Insurance Protection

All water supply systems should have liability insurance coverage in place; it is the most important insurance coverage for small entities. While accidents are rare, the results can be devastating. Liability insurance covers injury to third parties for which you are found to be legally liable. Injury could include bodily harm, such as sickness, disease and death, but usually also covers property damage, libel and slander.

What constitutes liability? Liability may result from negligence, which is generally considered to be 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, officers, their spouses, 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 to 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 and needs. For example, find out if coverage is “claims-made” or “occurrence”.

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 –as long as the incident occurred during the time period in which coverage was in force (and as long as the incident is one that the policy covers). In effect, an Occurrence policy offers permanent coverage for incidents that occur during the term the policy was in place for. 

Claims-made policies provide coverage for claims only when BOTH the alleged incident AND the resulting claim happen during the term that the policy is in force. Claims-made policies provide coverage as long as the insured continues to pay premiums for the initial policy and any subsequent renewals. The coverage period can be extended by renewing the policy each year. Once premium payments 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.

Most property and casualty insurance policies are occurrence-based policies.

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.

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 be sued or involved in legal proceedings by several parties. These include members, third parties and government agencies.

Suits may arise from a wide range of causes which include:

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

Occasionally, water suppliers may have a misunderstanding of how the law can be applied to the officers and directors of an organization, or they have not invested the time and effort necessary to avoid problems. This may be due, in part, to the managers and operators believing myths such as:

• criminal law doesn’t apply to them
• criminal law doesn’t extend beyond the person directly involved
• they can’t be charged, or they won’t be charged

Property insurance covers loss or damage to your physical assets. These include: buildings, reservoirs, office contents, equipment, tools and stock. Certain assets, such as land and underground services, are excluded from coverage, though 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 based on actual cash value or replacement cost. As these can vary greatly, it’s important to understand which would be covered.

One of the main reasons for securing Boiler and Machinery Insurance is that Property Insurance typically does not cover mechanical breakdown or the electrical arcing of motors and other devices. 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 that requires the object to be either repaired or replaced. The insured machinery may be a pressure object, a mechanical object or an electrical object. 

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; to financially protect you in the case of legal liability.