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Risk Scenario

The Best Intentions

Construction executives let their emotions get the best of them after an onsite death, with dire policy consequences.
By: | November 3, 2014 • 7 min read
Risk Scenarios are created by Risk & Insurance editors along with leading industry partners. The hypothetical, yet realistic stories, showcase emerging risks that can result in significant losses if not properly addressed.

Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.

Water Everywhere

Workers with the O’Hanlon Construction Company are used to seeing the white pickup truck with the green municipal seal driven by Yakima County code inspector Ty Davis on the job site. Davis is a 25-year veteran of the position. So when Davis drives up to the site of a municipal tunneling project being run by O’Hanlon, no one is particularly surprised or concerned.

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Affable, fit and seemingly inseparable from his mobile device and a Styrofoam cup of coffee with cream and sugar, Davis made his way from the pickup truck, waving a friendly hello to the foreman on the job, Hector Lopes.

“Hector my man, how are we today?” said Davis, walking up to the where Lopes was overseeing a crew of three that was building the forms to lay an asphalt hiking and biking path on the floor of the tunnel.

“I’d be a lot better if those Seahawks would play some run defense,” said Lopes, pausing from his work to shake Davis’ hand.

“Ahh, they’ll get it together, it’s early yet,” Davis said.

Davis nods to the crew doing the concrete work in the tunnel.

“How’s it goin’ down there?” he asked.

“Oh, it’s goin’,” said Lopes. “The rain ain’t helpin’, but we’re trying to get it done on time.”

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“You mind if I go down and have a look?” said Davis.

“Sure thing,” said Lopes. “It’s break time, anyway.”

“Hey guys!” Lopes called to the crew. “Break. Ty’s comin’ down for a look, too.”

The crew complied, following Lopes up to the food trucks across the street.

Davis walked carefully down the existing bike path to the tunnel floor. Lopes no sooner got to the other side of the street when a horrendous noise shattered the calm of the morning. Lopes sprinted back to the site and couldn’t believe what he saw when he looked down to the tunnel.

“Ty!” Lopes screamed.

A portion of the tunnel wall had given way, burying Ty Davis under two tons of concrete, mud and water.

***

John O’Hanlon, the son of the company founder and a close friend of Ty Davis, was overwhelmed by Davis’ death. Even though the culpability for a faulty soil analysis could lie with many parties, O’Hanlon felt he must formally communicate his grief and his commitment to do the right thing by sending an e-mail to county officials.

“We will do everything in our power to see that Ty Davis’ family is provided for,” the e-mail read, in part.

“Words cannot express my shame and horror that mistakes our company made played a part in the death of my beloved friend,” the distraught e-mail concluded.

The same evening the e-mail is received, the head of the Yakima County Board of County Commissioners was interviewed on television saying that executives with long-time county contractor O’Hanlon Construction Company were devastated at their “failure” and had vowed to do what they could to make things right.

Excuse Me?

Sharon Holmes, the retail broker with whom O’Hanlon placed their professional liability coverage, was working on a renewal when something she saw in her e-mail inbox caused her to stop. It was a construction risk newsletter that contained news of the latest legal findings, settlements and other developments in the construction risk management world.

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“What?” Holmes said as she clicked on the e-mail, her attention having been caught by the word “O’Hanlon” in the subject line.

“Contractor admits fault in death of county employee …” Holmes said, reading aloud.

“They can’t be serious,” she said out loud, reaching for her phone and hastily dialing a number.

“John, it’s Sharon Holmes,” Holmes said.

“I’m sorry … who?” John O’Hanlon said.

“Sharon Holmes, I’m your professional and general liability insurance broker,” Holmes said after a pause.

“Oh … yeah … what can I do for you, Sharon?” O’Hanlon said.




“What you can do for me …” Holmes began, and then stopped herself from saying something she might regret.

“Ummm …” she said, collecting her thoughts.

“John, I’m looking at an industry newsletter in my inbox that refers to you making a statement to public officials that seems to take responsibility for the death of a code inspector at one of your job sites.”

“Huh? Well, yeah. I had to say something, Ty was my friend. We’ve been working with Yakima County for more than 20 years,” O’Hanlon said.

“John, that may be true, but I wish you had consulted with me before you made any statements,” Holmes said.

“The truth is the truth, he died in our tunnel,” O’Hanlon said.

Holmes again composed herself, seeking the right delivery.

“John. I’m sorry you lost a friend. I’d be upset too if I lost a friend. But I need to meet with you and Billy [O’Hanlon, John’s brother and the company CEO] on this. We need to go over the insurance coverage implications as soon as possible.”

“Well, Ty’s funeral is today, so today is out,” O’Hanlon said.

“Tomorrow then, can you do it tomorrow?” Holmes asked.

“Sure … tomorrow,” O’Hanlon said weakly.

Holmes hung up with O’Hanlon and immediately dialed the Seattle offices of a major national construction risk carrier.

“Hey, Brian, it’s Sharon Holmes.”

“Hey Sharon, I had a feeling I’d be hearing from you this morning,” said Brian Snyder, the regional claims executive for the carrier.

“So you saw it,” said Holmes.

“Yep. Just hit my inbox this morning. I can check the policy … as can you … but I’m pretty sure what it’s going to say,” Snyder said.

“We go four days without being notified of a job site death, I’m pretty sure coverage will be denied,” Snyder said.

“I’ll check the policy,” Holmes said weakly.

“Suit yourself. Sorry about this,” Snyder said in conclusion.

A Direct Hit

Ty Davis’ widow and children filed a lawsuit against O’Hanlon Construction, Yakima County and three subcontractors alleging that their failure to conduct competent soil testing resulted in the inspector’s death.

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An investigation commissioned by the Davis family concluded that the soil study ordered by O’Hanlon on behalf of the county failed to take into account possible shifts in the water content of the project soil due to variations in rainfall and the municipal water table.

Upon notice of the lawsuit, O’Hanlon’s carrier told the company that it had no plans to provide for the company’s defense. A recorded, broadcast admission of guilt and a failure to notify the broker or the carrier in a timely manner effectively voided the company’s professional liability coverage, said the carriers’ attorneys, in a letter to Sharon Holmes and the O’Hanlons.

“We should sue them! How were we supposed to know?” Billy O’Hanlon said to his brother John, after the grief of Ty Davis’ death faded and they started taking a more pragmatic assessment of their situation.

“Besides, being transparent in our dealings with the county has been a hallmark or our relationship. There’s no value in that?” Billy thundered.

At his older brother Billy’s urging, John O’Hanlon called Sharon Holmes and broached the topic of O’Hanlon disputing the carrier’s refusal to pay for a legal defense.

“I don’t see how you could win, and I think you’d be throwing good money after bad,” Holmes said.

“I strongly advise against it. I’m not trying to be harsh, John, but you should not have said what you said without A, talking to me or B, talking to an attorney,” Holmes said.

O’Hanlon’s attorneys mount a game defense, pointing to the contractor’s long, and nearly blemish-free service record with the county and good documentation of transparency being a hallmark of the company’s business dealings.

All to no avail.

A jury found O’Hanlon, the three subcontractors, and the county liable for the death of Ty Davis to the tune of $8 million in loss of income, pain and suffering.

O’Hanlon, which thought it was doing the right thing by apologizing, and was the only entity to apologize, is the only defendant uncovered by insurance.

O’Hanlon is out of pocket to the tune of $4 million, not including court costs.

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Risk & Insurance® partnered with XL Catlin to produce this scenario. Below are XL Catlin’s recommendations on how to prevent the losses presented in the scenario. These “Lessons Learned” are not the editorial opinion of Risk & Insurance®.

1. Contact your broker first: At the first sign of trouble on any project, promptly contact your broker to report the circumstance. Late, or non-reporting of an incident, large or small, can result in your Professional Liability coverage being denied.

2. Be mindful of your actions post-incident: Understand that taking actions to explain, admit fault, mediate, finger point, or recommend fixes or alternatives to a circumstance prior to notifying your broker may also result in your coverage being denied.

3. Have a communication plan: Create a circumstance reporting protocol within your organization to be followed by all employees, including designating a “quarterback” to coordinate external communications.

4. Align your philosophy with your coverage: Ensure your own best practices are not in conflict with the terms of your insurance coverage.




Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]

Risk Report: Manufacturing

More Robots Enter Into Manufacturing Industry

With more jobs utilizing technology advancements, manufacturing turns to cobots to help ease talent gaps.
By: | May 1, 2018 • 6 min read

The U.S. manufacturing industry is at a crossroads.

Faced with a shortfall of as many as two million workers between now and 2025, the sector needs to either reinvent itself by making it a more attractive career choice for college and high school graduates or face extinction. It also needs to shed its image as a dull, unfashionable place to work, where employees are stuck in dead-end repetitive jobs.

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Added to that are the multiple risks caused by the increasing use of automation, sensors and collaborative robots (cobots) in the manufacturing process, including product defects and worker injuries. That’s not to mention the increased exposure to cyber attacks as manufacturers and their facilities become more globally interconnected through the use of smart technology.

If the industry wishes to continue to move forward at its current rapid pace, then manufacturers need to work with schools, governments and the community to provide educational outreach and apprenticeship programs. They must change the perception of the industry and attract new talent. They also need to understand and to mitigate the risks presented by the increased use of technology in the manufacturing process.

“Loss of knowledge due to movement of experienced workers, negative perception of the manufacturing industry and shortages of STEM (science, technology, engineering and math) and skilled production workers are driving the talent gap,” said Ben Dollar, principal, Deloitte Consulting.

“The risks associated with this are broad and span the entire value chain — [including]  limitations to innovation, product development, meeting production goals, developing suppliers, meeting customer demand and quality.”

The Talent Gap

Manufacturing companies are rapidly expanding. With too few skilled workers coming in to fill newly created positions, the talent gap is widening. That has been exacerbated by the gradual drain of knowledge and expertise as baby boomers retire and a decline in technical education programs in public high schools.

Ben Dollar, principal, Deloitte Consulting

“Most of the millennials want to work for an Amazon, Google or Yahoo, because they seem like fun places to work and there’s a real sense of community involvement,” said Dan Holden, manager of corporate risk and insurance, Daimler Trucks North America. “In contrast, the manufacturing industry represents the ‘old school’ where your father and grandfather used to work.

“But nothing could be further from the truth: We offer almost limitless opportunities in engineering and IT, working in fields such as electric cars and autonomous driving.”

To dispel this myth, Holden said Daimler’s Educational Outreach Program assists qualified organizations that support public high school educational programs in STEM, CTE (career technical education) and skilled trades’ career development.

It also runs weeklong technology schools in its manufacturing facilities to encourage students to consider manufacturing as a vocation, he said.

“It’s all essentially a way of introducing ourselves to the younger generation and to present them with an alternative and rewarding career choice,” he said. “It also gives us the opportunity to get across the message that just because we make heavy duty equipment doesn’t mean we can’t be a fun and educational place to work.”

Rise of the Cobot

Automation undoubtedly helps manufacturers increase output and improve efficiency by streamlining production lines. But it’s fraught with its own set of risks, including technical failure, a compromised manufacturing process or worse — shutting down entire assembly lines.

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More technologically advanced machines also require more skilled workers to operate and maintain them. Their absence can in turn hinder the development of new manufacturing products and processes.

Christina Villena, vice president of risk solutions, The Hanover Insurance Group, said the main risk of using cobots is bodily injury to their human coworkers. These cobots are robots that share a physical workspace and interact with humans. To overcome the problem of potential injury, Villena said, cobots are placed in safety cages or use force-limited technology to prevent hazardous contact.

“With advancements in technology, such as the Cloud, there are going to be a host of cyber and other risks associated with them.” — David Carlson, U.S. manufacturing and automobile practice leader, Marsh

“Technology must be in place to prevent cobots from exerting excessive force against a human or exposing them to hazardous tools or chemicals,” she said. “Traditional robots operate within a safety cage to prevent dangerous contact. Failure or absence of these guards has led to injuries and even fatalities.”

The increasing use of interconnected devices and the Cloud to control and collect data from industrial control systems can also leave manufacturers exposed to hacking, said David Carlson, Marsh’s U.S. manufacturing and automobile practice leader. Given the relatively new nature of cyber as a risk, however, he said coverage is still a gray area that must be assessed further.

“With advancements in technology, such as the Cloud, there are going to be a host of cyber and other risks associated with them,” he said. “Therefore, companies need to think beyond the traditional risks, such as workers’ compensation and product liability.”

Another threat, said Bill Spiers, vice president, risk control consulting practice leader, Lockton Companies, is any malfunction of the software used to operate cobots. Then there is the machine not being able to cope with the increased workload when production is ramped up, he said.

“If your software goes wrong, it can stop the machine working or indeed the whole manufacturing process,” he said. “[Or] you might have a worker who is paid by how much they can produce in an hour who decides to turn up the dial, causing the machine to go into overdrive and malfunction.”

Potential Solutions

Spiers said risk managers need to produce a heatmap of their potential exposures in the workplace attached to the use of cobots in the manufacturing process, including safety and business interruption. This can also extend to cyber liability, he said.

“You need to understand the risk, if it’s controllable and, indeed, if it’s insurable,” he said. “By carrying out a full risk assessment, you can determine all of the relevant issues and prioritize them accordingly.”

By using collective learning to understand these issues, Joseph Mayo, president, JW Mayo Consulting, said companies can improve their safety and manufacturing processes.

“Companies need to work collaboratively as an industry to understand this new technology and the problems associated with it.” — Joseph Mayo, president, JW Mayo Consulting

“Companies need to work collaboratively as an industry to understand this new technology and the problems associated with it,” Mayo said. “They can also use detective controls to anticipate these issues and react accordingly by ensuring they have the appropriate controls and coverage in place to deal with them.”

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Manufacturing risks today extend beyond traditional coverage, like workers’ compensation, property, equipment breakdown, automobile, general liability and business interruption, to new risks, such as cyber liability.

It’s key to use a specialized broker and carrier with extensive knowledge and experience of the industry’s unique risks.

Stacie Graham, senior vice president and general manager, Liberty Mutual’s national insurance central division, said there are five key steps companies need to take to protect themselves and their employees against these risks. They include teaching them how to use the equipment properly, maintaining the same high quality of product and having a back-up location, as well as having the right contractual insurance policy language in place and plugging any potential coverage gaps.

“Risk managers need to work closely with their broker and carrier to make sure that they have the right contractual controls in place,” she said. “Secondly, they need to carry out on-site visits to make sure that they have the right safety practices and to identify the potential claims that they need to mitigate against.” &

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at [email protected]