Agents E&O Loss Prevention
Looking to insure social services agencies?
Be alert for some unique exposures
By Curtis M. Pearsall, CPCU, AIAF, ARM, CPIA
Traditionally, insurance agencies are extremely generous in giving their time and resources to benefit social service agencies. After all, although many social service agencies receive government dollars through grants, the recent economic crisis has caused many to depend heavily on money from the private sector. Insurance agencies and specific individuals within them know that social service agencies come in many shapes and sizes, with exposures that can be equally varied and typically unique.
When one thinks of social service agencies, operations such as the United Way, Family Services, Girl Scouts and various cerebral palsy groups come to mind. These are some of the more common and well-known organizations. However, not all social service agencies look alike. They can have different structures—from being a government entity, to a nonprofit, to a for-profit, to simply an association of members. Understanding the structure is important.
As board members, donors or possibly recipients of services, many insurance professionals have had personal interaction with social service agencies. For those who have not, this class of business requires some homework before you venture on that sales call. A great starting point is one of the various Exposure Analysis Checklists. These checklists will provide insight into the assortment of possible exposures, with details on how to address the broad range of issues.
In regard to the property exposure, some agencies rent facilities on an annual or as-needed basis. A sizeable limit of fire legal liability should be considered. On the other hand, many of these agencies own their own premises. In fact, some of the larger ones even allow other agencies to use their facilities. Some of these structures may be older and this may create specific coverage needs. One that comes to mind is building ordinance coverage, which requires that any building damaged to a certain extent (typically around 50%) be torn down, rebuilt or brought up to code. This issue can have a huge impact on a claim and add some substantial dollars to the settlement.
In addition, it is important to ascertain if any cooking is done on-site and, specifically, what type of food is being prepared.
An often-overlooked coverage deals with boiler and machinery coverage or equipment breakdown protection. Claims in this area can also be extremely significant. In an attempt to reduce energy costs, for example, some social service agencies are exploring alternative approaches for heating and cooling. Explore this area yourself to ensure that coverage is in place.
Reviewing the exposure for personal property of others and property in transit is also important to ensure that the risk is properly covered. Some carriers include this additional protection for little, if any, cost.
The liability exposure can also be quite varied because many of these agencies have camps or take individuals whom they serve to playgrounds or beaches. Uncovering the planned activities and advising the carrier of these is imperative in order to avoid any problems down the road. It is possible that volunteer labor may be used by some agencies. In this case, ensure that these volunteers are covered. Many of the specialists in this class of business provide a broad additional insured endorsement at minimal, if any, cost.
Many of these agencies are quite active in fund-raising and, without a doubt, these activities can be varied. Explore this area to find out what the agency has planned. Because in some cases liquor may be served, coverage for this exposure should be discussed. Although they are rare, claims involving abuse or molestation sometimes occur. Due to the potential for sizeable claims, make it a point to secure this protection with its own limit so as to not impair the overall general liability limits.
For many of these agencies, the professional liability exposure can be significant. Make sure that you completely understand the exposure, and ask the agency to give you a full list of the services provided, so that you can properly advise the carrier. Because some services include counseling, obtain more detail because of the many possibilities of exposures. Since professional liability forms are not standard, do the proper evaluation to ensure an educated decision. The forms can be written on an occurrence basis or claims-made, so be alert for that, too. The definition of "additional insured" is extremely important, with many of the forms covering employees, volunteers, employed nurses, psychiatrists, medical directors and administrators.
The risk will probably have a time element exposure. Uncover whether there are periods of fluctuation of revenue due to fund-raising efforts.
Options to consider
Unfortunately, crime and employee dishonesty are also key coverages to explore. Many specialty carriers provide this coverage, but you must determine if the provided limit is satisfactory based on the exposure.
It is highly recommended that you provide the client with several umbrella limit options to consider. Sizeable liability/professional losses can occur where the underlying limit will not be sufficient.
Regarding the workers compensation exposure, even some of the specialty carriers do not provide this coverage, so you might need to explore the marketplace. Whether this is easy to place will depend largely on the nature of the risk and the experience. Some social service agencies went with self-insured trusts (thinking they were saving money). Unfortunately, in some cases, the results were disastrous and some of these trusts went under.
Do your homework
In many respects, providing coverage for social service agencies requires a strong degree of specialization. Google "insurance for social service agencies" and you will find a number of entities that provide this coverage, many with very specialized programs. They may require their own application, so you might want to determine this upfront. One advantage to these specialty markets is that their applications are quite detailed and designed to identify exposures that are unique to that social service agency.
This is definitely a class of business where you need to do your homework. It is vital to understand the issues these agencies face and what coverages are needed to provide the proper protection. The information needs will be significant, so allow yourself enough time to secure the necessary information to satisfy carriers' needs. Once again, proper use of Exposure Analysis Checklists will get you started in the right direction.
Curtis Pearsall, CPCU, AIAF, ARM, CPIA, is president of Pearsall Associates, Inc., a risk management consulting firm that specializes in helping agents protect themselves. He is also a special consultant to the Utica National Agents E&O program. He can be contacted at firstname.lastname@example.org or (315) 768-1534.