Obtain Insurance Protection

Contributor
Sustainable Infrastructure Society
Introduction

If you own, operate, or maintain a waterworks system, you should secure insurance protection. Coverage that has been developed to meet the needs of community water systems in British Columbia, to cover you for

  • Liability Insurance
  • Directors & Officers Insurance
  • Property Insurance
  • Boiler & Machinery Insurance
  • Contractors' Liability Insurance

The various forms of coverage are outlined below, and a link to the insurance application process is provided.

Liability Insurance

If you own or operate a water system, liability insurance can protect you from the consequences of certain rare and potentially devastating accidents. It provides protection against loss arising from claims made against your system, and if you are found legally liable for property damage or bodily injury, liability insurance will respond. 

All water supply systems should have liability insurance coverage in place; it is the most important insurance coverage for small entities. While the frequency of loss is typically low, the severity of loss when it happens is usually very high.

Liability insurance covers injury to third parties for which you are legally liable. Injury may include bodily injury, such as sickness, disease and death. It also typically covers property damage, libel and slander.

What constitutes liability? Liability may result from negligence, which is generally regarded as the failure to do what a reasonable person would do in a similar circumstance.

This type of insurance typically covers the legal entity, its directors and officers, and their spouses and estate, employees and volunteers. Coverage is for Compensatory Damages, which is a sum of money awarded to compensate a person with the amount necessary to replace what was lost.

Coverage may vary from one insurer another. It is important to confirm that the insurer has experience in providing insurance to community water systems and to be sure that the terms of the coverage suit your circumstances. For example, find out if coverage is “claims made” or “occurrence”.

No matter what type of coverage you have, it is prudent to implement a sound risk management plan, including a documented process for handling complaints, and a cross-connection control program.

Directors & Officers Insurance

A Directors and Officers (D&O) Liability Insurance policy can provide coverage for directors and officers for claims arising from their acts, omissions or decisions. Directors and officers of both for-profit and non-profit water system organizations can potentially be sued or involved in proceedings by a number of parties, including members, third parties and government agencies.

Suits may arise from a wide range of causes, including conduct of fundraising activities, payment of wages and deduction of taxes for employees, breach of statute, insolvency, breaches of fiduciary duty and duty of care, negligent supervision, screening or hiring of employees and volunteers, additional obligations and higher standards of care as trustees, as well as failure to meet requirements for tax-exempt status as a non-profit. Where the organization indemnifies its board, a D&O policy can reimburse the organization for amounts it has paid in indemnification.

This coverage is particularly useful, because sometimes suppliers of water do not invest the time and effort required to avoid problems. In part this is the result of myths that are prevalent in the minds of managers and operators of some water systems:

  • They don’t understand that criminal law applies to them
  • They don’t understand that criminal responsibility extends beyond the person directly involved
  • They think they can’t be charged, or that they won’t be charged.

For more information on these myths and liabilities, follow the link at the bottom of this article.

Property Insurance

Property insurance covers loss or damage to your physical assets, such as buildings, reservoirs, office contents, equipment, tools and stock. However, certain assets are excluded from coverage, such as land and underground services. Property that is located on owned premises, other locations or is in transit can be covered. Particular attention needs to be paid to the valuation of the property, which may be done on the basis of actual cash value or replacement cost.

Boiler and Machinery Insurance

Boiler and machinery insurance provides coverage for accidents to insured objects within your water system.

An accident is defined as a sudden and accidental breakdown of an "object" resulting in physical damage to the object that requires the object to be either repaired or replaced. Objects may be a pressure object, a mechanical object or an electrical object. One of the reasons for securing boiler and machinery coverage is that Property Insurance typically excludes a range of items, such as electrical arcing of motors and other devices and mechanical breakdown.

Contractors Liability Insurance

If you provide operations and maintenance services as an independent contractor to waterworks systems, you can apply for liability insurance coverage and contractor’s pollution liability insurance.

The reasons for obtaining it are much the same as those discussed in the Liability Insurance section above.

Occurrence Insurance

An Occurrence policy protects you from any covered incident that “occurs” during the policy period, regardless of when a claim is filed. An occurrence policy will respond to claims that come in – even after the policy has been canceled – so long as the incident occurred during the period in which coverage was in force. In effect, an Occurrence policy offers permanent coverage for incidents that occur during the policy period.

Claims-made Coverage

Claims-made policies provide coverage for claims only when BOTH the alleged incident AND the resulting claim happen during the period the policy is in force. Claims made policies provide coverage so long as the insured continues to pay premiums for the initial policy and any subsequent renewals. Each succeeding year the policy is continuously renewed, the “coverage period” is extended. Once premiums stop the coverage stops. Claims made to the insurance company after the coverage period ends will not be covered, even if the alleged incident occurred while the policy was in force. A Claims-made policy will cover claims after the coverage period ONLY if the insured purchases extended reporting period or “tail” coverage.

Resources
Applying for insurance coverage
Legal issues, myths and liabilities

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