insurance take out of your business day, week, year?
7) If you need to understand something about insurance, do you get a better answer from your broker, or Google/Wikipedia?
8) What would you change about the insurance industry if you had the ability to change it? 
9) Do you feel the insurance industry is a leader in the use of technology to deliver service to insurance buyers?
10) Do you prefer to deal with a broker or buy insurance through the web?

Thanks for answering these questions.
Simon Fenn

Tuesday, April 27, 2010

Construction Risk & Insurance - How Much Liability Insurance Is Enough?

Please see the linked paper that discusses how much liability insurance the Canadian contractor should consider. 

HOW_MUCH_GENERAL_LIABILITY_INSURANCE_IS_ENOUGH_general.doc

Bill 168 - Workplace Violence - Protecting Your Company

Bill 168 Workplace Violence becomes effective June 15, 2010 in Ontario. Companies with 5+ employees in Ontario need to pay attention to compliance requirements associated with this Bill. Fenn & Fenn Insurance Practice Inc is pleased to supply summary information on Bill 168. Directors & Officers Liability and Employment Practices Liability Insurance may provide you wish a defence against allegations in connection with this Bill. Click on this link to review our overview and obtain useful links to resources: BILL_168.doc

Wednesday, July 15, 2009

Set-Off : a Cost of Risk?

This risk management paper is focused principally on the constructor.  It uses a popular definition of Cost of Risk and proposes that set - off or financial hold back due to an incident of some sort is a predictable event. As a predictable event it further proposes that the constructor should include an allowance for set-off within its annual cost of risk calculations and ultimately into its overhead. This allows the constructor to spread its risk of set-off among its annual work.

I hope you enjoy the paper.  Should you have any questions, please contact me.

Have a great day.

Simon Fenn

Owner/ General Contractor Payment Set-Offs:  A Predictable Cost of Risk?

One of the most frustrating things for me as a construction insurance broker is being unable to address the fact that in so many cases when something goes wrong on a construction project, the Owner or General Contractor holds back payment to the contractor/subcontractor (hereafter subcontractor) for its progress payment or completed work, irrespective of insurance being involved to cover the incident. I suggest it may be time for the subcontractor to anticipate such situations within an annual cost of risk calculation to become part of your overhead. 

Many times my clients look to me as if I can sort out the holdback situation if it is connected to an insurable incident. Helplessly, I shrug my shoulders, part my hands with palms up and say:

“The insurance claim is in the realm of the insurance industry; whereas, the holdback is a contractual dispute”.

This of course does not help my client who, because of an incident that might not even be its fault, can wait for months or years before receiving payment from its client. Such situations add stress, not only on cash flow but, depending on the size and financial strength of the firm: its very existence. I have looked at potential insurance solutions but have come to the conclusion it is a risk management issue, not an insurance issue.

In one recent case, my client’s claim occurred in November 2008 and repairs did not conclude until June 2009. For this entire period of time the payment for the work has been withheld by the Owner who has refused to pay the contractor until such time as the authorities had given the repairs a clean bill of health. Sadly, I have seen much longer examples.

Is this right? Should General Contractors and Owners be allowed to hold back payment when there is an incident on a jobsite? I decided to explore this. 

As you might expect when serving a large number of contractors and consequently insuring a large volume of their work, I get to see how the sector is affected by such payment hold back activity.  Almost every single third party liability property damage claim against one of my clients includes a payment hold back situation. From what I can tell the frequency of such situations seems very high.

The term hold back is really an incorrect term to use in these cases as it in itself is usually more strictly defined within and relates to the Construction Lien Act (Ontario).  To avoid confusion henceforth we change the term of reference to the Common Law right of Set- Off.  The version of Set-Off we are dealing with here is considered “Equitable Set Off”.

According to a December 11, 2006 article written by Christopher Hurst & Norman Streu of Alexander Holburn Beaudin & Lang LLP (full copy of article http://joconl.com/article/20061211500):

“The right to an equitable set-off arises when a defendant’s cross-claim is so clearly connected with a plaintiff’s demand that it would be unjust to allow the plaintiff to enforce his demand without taking into account the defendant’s cross-claim. In the construction industry, this often arises when a contractor (or subcontractor) seeks to enforce a demand for payment, and the owner (or contractor) sets - off against that demand its own claim, generally for delay or for construction deficiencies.”

Here is a good example of Equitable set - off from the same article:

Swagger Construction Ltd v. University of British Columbia:

“UBC hired Swagger Construction to build the Forest Sciences Centre. At substantial completion, Swagger brought an action for payment with respect to the 33rd Progress Certificate. The Court allowed UBC to set off against this payment its own claim in damages against Swagger, for delay and for the cost of correcting deficiencies and completing the work.
In reaching its decision, the Court ruled that one party to a construction contract has the right to defend, by way of equitable set-off, against the claims of the other party. The Court further noted that this would generally constitute a claim for contract monies on the one hand, and a claim for damages for poor workmanship or delay, on the other.”

The article further states that:

“The right of equitable set-off exists as part of a construction contract unless it is specifically excluded by the parties.”

Furthermore, the CCDC 2 (1994 & 2008) standard contract makes references to set – off, it sometimes includes the right and in one case excludes the right. Equitable set-off is often not addressed and so may be interpreted as not excluded. 

The same article refers to an Ontario case that does at least seem to put some limitation on right to set-off involving third parties:

“The court found that it would not be fair or reasonable to allow a third party ……..to determine arbitrarily what amounts could be held back from a subcontractor.”

and that…

“….the claim for damages was made by a third party, and was not a claim for construction deficiencies or damages for delay involving the two parties to the contract, Axor (contractor) and Armenia (Owner).”

In discussing this recently one lawyer said to me that this is just a case of Common Law rights. The lawyer said it’s a case of “I owe you, you owe me, but the party withholding had better be sure it has a right to set-off or it could end up paying the other’s interest and costs.”

The clear message in this statement – if money is being set – off, have your lawyer (preferably a construction lawyer) review the situation to ensure that whoever is setting – off is within its legal right to do so. 

From an insurance professional’s perspective we can only offer some risk management suggestions. Firstly it is unlikely that you will succeed in avoiding such situations through amendment of contractual language. You could try but someone else will likely not be so concerned and will win the contract. Secondly you could risk manage by verifying the payment reputation of the Owner/ General Contractor before you submit your bid, especially if you have never worked for them before. If you don’t get a good sense of their payment reputation or what they are like to work for, you may wish to cushion your bid to include a contingency if you bid at all. Again this could work against your bid success as someone else may not be as concerned and will bid below you.  Thirdly, you could make an allowance within your annual cost of risk against such situations.

IRMI (International Risk Management Institute) defines Cost of Risk as:

“The cost of managing risks and incurring losses. Total cost of risk is the sum of all aspects of an organization’s operations that relate to risk, including retained (uninsured) losses and related loss adjustment expenses, risk control costs, transfer costs, and administrative costs.”

It is conclusive from my experience that the frequency of an individual subcontractor’s work related incidents is fairly low but with each such incident, the likelihood of a set-off situation being triggered by an Owner or a General Contractor is high. 

You may not yet as an organization be calculating your annual cost of risk within your operating costs. Right now you probably just look at the insurance premium and deductible and include this in your overhead. You’re almost there. As described above, you should include in your annual cost of risk estimate uninsured losses, administration time on your part, the premium you pay and an allowance for the deductibles you “may” pay, let alone the many issues you face yearly that are not within the realm of insurance, but still represent risk that your organization will sustain (including write offs/ bad debts etc.). This is not dis-similar to insurance itself, you are spreading the risk.

As contractors whether subcontractors or general contractors, you have all had incidents where it has cost you something to negotiate away a potential claim against you. This negotiated settlement is a perfect example of what constitutes cost of risk.

Controlling your cost of risk is possibly more important than the cost of your insurance. The insurance premium could pale by comparison to the overall cost of risk calculation. Please try and anticipate that you may have a payment set-off situation arise and consider putting an allowance for this into you cost of risk estimate and then putting your cost of risk estimate into your overhead costs. 

Fenn & Fenn Insurance Practice Inc. is a commercial and construction insurance practice in Newmarket, Ontario, Canada.  Simon Fenn, CIP is President of Fenn & Fenn Insurance Practice Inc. This document is prepared as general information only and is not to be interpreted to apply as advice to any specific situation. Fenn & Fenn Insurance Practice Inc. will not be accept liability for the losses arising from the use of this information for any specific application. If you require advice or assistance in calculating cost of risk, please contact your insurance professional. 

Thursday, February 26, 2009

PROJECT SPECIFIC PROFESSIONAL LIABILITY INSURANCE

If you have a large construction project, Fenn & Fenn is one of the most experienced construction brokers with the capability of assembling the right insurance protection for your industrial, commercial or institutional project. We simplify your construction insurance experience at the same time providing the most appropriate insurance protection at the right price: backed by solid advice throughout the project.

For several years now choice for Project Specific Errors and Omissions has been limited. We are pleased to be able to announce that just as the rest of the marketplace seems to be “drawing in its horns” the Project E&O market continues to do the opposite. We have available markets starting at $10MM capacity. 

If you have a need for Project Specific Errors and Omissions Insurance, contact us now, we’d be pleased to help. 

Have a great day!

Simon Fenn, CIP
President

Wednesday, February 25, 2009

Contractors - Financial Stability of Insurers and Sureties is Critical in these times.

As an insurance broker Fenn & Fenn pays attention to the financial stability of Insurers and Surety companies and if you are a purchaser of or beneficiary of insurance coverage, you should too. 

In the Canadian construction industry it is not only the financial condition of insurers but also the sureties that you need to concern yourselves with, if you have an arrangement for contract surety bond services. 

A great reference tool to monitor your insurer/ surety financial shape is A.M. Best Company website http://www.ambest.com/ where you can look up almost any insurance company and review its financial status.  A. M. Best also has handy guides to help the layman understand their financial ratings. 

In the Canadian construction industry the stability of the surety company for bonding is also crucial as Public Works and Government Services Canada has a specific listing of acceptable Sureties. You can find this listing at this weblink: http://www.tbs-sct.gc.ca/pol/doc-eng.aspx?id=14494&section=text#appL .

If you are a Contractor that often bids PWGSC or Defence Construction projects and your Surety is not listed, you are in jeopardy of being disqualified at the time you bid.

To avoid this, contact us at Fenn & Fenn at 905 836 6066.

Have a great day!

Simon J. Fenn, CIP
President

Friday, April 11, 2008

Builder’s Risk Insurance

Fenn & Fenn Insurance Practice Inc., is pleased to offer expertise based Builder’s Risk Insurance services through our Keystone Construction Services. If you are looking for dependable advice on your construction project(s) as well as correct insurance placement with broad coverage that meets or exceeds most financial institution and contractual requirements - contact us. Our professionals have worked with the construction industry for many years and are very familiar with the challenges faced by complex projects and contracts. We are well known among leading professional services firms with construction specialty practices.  We understand the special insurance requirements for the differing project delivery methods: stipulated sum, design build, public private partnership, etc. We take great care to marry your project risks to your insurance coverage. 

There is no limit to the size or type of project we can assist you with and our insurance partners are top rated financially by leading rating agencies.  Our experience ranges from less than $1MM to $2BN in project values and from basic Commercial and Residential construction to Energy, including Nuclear Power Plants.  We also have good working knowledge of LEED and Green Building Construction. 

Whether you are an Owner, General Contractor, Trade Contractor or anyone else with a building project, we are very likely your best resource and guide for construction insurance advice and coverage. We have in depth knowledge in OCIP (Owner Controlled Insurance Programmes), CCIP (Contractor Controlled Insurance Programmes), CAR (Construction All Risks) and CEAR (Construction Erection All Risks) insurance programmes. 

We also offer corresponding construction coverages including wrap up liability, environmental impairment liability, contractors’ pollution liability, project specific professional liability, ocean cargo, delay in start up and advanced loss of profits insurance.  Beyond this we also have significant experience with structural defects insurance, efficacy insurance and other specialty coverages.

We will transition your project seamlessly from construction to operational insurance as it draws to completion. 

I hope you will consider Fenn & Fenn Insurance Practice Inc. for your own construction project(s). 

Until next time.

Regards,

Simon J. Fenn, CIP
President. 

Friday, April 04, 2008

2008 CHARACTER COMMUNITY AWARDS

On April 3rd, 2008 Fenn & Fenn Insurance Practice Inc. was honoured as recipient of the Business of Character award by the Character Community Foundation of York Region. Here is the link to the Foundation’s website:

Character Community Foundation of York Region

The Character Attributes with which we are credited are no less than humbling as follows:

Respect: I will treat myself and others with consideration, high regard and dignity.

Responsibility: I will be accountable for my actions, be reliable and keep my commitments.

Honesty: I will be sincere, trustworthy and truthful.

Integrity: I will do what is right and ensure there is no difference between what I say and
what I do.

Compassion: I will do whatever is necessary to heal the hurts of others. I will strive to understand and be sensitive to their feelings.

Courage: I will stand up for my beliefs and principles and face challenges, fear and difficulty with fortitude.

Inclusiveness: I will work to build a community where everyone feels included, empowered and valued for his or her unique contributions.

Fairness: I will treat others in a just, equitable and unbiased manner.

Optimism: I will maintain a positive attitude, look on the brighter side of situations and seek opportunities in the face of adversity.

Perseverance: I will not give up when things get tough. I will stick to my goal and work hard to achieve it, despite obstacles and challenges.

Initiative: I will recognize what needs to be done and do it, without prompting from others.

On behalf of all of us at Fenn & Fenn we extend our heartfelt congratulations to the many other honourees and nominees at the Awards Celebration. It is so very grounding to be honoured among the many of you that have achieved so very much more. Such an honour only infects us with the desire to become even better citizens of York Region.

Thank you to the Character Community Foundation of York Region, the Character Community Foundation Council, Organizing Committee and Selection Committee and also thank you to the Sponsors of this amazing event. Keep up the great work you are doing to make York Region stand out as a.... Character Community!

Until next time.

Simon Fenn

Wednesday, March 26, 2008

Understanding the true value of Business Insurance

Insurance is widely regarded as a “necessary evil” and often purchased out of necessity to satisfy the buyer’s client in a business transaction, rather than for protection. It is only when the insured business actually has a claim that the real value of the insurance “relationship” becomes clear.

When purchasing insurance the buyer should take into consideration several factors:

1) The premium/price.
2) The experience of the broker/agent to represent you.
3) The appropriateness of the coverage to protect against the insurable risks faced by the business.
4) The license status and financial stability of the Insurer.

Unfortunately I would guess that 80% of insurance buyers consider item 1 above and rarely take into consideration 2, 3 or 4. Here are some interesting facts from first hand experience:

a) The premium/price is not always what it may appear to be at face value. Please explore it closely and ask your insurance adviser how it may be affected upwards or downwards by features within the policy. This is after all a contract you are considering entering with the Insurer, you should read it and understand it.

b) The broker may place 70% or more household and personal automobile insurance plus coverage on several small businesses. It may not possess the knowledge required to advise you on your business insurance needs. If the broker is a personal friend, what will you do when you have a claim and you discover that your friend really did not put your coverage together properly as he did not understand the business risks you face?

c) Not all insurance policies are the same. Every policy contains conditions, limitations and exclusions that may eliminate or certainly reduce the coverage you feel you may have. Please make sure your insurance adviser explains your coverage to you properly as to how and why it suits your business’s needs.

d) Most insurers have to be either Provincially or Federally Licensed to conduct business in a Province/Canada. In very rare cases exceptions are made where coverage is not otherwise available domestically, subject to strict declaration procedures the broker is required to follow. Most insurers are also usually financially rated by a recognizable Rating Agency, such as A.M. Best Company or Fitch Ratings. It is important to review the insurer rating and if it is anything less than Best BBB+ for example, we suggest you ask more questions about the financial stability of the insurer.

e) If you plan on doing business outside of Canada involving the actual presence of your operations, assets or staff in another Country including the United States, your Canadian Insurer may not be permitted (or admitted) to do business in that State/Country. Usually foreign nations (including the United States) have specific rules and regulations governing insurance and failure to pay attention to these rules can lead to fines and/or imprisonment. Inform your insurance adviser if you intend to expand your operations into a different country so they can inform you appropriately.

There is far more that can be said under each of the subjects discussed here. Hopefully I have said enough to get you thinking about how you go about your insurance purchasing so that the next time you are looking for insurance on your business, you consider coverage, insurer financial stability and service as well as premium/price in your overall decision.

So be careful, the True Value of what you ultimately purchase is not represented by the premium/price you pay. In fact, you could pay a higher premium/price than the lowest proposed premium/price thinking you are getting better value, but in actual fact may be getting far less out of the arrangement.

Thanks for reading my blog, I hope it helps you. 

Wednesday, March 12, 2008

President’s Blog

Hello and welcome to our webpage.  I hope you find everything you need to inform you about us and that you decide to bookmark this page and save it for future reference.  This is my very first BLOG and I am a bit of a novice at it.  I am hopeful the blog, which I will update as often as possible, will give you a unique insight into and understanding of risk, risk management and insurance and the insurance industry.

For the sake of this first BLOG we welcome any feedback you may have on our newly designed webpage.

I only have a brief commentary to presently offer on our the Insurance Industry for now.  Most insurance brokers today will constantly warn you in almost a fear mongering manner that one day the insurance marketplace will once again return to the complex and expensive marketplace it became between 2000 and 2005.  Even I was willing to join this “bandwagon” for a while but my mind is changed. I am not saying we will never see a “hard” market again but unlike many of my peers, I read and keep track of what is going on in my industry and what the statisticians, catastrophe modelers, rating agencies, insurers and reinsurers in particular have to say.  Recently the general tone has been that the current soft insurance market conditions are likely to continue for several years to come with perhaps a small correction towards the end of 2008.  Barring a “perfect storm” type catastrophe scenario, the insurance industry is well capitalized and structured to withstand enormous losses, case in point the continuing soft conditions even following the worst insurance loss year in history after Hurricane Katrina in 2005 after which experts have suggested losses in the area of $100Bn. By comparison 2006 was relatively insignificant and even 2007 a year of wildfires and floods to date has barely approached the 2005 loss levels.

Whilst I do not believe there will be another “hard” marketplace for a while, (historically they do not come about very often), I must offer the suggestion that we introduce a new term and call it a “moderate” marketplace – how original.  I believe as building materials and other costs continue to rise we will in time see a slight correction and stabilization in insurance pricing.  This is normal and the increases that may be applied will seem reasonable to you.  The industry last tried this in 2000 with moderate increases but it did not anticipate the stock market deterioration and tragic World Trade Centre Catastrophe that triggered our most recent and painfully long “hard market”.  

Of course with all things speculative there is never accuracy and precision.  I may be right, I may be wrong.  The best I can suggest to the reader of this BLOG is to always assume a moderate insurance rate increase when setting your budgets and to always seek the advice of your insurance professional well before setting your insurance budget.  At the very least if you budget for an increase and you end up with a reduction, the surplus is positive against your results.  Now as a businessperson like you, that to me is Sensible Business. 

Feel free to contact me directly or to email me if you would like me to write about any subject of interest to you.

Until next time.

Simon Fenn, CIP

President