Snow No Mercy

The hard market hits all insurance customers, but not equally. Underwriters have placed certain classes of business – welders, roofing contractors, logging truckers – under the microscope due to claims experience and volatility. And nowhere is this increased scrutiny more in evidence than for snow and ice removal contractors, especially with the long Canadian winter on the horizon.

The snow removal business, which ranges from small one-person operations clearing residential properties to large sub-contractors working on provincial roads and highways, is caught in the insurance crossfire. They are facing carrier withdrawals, massive rate hikes and onerous terms and conditions.

Snow removal contractors operate on a seasonal basis, typically turning to landscaping, lawn maintenance or sand and gravel hauling in the summer. It is an area rife with concern for insurers – from the use of pesticides on lawns to all-encompassing liability exposures for incidents like “slip and fall” claims in icy parking lots. As a result, several insurers have significantly cut back writing this line of business.

SHORTFALL CONCERN

“Insurance carriers are overreacting to the extreme by absolutely abandoning the snow removal industry, leaving companies either without coverage or facing premiums increases that have forced many right out of the business,” says David Turnbull, insurance chair of the Canadian Nursery and Landscape Association (CN&LA), which represents hundreds of snow removal contracting companies across the country. “This insurance shortfall is a major concern.”

Jim Grieve, vice president of the commercial division for Toronto-based brokerage Sinclair-Cockburn Financial Group, says there are three main areas of snow removal affected: high-density residential properties (high rise condos and apartments), high-traffic commercial properties (shopping malls and big box retailers), and public highways and roads. Sinclair-Cockburn writes a $3 million national program in conjunction with Lombard Canada through the CN&LA for snow removal/landscaping contractors.

Dean Morrissey, vice president of sales and custom marketing for Lombard, says “we are starting to see the effects of the market in our program. We are seeing a lot of new business, some distressed, coming in at a fast pace.” He notes the major problem with snow removal contractors is getting adequate rate for the exposure. “There’s no question it has been underpriced in the past,” Morrissey says. He adds that Lombard is tracking experience specifically by type of claim and cause of loss to pinpoint key exposures and “try to fix them”.

Grieve says Sinclair Cockburn recently introduced several measures, such as standardized contracts, loss prevention and risk management programs, to address the insurance challenges facing snow removal companies. But, the frequency and severity of claims continues to be a major concern.

The province’s statutory duty to maintain roads and highways in safe condition has spawned several million-dollar lawsuits. A recent judgment from the Court of Appeal for Ontario upheld a lower-court finding of negligence on the part of the province related to a car accident that rendered a woman quadriplegic. Brenda Murray was driving on Highway 48 north of Toronto on November 24, 1989, when she lost control of her car and ran head-on into an oncoming pickup truck. The road was snow covered, with mushy and icy sections. Murray sued the province, alleging that no sanding of the highway had taken place before the accident, despite a patrolman ordering sanding due to snow conditions and below-freezing temperatures. In a decision released in early November, the Ontario Appeal Court found that the province was 70% responsible for damages in excess of $5 million.

A similar case (MacMillan vs. Ontario) resulted in a $3.8 million award of damages against the province. The plaintiff was driving her car long Highway 401 near Woodstock, Ontario October 12, 1998. She drove over an exposed bridge covered with black ice and lost control of her car, sustaining severe head injuries as a result of the accident. A trial judge initially held that it was not reasonable for the province to have foreseen the existence of black ice, particularly since the accident took place when the Ministry of Transportation was still on its summer schedule. The Court of Appeal disagreed and, in a May 2001 decision, held that the province’s statutory obligation was to determine whether the situation gave rise to an unreasonable risk of harm to users of the highway.

FORESEEING DANGER

In other words, it is not just the specific danger, but the foreseeability of the risk of danger that defines the province’s duty of care in road maintenance and safety. The Ontario provincial government has contracted out its ice and snow removal services since 1999, as part of an attempt to improve efficiency. Sub-contractors now plow, salt and sand provincial roads and highways according to criteria set out by the Ministry of Transportation.

The Ministry sets the standards used by contractors and monitors operations before, during and after winter storms, according to MTO spokesperson Bob Nichols. Contractors are closely scrutinized for compliance to standards and penalties for failure are severe, including loss of contract. But, that still does not remove liability from the province. Nichols says the province is aware of the liability issues involved in highway maintenance and the insurance rate increases its sub-contractors are facing. He notes that all government contracts require the sub-contractor to secure insurance, and he is unaware of any specific operation that has failed to get coverage.

“The real question is whether a sub-contractor working for the province can afford to carry $5 million or more in coverage limits for ice and snow removal,” says David Eastaugh, president of Elliott Special Risks. “The issue of proper standards for clearance and maintenance, especially when it comes to black ice, is a big one for governments.”

These two lawsuits represent large awards, but a succession of minor incidents is behind the negative claims experience for many smaller ice and snow removal companies. Although there are no aggregate numbers available from snow removal contractors, or the Insurance Bureau of Canada (IBC), on slips and falls, these claims are adding up, insurers say.

NEGATIVE CLAIMS EXPERIENCE

A major issue is the loopholes found in several ice and snow removal contracts, which place liability for almost any mishap related to slips and falls on the contractor. Loosely worded contracts often mean the liability issue is contested between the small snow removal operation and the large property management company, says John Riddel, vice president of commercial insurance for Allianz Insurance Co. “Many of these snow removal contractors accepted liability above and beyond what insurers were prepared to accept as an exposure,” says Riddel. He adds that Allianz is not interested in writing new business for snow removal contractors, but it is continuing insurance, or “grandfathering” coverage, for good clients.

Another contributing factor to the negative claims experience for contractors is the use of pesticides in seasonal work like landscaping. Several contractors face risks on both sides of the fence. Securing specialized coverage for pesticide and herbicide use, which is regulated in Ontario by the Ministry of the Environment, has become increasingly difficult. “We were also seeing concerns about the use of pesticides and herbicides on lawns,” says Riddel. “That also played a role in out movement away from this particular business.”

CGU Canada is another company that has cut back its writing of snow removal contractors, according to the company’s vice president of commercial lines, Janice Bindon. “CGU has a good mix of contractor business across Canada, and some of these obviously include landscape and snow removal companies. We are taking a much closer look at this line of business, because it has produced a lot of claims.”

Bindon says CGU has not withdrawn from the market, but it is “tightening up the underwriting. We are looking at the risk and trying to pin down exactly where the exposures are.” Like many carriers, CGU is only considering snow removal business if it represents “an incidental part of operations, such as less than 20%”.

Even specialty underwriters are taking a cautious approach to the snow removal business. “We are not accepting everything that comes in through the door; right now, it’s on a limited basis,” says Eastaugh. “The problem is getting enough premium for the claims, especially if it is a small one or two person operation. The situation has created extraordinary difficulty in getting insurance for many of these companies and has caused a lot of headaches for brokers.” Eastaugh adds that many contractors want to separate out the snow removal coverage and keep it separate from their other seasonable operations. “That is becoming increasingly hard to do in the insurance market.”

FINDING ANSWERS

For snow removal contractors, the insurance picture is not pretty. “The outlook is grim,” observes Turnbull. “The [number] of carriers has reduced in the overall insurance industry by about 75% over the last two years, and [insurers] have been particularly in an avoidance mode of any risk, including the snow removal industry.”

There are some answers to the insurance problem facing snow removal contractors, according to Grieve. He notes that there are many traditional ways of doing business that should be revamped to modern realities: such as the use of standard contracts, definition of scope of work, accurate recording/reporting systems and early-warning systems for property owners of dangerous site conditions.

Sinclair-Cockburn has worked with the CL&NA and its provincial sister body, Landscape Ontario, to devise a standard contract that will address concerns about assumed liabilities. The new contract will serve as a guideline for snow removal companies in setting contracts. “All new applicants for insurance will be required to use the contract, or one similar in intent, that contains hold harmless and indemnity clauses, along with an addendum noting specific descriptions of the ‘scope of work’,” says Grieve.

The standard contract will be introduced nationally in January for the 2003 winter maintenance season, which typically begins October 15. But what about this year? It could be a long one for snow removal companies – and property owners, according to Grieve. “Building owners and property managers are going to have to come to grips with the new reality facing snow removal contractors. Some contractors may not be able to perform the work because of a lack of insurance or [prohibitive] insurance costs…The issues of frequency, severity and settlement of slip and fall claims affects all stakeholders: owners & managers, contractors and insurance companies.”

For snow contractors and insurers, the trends point clearly to evidence of an increased willingness to sue amongst Canadians, particularly for minor incidents like slip and falls. It is this factor, more than any other, that has created a big insurance chill in the snow removal industry.

TAKING ACTION

And while the issue of slips and falls litigation has surfaced mainly in Ontario, several sources say it is becoming a concern in other areas of Canada.

Three years ago, Sinclair-Cockburn hired an independent adjuster with a mandate to weed out frivolous third-party injury claim from the legitimate ones. As a result, the average payout on third party injury claims against landscaping and snow removal companies dropped from about $34,000 in 1999 to under $12,000 in 2001. Nevertheless, the frequency of claims is still increasing. “We believe that Canada is becoming a more litigious society,” notes a Sinclair-Cockburn document. “In the past, when a person slipped and fell on a piece of ice, they felt somewhat embarrassed and simply sought free medical care though our national health system. Today, they seek additional compensation through our legal system.”

The fundamentals of clearly worded contracts, loss prevention services and risk management programs may represent a last line of defence for a beleaguered snow removal industry at the mercy of massive insurance rate hikes, restrictive conditions and in some cases, no markets. Or it could just pray for a mild winter.