Insurance Impacts

Kevin Cunningham is President and CEO of Special Risk Services Group, Chicago, Ill., an independently owned Managing Program Underwriter serving construction trade groups. SRS provides industry specific coverage through the Specialized Carriers & Rigging Association, among others. The following article was excerpted from an SC&RA Special Report. You can contact Kevin Cunningham at info@specialriskservices.com.

 

March 9, 2005 --The Insurance Services Office (ISO), the foremost authority in the insurance industry, which creates forms and sets rates for most U.S. insurance companies, has recently changed the Commercial General Liability (CGL) coverage form as it relates to mobile equipment. This change will have a dramatic impact on the crane and rigging industry, as it virtually eliminates general liability coverage for mobile cranes that travel on public roads. And it requires that mobile truck cranes be scheduled on commercial auto policies in order to comply with individual state laws.

 

“…All land vehicles subject to compulsory or financial law or other motor vehicle insurance law in the state where the equipment is licensed or principally garaged are no longer covered under CGL policy and, instead will be considered autos…”

 

This single statement by ISO affects nearly all owners of mobile construction equipment that use equipment such as cranes and forklifts on or near public roads. Prior to December 2004, the CGL policy provided liability coverage for “mobile equipment” and excluded liability for “autos.” However, with the 2004 CGL amendments, ISO has withdrawn the Motor Vehicle Laws Endorsement CG9901 and changed the definition of mobile equipment.

 

The primary reason for the change is that since becoming mandatory in most states for both private and commercial auto risks, uninsured motorist coverage is commonly disputed and is a leading subject of litigation. As a result, insurers of the CGL policy had to provide uninsured motorists with coverage, with or without the Motor Vehicle Laws Endorsement. It was then determined that it is not the CGL policy that should provide uninsured motorists coverage, but rather the Business Auto, Truckers and Motor Carriers policies that should do so.

 

Putting it in context

The crane and rigging industry will be particularly hard hit by these changes due to the specialized nature of this business. Consider a mobile crane project to set HVAC equipment on top of a building located along a public road. The new requirement demands automobile coverage while the crane is in route to the site, but once the outriggers are in place, the auto liability coverage stops and general liability coverage starts.

 

So if an accident occurs during the process, who covers the claim? Depending on the facts of each case, it may turn out that there is a duplication of coverage between the CGL and Business Auto policies. It is also possible that equipment insured for physical damage with a $5,000 deductible on an Inland Marine form, could also be covered by the auto policy's physical damage coverage for a lesser deductible amount. At best, it would appear that problems confront not only crane and rigging businesses, but also their insurers.

 

Equipment owners could also experience additional insurance premium costs. Before December 2004, CGL premiums included mobile equipment transit to the site as part of the standard operations rating, with exposure determined by total receipts or payroll. But now each specific piece of equipment that travels on public roads will also be required to be scheduled on the Business Auto policy with premium charges for each item.

 

New endorsements

A new Commercial Auto endorsement (CA 00 51 12 04) may solve the problem involving uninsured motorists, however, at best it is ambiguous, overly broad, and potentially very expensive. The one thing this endorsement does accomplish is that when crane owners purchase this coverage in conjunction with the newly redefined CGL 00 01 12 04 coverage for general liability, the transit to and from jobsites is clearly covered on the auto policy. However it doesn't take into account that the Commercial Auto Insurance market has not universally agreed to schedule mobile cranes on their auto policies (at any cost) nor determined how to charge premiums for this equipment. Generally, when insurance companies have little knowledge or experience with specific types of exposure, they tend to err on the side of caution…meaning high cost and low efficiency for the equipment owner.

 

A more effective solution for crane owners may be to negotiate an already approved Commercial Auto endorsement (Mobile Equipment CA 20 15 10 01) which allows crane owners to cover only the minimum mandated by their states' compulsory requirements, including small coverage amounts for liability, auto medical payments, personal injury protection, and uninsured/underinsured motorists.

 

The rubber meets the road

“…All land vehicles subject to compulsory or financial law or other motor vehicle insurance law in the state where the equipment is licensed or principally garaged are no longer covered under CGL policy and, instead will be considered autos…”

 

Determining which mobile equipment is subject to “compulsory or financial law or other motor vehicle insurance law” is not an easy task. Even determining what “principally garaged” means is difficult when vehicles, such as cranes, are used out of state for long periods. The problem is compounded by state-by-state differences in motor vehicle laws.

 

Additionally, equipment owners need to be fully aware of their existing policy expiration dates in order to avoid a gap in coverage. This is especially true if the CGL and Commercial Auto policies are written by different insurers. It's possible for a situation to occur where the CGL no longer covers certain mobile equipment, but the Commercial Auto policy has not yet been amended to recognize coverage for mobile equipment as autos.

 

Meanwhile, a regulatory issue remains in certain states that demand Standard Market form filing requirements. The matter could cause a disruption to equipment owners' business operations (although not to their coverage in the event of a claim) when drivers are stopped on the road to provide proof of coverage. If ID cards are not in proper order, the drive might be forced to park the equipment until satisfactory proof is provided.

 

Yet, it's not all bad news for mobile equipment owners. According to Don Malecki, one of the foremost authorities on risk management and chairman and CEO of Donald S. Maclecki & Associates, “Some specialty insurers writing businesses with high concentrations of mobile equipment are willing to continue writing the pre-2004 ISO CGL policy so as to avoid the problems. This is likely to be especially good news to those businesses in this category that are covering their physical damages with contractors' equipment floaters, where the cost is likely to be less, and the coverage broader, than if written on a Business Auto policy.”

 

To be prepared for the insurance coverage and regulatory challenges that may now exist for owners of mobile equipment, especially cranes, business owners should ask four fundamental questions of their insurance agent or broker:

 

1. Does my CGL policy include standard ISO endorsements, including coverage for my mobile equipment, while in transit to and from jobsites?
2. Does my CGL policy currently include the Motor Vehicle Laws Endorsement?
3. What is my CGL insurance company's position on maintaining coverage for my mobile equipment under my CGL policy?
4. Do my current auto coverage ID cards properly cover my company with my state motor vehicle department?