- Earthquake Savings
- Excess Attention
- Insurance Company Oversight
- Complacent Broker
- Risk Transfer in Action
Case Study – Earthquake Savings
A luxury California ski resort had its insurance covered under its management company’s master program, a well-respected national firm with dozens of resorts under its management. The resort engaged Stockbridge to conduct a review of its insurance program. While the results of the review were favorable, it revealed that the program’s California earthquake coverage (1) shared an aggregate limit with other managed properties; and (2) allocated premium was based on the full replacement cost of the resort property. Earthquake is standardly excluded in “All Risk” policies. Sublimits can usually be purchased, however in earthquake prone areas (such as California), a separate policy often is purchased, usually at a significant cost. Since CAL quake (as it is called) is so costly, property owners obtain seismic risk assessments, which calculate expected and maximum loss scenarios in a given period, e.g. every 250 or 475 years. These studies use sophisticated modeling, based on the property’s age, construction, proximity to fault lines, etc. to develop a “probable loss” number, which provides scientific guidance as to an appropriate limit to purchase. At Stockbridge’s recommendation, the resort engaged a firm to perform a seismic study, and based on its results, purchased a dedicated earthquake limit at an expected loss level, saving the resort more than $80,000 annually.
Case Study – Excess Attention
Stockbridge was engaged by a client to complete a formal review of their existing insurance program. During the course of the review, we learned that the client leased a large fleet of vehicles from a rental company. Coverage for these vehicles was provided by the rental company’s insurance policy, which included our client as a named insured and provided a $1,000,000 limit of liability. Further review determined that the rental company’s excess liability policy did not provide excess auto liability coverage for our client, nor did our client’s excess liability policy. Stockbridge immediately addressed this issue with the client’s excess liability carrier and was able to negotiate the inclusion of the rental company’s leased automobile policy on the schedule of underlying policies, and provide excess liability coverage over this policy.
Several years later, an employee of the client was involved in a catastrophic automobile accident while driving a leased auto; the injured parties sustained life-altering injuries. Although the claim is still in discovery and damages have not been awarded, the conservative outlook of this claim indicates that it will more than pierce the excess liability limits. Had Stockbridge not uncovered this issue, this client would have found themselves with only $1,000,000 in limit available for this claim, and they would have been responsible for any damages above this limit.
Case Study – Insurance Company Oversight
A Florida-based real estate company had a workers’ compensation policy written with a contingent dividend – the account’s loss ratio determined the amount of the dividend. The broker did not follow up for the dividend calculations, which were to be completed six months following policy expiration. After requesting and reviewing the loss history, Stockbridge determined that the client was eligible for an approximate 14-15% return in premium. The broker advised that the insurance carrier calculated a higher loss ratio and the insured would not be eligible for any dividend. Stockbridge immediately questioned this and provided our loss ratio calculations to the carrier. Upon further review, the carrier agreed with Stockbridge’s calculations and processed the dividend – resulting in a check to the client in excess of $24,000.
Case Study – Complacent Broker
A large residential real estate management and development company with a portfolio of 6,000 apartment units was approaching their annual general liability policy renewal. The account had an unfavorable loss history, and the incumbent broker was having great difficulty obtaining a competitive renewal. Stockbridge approached another broker (with access to different markets) who had success placing difficult risks in the recent past. The result was a replacement policy that provided over $900,000 in savings when compared to their expiring policy, without sacrificing coverage, terms and conditions.
Case Study – Risk Transfer in Action
In 2012, a Stockbridge client hired a third-party general contractor (GC) to perform façade work on one of their commercial buildings located in lower Manhattan. The GC in turn hired a subcontractor to perform the brick work. Tragically, one of the subcontractor’s employees was caught between the scaffold and the wall of the building when the scaffold shifted. Despite having the appropriate contractual indemnification and risk transfer provisions in place with the GC, the GC’s insurance carrier pushed back, denying the risk transfer on the basis that the certificates of insurance on file had incorrect dates. Our client’s insurance carrier set a reserve of $785,000.
The adamant position of the GC’s carrier along with an unresponsive and ineffective adjuster assigned by the client’s insurance carrier did not give much hope for a tender of this claim. Stockbridge persisted in supplying the GC’s carrier with the necessary documentation to counter any further denial, and was successful in having the client’s adjuster replaced.
By the end of 2015, the GC’s carrier continued to deny any tender, but the client’s new adjuster pushed for a declaratory judgement. In 2016, the tender was accepted, and the client’s insurance carrier reduced the claim reserve from $785,000 to $1.