Water is a precious natural resource entrusted to water entities across the country. These entities include public and private water companies, irrigation companies, conservation districts and more. They face many challenges, from water main breaks to water quality and treatment issues. In many cases, water systems are being pushed to the limit by growing urban populations.
Such complex risks require specialized coverage unique to this class of business. Understanding these risks can help agents and brokers guide water-related entities to the right coverage. Here, we have outlined 14 coverages and features you need to consider when writing a water-related entity.
1. Failure to Supply. The largest exposure for entities that supply water is the “failure to supply” water to its customers. This exposure can be considered either “purposeful and accidental” or “sudden and accidental.” It’s an important distinction because standard ISO forms usually exclude failure to supply unless the failure is sudden and accidental. For example, if a water company or municipal entity intentionally shuts off the water in an effort to repair a line break, a claim might be denied because it may be interpreted by claims as purposeful and intended. It’s best to avoid ISO forms and choose a specialty policy that has more specialized forms.
2. Water and Wastewater Professional Activities Endorsement. General liability coverage, by design, typically excludes professional liability, so if you make a mistake in water testing and a consumer is sickened or killed, it may not be covered under a standard policy. Look for a Water and Wastewater Professional Activities endorsement on the general liability policy. This coverage, which is triggered by a lawsuit, protects an entity and should cover bodily injury as well as property damage.
3. Medical Expense. Choose Medical Expense or Medical Pay coverage with realistic limits. This covers medical expenses for someone injured in a facility. For example, this could be a young student on a field trip to a water processing plant who slips and falls and breaks an arm. Typical limits are $5,000, which is often unrealistic. Look for a limit closer to $10,000.
4. Pollution Liability. How many pollution liability exceptions are in the general liability policy you’re considering? If it’s a standard policy, there are probably very few and they may have sublimits. Look for general liability policies that cover the application of pesticides or herbicides, chemical use in water/wastewater treatment, escape of mobile equipment fuels and lubricants, hostile fire, natural or propane gas used in treatment, potable water supplied to others, sewer back-up and line break, and an urgent response to protect property, human life, etc.
5. Defense Outside the Limit. For public officials and management liability claims, legal defense costs can mount and erode limits. That’s why you should only seek coverage for defense costs outside your general liability limit. This prevents any defense costs from eroding your limit of liability.
6. General Liability Limits. When looking at general liability limits, it is best to choose a $1 million per occurrence limit and a $3 million aggregate. Given the many facets of water and sewer operations, the $1 million or $2 million aggregate found in many standard policies may not be sufficient and may send the insured into their umbrella, if available, for additional limits.
7. Cyber Liability. When choosing cyber liability insurance to cover losses triggered by data breach incidents, it’s important to include privacy crisis management expense coverage. This covers a variety of costs associated with determining first-party costs such as the cause and extent of the privacy breach, crisis management review, expenses associated with notifying affected parties, credit monitoring and other often costly services.
8. Property Limits. To avoid falling short on property losses, you may want to consider a total blanket limit combining coverage for both real (building) and personal (contents) property. This is advantageous in the event of a large loss when an entity will want to combine the limits. In addition, separate limits for loss of income and extra expense are preferred, looking for at least $250,000 for each, rather than having them combined, grouped with other coverages and sublimited.
9. Pollutant Cleanup and Removal. A typical ISO policy will only have a $25,000 covered cause limit for first party pollution clean up. You may need more for events not covered by this type of policy. By adding a $100,000 limit for specified cause of loss, the policy provides extra coverage for losses caused by fire, lightening, windstorms and other events.
10. Underground Piping. Look for property coverage for underground pipes that extend to within 100 feet of the premises. In some cases, more coverage may be needed and endorsements should be available up to 1,000 feet.
11. Co-insurance Penalties. These penalties can be severe for entities whose property is not insured to proper value in the event of a loss. Find property coverage without such a restriction.
Inland Marine, Auto and Excess
12. Inland Marine. Too often tools and equipment may not be adequately covered. Blanket tools and equipment coverage should include construction equipment, pay up to $10,000 for any single item and include replacement cost, rather than actual cash value which factors in depreciation. For scheduled equipment coverage, which includes equipment such as forklifts, skid steers and backhoes, better policies offer a replacement cost option and include rented or borrowed equipment coverage.
13. Auto. Look for a single physical damage deductible that will apply if multiple vehicles are damaged during an emergency event.
14. Follow Form Excess Liability. Finally, yet very important to the insurance program, look for $10 million per occurrence/annual aggregate without exclusions that could leave the water/sewer entity exposed.
Not all insurance policies are created equally and many standard ISO forms can leave water-related entities under water. But if you make sure the 14 key features described above are included, you will have a program that is truly responsive to the unique needs of your clients.
McCrary is president of Glatfelter Public Practice, which is focused on public entity business (municipalities, miscellaneous public entities, educational institutions and water-related entities) and is a division of Glatfelter Program Managers, a strategic business unit dedicated to Glatfelter Insurance Group’s program business. Website: www.glatfelterpublicpractice.com.
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