Chapter 30: Insurance

Few industries are more dependent on insurance than the blasting industry. Since the U.S. is one of the most litigious countries in the world, this chapter begins with a discussion of insurance considerations in the U.S. This is a discussion of insurance as it relates to the blasting industry. At the end of this chapter is a discussion to help the reader outside the U.S. make appropriate risk reduction considerations for blasting insurance.

UNITED STATES INSURANCE CONSIDERATIONS

The transportation, storage, and use of explosives, although among the safest of industries, still have a high potential for accidents and when they happen they are very visible. Without business insurance, blasting activities such as construction and mining would be virtually impossible to conduct. Whether the blaster represents a large company or is self-employed, a working knowledge on the basics of risk and insurance is essential to the underlying goals of safety and profit.

The purpose of this chapter is to educate the blaster to three important topics. First is the proper treatment of the blasting risk, then some of the principle types of insurance policies and the coverages they provide the blaster, and finally the categories of insurance personnel and how they interact with the blaster.

The Proper Treatment Of Blasting Risk

The risk associated with blasting is best examined from a 360-degree perspective including both the physical and contractual standpoints. A physical inspection of the blast site should start with identifying any neighboring businesses, residences, rail lines, pipe lines, warning signs, or roadways on all four sides. If you see a hill, make a point of identifying what lies just beyond the hill, whether it is a church, a school or a hospital. As part of this inspection try to identify all possible conditions, which could be considered potential hazards from the blasting operation. Of course, you must also know what is under the ground, such as a gas transmission line or underground communications cables.

The 360-degree mindset from a contractual standpoint focuses on any party that the contract requires the blaster to compensate, if they are injured in any way by blasting activities. A contractual relationship directly with the injured party is not necessary since the financial responsibility for the injury or loss is mandated by the blasting contract. This large group of potential payees can include the owner, general contractor, fellow contractors, subcontractors, neighbors, public officials, inspectors, visitors, suppliers, delivery people, and the general public.

Chapter 29 supplies a framework for effectively identifying and managing blasting risk. Sample questions that should be asked on any potential blasting project are shown as in a table in chapter 29.

Types Of Insurance For The Explosives Industry

Generally there are considered to be six types of insurance policies for the people and companies in the explosives industry. They are listed in table 30.1 and discussed below.

Insurance Policies For The U.S. Explosives Industry

Table 30.1 – Insurance policies for the U.S. explosives industry.

General Liability

General liability policies differ from other types of coverages in that benefits are usually paid to a third party (the insurance carrier and the policyholder being the other two) that has suffered bodily injury and or property damage that was unintentionally caused by an occurrence related to the activities of the insured.

The most common category of third party accidents that happen with blasting is bodily injury and/or property damage that results from flyrock, air overpressure or ground vibration produced by the detonation of explosive materials. While most of these occurrences result from planned detonations, there is also the potential for unplanned events such as premature detonations, misfires or magazine explosions.

The insurance company's obligations are limited to the set dollar amount of the policy and are subject to certain exclusions that usually deal with uninsurable exposures, intentional losses and criminal activity. The prospective insurance purchaser should be careful to determine that the loss-producing situations likely to be encountered are not specifically excluded from the policy. For example, it would be extremely unwise for an excavation or blasting company to have a liability policy that excludes blasting coverage. Certain organizations, such as mining companies, may be required by law to have General liability insurance. Also, a contract between two entities (such as a general contractor and a subcontractor) may specify certain requirements for liability insurance and the dollar amounts of coverage.

A liability insurance policy normally covers two types of payments. These are: (1) Damages and (2) Legal defense costs and expenses. Damages include both the bodily injury and property loss to others that the policy holder would be legally obligated to pay. The majority of such claims are settled outside the civil court system and the insurance company then pays the injured party voluntarily on the behalf of the policyholder. If the insurance company thinks that the damage claim is unwarranted or excessive, it may then go to a civil court. This can also occur when a claimant refuses the settlement offer made by the insurance company.

Caution If a court decides that the policyholder is liable for the damages, two types of awards can be granted, compensatory damage and punitive damage.

Compensatory damages are covered under the policy and the payment is intended to compensate the claimant for the injury or damage caused by the policyholder. Punitive damage awards are made as the result of some highly dangerous or outrageous conduct committed by the defendant. The intent of such an award is to punish the offending party and deter similar conduct by others. Punitive damage awards can total millions of dollars, so it is advisable that the blasting professional purchase a policy that includes punitive damages. The law of the state where the accident occurs will dictate whether or not the specific circumstances of the claim will allow the insurance company to pay the punitive damage award. Even if your home state disallows the payment of punitive damages by your insurance carrier, there is a good chance that your employees will eventually operate, visit, or sell products in other states.

A lengthy civil court action can result in considerable legal defense costs and expenses, even when no awards are made to the claimant. Typically, the insurance company will be obligated to pay the defense attorney's fees and other litigation expenses such as the costs of hiring legal researchers, investigators and expert witnesses. Additional legal expenses can be incurred if the policyholder is held liable for damages and the insurance company decides to appeal the decision to a higher court. It should be remembered that blasting damage claims are difficult to resolve successfully in civil court since the claimant may not have to prove that the policyholder was negligent in conducting the blasting, just that injury or damage occurred. This is called "strict liability" and it perhaps the greatest single incentive for explosives users to exercise all reasonable care and control in order to prevent accidents involving the general public. In effect, "strict liability" means the burden of proof is on you to prove your actions did not cause the damage.

The vast majority of general liability policies purchased by blasting professionals are of the "occurrence" type because these policies have the most advantages claims reporting requirements. "Claims made" type general liability policies are less expensive, but the severe claims reporting restrictions can result in claims that are denied due to incorrect or untimely reporting. The blasting professional should verify that all their employees are well versed in prompt claim reporting and that all of the blaster's clients will accept a "claims made" policy before looking at the potential savings of a claims made general liability policy.

Automobile Liability

Automobile liability insurance is required in all states for privately owned and company owned vehicles. The benefits are payable to a third party who has suffered bodily injury or property damages from the policy holder's operation of a covered motor vehicle. General liability policies exclude coverage of liability losses due to the operations of a motor vehicle, while automotive liability policies for businesses cover passenger vehicles, trucks and trailers. Business auto insurance can be extended to include physical damage to or the loss of owned vehicles. Physical damage coverage can include collision, comprehensive, or specified causes of loss.

Privately owned vehicles that are used for business purposes are usually insured under personal automotive insurance policies. In addition, companies can purchase coverage for the liability that they may incur when employees use their personal vehicles for business purposes. Coverage can also be extended to rented, leased or borrowed vehicles that the company may use.

Worker's Compensation/Employers Liability

Worker's compensation/Employers liability insurance protects employees on the job. Due to the tremendous advances made in explosives technology and safety over the last fifty years, blasting accidents that cause employee injury are now fairly rare. However, when they do occur there is a high potential for death and permanent disabling injuries. In addition, many other injury producing accidents are carried out on mining and construction sites, including the use of mobile equipment, over the road use in company vehicles, and powered hand tools. Not to be overlooked is the potential for occupational diseases that can have serious and long lasting consequences to workers. Workers compensation coverage is required in all fifty states and is intended primarily to compensate the injured employee for lost wages and pay for medical and rehabilitation expenses. The policy also provides certain benefits to surviving family members of an employee fatally injured on the job.

Worker's compensation laws and benefits vary widely with each state. While the majority of such policies are issued through private insurance companies, a number of states have insurance funds that either compete with regular insurance carriers or make the state the exclusive market for the coverage. While worker's compensation insurance is primarily designed to assist injured employees, it can provide the employer with a measure of protection from employee lawsuits by permitting common law defenses and the use of Part 2, employer's liability to defend certain assumed lawsuits. While most states limit injured employees to the benefits that can be obtained under worker's compensation coverage, there are several states that allow injured employees or their surviving family members to sue the employer directly if certain conditions are met. Worker's compensation laws can be confusing, particularly if the blasting company has operations in different states. Therefore, it is important for company management to periodically consult with their insurance agent to be sure that they are adequately protected and in compliance with the state regulations.

Property and Inland Marine

Property policies and inland marine equipment floaters cover real property, personal property, business interruption, mobile equipment and certain types of stationary equipment owned, leased or rented by the policyholder. This may include such property as buildings, contents, computers, magazines, bins, mix plants, bulldozers, front end loaders, drills, mats, generators, stock, etc. Perils that are usually covered include fire, theft, vandalism, collision and similar losses. Equipment leasing companies and banks may require proof of this coverage as a part of the loan or lease agreement.

Umbrella and Excess Liability

Excess liability and umbrella policies increase your limit of insurance. The excess liability policy extends the limit on the underlying policies such as general liability, employers liability, and automobile liability, but will not respond to losses excluded under those underlying policies. The umbrella policy extends the limit on the underlying policies for all losses unless such loss is excluded under the underlying policy. If the loss is excluded, the umbrella policy may respond, subject to a "retained limit" (deductible) for excluded or "non-covered" loss.

Miscellaneous Coverages

Miscellaneous coverages to consider are: (1) professional liability, (2) director and officers liability, (3) environmental liability, (4) employee fidelity, (5) crime, (6) performance bonds, (7) employment practices liability insurance, and (8) surety bonds. Bonding is often required for work on government financed projects or where there is a written contract between a general and a sub-contractor. A bond is a formal agreement binding one party financially for the performance of another party because of an agreed-upon obligation. Please consult your insurance agent for what best fits the needs of your company.

Marine Coverage Warning

If you are going to be involved in blasting operations at, near, on, in, or over navigable waters, you will need to either modify your existing insurance policies or possibly purchase new separate marine policies depending on the level of your participation in a project. Be sure to notify your agent of the project specifications and allow sufficient time to get the proper coverages in place.

Key Insurance Personnel

Key insurance personnel are listed in table 30.2.

Key Insurance Personnel

Table 30.2 – Key insurance personnel.

Loss Control Representative

The loss control representative may be an insurance company employee or an independent. This representative is referred to as an "inspector" or "engineer" who is trained and experienced in working with a wide variety of commercial operations to evaluate property, liability, worker's compensation and automotive exposures. Occasionally, the loss control representative may be a specialist who primarily deals with mining, construction or blasting companies.

The loss control representative may visit various operating locations to complete an inspection or survey report for the underwriter. The report is intended to supplement the agent's application so that the underwriter can determine whether or not to write the risk. The report will also identify the nature and degree of acceptable physical conditions at the risk in question, projected loss experience and the positive loss prevention measures will be reviewed and when necessary, recommendations will be developed to reduce the likelihood of future losses. An unpublished area of exposure will by previous losses that have occurred. The representative will probably want to discuss with company management personnel how they happened and what actions can be taken to reduce the potential for future occurrences. Accordingly, the blaster should prepare for this visit so that a favorable impression of the account will be forwarded to the underwriter. When the subject of the loss control survey is the general and automobile coverage, the blaster should be able to discuss or produce the information on table 30.3.

Loss Control Survey Information For General Liability and Automobile Coverage

Table 30.3 – Loss control survey information for general liability and automobile coverage.

If the purpose of the loss control survey is worker's compensation coverage, you will need to have access to the information and documents listed in table 30.4.

Loss Control Survey Information For Workers Compensation Coverages

Table 30.4 – Loss control survey information for workers compensation coverage.

It is important that you demonstrate a level of professionalism, technical competence and a genuine desire to control losses, since a positive report by the Loss Control Representative may result in a favorable response by the insurance company. In addition, a sincere effort should be made to comply with all reasonable suggestions and recommendations made by the loss control representative.

Claims Adjuster

An insurance claim is a notice from an individual or company that an alleged loss has taken place that may be covered under the policy. With general liability and automobile liability coverage, the claimant will be a third party who is alleging that they have suffered some form of bodily injury and/or property damage due to the negligence or actions of the policy holder. We now properly equipped insurance, the claimant is the policyholder who has suffered damage to covered buildings, contents or equipment. Insurance companies require a written notice of loss as soon as possible. The policyholder will be responsible for completing its own internal claim submissions and following up with the insurance company in order to monitor the claim.

Upon loss notification, the insurance carrier will assign either a company or independent adjuster to investigate and determine if the loss is covered under the policy and the dollar value placed on the claim by the claimant. Independents usually represent a number of insurance carriers and are supervised by a company claims representative. In some cases, the independent adjuster may be a highly trained specialist. The actual cause or the extent of loss on some claims may not be precisely clear and the insurance carrier may have to conduct a detailed investigation. Particularly with liability claims, the policyholder sometimes complicates the settlement process by failing to promptly notify their insurance company. Often, the carrier's first notice of a liability claim is the receipt of civil court papers that can be filed up to several years after the event first takes place. This puts the adjuster at a considerable disadvantage since by that time it may be difficult to obtain vital information such as blasting data and information from witnesses. For a variety of reasons, a blaster can find his repeated vulnerability to a claims adjuster's request for data relating to the loss. The often-heard excuse is that the summer was too busy or did not see the need to supply the information. As a result, the adjuster may be forced to make an uninformed decision that could have been avoided.

Blasting vibration and flyrock damage claims comprise the most frequent type of general liability losses against explosive users. Vibration claims are divided into three general categories as shown in table 30.5. With all the damage categories described below a decisive factor as to whether reimbursement is appropriate is reflected by the seismograph or chart.

Blasting Vibration and Flyrock Damage Claims Categories

Table 30.5 – Blasting vibration and flyrock damage claims categories.

The ability to obtain accurate completed blasting logs and corresponding seismic records must always be considered a necessity in blasting company operations. Also, a record retention program is essential for any blasting company.

Additional documents and information that the adjuster may request with a blasting claim can include copies of the documents listed in table 30.6.

Blasting Documents Frequently Requested By The Claims Adjuster

Table 30.6 – Blasting documents frequently requested by the claims adjuster.

It may be necessary for the adjuster to interview and take statements from company management and blasting personnel. A reasonable level of cooperation and the timely submission of requested information can greatly assist in creating a favorable impression of the policyholder. In the event that the insurance carrier chooses to deny a blasting damage claim, the party alleging the damage may decide to seek legal counsel and take the matter before a civil court for remedy. Then, the blaster may be called upon to produce records and give testimony. Since the insurance company may have to pay for the legal defense costs and/or any damage award, it is understandable that it would only want to pursue a case that has a reasonable chance of a fair and efficient outcome.

Underwriters

While the average blaster is unlikely to have direct contact with an Underwriter, the importance of the underwriter's perception should not be underestimated. The first decision that the underwriter has to make with a prospective account is to accept or reject the application for insurance. Among a variety of factors to be considered is the size of the account, scope of operations, financial condition, past losses and engineering review. If the application appears to be initially acceptable, the underwriter will then have to make decisions on the limits of insurance, applicable deductibles (if requested), and the premium to be charged.

With prospective accounts and the renewal of existing policies, loss control reports can have a considerable impact on the underwriter's judgment. The underwriter will review the loss control reports, exposures, claims history and operations of the account. While the underwriter's decision-making process may appear to be somewhat arbitrary or obscure, it should be remembered that their primary mission is to make a profit for their company.

Premium Auditor

The premium auditor may be an insurance company employee or an independent contractor. The majority of (1) general liability, (2) excess liability/umbrella and (3) worker's compensation policies are based on estimated sales and/or payroll and are subject to an audit of actual sales and/or payroll at the expiration of the policy. An audit is necessary to determine the correct exposure or premium base for the insurance coverage afforded. If necessary, an adjustment after the policy period will be made to the premium that was estimated when your policy was issued. The audit may result in additional or return premium.

The auditor will examine and audit all of your records that relate to your policy. The records that will be needed will vary, depending upon the type of coverage you have. In most cases, the auditor will be able to obtain the necessary audit data from two or more of the following records: Journals, Ledgers, Tax Reports, Individual Earning Records and an Inventory of Vehicles (if the policy has direct cost for automobile coverage).

Insurance Agent

In the United States, the sale of commercial insurance policies is handled through an insurance agent. An independent agent commonly represents two or more insurance companies and is paid on a commission basis. Insurance agencies vary in size from single owners to large multi-national firms. Many agencies may represent a number of insurance companies who provide their customers with a variety of choices. Agencies may also provide their customers with services relating to loss control, risk management and claims handling. A local agent may have superior knowledge of the area's business climate; however, the most effective agency is one that understands the unique operations of the blasting professional.

In preparation for visiting an insurance agent in order to obtain a quote on insurance or renew existing coverages, the blaster may want to collect the information given in table 30.7.

Frequently Required Documents For Information Quotations and Reviews

Table 30.7 – Frequently required documents for information quotations and reviews.

When considering whether to do business with a given insurance agent, the uniformed blaster may want to ask the questions listed in table 30.8.

Questions To Ask When Interviewing a Prospective Insurance Agent

Table 30.8 – Questions to ask when interviewing a prospective insurance agent.

Explosive professionals can evaluate insurance companies and agencies much in the same way as any other organization that provides them with products or services. The total insurance program should provide them with adequate coverage at a reasonable price. But not to be overlooked is the ability of the insurance agent to offer timely and practical advice, along with the insurance company performance in the areas of loss control and claims handling. It should be expected that insurer coverages and services provided by a financially sound insurance company will cost more.

GLOBAL INSURANCE CONSIDERATIONS

This section presents a global approach to secure insurance for the explosives industry. It is presented as guidance for the blasting industry.

Warnings and Disclaimer This discussion framework is offered as a guide only and may not address every possible scenario that may be encountered. It is up to the user to apply this method using common sense, to continually seek out additional sources of or tightening more information, and to verify compliance with local authorities prior to moving explosives into the country. Due to the complexity of the subject, the ISEE and the author or authors disclaim any responsibility for use of this method and any use of this method assumes full responsibility for any adverse outcome. ISEE and the author(s) of any use this method if you are not prepared to fully take responsibility for the results. Be aware that you should obtain written confirmation from the local licensing authority that your business has obtained all required insurance coverages for the type of explosive business that you expect to conduct in a particular country. Failure to meet legal requirements in a new country can result in fines, loss of permits, and even imprisonment.

Background

The principles of risk management and assurance are largely the same in most of the world. The most common approach to insurance coverage has been based to some degree on the British system used in the Lloyd's of London insurance market. While the way that an insurance policy is written (naming agreement, limits, conditions, exclusions) will be similar in most countries, it is important that you does not assume that coverages will be the similar. For example, a local General Liability (Public Liability) policy issued in Europe or Australia will often also include a Protective Damages component. At the same time, the law in certain states provinces in Australia and Canada is beginning to recognize the concept of Punitive Damages and business owners should try to obtain the coverage wherever possible.

The five policies listed in table 30.9 are considered core coverages for any business and their equivalents are defined earlier in this chapter. Different countries may use different names for essentially the same policies.

General Insurance Policies For The Explosives Industry

Table 30.9 – Insurance policies for the explosives industry.

Global Insurance Compliance Framework

After considering the previous information in this chapter and applying the following six-step compliance framework (as summarized in tables 30.10 through 30.15), you can determine the insurance requirements of a jurisdiction where you plan to enter or conduct business and troubleshoot your newly expanded insurance program.

Step 1 Compliance Framework

Table 30.10 – Step 1 Compliance Framework (Determine the coverages and limits required - people and organizations to contact).

Step 2 Compliance Framework

Table 30.10a – Step 2 Compliance Framework (Determine the country specific explosive products related requirements).

Step 3 Compliance Framework

Table 30.12 – Step 3 Compliance Framework (Types and sources of required insurance coverage).

Step 4 Compliance Framework

Table 30.13 – Step 4 Compliance Framework (Verification of required insurance coverage).

Step 5 Compliance Framework – Troubleshooting

Table 30.14 – Step 5 Compliance Framework (Optional coverages worthy of consideration).

Step 6 Compliance Framework

Table 30.15a– Step 6 Compliance Framework (Additional coverages worth consideration to avoid common global insurance program mistakes).

SUMMARY

Many blasters have a negative impression of insurance companies for two primary reasons. First, there can be the assumption that insurance premiums are too high. Second, it may have been perceived that the insurance company did not handle a particular claim properly. While some of these complaints may be justified, high premiums are often the result of a blaster's failure to exercise a reasonable amount of loss control, plus the need for the insurance company to charge additional money to offset previous losses they have paid under the policy. Accordingly, a policyholder's feelings that the insurance company may not have handled a claim correctly might as part be the result of the blaster's failure to cooperate fully with the claims adjuster.

Consider one final question. What makes a successful blaster? An often-heard response is the "ability to complete a job on schedule and within the budget." While this is partly true, a successful blaster is, from the risk standpoint, one who utilizes his or her own skills and experience to limit accidental losses involving employees and the general public. In this factor that probably has the most impact on your company's long term success.

It has been the purpose of this chapter to provide the explosives user with some basic information on blaming risk, some of the main types of insurance coverage and the categories of insurance personnel likely to be encountered. Questions or concerns will undoubtedly arise and these should be directed at those who are in a position to provide answers; the insurance agent or the insurer companies.