Negligence in Insurance Loss Control: The Process or the People?
While involved as a risk management expert in an arc flash case two years ago, my retaining counsel showed me an article, Insurer’s Liability for Negligent Inspections by Gary Wickert1. It criticized the plaintiff’s bar for requiring insurers and defense counsel to respond to theories of liability related to bad loss control inspections. My perspective is as an expert witness in loss control, risk management, OSHA and workplace safety. I have 29 years in loss control and continue to work in the field conducting surveys today. I have experience with three different insurers as an employee, over 20 years as an independent consultant, working with over a hundred different insurers and captives and after having conducted about 7,500 loss control surveys as a third party vendor to these captives or insurers directly and through others as a third party. Over those years and surveys, I have conducted loss control surveys for most of the significant insurers in commercial insurance, which use third – party vendors. There are companies that I haven’t worked for because they don’t vend their loss control. I have also surveyed a vast array of coverages, from property, general liability and Worker’s Comp to excess fleet, mono-line general liability (nursing homes) and United States Longshoremen & Harbor Workers’ (USL & H) Worker’s Comp. In addition to retail loss control, I have conducted captive member’s surveys for third party vendors, regulatory surveys and assisted in Worker’s Comp audits for insurers. Suffice it to say, my perspective is one from inside loss control as it is currently practiced and completed and where we have come from the late 1980’s to this present day.
To focus on the individual conducting the loss control survey (inspection) with a business owner, manager or principal is to miss almost all of the loss control process. First, loss control conducted by insurance loss control represented or those who they are vended to are not inspections. OSHA does inspections, labor inspectors do inspections, but insurance loss control reps and consultants do not do inspections. We do not have that authority or power. We make recommendations, but do not give citations. As I will explain, even if I make a recommendation as I have before that was severe enough so that insurance coverage was supposed to have been terminated, I do not have that power of enforcement. A broker for a sole source national program may and did decide that the insured could have time to implement a correction that according to the guidelines I was provided should result in immediate cancellation. An underwriter or branch manager or others nearer the point of sale could also make that call.
Yes, to be sure when I conduct a survey, it is me out on the premises with the business owner. The report that is produced, will my name on it. But, it will also have text generated from quality control, a loss control supervisor or manager and potentially others as well. This report is produced after a series of steps. It will be after the underwriter has received the order to bind the policy from the now insured’s agent or broker. It is after the underwriter has requested loss control to be done. It is after the underwriter has uploaded the agent’s applications for each line of coverage, loss runs for each line of coverage, supplemental applications, loss runs and previous loss control reports. It is far after IT, claims and legal have gotten together to create a format with as many as hundred questions per line of coverage. It is after the loss control technician has reviewed and inputted the order into the system and logged it. It is after I and other consultants at other firms may have been approached about doing the particular survey. Now after having gotten my approval that I will go do this type of survey, I attempt to make an appointment to comply with the due date requested by the underwriter. I will evaluate the type of business, construction or other and the place where the insured can be met that will facilitate a good report, if they have off-site operations. If the insured has far flung operations, the office might not be the best place to survey a steel erection contractor, logger or roofer. Loss control representatives do not create formats or share them. I don’t have the liberty to create my own format, because that is driven by the insurer, their coverage forms and claims experience. In addition, the insurer or captive is not necessarily interested in industry wide experience, but what types of losses are effecting their own book of business. The same type of survey may ask for very different information from insurer to insurer, based on their loss experience.
Upon receiving a loss control assignment, I am typically working with a third party’s workstation, which will include all of the advance information, including the insurer’s guidelines for their loss control surveys, their customer servicing instructions for the type of survey such as a timber program, transportation or small business Worker’s Compensation and most importantly to me, the loss control format which is the report that I have to complete with the insured or risk. In addition, as an in-house representative, there are hundreds to potentially thousands of pages of process and procedure which govern and direct the process. I recently had an all-day survey with a pallet mill. I completed four reports covering 75 pages, 113 pictures and a letter of recommendations with twenty recommendations. Each of the format’s questions are listed for me outside of a description of operation which has to include several prescribed data points, such as who owns the business, when they purchased it, where they operate, how they conduct their business in a step by step by step by step description. These survey instructions does not come off of the top of my head, but are provided to me by my vendor or insurer. During the office visit, I reviewed all of the printed advance information with the insured from applications, to previous accidents, auto & equipment schedules. All of that information is incorporated into my report. Composing this particular report took 20 hours, not including the 6.75 hours on-site or preparing for it.
After I complete the report, I send it back to the vendor that has sent me this particular survey request. Each vendor and each insurer has quality control representatives who review the reports, pictures, descriptions and recommendations line by line compared to the guidelines,instructions and using their own personal qualifications and experience. I will get a list of items to reconsider, restate or delete, which I will gladly and joyfully change so that the survey can be approved and sent to the insurer, who has ordered it. Upon receipt by the insurer, the report is read at their leisure or immediately, depending on why the report was ordered. It will be read and potentially commented on by their underwriter or by their loss control staff, who might also submit questions back to me for clarification, updating or changes. This can also take place months later, when someone might have a question about an exposure or control. Several people are involved. In the third party world, at three entities are involved. With a bad report, there is blame enough for all, which should extend to others through the loss control representative or consultant.
How could the single survey that I conduct be negligent and not taint the entire risk management or loss control process? There are cases when the levels of knowledge, training and expertise are not consistent from format development to the field. These links in the supply involve others beyond the loss control consultant. Unfortunately, sometimes the geography wins, the simple location of an account makes loss control difficult. A tough survey may be far away from qualified consultants and qualified consultants cannot be found for an approvable fee. Senior managers are developing the forms, designing the questions, having the training program designed by the in-house department and training the loss control technicians to deal with the vendors, etc. These are not the people doing the survey and written the report, but are closely involved.
In any given survey, I may think that I know what the question means but I may not, such as “does the risk or insured have an approved electrical maintenance program in place?” I may have servicing instructions, but not want to refer to them or they may not cover this particular item. First, according to what standard is the insurer asking for my judgement, my own or is there a governing body of guidance for this particular exposure, which defines the negligence for loss control. Does the vendor or insurer provide access to the source material, such as NFPA or ANSI? In some cases with the source standard, training for it, the representative or consultant is simply repeating the question and recording the answer. The workstation may then generate an automated recommendation. It seems as through the liability should flow through the loss control process. Every survey asks for a rating, above average, average, below average or poor for the account as well as each line of coverage. I am to explain my reasoning for the ratings. Most surveys generate average ratings and at the same time generate recommendations. The absence of an electrical preventive maintenance program, outdoor storage of propane or absence of fire suppression sprinkling among others could force a below average property grade for some risks or insureds, but the bright lines might not be so bright in other cases requiring judgement and more in depth knowledge of the standards, accidents which caused them to be developed and controls.
Each exposure has a prevailing standard and duty of care, but it may be relatively rarely used generally or written for a small subset of businesses or companies. For instance, electrical preventive maintenance is described in NFPA 70B2, animal housing with NFPA 1503 and upholstery with NFPA 6544. Compliance with 70B is rare, even if a business has electrical safety in place vis-à-vis OSHA. As a result, the consultants in the field for an insurer are not trained on 70B. If the insurer’s own consultants are trained on it, how likely is it that the independents paying their own way will be trained on its’ application. In terms of the applicable duty, if the law is not enforced, is it still the law? If it is not enforced to the point that no one knows it is the law is it still the bar? Does the bar then become the sidewalk or the earth beneath it because everyone has trodden it down? Does the bar then become the community standard, what the majority of the similarly situated are doing?
Arc flashes can be as hot as 35,000 F degrees, exposure is catastrophic; to the maintenance men and women who are not electricians but various instead levels of in – house staff, are they deserving of protection? These controls for catastrophic hazards are duties with numbers of moving parts, due to the route that root cause, proximate or predominate cause can take. Do the floor level workers or employees deserve to know simply what the hazards are in a particular maintenance operation? Or, should we ignore a standard (Electrical) which was first promulgated in 1879? Some say that we should ignore the consensus standards developed by the American Society of Safety Professionals (ASSP)5, the National Fire Protection Association (NFPA) or the American National Standards Institute (ANSI) and limit ourselves to only the black and white within the OSHA standards, which OSHA notes conveniently, is the minimum. Many in the industry are not convinced that responsibilities extend to regulations incorporated by reference as the following statement in the current Field Operations Guide, Chapter 4, Violations, Basis of Violations, 1.A. Standards and Regulations.
“Section 5(a)(2) of the Act states that each employer has a responsibility to comply with occupational safety and health standards promulgated under the Act, which includes standards incorporated by reference. For example, the American National Standards Institute (ANSI) standard A92.2 – 1969, “Vehicle Mounted Elevating and Rotating Work Platforms,” including appendix, is incorporated by reference as specified in §1910.67.”
Systems such as the electrical systems degrade over time when they aren’t maintained. This is omission, deciding not to maintain, not to pay for a maintenance shut-down is a conscious management decision, violative of NFPA 70B. When a system such as the electrical isn’t maintained for forty years, it has the potential for severe degradation. Is this a latent exposure for all of the employees, third party contractors and visitors who may walk past an electrical service which has never been maintained? For example, most of the answers that I get to questions about electrical system maintenance are as needed, meaning we repair it when and if it breaks down we’ll fit it, in in rare cases when the format I working them specifies these questions. Most formats ask when the system was last updated and what work was done, nothing more. Does the loss control consultant know what standard applies, has he or she been trained to it, have they trained themselves to it and how familiar are they with the standard development process itself? Many insurers, vendors and solo consultants do not take the time or expense to update their training with NFPA standards, regular classroom or video training.
In terms of electrical preventive maintenance, more regulated and regular plaintiff targets such as paper mills and oil refineries have shutdowns for semi-annual plant maintenance, but not so much for others. The losses and accidents inform the rules, safety regulations aren’t promulgated in the hypothetical. FACE (Fatality Assessment & Control Evaluation) reports inform standards. Triangle Shirtwaist informed the Life Safety Code®. Imperial Foods informed the Life Safety Code. Imperial Sugar informed our knowledge and appreciate for combustible dust. Deepwater Horizon informed our off-shore oil platform safety. The consensus standards harken back to these events and form our public policy, for a reason. It is the loss control consultant’s duty to know these standards, rules and reasons for them. It is their duty, our duty, to know the process of how the rules, standards, policies got to be what they are. It is our duty regardless of how far removed we are from the insurer writing the coverage. A business owner is not going to see their underwriter. The vast majority of business owners do not have claims in a given year and will not talk to a claims representative.
Rather than placing as much as negligence on the part of the individual, it is probably that the negligence could be the insurer’s failure to conform to what they have said is their risk management process or that they don’t have one. This systemic failure or oversight is at least just as likely as a single loss control consultant’s incompetence, if not more. But, if loss control negligence is rare, what about negligence for systemic risk management errors or omissions? With the loss control consultant, there are a number of people who help us and can get my vehicle back on the road and out of the ditch. My manager at a vendor company might catch what I did not mention, their quality control person definitely could, the loss control technician might, points are, I have a number of helps along the way.
But with a systemic failure, it is because this is the way the insurer wants to operate and approach business. These are directions that are present through the company. It is the vision. Is the insurer conducting the function as their annual report describes it? If the annual report names a risk management committee, what has the committee stated a vision? Is naming a risk management committee all the company has done? Who did the risk management committee empower to achieve their vision or was it stillborn and not proceed outside of the conference room? It is common and expected to assume that a vision is to be facilitated by people, it is not a super human member of the league of heroes. These organizational modes of facilitation are expensive, involving multiple managers and others.
There are specific risk management models. Which one did the insurer or captive choose or not choose? Why did they chose that particular system? What training did middle and lower management receive in the process or not receive and when did their risk management training stop? At its’ core risk management is a system of information gathering, implementing controls, monitoring and reassessment. How static has the process been? Were the field and vendor’s used by the subject provided with any training, instructions or guidance? When I worked for CNA Insurance, they had Cost Management, which married loss control & claims in a tangible effort to deal with the severity of accidents from the largest to the smallest. Analysis was done, policies and procedures were developed. Training was rolled out and conducted at the branch levels. Results should be assessed and updated. The risk management process is circular, as is continuous improvement and does not have a conclusion or end point. There are also safety management systems, but there should be a framework, an established risk management system, such as the one Dr. George Head described in the The Institute’s (Insurance Institute of America’s) Associate in Risk Management program and designation.
Wickert’s description is that of an insurance subrogation attorney observing the perspective of plaintiff’s trial lawyers on one side of the litigation speaking about the trend toward attempting to identify loss control as negligent. But there are structural difficulties which effectively prevent the plaintiff bar from this. On one side, if the insurer is involved and loss control has been done, has potentially provided the defendant’s attorney with loss control reports, investigations, claims correspondence, letters, documentation, training documents, answers to recommendations, etc. As the defendant’s counsel, the attorney would seem to have free access to these documents, since he or she has been hired by and is reporting to a claim adjuster. The defendant’s counsel could be either working for the insurer or paid by the insurer’s claims departments. The claim department is making available the loss control information to fill the defendant attorney perspective of the case, events, facts, theories of liability, etc. To the extent that the defendant’s counsel has my loss control reports, data, communications, etc. they will know what is in them. On the other side, the plaintiff and his or her attorney may not know that I exist, what to call the work I do, probably does not know about the detailed nature of the process and that the answers to many of their questions reside within the insurer’s computer systems which their opposing side already has. The probable fact that the plaintiffs do not know loss control to the same extent that the defense does hampers them in identifying acts of negligence. Particularly when it is compared to some act that has resulted in an injury. It seems that it would be difficult to call a report, inspection, survey or process negligent if it’s the first one you’ve seen or if you are not doing them or reviewing regularly. I do not know if plaintiff counsel is routinely asking for and receiving loss control reports and related information through their interrogatories and discovery, but I do know I have not seen it requested.
More probably and my experience indicates that the plaintiff’s attorneys may be flummoxed by the peculiarities of the loss control and safety terminology when they know we exist or they are being told we don’t have “inspections”. The reality probably is that the plaintiff’s counsel didn’t call the loss control product the correct name; therefore the defense counsel will not provide something that doesn’t exist. This was the situation in the case referenced at the beginning. The attorneys who had retained me knew that I worked for the insurer, long ago and far away from their client. But, I knew that certainly loss control had happened at the plant where their client worked, because I knew their process, the excellency of their loss control department, the lengths that they take to develop information and limit exposures. To say that an underwriting report was not done was improbable, I knew that it almost certainly had been done. These reports were very helpful, indispensable in forming a theory of liability in how the employer, insurer and third parties that they had brought in were negligent in addressing a series of duties which had generated an accident.
In addition, another reason for loss control is that these surveys are often mandated by their reinsurer through their treaties, just as an expert report is mandatory in federal court. In reality, in my case, not only had loss control been done, but five service calls had been conducted there in less than twelve months between the standard loss control and thermography. But a first survey was a rush, prospect survey, not an inspection, so the defense did not provide that. A second survey was a recommendation check, not an inspection, so that wasn’t provided initially. The third was an installation meeting, not an inspection. Alas, no underwriting survey or whatever, because they called it an inspection. Eventually, after I began providing a range of terms for the plaintiff’s to use in the discovery, all of these surveys, letters and correspondence was provided. Part of the value is simply being able to converse with the claims department through the conduit of the two sides of attorneys and get the information which one side already has.
As Praetorian v. Site Inspection13 shows, the likely parties involved in a loss control negligence action would be the insurer versus a third party vendor, who is divorced from the insurance and underwriting. An insurer will not or probably should not sue their own loss control department. A plaintiff is not likely to sue the loss control vendor or an insurer’s loss control representative who has conducted a truly negligent inspection instead of the actor causing the accident. The insurer will fold the negligence into their defense. However, because much of commercial insurance is written on a program or other than direct retail basis, by managing general agencies and others who control the programs, it could be feasible for an insurer to be dissatisfied with the loss control service that they have nothing to do with. Loss control serviced by independent service providers who are allocated payment and hours for loss prevention services through the country could become dissatisfactory to an insurer in control of a program.
In turn, the providers are contracting with independent consultants to provide these services in specific geographies. These single, solo consultants are responsible for their own continuing education and training. The firms that they work for do not typically provide any training or updating for them.
The key in why a negligent loss control has not been subject to litigation is that when or how does a bad loss control report or absence of recommendation overwhelm the insured’s management’s failures and supersede the alternative proximate cause? By its definition, there would be contributory negligence at the outset, because it will never be the loss control consultant own company where he or she has done the survey, it is someone else’s company that is being serviced by an insurer. The business owner’s (insured’s) company management decides what to do with the recommendation, as long as one is submitted. As a result, there is always a contribution to negligence by the physical hazard. Whether an insurer can be liable for a negligent “inspection” is really not the point because it seems as though the inspection could very rarely be the proximate, non-contributory cause even if the report is terrible.
In this cite, a property program for hotels was written. Loss control was segregated and conducted by a third party while underwriting remained with the insurer. A fire ensued at a hotel, which the insurer said that they wouldn’t have written. Several serious deficiencies were noted with the sprinkler system, central station monitoring, etc. However, the insurer had not cancelled or non-renewed a member of the program for any reason, absent this, perhaps the case turns out differently. I find this more typical than not that a bad loss control without losses will not result in cancellation, but adverse losses can result in cancellation of a business with sterling loss control. Loss control informs but rarely stands in the way of business being written, absent a loss because the business remains profitable to that insurer. In addition, the recommendation process of upgrading a hotel, in this example, can occur over multiple policy cycles and the insurer or vendor is looking for progress, not perfection. Where a loss occurs, obviously this becomes a different story. In addition, business written inside a program might not be business written outside a program. Many companies join an association to gain access to the insurance program in a variety of insurance programs, not just property & casualty. It isn’t reflective of the underwriting process necessarily which is driven by performance of the program to a greater extent than the individual members.
For the survey to have been or played a role in the proximate cause of accident which injured a third party in a premises action, who or what departments contributed to the injury through the loss control survey, report or inspection? It is certainly not only the loss control consultant, he or she is reading from the format, a list of questions prepared for us to gather the information that the underwriter wants to receive after the claims, IT and legal departments have composed them per their desires, experience, qualifications and educations have led them. While the survey and surveyor alone cannot be negligent in my mind, the risk management process which results in the inspection being done and actionable information disseminated can definitely be negligent. The negligence resides not with the questioner, but with the designers, the analysts, those who formulate loss control services and compose the questions that I have to ask in response to a program of coverage that they have underwritten. I have a duty to be as qualified as I say that I am. But even in Praetorian, it was an indictment of the process that a property inspection was ineffective.
1. Gary Wickert, Insurer’s Liability for Negligent Inspections, Self-Funding Magazine, February 3, 2011, https://www.selffundingmagazine.com/articledetail.php?issue=issue14&article=insurers-liability
2. Recommended Practice for Electrical Equipment Maintenance, NFPA 70B,
3. Fire & Life Safety in Animal Housing Facility Code, NFPA 150, https://www.nfpa.org/codesand-standards/all-codes-and-standards/list-of-codes-and-standards/detail?code=150
4. Standard for the Prevention of Fire & Dust Explosions from the Manufacturing, Processing and Handling of Combustible, Particulate Solids, NFPA 654, https://www.nfpa.org/codes-andstandards/all-codes-and-standards/list-of-codes-and-standards/detail?code=654
5. American Society of Safety Professionals, https://www.assp.org/
6. OSHA Instruction CPL 02-00-160, Field Operations Manual, issued August 2, 2016, https://www.osha.gov/OshDoc/Directive_pdf/CPL_02-00-160.pdf
7. Fatality Assessment & Control Evaluation (FACE) Program, The National Institute for Occupational Safety & Health, https://www.cdc.gov/niosh/face/inhouse.html
8. Life Safety Code ®, National Fire Protection Association, https://www.nfpa.org/codes-andstandards/all-codes-and-standards/list-of-codes-and-standards/detail?code=101
9. Chicken Processing Plant Fires, U. S. Fire Administration Technical Report Series, FEMA, USFA-TR-057/June/September 1991, https://www.usfa.fema.gov/downloads/pdf/publications/tr057.pdf
10. Imperial Sugar Company Dust Explosion & Fire, U. S. Chemical Safety & Hazard Investigation Board, 9/24/2009, https://www.csb.gov/imperial-sugar-company-dust-explosionand-fire/
11. Deepwater Horizon, Damage Assessment, Remediation & Restoration Program (DARRP), U. S. Department of Commerce, National Oceanic & Atmospheric Administration, April 2010, https://darrp.noaa.gov/oil-spills/deepwater-horizon
12. George L. Head and Stephen Horn, II, Essentials of the Risk Management Process, Volumes I & II, Insurance Institute of America (First Edition, 1985).
13. Praetorian Insurance Company v. Site Inspection Company, 604 F.3rd 509 (8th Cir. 2010).