Water Crisis

Water Crisis Damages Flint Businesses

Flint businesses are seeing a loss of revenues and continue to face reputational damage.
By: | March 11, 2016 • 3 min read
Flint water crisis

Early this year, President Obama declared a state of emergency due to the water crisis in Flint, Mich., making the city and its residents eligible for federal disaster aid.

Officials eventually took action to make Flint’s water supply safer, but businesses still face reputational damage, loss of revenue and for the most part, no insurance coverage due to pollution exclusions.

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In April 2014, Flint switched from using Detroit’s water system to draw its own drinking water from the Flint River. Since then, the river’s acidic water corroded lead pipes, leaking lead into the city’s drinking water.

While residents began complaining in 2015 about the odd smell, taste, and discoloration of the water, public officials insisted it was safe to drink. That was until a September 2015 study by the Hurley Medical Center found that the number of children with above-average levels of lead in their blood nearly doubled after the city changed its water source.

Flint officials acknowledged the problem and the city started getting water from Detroit again the following month.

But the damage had already been done, not just to the thousands of residents who were exposed to high levels of lead, but to homes and businesses with lead plumbing that began to corrode from the acidity.

While a safer source of water is now in place, the physical and economic damages could mount for years.

Businesses in the city are “significantly impacted,” said George Wilkinson, group vice president of the Flint and Genese Chamber of Commerce.

The event is not only a public health crisis but an economic crisis that is resulting in a loss of sales and a halting of business operations, he said. It has been especially problematic for restaurants, hotels and those in the hospitality industry.

“They’re seeing a significant decline in [revenue]. There’s also an increase in expenses because they’re buying bottled water and having to install filtration systems,” Wilkinson said.

Flint’s restaurants now regularly test their water and some installed filtration systems that can cost up to $2,000 each.

While business owners can act to ensure their water is lead-free, the real problem is the reputational damage that the city faces, he said.

“They can be cleared by the Health Department but the real problem is the negative perception. The media is portraying Flint as a war zone,” Wilkinson said.

Flint business owners are largely left exposed because business interruption insurance has stringent pollution exclusions, said Micha Knapp, a producer at the Graham Co. in Philadelphia.

Most general liability and property policies preclude any business interruption or property damage arguments a customer could make, he said. In addition, commercial general liability policies do not cover risks associated with polluted water as they often contain an Absolute Pollution Exclusion or a Total Pollution Exclusion specific to lead.

“From a liability and property perspective, there’s often a suite of pollution exclusions that will remove any coverage for a pollutant or containment like lead. It can leave a company susceptible,” Knapp said.

Dave Walker, president of Hartland Insurance Agency in Hartland, Mich., said few businesses in Flint have the specialized insurance necessary to cover businesses losses.

“They would have to have expected this to have that kind of coverage in place. It’s not something most businesses carry,” he said. “Most will have to [cover losses] out of pocket.”

Knapp said it’s important for Flint businesses to continue to effectively test the water for environmental hazards that could impact customers’ health. He recommended they also consider eventually removing and replacing lead pipes on their properties.

Companies can also consider a Pollution Legal Liability insurance policy, which is geared specifically to the restaurant, hospitality and real estate sectors. Such coverage will also protect companies against liability and property damage associated with Legionella.

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“Most don’t have it but there are markets out there that will pick up that coverage,” Knapp said.

Flint’s water crisis could be a glimpse into a mounting national problem, according to experts.

Fitch Ratings said in early-March that there are more than 6 million lead water service lines in existence around the country, most of which are located in the Northeast and Midwest.

Dr. Jeffrey Griffiths, a professor of public health at Tufts University and a former chairman of an advisory board for the U.S. Environmental Protection Agency’s Drinking Water Committee, said in an article for the Detroit Free Press that many of the nation’s pipes can not be located or tested.

Craig Guillot is a writer and photographer, based in New Orleans. He can be reached at [email protected]
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Risk Insider: Dan Holden

Oklahoma’s Pretzel Logic

By: | March 2, 2016 • 2 min read
Dan Holden is Manager of Corporate Risk & Insurance for Daimler Trucks North America (formerly “Freightliner”). He manages the risk management program in the U.S., Canada and Mexico. He can be reached at [email protected]

As a veteran of the workers’ compensation claims trenches, I saw first-hand how the expensive nature of the system drove employers out of business. Not only was it sad to see businesses go belly-up, it was equally sad for the workers who were suddenly unemployed.

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It was definitely a case of lose-lose.

One way to combat the high costs of workers’ compensation was to opt-out of the traditionally expensive system in states that allowed it. By opting out, employers were forced to be more engaged in the administration of their program and focus more on the outcomes.

The result was a less expensive system; providing quality benefits to the injured workers; thus improving the overall outcome.

Oklahoma was one of the states that seemed to have found the right mix. So I was quite dismayed to learn of the recent decision by the Oklahoma Workers’ Compensation Commission (WCC).

The case, Vasquez v. Dillard’s Inc., involved a worker for Dillard’s who was denied benefits after a work injury that was determined to be an aggravation of a pre-existing injury.

Oklahoma was one of the states that seemed to have found the right mix. So I was quite dismayed to learn of the recent decision by the Oklahoma Workers’ Compensation Commission (WCC).

The WCC declared the opt-out portion of the workers’ compensation system unconstitutional because they felt it created a dual system whereupon the injured worker is treated differently.

The most intriguing facet is how the WCC abandoned their traditional administrative role for that of a judiciary in deciding what law is, and is not, constitutional.

That, I suppose, is another story.

However, they completely ignored the already approved opt-out option and remanded the case back to the Administrative Law Judge within the traditional workers’ compensation system.

Not only am I concerned about that sort of pretzel logic, but I also see it as another attack on exclusive remedy.

Right now my company doesn’t do business in any of the opt-out states. That doesn’t mean we wouldn’t consider it if that option presented itself down the road.

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But that is probably on hold as any state considering moving forward with the opt-out system has now been stopped dead in their tracks. Best to sit tight for now.

As for whether the Oklahoma ruling will change what I do in regards to workers’ compensation remains to be seen. As I’m sure many employers will do now, I’ll wait on the sidelines and see how this plays out.

This is basically what I was doing before the Oklahoma ruling … observing from afar to see if the opt-out system (if/when it came to my states) was not only cost-effective but also fair to the workers.

To be honest, I would never consider an alternate workers’ compensation system unless I was convinced it offered our injured workers the same, or better, benefits as the traditional system. I would also need to be convinced that it produced better outcomes.

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Sponsored: Lexington Insurance

Handling Heavy Equipment Risk with Expertise

Large and complex risks require a sophisticated claims approach. Partner with an insurer who has the underwriting and claims expertise to handle such large claims.
By: | August 4, 2016 • 5 min read
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What happens to a construction project when a crane gets damaged?

Everything comes to a halt. Cranes are critical tools on the job site, and such heavy equipment is not quickly or easily replaceable. If one goes out of commission, it imperils the project’s timeline and potentially its budget.

Crane values can range from less than $1 million to more than $10 million. Insuring them is challenging not just because of their value, but because of the risks associated with transporting them to the job site.

“Cranes travel on a flatbed truck, and anything can happen on the road, so the exposure is very broad. This complicates coverage for cranes and other pieces of heavy equipment,” said Rich Clarke, Assistant Vice President, Marine Heavy Equipment, Lexington Insurance, a member of AIG.

On the jobsite, operator error is the most common cause of a loss. While employee training is the best way to minimize the risk, all the training in the world can’t prevent every accident.

“Simple mistakes like forgetting to put the outrigger down or setting the load capacity incorrectly can lead to a lot of damage,” Clarke said.

Crane losses can easily top $1 million in physical damage alone, not including the costs of lost business income.

“Many insurers are not comfortable covering a single piece of equipment valued over $1 million,” Clarke said.

A large and complex risk requires a sophisticated claims approach. Lexington Insurance, backed by the resources and capabilities of AIG, has the underwriting and claims expertise to handle such large claims.

SponsoredContent_Lex_0816“Cranes travel on a flatbed truck, and anything can happen on the road, so the exposure is very broad. This complicates coverage for cranes and other pieces of heavy equipment. Simple mistakes like forgetting to put the outrigger down or setting the load capacity incorrectly can lead to a lot of damage.”
— Rich Clarke, Assistant Vice President, Marine Heavy Equipment, Lexington Insurance

Flexibility in Underwriting and Claims

Treating insureds as partners in the policy-building and claims process helps to fine-tune coverage to fit the risk and gets all parties on the same page.

Internally, a close relationship between underwriting and claims teams facilitates that partnership and results in a smoother claims process for both insurer and insured.

“Our underwriters and claims examiners work together with the broker and insured to gain a better understanding of their risk and their coverage expectations before we even issue a policy,” said Michelle Sipple, Senior Vice President, Property, Lexington Insurance. “This helps us tailor our policies or claims handling to suit their needs.”

“The shared goals and commonality between underwriting and claims help us provide the most for our clients,” Clarke said.

Establishing familiarity and trust between client, claims, and underwriting helps to ensure that policy wording is clear and reflects the expectations of all parties — and that insureds know who to contact in the event of a loss.

Lexington’s claims and underwriting experts who specialize in heavy equipment will meet with a client before they buy coverage, during a claim, or any time in between. It is important for both claims and underwriting to have face time with insured so that everyone is working toward the same goals.

When there is a loss, designated adjusters stay in contact throughout the life of a claim.

Maintaining consistent communication not only meets a high standard of customer service, but also ensures speed and efficiency when a claim arises.

“We try to educate our clients from the get-go about what we will need from them after a loss, so we can initiate the claim and get the ball rolling right away,” Clarke said. “They are much more comfortable knowing who is helping them when they are trying to recover from a loss, and when it comes to heavy equipment, there’s no time to spare.”

SponsoredContent_Lex_0816“Our underwriters and claims examiners work together with the broker and insured to gain a better understanding of their risk and their coverage expectations before we even issue a policy. This helps us tailor our policies or claims handling to suit their needs.”
— Michelle Sipple, Senior Vice President, Property, Lexington Insurance

Leveraging Industry Expertise

When a claim occurs, independent adjusters and engineers arrive on the scene as quickly as possible to conduct physical inspections of damaged cranes, bringing years of experience and many industry relationships with them.

Lexington has three claims examiners specializing in cranes and heavy equipment. To accommodate time differences among clients’ sites, Lexington’s inland marine operations work out of two central locations on the East and West Coasts – Atlanta, Georgia and Portland, Oregon.

No matter the time zone, examiners can arrive on site quickly.

“Our clients know they need us out there immediately. They know our expertise,” Clarke said. “Our examiners are known as leaders in the industry.”

When a barge crane sustained damage while dismantling an old bridge in the San Francisco Bay that had been cracked by an earthquake, for example, “I got the call at 6 a.m. and we had experts on site by 12 p.m.,” Clarke said.SponsoredContent_Lex_0816

Auxiliary Services

In addition to educating insureds about the claims process and maintaining open lines of communication, Lexington further facilitates the process through AIG’s IntelliRisk® services – a suite of online tools to help policyholders understand their losses and track their claim’s progress.

“Brokers and clients can log in and see status of their claim and find information on their losses and reserves,” Sipple said.

In some situations, Lexington can also come to the rescue for clients in the form of advance payments. If a crane gets damaged, an examiner can conduct a quick inspection and provide a rough estimate of what the total value of the claim might be.

Lexington can then issue 50 percent of that estimate to the insured immediately to help them get moving on repairs or find a replacement. This helps to mitigate business interruption losses, as it normally takes a few weeks to determine the full and final value of the claim and disburse payment.

Again, the skill of the examiners in projecting accurate loss costs makes this possible.

“This is done on a case-by-case basis,” Clarke said. “There’s no guarantee, but if the circumstances are right, we will always try to get that advance payment out to our insureds to ease their financial burden.”

For project managers stymied by an out-of-service crane, these services help to bring halted work back up to speed.

For more information about Lexington’s inland marine services, interested brokers should visit http://www.lexingtoninsurance.com/home.

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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Lexington Insurance. The editorial staff of Risk & Insurance had no role in its preparation.Advertisement




Lexington Insurance Company, an AIG Company, is the leading U.S.-based surplus lines insurer.
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