STB-JL88
INSURANCE FOR THE LODGE
This month's Short Talk Bulletin was written by Mr. Dwight E.
Levick, Executive Vice President of Kevin F Donoyhue and
Associales of Boston, Massachusetts. Mr. Levick specializes in
Insurance/Risk Management and has many years of experience in
this field. He has also reviewed the Blanket Policies available
to many Grand Lodges It should be stressed that where Blanket
coverage is available through a Grand Lodge Program, that will
represent the most economical and broad based covetage available
to a constituent lodge. Also, this article is not intended to
tell a lodge what insurance to purchase, but rather to be a Guide
in following good procedures for determining what coverages
should be looked for.
For humanitarian, social, legal and financial reasons, a lodge
must make every reasonable effort to protect the health and
safety of its members and the public from hazards incidental to
its operations. And it must protect its resources from losses
arising out of accidents, injuries, damages and destruction.
Those charged with such responsibilities must, therefore, learn
to manage those risks which could destroy or deplete assets or
harm any persons. In this article we will try to provide
assistance for persons with risk management responsibilities and
also provide a better understanding for those who are interested
in, but not directly responsible for, such activity. However,
before entering into a discussion of risk management
principles, a few definitions are in order.
The term "risk" is generally defined as a "chance of financial
loss." The function of risk management is to reduce the risk of
loss and minimize its effects through:
a. identification of sources from which losses may arise;
b. evaluation of the financial risk involved in each exposure in
terms of expected frequency, severity and impact;
c. treatment of risks by elimination, reduction or control,
transfer to others or funding;
d. continuous and systematic monitoring of results.
Purchasing of insurance is the most common method of
transferring and/or financing risks.
Risk Detection and Evaluation
Probably the most important step in the risk management process
is the identification or finding of risks that need to be
treated. If you are not aware of the existence of a risk, you
certainly can not make plans for handling it.
An insurance agent or broker should be of considerable help
in searching for and planning a proper approach for the handling
of risks.
Elaborate survey forms have been prepared by insurers,
insurance agencies, and consultants. Such forms, of necessity,
contain questions that will not be applicable to most lodges and
substantial time can be wasted attempting to answer irrelevant
questions. But it is important to remember that any questionnaire
or survey form is designed to serve as a reminder of general
areas of investigation where deeper prodding may be necessary.
However, close cooperation of persons within the lodge and a
sincere interest in attempting to locate the various risks is an
absolute necessity to the successful completion of any survey.
Those charged with the responsibility of analyzing risks must
possess enough knowledge of operations and be familiar with
standard insurance policy provisions to recognize sources of
risk. To repeat, a knowledgeable insurance agent can be very
helpful at this stage of risk identification and evaluation.
Treatment of Risks
After identifying and evaluating risks, the third step in our
risk management process is to determine what we are going to do
with the risks. Certainly, controlling the risk is preferable to
merely accepting the financial consequences, but complete control
is seldom possible. Therefore, treatment of risks usually
involves an intermixing of controlling and financing.
Risks can be reduced in several ways. We can reduce the
probability of loss occurring. For example, when other
organizations are allowed to use lodge premises we can require
them to furnish us with certificates of liability insurance in-
dicating that the lodge is included as an additional insured
with respect to their activities in the lodge premises. We can
also reduce the amount of loss that is likely to be incurred. For
example, we can limit the amount of cash on the premises by
making more frequent deposits.
Once we have controlled a risk as much as is practical we have
two alternatives. We can retain the risk ourselves or we can
transfer the risk to others. Commonly, risk management combines
the transfer to others through insurance with the retention of at
least some degree of risk through the use of deductibles,
self-insurance or no insurance. Generally, if risks are
retained under a formal program for which funds have been pro-
vided through budgetary allowances or otherwise, we consider the
program to be one of "selfinsurance." Unfunded plans are
usually considered to be merely uninsured risks and usually
involve the absorption of losses as general operating expenses.
The risk of losing smaller items is commonly handled in this
manner by most lodges. Formal programs of self-insurance are not
a practical consideration for most organizations.
In general, when purchasing insurance, deductibles should be
used in order to prevent dollar swapping with the insurance
companies and consumption of administrative time. The maximum
size of the deductible to be used should be determined in light
of the ability to absorb losses that would fall within the
deductible or the effect that such losses would have on the
organization. However, the size of a deductible, or complete self
assumption of a particular risk, should be based on a
consideration of premium savings, services needed and provided,
as well as the financial ability to assume the probable and max-
imum exposures to loss.
The mere fact that a lodge has the financial capacity to absorb
losses up to a particular level does not mean that deductibles of
that size should always be used for all types of insurance being
purchased. Generally, deductibles should be used to eliminate
coverage for losses that are apt to recur with some degree of
regularity. For example, deductibles of $100, $250, or $500 are
common when purchasing property insurance. The use of deductibles
for liability coverages is usually not practical as liability
claims for a lodge are not expected to occur with any degree of
frequency. Also, it usually benefits both the insured and the
insurer to have the insurance company use the expertise of their
claims personnel to handle investigation and settlement of
liability claims.
Insurance--A Transfer of Risk
Certainly, the most common method of transferring risk is
through the purchase of insurance. There is no particular
method or procedure for purchasing insurance that can be said
to be appropriate for all entities, or for even a single entity
at all times. Contrary to popular belief, there are considerable
differences in underwriting practices and pricing from one
insurance company to another, and often within the same company,
from one underwriter and/or insured to another.
In general, as many casualty coverages as possible should be
placed with the same insurer. The same may be said for property
lines. For a lodge, there are usually advantages to placing all
property and casualty coverages with the same agent and insurer.
While the centralized purchasing of insurance is generally
recommended, such programs are generally much more effective
when there is direct control of all lodges insured under the
program by the Grand Lodge. Accordingly, programs are available
for the Grand Lodges in each state and all constituent lodges
with very broad insuring agreements, and very low premiums,
usually based on membership. However, if premises owned or
controlled by a lodge are used for other than lodge purposes or
if the premises contain an elevator, no liability coverage is
afforded for those hazards unless the underwriter is advised
and specific coverage for the risk involved is provided by
endorsement.
Similarly, crime insurance can be provided for a Grand Lodge
and constituent lodges on a standardized basis with excess
fidelity coverage provided on specific positions.
Liability policies that are specifically designed for fraternal
organizations are usually quite broad in scope covering both
liability imposed by law and liability assumed under contract.
Often, General Liability and Automobile Liability (nonowned
autos) coverages are provided and there are very few exclusions.
The definition of insured usually includes officers, employees,
trustees, matrons, directors, stock holders, members, committee
men, individually or collectively, while acting within the scope
of their duties or activities as such.
Coverage applies on a worldwide basis as long as suit is
brought in the United States, its territories or possessions or
Canada. Coverage is commonly afforded for personal injury as well
as bodily injury and property damage.
While the basic policies are extremely broad as indicated
above, there are often endorsements to the policies which
restrict coverage. For example, there is usually an endorsement
indicating that the policy will not extend to cover any homes for
adults or children, hospitals or other miscellaneous property or
operations. Also usually excluded is coverage for liability if a
lodge owns or leases buildings and rents or allows others to use
the building, or if there is an elevator on the premises.
Generally, coverage for such exposures can be provided, but must
be handled by specific endorsement to the policy for each
location requiring special treatment. A simple questionnaire
distributed by The Grand Lodge can be used to determine the
exposures for each lodge requiring specific treatment.
Crime insurance is commonly written for Grand Lodge with rather
low limits applicable to Employee Dishonesty and Depositor's
Forgery losses. Generally the Grand Lodge should purchase a
limit such as $50,000 or $100,000 to apply to all Employee
Dishonesty and Depositor's Forgery losses.
It should be remembered that Employee Dishonesty (Fidelity)
coverage applies only to losses caused by "employees." Therefore,
an endorsement should be added to a lodge policy to extend the
definition of "employee" to include persons rendering service
without compensation who perform acts coming within the scope of
usual duties of any of the of ficers, clerks or other members of
the insured.
It is common for property insurance to be written under
"package" policies such as a Special Multi-Peril Policy providing
both property and liability coverage. If liability coverage is
being provided by the Grand Lodge, this could result in a
considerable duplication of coverage which should be avoided. In
such case, in order to prevent difficulties in the handling of
claims, endorsements to the policies covering both the Grand
Lodge and a constituent lodge will be needed. Generally, these
endorsements should indicate that the coverage for the
constituent lodge will be primary and that the Grand Lodge policy
will afford coverage on an "excess and difference in conditions"
basis with respect to any coverage purchased by a constituent
lodge.
Certainly, there are many other types of insurance which may
be necessary or desirable for a constituent lodge or The Grand
Lodge. If there are employees, Worker's Compensation coverage is
probably necessary. There may be liability risks involving owned
or non-owned boats or aircraft. Snowmobiles and vehicles of
various types used in parades or otherwise may also need special
treatment. Generally, risks of this sort are insured by each
constituent lodge and by The Grand Lodge for their own benefit
only.
In summary the first steps in the risk management process are
to identify and evaluate the possible exposures to loss. This
must be done on a local basis by each constituent lodge. After
this has been done, the availability of insurance through the
Grand Lodge should be checked and coverages appropriately
designed to handle all of the risks without gaps or duplications
of coverage. This will require time, patience and the assistance
of a knowledgeable insurance agent.
Free JavaScripts provided
by The JavaScript Source