By R. Bruce Wright
Many times our RE-marks articles have their genesis in stories of problems that come to our attention when systems insured in our program have claims, or when you tell us about things you learned the hard way. This article is different. It provides a description of a case where an insured in this program really paid attention to the details of their contractual relationship. By doing so, they properly transferred some risk to a third party, their subcontractor. As a result, the program ended up in a strong position to resist any claims arising out of an electrocution case.
As you all know, it is a very common practice for utilities to subcontract line work to third parties. When Synebar consultants visit you, we often ask about your use of such subcontractors, your use of written contracts covering the work, the inclusion in these contracts of hold harmless agreements and even whether or not you secure an “Additional Insured Endorsement” from the subcontractor’s insurance carrier. At times, I suspect my contacts wonder if this isn’t going overboard, or as I sometimes describe it, if they aren't being counseled to wear both a belt and suspenders. Well, there really is an advantage to be gained by having your system added as an ANI. Here's a great example of a claim that was reported where our insured system gave the claims folks a big edge in handling the loss by requiring just such an endorsement.
While working on the lines, a subcontractor’s employee contacted the energized conductor and was electrocuted. Since he was an employee, claims under his employers' Workers’ Compensation coverage were limited, so the representatives of the family cast about for another potential source of funds. They quickly identified our insured as a potentially profitable target, under the "deep pockets" approach we all know so well. But, as it turned out, they found themselves unable to advance a claim against the distribution system. Here’s why.
In this case there were three very positive things that the system did:
- The specifications were clear. The contract specifically stated, "All work shall be performed with the lines energized." This prevented a question of fact on whether or not the insured should have de-energized the line while this work is performed. Working on live lines is very common, and can be done safely if workers follow simple safety guidelines, such as wearing their protective clothing and using a non-conductive blanket to cover the line, among others.
- The insured made sure that there was a solid contract that included a hold harmless and indemnity clause in their favor.
- The insured followed through and made sure that they were named as additional insureds under the contractor’s insurance policy.
As a result, the program’s defense was in a very strong position. The insurance company for the subcontractor has accepted responsibility for the defense of our member system without any reservation of rights. And, the contactor’s policy had reasonable limits with a $1,000,000 primary and a $1,000,000 excess policy that provide protection for our system. Because the subcontractor is the claimant’s employer and, therefore cannot be sued because of W/C exclusive remedy, our insured co-op will be getting the benefit of the full $2,000,000 in coverage.
