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Legally Speaking

Insurance: what institutions don’t know will hurt them

With premiums ranging from hundreds of thousands to millions of dollars, it pays to understand your insurance policies.

BY CHERYL FOY | JAN 28 2020

“Universities don’t appreciate the need for insurance expertise in those individuals managing their insurance portfolios.” A university insurance professional with whom I was recently speaking shared this observation, and it’s consistent with my experience. It’s a cause for concern when you consider that smaller universities are paying premiums in the hundreds of thousands of dollars and in the millions for larger institutions. But that’s not the only reason universities should be concerned.

Too often university administrators assume that people with financial training understand insurance – not so. If your university insurance program is managed by someone without relevant skills and knowledge, your institution may be missing claims and paying for insurance that’s not being fully utilized. Your university may have insurance gaps or may be behaving in ways that negate coverage. It’s worth paying attention so that your institutions avoid self-insuring for unknown insurance gaps and avoid wasting any portion of your annual insurance premiums.

Insurance is a word with which we are all familiar. We have our own personal policies covering cars, property and personal liability. However, the field of insurance is a complex and technical field from both the legal and financial perspectives. Insurance policies are legally binding contracts between the university and the insurer. I’ve asserted before that contracts are written in a form of code – this is especially true of insurance policies. There’s a lot of meaning behind many of the technical words and the meaning differs from what one might expect.

The insurance landscape for Canadian universities

In Canada, universities have three primary options for securing insurance and most university insurance programs include one or more of these options:

  1. They can self-insure, meaning that they pay for damage claims directly out of their own reserves;
  2. They can procure insurance through brokers from private insurers, like you would for your home, or like most commercial organizations do;
  3. They can obtain a subscription to an insurance collective called the Canadian Universities Reciprocal Insurance Exchange* (CURIE).

Institutions self-insure for certain risks and for the amounts of the policy deductibles. If an institution is not specifically insured for a certain risk, the institution is self-insuring for that risk. It is important to understand your insurance coverage so that the decision to self-insure is not made inadvertently, but with careful thought and assessment of the risks and resources available.

Universities also have the option to procure all insurance coverages privately. Most universities will purchase separate policies for single events, projects (such as the construction phase of a building project), and/or for specific areas of coverage not provided by CURIE. For example, universities with nuclear facilities will go to the Nuclear Insurance Association of Canada. And even those who participate in CURIE will purchase separate insurance policies with private providers, such as for health and dental as well as short-term and long-term disability coverage for employees.

CURIE

Insurance reciprocals, or collectives, are not common. There are less than 20 insurance reciprocals in Canada and CURIE is the only one for universities and colleges. The option of participating in an insurance reciprocal or collective is not available to most commercial organizations. CURIE is a regulated financial institution that insures only universities and colleges. Approximately two-thirds of Canadian universities in Canada are subscribers. (My employer, Ontario Tech University, is a CURIE subscriber and I volunteer as a member of the CURIE board.)

In addition to providing an insurance environment that is institution-focused, CURIE has a deep understanding of Canadian laws and case law pertaining to universities, and provides tailored risk-advisory and loss-avoidance tools and services. I’ve worked with CURIE at two different universities, I’ve dealt with insurance claims in the private sector, and I’ve worked as a litigator. Based on my experience, I would describe the relationship between CURIE and participating universities as more of an insurance partnership where accountability to subscribers is a priority.

Other points of consideration

There are two aspects to fully utilizing the benefit of purchased insurance coverage: understanding the risks and needs of the organization purchasing the coverage; and understanding the scope and limitations of available insurance coverage. Without an understanding of both elements, universities risk failing to secure appropriate coverage and of failing to take advantage of the coverage they have. This exercise is one of mapping risk-mitigation needs against? available insurance coverages.

Purchasing the right insurance starts with understanding the scope of your institution’s activities and risks. I’m familiar with a situation where a technology-design company carried errors and omissions insurance for years without realizing that there was an exclusion for electronics-design activity and that separate insurance needed to be purchased to cover that activity. Insurance brokers can help with ensuring gaps are covered but again, this depends on the broker fully understanding the insurance requirements of the institution. The scope of university activity, including a wide variety of research activities, is daunting.

As Alberta homeowners affected by floods found out, failing to properly map your needs against available coverage can lead to a serious coverage gap. In this case, many homeowners didn’t realize that their policies excluded “overland flooding.” In the university context, one might think a comprehensive (also known as “all perils” or “all risks”) property insurance policy would cover all perils or all risks. Not so. The policy covers all risks except for those excluded from coverage. Commonly excluded risks are those resulting from: motor vehicles, boiler and machinery, employee dishonesty, and more depending on the policy.

A further consequence of failing to understand the coverage available in existing policies is the lost opportunity to file an insurance claim. A colleague provided me an example: employee benefits liability coverage was included in an organization’s suite of insurance policies, but the organization didn’t understand the policy well enough to know when it kicked in. The organization was sued for misrepresenting the nature and scope of the pre-existing condition clause in its long-term disability insurance coverage. As the organization wasn’t aware that this is exactly the kind of claim that was covered by the employee benefits liability insurance, the organization didn’t put its insurer on notice or file an insurance claim. The defence legal costs were over $100,000 and the damages more than triple that. Another thing to understand is that if a claim is filed late and the insurer’s ability to defend is adversely affected, the claim may be denied or limited.

Bottom line: hire an employee with expertise

There are many aspects of insurance that underpin the daily existence of universities. It’s important to be sure that your insurance program is being managed and overseen by an employee that truly understands the complexities and nuances of the field. There’s a lot at stake.

ABOUT CHERYL FOY
Cheryl Foy
Cheryl Foy is university secretary and general counsel, office of the university secretariat and general counsel, at Ontario Tech University.
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  1. Steve Pottle / February 1, 2020 at 11:49

    Great insight. During this difficult insurance market, universities are well served by alternative insurance programs such as CURIE and the Provincial insurance programs available in B.C. This time is also an opportunity to develop robust loss control programs and other risk mitigation strategies to minimize insurable losses.