Activity-Based Maritime Employee Coverage?

I was recently asked if it would be possible to put a Marine Workers' Compensation policy in place that could cover a specific incident.

While the question itself appeared logical, fully covering marine employees is not a one-stop-shop.

They were asking for a coverage opinion based on an “activity” (such as diving, or welding) but unfortunately, the law does not allow the activity to be the sole determinate of what policy can and will respond.

An example can be made from Admiralty Claims.

Two policy types can respond to “Admiralty” claims (often wrongly limited to Jones Act claims). They are Maritime Employers Liability and the Crew Coverage available under a Protection and Indemnity policy.

To be eligible for “Admiralty” benefits any employee has to pass some tests, with the most critical being a “substantial connection to a vessel in navigation”. So let’s break this down: 

1. There must be a vessel…. They don’t need to be ON the vessel at the time… but they need to use the vessels to dive/snorkel FROM. If a diver walks in from the dock, they instantly fail this test.
2. It must be in navigation…. Simplistically away from its home dock - not necessarily moving but also not in a landlocked lake.
3. And the connection must be “substantial”.  Court cases have shown that to be in general 30% of their time or more in service of the vessel, although there are some specific rules around that.

YOU MUST PASS ALL 3 OF THESE TESTS TO GET ADMIRALTY BENEFITS.

If you fail any one of these Admiralty tests, then you fall back under State Worker’s Compensation or Longshore.

So, let’s say we have Jane and Bill, both employees, snorkeling from a vessel in a bay. Both pass tests 1 & 2 quite easily. However, Jane spends 50% of her time working on/from the boats, while Bill only spends 20% of his time.

Jane will have an Admiralty claim because she spends a "substantial" amount of time in service of the vessel. Bill won't have an Admiralty claim and he will get Workers' Compensation benefits instead.

These are NOT insurance rules or policy coverages, these are Federal and State LAWS.

Now just to add a wrinkle.  That does not stop Bill from suing you, and in that case, the Maritime Employers Liability/Protection and Indemnity policy turns into a defense-cost policy for you and the rate on those people is much lower because of that.

To sum this whole explanation up: It is impossible to have a policy that covers every type of incident that may happen. Required coverage is dependent on much more than job activity. Maritime Employers Liability and Protection and Indemnity can never cover Workers’ Compensation.   Only Workers’ Compensation can cover Workers’ Compensation.

Learn more about this at the Certified Marine Insurance Professional seminar in Houston, TX October 16th-17th, 2019.

Ian Greenway

Subcontractors and Longshore

Did you know that if an Employer has uninsured subcontractors working for them, they pick up their exposure?  And if the subcontractor doesn’t have the proper coverage in place, ie Longshore, it is now the Employer's responsibility?

Here are just some of the issues when hiring uninsured subcontractors:

• Under the Longshore Act, the last responsible employer rule still applies.  Meaning, if a subcontractor’s injury, months or even years later, is found to be the result of working in the Longshore field, the claim comes back to the Employer even if the subcontractor is no longer working for the Employer. 
• No screening is done before the subcontractor is hired.
• The Employer has little to no safety control over these subcontractors.

Hiring uninsured subcontractors can also be an issue with the Work Comp Carrier.  This may cause the policy to be canceled as coverage is being extended to people the Carrier never intended to cover.  And did you know that if the Employer is currently covered by a Leasing Company, there is NO coverage extended to the uninsured subcontractor as they are not named employees of the Leasing Company?  This leaves the Employer wide open if that uninsured subcontractor is hurt.

How can this be handled?  When the Employer hires subcontractors, they need to collect, review and verify proper coverage is in place.  Review the certificate and confirm that it shows State Act Worker’s Compensation, the Longshore endorsement (or separate Longshore Policy), and Maritime Employers Liability if there is exposure on a vessel in navigation.  When the certificates are being checked and verified, make sure that the Carrier providing the Longshore coverage is an approved Longshore Carrier by the DOL.  This can easily be verified by visiting the DOL website below:

https://www.dol.gov/owcp/dlhwc/lscarrier.htm

To sum this all up, remind your Employers to verify that any and all subcontractors hired are properly insured.

Author
Kristina Crady, CMIP
SafeShore Manager

It’s raining, do you grab an umbrella or bumbershoot?

We have all heard the varying terms for this coverage; umbrella, marine umbrella, excess, bumbershoot, follow form excess. The real question is what’s the difference?

Good news: It can be very simple. Bad news: These coverage names are used interchangeably, yet do not provide the same coverage. To make matters more confusing carriers sometimes title the form one thing yet the wording is for another.

Names aside, there are two main coverage forms used in today’s marketplace: Umbrella and Follow Form Excess. These forms, while both providing higher liability limits, have key differences that will help you determine which one it is despite how it is titled.

Umbrella policies generally utilize manuscript wordings which vary by carrier, and typically show a Self-Insured Retention (SIR).  What is covered in the underlying is typically covered in the umbrella, and what is not covered in the underlying may be covered in the umbrella. The latter situation is what we refer to as a drop-down scenario and where an SIR comes into play. Simplistically, if a claim arises that is excluded in the primary but covered in the umbrella the insured would pay first dollar up to the SIR amount, then the umbrella carrier would respond after SIR is satisfied. These policies are routinely 40-60 pages with many terms and conditions, it can be a difficult to work out what is and what is not covered.

Follow Form Excess policies are very straight forward, carriers typically use American Institute of Marine Underwriters 8A Follow Form Excess Clauses.  There is no SIR or drop-down clause associated with these policies. Whatever is included in the underlying is included in the excess, and whatever is excluded in the underlying is excluded in the excess. Think of this form more of a tower that goes directly over the primary policy(ies) and literally only extends the limits upwards. Traditionally follow form excess’ were used over a single coverage line, now the trend is to use for multiple coverage lines due to its simplicity.  These policies are only 10-14 pages with lots of clarity on coverage and few, if any, additional exclusions.

It is vital that the primary policy(ies) is listed in the Underlying Schedule, or else the excess policy will not go over it!

Moral of the story: Ignore the title, you really do not know what you have unless you read the form. Read. Read. Read.  

Author

Laura Jay CMIP

Custom Account Broker

HOW MUCH LIMIT IS ENOUGH ON YOUR BOAT YARD POLICIES?

Axess was a 31 ft. Rinker outfitted with Mercury engines that was part of a fractional ownership program run by SailTime Chicago. The member was an owner of the boat and allowed SailTime Chicago to rent out the vessel when not in use. As part of the contract, SailTime was responsible for maintaining Axess. SailTime relied upon Skyway Yacht Works to perform these maintenance services.  

The vessel was about seven miles offshore Chicago, IL when a clanking noise was heard. Shortly thereafter the engines failed, and the boat came to an abrupt stop. The high-water alarm sounded, and steam was coming out of the engine compartment. They quickly discovered the boat was taking on water. All persons aboard the vessel quickly went to work; two bailing water, one deploying emergency flares and the fourth attempting to call for help. As they came to the realization that the boat was going to sink, they knew they needed to abandon it. They put on life vests, gathered up flotation cushions, and jumped into Lake Michigan’s 53° water. A male victim was found disoriented and hypothermic around 6 a.m. by a charter boat captain. He was the only survivor.

Inspections of the vessel by several experts determined that the boat sank because of a catastrophic failure of the port side gimbal bearing. Axess was run aground by another SailTime Chicago member in 2012 and was taken to Skyway Yacht Works for inspection and repairs. The repairs performed by Skyway did not include replacement of the port side gimbal bearing. The product safety manager for Mercury Marine, the engine company, stated that the safest and most prudent response would have been for Skyway to replace the transom assembly and its components, including the gimbal bearing. An expert witness stated that if Skyway had replaced the port side transom assembly and gimbal bearing, the sinking of the Axess would not have occurred.

A $27.9 MILLION settlement was reached.

How much coverage do you recommend to your Boat Yard/Boat Repair clients?

Ian Greenway

Is This Longshore….?

Since sundown today, I have had three emails “Is this Longshore….?”  In each case, the answer was probably no.  This was an above average evening for such emails, but there are not too many days where there is not at least one.  Whilst individual subjects vary, the result is the same.   When we offer our opinion that something is probably NOT Longshore why should anyone purchase the coverage (or why should any agent recommend the coverage)?

#1 Defense Costs

Unlike a GL policy, in the WC world, no coverage = no defense. Regardless of whether we think the employee falls under Longshore, they can bring that claim. It is easy to spend six figures on legal fees even when we win!

To add Longshore on an IF ANY basis to most WC policies costs less than $250 and that provides unlimited defense costs coverage! What a bargain!

#2 Rogue Verdict

Longshore is constantly expanding, and what we consider not Longshore today, might become so in 3 years when today’s injury goes to trial. Or worse, a judge that just wants to find someone to pay!

#3 Uninsured Longshore Subcontractor

Many risks who might be excluded themselves, such as Marinas or Municipalities, hire Contractors or Subcontractors who work for them who have Longshore exposure but do not buy the right coverage. Under the Longshore act, that passes directly back to the principal, even though the principal might be excluded themselves! They need Longshore coverage! Even more obscure is the subcontractor who used a PEO/Leasing company for their employees but neglects to “name” a subset of their employees.

#4 E&O prevention

No further words needed.

Even when a risk is probably not Longshore, if the exposure is borderline, it's just not worth the risk of not covering Longshore (or Admiralty).

Ian Greenway

CMIP and the National Alliance

“I’m Late, I’m Late for a Very Important Date” is one of my earliest memories – a quote from Lewis Carroll’s book Alice’s Adventures in Wonderland.   It was spoken by the White Rabbit now made famous by Disney.

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As I write this I feel very much like the White Rabbit in finally being able to formally release the next CMIP seminars. 

We will be offering two concurrent seminars in April

                         

Insuring Vessels Owners & Operators and

CMIP Graduate Seminar

And in October 

Insuring Marine Employees

To register or for more information please go to https://iimis.org and click on the green Register Now. 

There is, what I trust you will agree, a good reason for the delay and that has been the now completed agreement with The National Alliance to take over the administration of CMIP for us.   We will be sending out a detailed announcement shortly, but this gives us an incredible opportunity to use their expertise in running top-class insurance seminars, along with the specialty knowledge of our faculty, to build on 12 years of CMIP and expand that further.  More on that later.

What it means for you is IF you are a CIC, CRM or CPRM you can earn your annual update credits for any of those designations at our CMIP seminars from now forward.

In addition, down the road, we will be introducing other methods of training.

More detail on these exciting developments for CMIP and CIC’s future will follow.

Ian Greenway

The Importance of On-Hire Surveys for Bareboat Charters

We cover a great number of risks where the Insured bareboat charters the vessel from the vessel owner.  Typically, most carriers require on and off hire surveys, but they make sense even when not required.

A bareboat charter, sometimes referred to as a demise charter, is a type of chartering or hiring of any kind of vessel, with no crew.  It is up to the company taking possession of the vessel to operate and care for the vessel.  It can be compared to renting a car from a rental agency, such as Hertz or Avis. It is up to the party in possession to properly operate and ensure the property being given to them is in good condition.

An on-hire survey does not need to be all that complicated. It can be as simple as walking around the vessel with the owner at the time of hand off, completing a checklist, and taking pictures of existing damage. A professional surveyor might be useful and helpful as the vessel value or complexity increases. 

It is also, very useful to have an off-hire survey when the charter is complete to document the condition the vessel is returned.  Having an on-hire and off-hire survey can simply show the difference in the condition that occurred for the duration of the charter.  With this, any disputes should be easily remedied as there will be an abundance of proof to justify or disprove any arguments in changes in condition.

The survey becomes most important when considering deductibles.  When there are six separate “dings” on the surface of a barge, was that six separate occurrences, therefore six different deductibles? Or was it a single occurrence and just a single deductible?  Having a clear plan when the vessel is hired is a great way to ease the issues when the claim comes.

Whether it is required or optional, it is always in the best interest of the Insured to have a clear document of the condition of the vessel at time of hire, so when the vessel is returned in the same condition, everyone is happy.

Author

Mark Greenway

Director of London Market and Special Placement