Working with large retailers and distributors is going to become more expensive for manufacturers and product suppliers. In the good old days (3-5 years ago) $1,000,000 of per occurrence coverage for products liability (completed operations) was adequate for all but a very few retailers/distributors. In the past year we have seen per occurrence requirements ranging from a low of $1,000,000, to $5,000,000 or $10,000,000. A few large retailers even require $20,000,000 of aggregate coverage for certain classes of business including ladders.

Further, insurers are making additional requirements that, in the past, may have been requested, but were often not required. In a recent instance, a manufacturing client purchased a products/completed operations policy that had limits of $10,000,000 per occurrence including excess policies. Upon submitting the obligatory certificate of insurance the retailer noted that it required $5,000,000 for personal and advertising injury, which is not part of a products liability policy (standard coverage in a commercial general liability (CGL) policy).

Worse, retailers are often now insisting on ”occurrence” as opposed to “claims made” liability coverage. Formerly, where such coverage was required, educating the retailer that there is no practical difference to the retailer could result in an agreement to permit claims-made coverage. This is often being accepted less and less so. When asked as to why occurrence coverage is required, the answer frequently boils down to: ‘because we can’. This can generate a substantial increase in insurance costs for companies committed to these types of distribution networks, particularly in the first year. Occurrence coverage tends to be more expensive than claims made coverage, since the insurer must maintain a reserve for “incurred but unreported claims”.

For claims made, the books close at the end of the policy year, allowing the insurer to better assess the risk exposure given there is no potentially huge claim looming on the same policy. More significantly, moving from claims- made to occurrence coverage creates a coverage gap for claims that have not been reported, but have already occurred. To avoid being without coverage for the gap that effectively goes back to your retro date, it is essential that “tail” coverage is purchased. The purpose of the tail is to avoid having gaps relating to incidents that have already occurred, but were not yet reported. In insurance lingo, this referred to as IBNR. Tail policies can be expensive. While generally a claims made policy allows you to extend the coverage for incidents that occurred during the one-year policy, but were not reported (at a pre-determined premium), a tail policy covers all incidents that have occurred, but have not been reported.

Thus, tail coverage can be expensive. On the other hand, insurance rates are currently low and can be expected to rise at some point in the not too distance future. Several very highly rated insurers are under close scrutiny regarding their finances, and the practice of “buying premium,” even if lower than the risk justifies cannot continue ad infinitum. Insurers are also requiring that they be named as an additional insured, that the manufacturer carry a broad form vendors’ endorsement of a certain kind, and that the policy provide that the coverage is “primary and non- contributory.

What the retailers really want is the sure knowledge that neither they, nor their insurer, will be contributing to any claim unless the manufacturer’s required limits of insurance are first exhausted.

n previous newsletters, we have addressed the Vendors Endorsement issues. In short, the most effective way to address potential problems is to have your broker/agent require either policy language or an endorsement making it clear that the coverage afforded vendors is primary and non- contributory. Failure to plan ahead can result in the manufacturer paying out-of-pocket for the retailer’s defense and indemnity due to the language in the distributorship agreement. There are other new requirements that have been becoming more common.

For example, most retailers now require the manufacturer to maintain insurance after they stop supplying the distributor (usually for 3-5 years). In fact, one well-known company has gone so far as to put in place a Product Liability Insurance Wrap Up Program for suppliers that purchases coverage for the supplier and bills the supplier for the coverage if the insurance requirements are not met. It also provides only 10 days notice to cure the breach before the wrap up policy is purchased, presumably at a substantially greater cost than the manufacturer could have obtained. Buyers are getting much more serious about your insurance and its terms. To be forewarned is to be forearmed.

NEW MEDICARE RULES REQUIRE MORE DILIGENCE
Effective July 1, 2009, Medicare requires reimbursement of all monies expended for care related to bodily injury to Medicare recipients from insurers, self-insureds. Under the new rules all non-government health providers (non-GHP) are required to determine whether a claimant is eligible for Medicare and report that information to the federal government. Not surprisingly, substantial penalties, $1,000 per day per claimant are imposed for failing to comply.

Additionally, payment by Medicare creates an automatic right of recovery, which must be satisfied with the proceeds of a settlement or judgment. Since there are few claimants are over the age of 65, this new law will not have a substantial affect on the majority of claims managed by RRS.

However, in the situation where a claim involves a Medicare recipient, settlements within the SIR will likely need to be sufficient to satisfy the Medicare lien position. In the event a claim involving a Medicare lien is settled without satisfying the lien, the insurer or defendant is responsible for twice the claimant’s medical expenses to Medicare, along with interest on the lien amount. In cases involving Medicare eligible claimants RRS will have to take this new law into account, which likely will substantially effect nuisance settlements.

RRS ACTIVITY REPORT
Over the past quarter RRS closed 22 matters, including five lawsuits and 17 non-litigated claims. One of the lawsuits resulted in a defense verdict, two of the lawsuits resulted in dismissals and two lawsuits exceeded the SIR but still settled for a reasonable amount (less than medical specials and far less than the cost of defense).

In those circumstances, it is hard to argue with the insurer over settlement. Of the seventeen (17) claims that were closed, thirteen (13) were closed without payment, and four (4) were settled (settlements averaged $267.00). None of the non-litigated claims under Risk Retention Services control settled for more than $700.