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8/14/2019 The Nuts and Bolts of Insurance
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Where Does Insurance, Bondingand Indemnification Fit in the
Contracting Process?
At the inception of an idea.
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Important Principles That
Apply to Any StateContract
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Principle #1
Contractually transfer theappropriate risks relatingto the contract to thecontractor.
Ask for appropriateinsurance and bonds tocover the risk.
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Principle #2
Do not indemnify an independentcontractor.The state is subject to the Oregon
Tort Claims Act (OTCA). OTCA limitsstate liability.
Contractors have unlimited liability.
Indemnifying a contractor may harmthe states defense against a claim andmake the state subject to unlimitedliability.
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Principle #3 Dont rely on insurance or bonds
to cover all of the risksassociated with your contract. Many times outcome based
statements of work, contract
administration, and supervisionare far better risk controlmeasures to protect the statesinterests than insurance orbonds.
Insurance and bonds should bethought of as the safety netthat catches us when everythingelse goes wrong.
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Asking for Insurance CoverageAlone Does Not Protect YourAgency From All the Risks of
Contracting
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Indemnity/Hold Harmless
A method of contractually transferring therisk.
States that the contractor or service
provider will not hold us responsible for anyclaims arising out of their negligent acts andthat the contractor will pay associated claimcosts.
Provides the state with claims protection.Most effective when used in conjunction
with the appropriate insurance clauses.
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Other Contract ComponentsProtecting the States Interests
Statement of Work. Independent Contractor.
Insurance and Bonds. Representations. Warranties.
Consideration.Retention.Payment schedule.
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How Does Insurance Work? Insurance policies tend not to overlap with
other types of policies. There are some perils that insurance policies
just dont cover: Intentional Harm or wrongdoing, other
than self-defense. Crimes, other than defense coverage until
found guilty.
Specialty markets exist for those perils thatare too risky, too small, unpredictable, or notprofitable for traditional insurance markets: Pollution Liability
Professional Liability
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Common Policy Parts & Pieces Coverages The Insuring Agreement.
Exclusions What isnt covered.
Who is an Insured Who is covered by the policy.
Limits of Insurance How much the insurance company will pay.
Policy Conditions Restrictions, duties, responsibilities.
Definitions What the terms mean.
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What Does Claims Made orOccurrence Mean?
Insurance policies are written on aclaims made or occurrence basis.
These terms address claimsreporting time periods.
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A Claims Made policy covers all
claims reported and filed duringthe policy period.
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An Occurrence policy covers allclaims arising out of incidentsoccurring during the policy
period, regardless of whetheror not the policy is still in
effect at the time that theclaim is made.
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Coverage Assessment
What kindof insuranceor bonds?
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What Does Insurance ReallyCover?
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Common Types ofInsurance Coverage
Commercial General Liability
Automobile Liability
Professional Liability Workers Compensation
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Less Common Types ofInsurance Coverage
Crime
Excess or Umbrella Liability
Pollution Liability
Various Inland Marine Policies Aircraft
Garage and Garagekeepers Legal Liability
Tail Coverage
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Commercial General Liability(CGL)
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Commercial General Liability(CGL)
Insurance covering Third Party:Bodily injury.Property damage.Limited Contractual liability.Products and completed operations.
May also cover personal andadvertising injury liability.
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General Liability Insurance Myths General Liability insurance covers the
indemnification provided in the contract. FALSE
General Liability insurance will cover yourentity if the contractors work is done
negligently. FALSE
There is contractual liability coverage ina General Liability policy.
MOSTLY FALSE
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CGL Policy Definitions
Bodily Injury: The injury of physicaltissue by an outside force, bodily harm,sickness, or disease.
Personal Injury: Libel, slander, falsearrest, and invasion of privacy.
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CGL Policy Definitions
"Property damage means:a. Physical injury to tangible
property, including all
resulting loss of use ofthat property. All such lossof use shall be deemed to
occur at the time of thephysical injury that causedit; or
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CGL Policy Definitions
"Property damage means:b. Loss of use of tangible property that
is not physically injured. All such loss ofuse shall be deemed to occur at the
time of the "occurrence that causedit.
For the purposes of this insurance,electronic data is not tangible
property.
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CGL Policy Definitions
"Property damage means:As used in this definition, electronic datameans information, facts or programsstored as or on, created or used on, ortransmitted to or from computer software,including systems and applications software,hard or floppy disks, CD-ROMS, tapes,
drives, cells, data processing devices or anyother media which are used withelectronically controlled equipment.
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What Does This Really Mean?
A CGL Policy will not payfor losses due to a
contractors work on ordamage to your agencyselectronic data!
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"Products-completed operationshazard means:a) Includes all "bodily injury" and
"property damage occurring awayfrom premises you own or rent andarising out of "your product" or"your work."
CGL Policy Definitions
CGL P li D fi iti
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Except:
(1) Products that arestill in your physicalpossession; or(2) Work that has notyet been completed orabandoned.
CGL Policy Definitions"Products-completed operations hazard
(continued)
G P l D f
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However, "your work" will be deemedcompleted at the earliest of the following
times:(a) When all of the work called for in yourcontract has been completed.
(b) When all of the work to be done at thejob site has been completed if yourcontract calls for work at more thanone job site.
CGL Policy Definitions"Products-completed operations hazard
(Continued)
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CGL Policy Definitions"Products-completed operations hazard
(Continued)
Does not include "bodily injury" or "propertydamage" arising out of:(1) The transportation of property, unless the
injury or damage arises out of a conditionin or on a vehicle not owned or operated byyou, and that condition was created by the
"loading or unloading" of that vehicle by anyinsured;(2) The existence of tools, uninstalled
equipment or abandoned or unused
materials; or
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(3) Products or operations for which the
classification, listed in theDeclarations or in a policy schedule,states that products completedoperations are subject to theGeneral Aggregate Limit.
CGL Policy Definitions"Products-completed operations hazard
(Continued)
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What Does This Really Mean?
Products and completed operations coveragepays claims on behalf of the contractor fordamage or injury to third parties resulting
from something the contractor made,repaired, or installed.
The bodily injury or property damage to thirdparties resulting from the service would becovered not the contractors actual product.
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CGL Policy Definitions(Continued)
Contractual Liability: A portion ofCommercial General Liability coverage thatallows limited coverage for liability assumed
under the contract. The coverage allowed byContractual Liability includes: Liability assumed under an insured
contract.Liability that the insured would have in the
absence of the contract or agreement.
h d
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What is an Insured Contract?
Per the CGL Policy Definitions, an Insured
Contract means:A contract for a lease of premises.
A sidetrack agreement (a railroad term).
Easements.Agreements required by municipalities as aresult of ordinances (not for work done for
municipalities).Elevator maintenance agreements.
Liabilities that would be imposed by law in
the absence of any contract or agreement.
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ImportantCGL Exclusions
1) Personal property in the care, custodyor control of the insured;
What Does This Mean? CGL will not cover property left in the
care, custody or control of acontractor. This exposure should becovered with an Inland Marine Policy
for the Goods of Bailees Customers.
Important
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2) That particular part of real property onwhich you or any contractors orsubcontractors working directly or
indirectly on your behalf are performingoperations, if the "property damagearises out of those operations; or
ImportantCGL Exclusions
What Does This Mean? CGL will cover property damaged by the
contractor, except for the particular
part they are performing work to.
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Particular Part Example
A plumbing subcontractor working ona DAS owned building accidentallystarts the building on fire while
soldering copper pipes, and the entirestructure is burned down. If DASsues the builder for the loss, the
exclusion in question will apply only tothat particular part of thestructure on which the plumber was
working.
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Thus, DAS would be covered (on anexcess basis over any builders risk
coverage on the work) for damage toall parts of the building other thanthe plumbing and all parts of the
plumbing system other than theparticularpart being worked on atthe time of the loss.
Particular Part Example(continued)
Important
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3) That particular part of any propertythat must be restored, repaired orreplaced because "your work" was
incorrectly performed on it.
ImportantCGL Exclusions
What Does This Mean? CGL will not cover a contractors faulty
work. This exposure can be coveredthrough a Performance Bond as long asthe project has a specific time frame
and specifications for the work
Important
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ImportantCGL Exclusions
Pollution(1) "Bodily injury" or "property damage"
arising out of the actual, alleged orthreatened discharge, dispersal, seepage,
migration, release or escape of "pollutants.What Does This Mean? CGL will not cover any type of pollution,
except under very limited circumstances.If your agency needs to remediate pollutionor has a pollution exposure, PollutionLiability coverage is needed.
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Important Exceptions to theCGL Pollution Exclusion
"Bodily injury" if sustained within abuilding and caused by smoke,
fumes, vapor or soot fromequipment used to heat thatbuilding;
"Bodily injury" or "propertydamage arising out of heat, smokeor fumes from a "hostile fire";
E h
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"Bodily injury" or "property damagearising out of the escape of fuels,lubricants or other operating fluids which
are needed to perform the normalelectrical, hydraulic or mechanicalfunctions necessary for the operation of"mobile equipment" or its parts, if such
fuels, lubricants or other operating fluidsescape from a vehicle part designed tohold, store or receive them.
Important Exceptions to theCGL Pollution Exclusion
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Current Case Law
Id. at 479. A tort claim, where there is acontract between parties, may onlyproceed where there is some kind ofobligation owned by one party to the other
beyond the duties that the contractimposes.
Id. at 477. Examples of such relationshipsare those between lawyers and clients,
doctors and patients, or trustees andbeneficiaries. The court has called thesespecial relationships.
Jones v. Emerald Pacific Homes, 188 Or App 471, id at 477 & 479
l l
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Special Relationships
Only Exist When:
One party has relinquished controlover the subject matter of therelationship to the other party; and
Has placed its potential monetaryliability in the others hands.
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Automobile Liability
Insurance that provides coveragefor third party bodily injury or
property damage arising out of theuse of an insured vehicle.
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When Do you NeedAutomobile Insurance Coverage?
When the contractor needs touse an automobile to provide
the services.
C i l A t bil C
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Commercial Automobile Coveragevs. Personal Automobile Coverage?
Commercial Automobile Coverage is neededwhenever the contractor will be transportingthe states employees, clients, etc. or thestates property.
Use of Personal Automobile coverage insteadof Commercial or Business Automobilecoverage may be appropriate for soleproprietors. Note: The sole proprietor musteither carry a Business Use Endorsement or
insure that business use is covered under theirpersonal auto policy. Personal Automobile coverage will not name
the state as an Additional Insured.
Automobile Liability Coverage
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Automobile Liability CoverageConsiderations
Ask questions, such as, but not limited to: Will the Contractor transport groups ofpeople for the state?
Use vehicles or carry cargo that could makean accident severe?
Have multiple vehicles on the road at anygiven time?
Travel out-of-state to do contract work? Bring heavy equipment or trucks onto yourproperty?
b l L b l C
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Automobile Liability CoverageConsiderations
Will driving be only a small part ofthe contractual activities?
Is there little or no chance thatthe state could be held responsiblefor the Contractor's actions whiledriving?
Automobile Liability Coverage
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Use whenever a Contractor transports mobileequipment to the work site:
CGL insurance does not cover the transport ofmobile equipment.
Ensure automobile liability includes coveragefor owned, non-owned or hired vehicles.
Require CGL coverage for the liability exposurearising from the Contractor's operation of the
mobile equipment. Note: Mobile equipment is notconsidered to be an automobile, therefore anautomobile liability policy provides no coveragefor the operation of this equipment.
Automobile Liability CoverageConsiderations
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Professional Liability or
Errors and OmissionsCoverage
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The Terms Professional
Liability and Errors andOmissions Coverage are usedinterchangeably.
Who Should Have Professional
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Who Should Have ProfessionalLiability or Errors and Omissions
Coverage?Licensed and accredited specialists such as:Doctors or medical practitioners.
Engineers.
Information technology specialists (computerprogrammers, etc).
And non-licensed professionals such asinterpreters, recorders, testing facilities, andresearch laboratories.
Wh t D P f i l Li bilit
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What Does Professional Liability orErrors and Omissions Cover?
Pays the financial loss of the state,when the covered person fails toperform their professional duty.
The coverage is specific to thenature of the profession.
Covers malpractice, misconduct,negligence, errors, omissions, orincompetence in the performance of acovered act.
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Workers Compensation
Insurance covering employee injuries,disability or death.
The policy protects the employer from beingsued by the employee for injuries.
Oregon law requires all employers, unlessexempt, provide this coverage for all subjectemployees working in Oregon.
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When Should I Ask QuestionsAbout Oregon SpecificWorkers Compensation?
When the contractor has one ormore employees performing
services under the contract in
Oregon.
Specific questions about
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Specific questions aboutWorkers Compensation?
Call the Department of Consumer& Business Services, Workers
Compensation, Employer Sectionat (503) 947-7815.
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CRIME COVERAGE
Employee Dishonesty Third
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Employee Dishonesty, ThirdParty Fidelity and
(when applicable)Money and Securities
Insurance covering loss to money,securities, and other property(other than money) caused directly
by employee dishonesty.
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When Do You Need to Ask
for Employee DishonestyCoverage?
When the contractor is handling money,
securities, other valuable property, or data.
Third Party Fidelity Bond
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Third Party Fidelity Bond
If the Employee Dishonesty coverage
is not specifically endorsed to includea Third Party Fidelity/Crime Bond, inmost cases, it will not be
comprehensive enough to providecoverage for a claim for theft byyour contractor or their employeesthat results in a loss for your agency.
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What is the DifferenceBetween an Umbrella Policy
and Excess Coverage?
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Umbrella Policies
Provide excess coverage overanother underlying liability policy.
Many times provides broader
coverage than the primary(underlying) liability policy.
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Excess Liability
Pays after the primary (underlying)liability policy limits have beenexhausted.
May not be as broad as primary(underlying) liability policy.
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Pollution Liability Coverage
Contractors Pollution Liability
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Contractors Pollution LiabilityCoverage (CPL) & (CPO)
Contractors PollutionLiability (CPL) and (CPO)protects contractors against
claims for third-party bodilyinjury, property damage orcleanup costs/environmentaldamages arising from
pollution conditions caused inthe performance of coveredoperations.
Contractors Pollution Liability
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The coverage applies to sudden andgradual pollution events and responds tocleanup costs, both on and off the worksite.
CPL provides coverage for damages due topollution arising from the performance ofcovered operations by the Insured ortheir subcontractors, claims alleging
improper supervision of subcontractorsagainst the Insured, and coverage forclaims arising out of environmental workperformed by the Insured or their
subcontractor.
yCoverage (CPL) & (CPO)
Contractors Pollution Liability
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CPL provides this coverage in a claims made basisand Contractors Pollution Occurrence (CPO)provides this coverage on an occurrence basis.
CPL and CPO can have a Professional Liabilitycomponent added. This coverage would likely beneeded for Environmental Consultants.
If the contractor will be transporting hazardous
materials or pollution that has been removedthrough remediation, check the policy to makesure that the transportation exposure is includedin the coverage.
yCoverage (CPL) & (CPO)
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Inland Marine Coverage
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What is Inland Marine Coverage?
Coverage for property which involves anelement of transportation.
Either the property is:
Actually in transit, Held by a bailee, At a fixed location which is an important
instrument of transportation, Or is a movable type of goods which is
often in different locations.
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Various Inland Marine Coverages
Kinds of Inland Marine
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Kinds of Inland MarineInsurance
1. Domestic goods in transit,2. Goods of Bailees customers;
3. Moveable equipment and unusualproperty,
4. Property of certain dealers, and
5. Instrumentalities ofcommunication and transportation.
Goods in Transit
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Goods in Transit
Types of Carriers:
Common carriers are airlines, railroads, ortrucking companies that furnishtransportation to any member of the public
seeking their services. Contract carriers do not hold themselves
out to the general public but rather furnish
transportation for certain shippers forwhich they have contracts.
Private carriers haul their own goods orgoods entrusted to them.
Goods in Transit
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Goods in TransitCommon Carriers
Are regulated by the InterstateCommerce Commission or a state publicutilities commission and are liable to
shippers for the safe delivery offreight entrusted to them. The amount of liability to the common
carrier may be limited by the bill oflading, which is the contract betweenthe shipper and carrier.
Goods in Transit
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Goo s n rans tCommon Carrier - Bill of Lading
A straight bill of lading fixes no limit on theamount of recovery.
A released bill of lading does limit recovery toa specified amount.
Generally low and usually are quoted as dollaramounts per pound or parcel.
The shipper generally has the option to pay an
insurance charge and declare a value for theshipment thereby increasing the limit of thecarriers liability and obtaining broadercoverage.
Goods in Transit
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Goods in TransitContract Carrier
The liability of contract carriers isdefined by the contract between thecarrier and the shipper.
If contracts are initiated by thecarrier, they often release the carrierfrom substantial responsibility except
in the case of extreme negligence.
Goods in Transit
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Goods in TransitPrivate Carriers
Private carriers usually are carryingtheir own goods and are exposed forthe full value of those goods if they
are damaged or destroyed, subjectto the Terms of Merchandise Sale.
Goods in Transit
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F.O.B means free on board and indicates thepoint at which ownership and exposure to lossshift from the seller to the buyer. For example: F.O.B.shippers loading dock means that
the transit exposure would be the buyersonce the goods are on the shippers loadingdock.
F.O.B. destination means that the transitexposure would be the sellers until the goodsreach the buyers destination.
Goods in TransitPrivate Carriers
Terms of Merchandise Sale
Goods of Bailees Customers
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Goods of Bailee s Customers A bailment exists when goods are left to be held in
trust for a specific purpose and returned when that
purpose has ended. The bailoris the owner of the goods. The baileeis the one in possession of the goods. Almost any person or enterprise that accepts the
property of the state for storage, service, repair, orprocessing needs to carry an Inland Marine Policy forthe Goods of Bailees Customers in order for thisproperty to be covered for loss or damage while inthe bailees possession.
Inland Marine Coveragel f
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Instrumentalities of Communicationand Transportation
Exposures related totransportation (rolling stock,bridges, and tunnels) can be
insured using inland marineinsurance.
Inland marine insurance can alsobe provided on instrumentalitiesof communication such astelevision towers andtransmission equipment.
Other Types ofl d M i C
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Inland Marine Coverage Tractors, mobile equipment, cranes, and
backhoes. Computer equipment. Livestock.
Fine arts. Patterns, molds, and dies. Partially completed products that are sent
to another location for completion or
processing. Valuable papers, records, records ofaccounts receivable.
Goods on exhibition.
When Should Your Agency
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When Should Your AgencyRequire Inland Marine Coverage?
When agency goods or property are beingtransported by another entity.
When agency goods or property are left in thecare, custody, and control of another entity.
When a contractor is transporting stateequipment from one place to another.
When state property is placed on exhibition by
another entity e.g. artwork, historicaldocuments, artifacts, etc.
Builders Risk Coverage
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Builder s Risk Coverage
Inland Marine Insurance that providesdirect damage coverage to buildings orstructures under construction.
Also covers foundations, fixtures,machinery, and equipment used to servicethe building, materials, and supplies usedin the course of construction.
Fire, theft, and vandalism are the mostfrequent claims.
When Does Your Agency Need
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When Does Your Agency Needto Ask for Builders Risk
Coverage?When a building is being constructed.When substantial alterations will be made to
an existing structure i.e., bearing walls,lifting foundations, extensive construction.
When Your Agency Doesnt
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g yNeed to Ask for
Builders Risk Coverage For construction to an existing building
that does not involve structuralmodifications, or substantial alterationof the building.
For construction of structures otherthan buildings e.g. tunnels, bridges,roads, culverts, etc.
Builders Risk Installation Floater
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Builder s Risk Installation Floater
Usually an add-on to a Builders RiskPolicy, but may be purchasedseparately by subcontractors on theproject.
Insurance that covers machinery andequipment of all kinds during transit,installation, and testing at the
purchasers premises.Theft and vandalism are covered.
Wh Sh ld Y R i
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When Should You Require a
Builders RiskInstallation FloaterWhen a building is being constructed,
repaired, or remodeled and there will be:More than $10,000 in building materials and
supplies at a storage location, or in transitthat are intended to become a permanent
part of the building.
Builders Risk Occupancy Clause
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An add-on to a Builders Risk Policy. Allows Builders Risk coverage to continueonce the owner or tenants occupy a buildingunder construction prior to substantial
completion of the building. If not purchased, Builders Risk coverage
ends once the building is occupied by the
owner or tenants.
Builder s Risk Occupancy Clause
Aircraft Liability
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yCovers liability for bodily injury and property damage to others (i.e., injury to, ordeath of persons outside the aircraft as well as property damage or destruction
done with the aircraft), arising out of the ownership, maintenance, or operation ofan aircraft.
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When Do You Need
Aircraft Liability Coverage?When the contractor is using an
airplane to provide the contractedservice.
Aircraft LiabilityCoverage
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If the contract involves the aerial application of anychemical, fertilizer, seed, or bait add Aircraft AerialApplication Liability Coverage.
Check the qualifications and certifications of the pilot.
If carrying state passengers on behalf of the state,
make sure that:(1) The pilot is certified to carry passengers
and(2) The Aircraft Liability provides coverage
for the passengers on a per seat limit.
y gConsiderations
Garage and Garagekeepers
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Garage and GaragekeepersLegal Liability Coverage
Garage Liability Coverage
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Garage Liability Coverage
Covers garage operators for liability,medical payments, and automobilephysical damage arising out of the
operations of auto dealers, servicestations, auto repair shops, andparking lots.
Includes General Liability coveragefor garage operations.
Garagekeepers Legal Liability
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g p g yCoverage
Coverage for autos left for service,repair, storage, or Safekeeping.
The limits of coverage should behigh enough to cover the total valueof any autos left for safekeeping
(yours and others) at any time.
What About Self Insurance?
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What About Self-Insurance?
Before Accepting Self-Insurance
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p g
Make sure the contractor has the
financial stability to be self-insured. Askfor: Audited financial statements of their
self-insurance fund. Assurance that funds have been setaside in a funded reserve to pay claims.
Ask for policies, procedures, or otheradequate documentation demonstratingthe contractors ability to adjust, process,settle, litigate, and pay claims.
Tail Coverage
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Tail Coverage
Can be purchased to extend theperiod of time a claim can bereported for a claims made policy.
Should be required when acontractor provides insurancecoverage that is on a claims madebasis.
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What is a Bond?
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What is a Bond?
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A Surety Bond is a risk transfer
mechanism that performs the followingfunctions:Guarantees that the bonded project will be
completed according to the terms of the
contract and at the determined contractprice.Guarantees that the laborers, suppliers, and
subcontractors will be paid even if the
contractor defaults.Relieves the owner from the risk of financial
loss arising from liens filed by unpaidlaborers, suppliers, and subcontractors.
What is a Bond?
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What is a Bond?(Continued)
Reduces the possibility of a contractordiverting funds from the project.
Provides an intermediary (the surety) towhom the owner can air complaints andgrievances.
Lowers the cost of construction in somecases by facilitating the use of
competitive bids.
Bonds?
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Bonds?
Bonds are different from insurance.A bond is a simple guarantee.If there is a loss, the bonding company
(Surety) will pay but will seek fullreimbursement from the contractor.
Premium is based on the contractors
loss experience, assets, and finances.
Why Require Insurance
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and Bonds?
You can contractually make the providerof the good or service responsible fortheir negligence.
However, if the contractor does nothave a way to pay for these losses,
then the contract alone will notprotect the state. Insurance andbonds are ways to backup contractindemnity statements.
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What Are The Typical Kinds
of Bonds Used in Contracts?
Bid Bond
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Bid Bond
Provides financial assurance that the bidis submitted in good faith and that thecontractor intends to enter into the
contract at the bid price and if stated inthe bid, provide the required performanceand payment bonds.
Performance Bond
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Performance Bond
Protects the state from financial lossshould the contractor fail to perform
the contract in accordance with
contract terms and conditions.
Payment Bond
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Payment Bond
(Labor & Materials Bond)Guarantees that the contractor will pay certainsubcontractors, laborers and material suppliers
associated with the project.
Maintenance Bond
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Maintenance Bond
Protects the state against defects inworkmanship or materials (usually for two
years) after the contractor hascompleted the work.
Additional Bond Information
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Additional Bond Information
Bond terms are usually 12 24months.
The bond amount requesteddepends on the risk of thecontract.
In most cases, bonds cost about 1%- 3% of the contract amount.
Coverage Assessment
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Coverage Assessment
How muchinsurance?
Two Schools of Thought
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Two Schools of Thought
Traditional Contractk
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Risk Assessment
What is the activity? Who could be harmed?
What could go wrong?
How bad could it be?
How much could it cost?
Assignment of insurance amounts basedon the Risk Rating.
Use the risk rating to set
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ginsurance and bonding limits.
INSIGNIFICANT
MINOR MODERATE
MAJOR CRITICAL
ALMOST
CERTAIN
M H E E E
LIKELY M M H E E
POSSIBL
E
L M H E E
UNLIKELY
L L M H E
RARE L L M H H
Lik
elihood
Severity
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E = Extreme Risk: First, consider not doing
the activity.
If you must, you will needto decide how much apotential loss could cost?
In general, risks at thislevel warrant more than$1 million in coverage.
H = High Risk:
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Could a potential loss cost in
excess of $1 million? If so,ask for more coverage. Make sure your assessment
considers all costs of potential
losses. Risk Management would not
recommend limits of less than
$1 million for High rated risks.
M = Moderate Risk:
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Standard limit ofinsurance is $1 million.
Assessment shouldconsider all costs of
potential losses. If assessment reveals
potential loss in excess of
$1 million, your risk mayactually be high (see H forHigh Risk.)
L = Low Risk:If isk is mi im l this is th h
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If risk is minimal, this is the area wherecoverage and limits may potentially be
flexible. Standard limit is still $1 million. In the case of minimal risks, the agency
could make a business decision to lower thelimits of coverage.
Risk Management would not generallyrecommend insurance limits of less than$500,000.
If the risk assessment reveals onlyminute risk, agency could make abusiness decision to waive coverage.
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OR
Try Backing Into theC A t
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Coverage Amount
Coverage Assessment
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Coverage Assessment
Analyze the perilscovered by the type ofinsurance you will berequiring.
Looking at the perils, andanalyze if these perilsexist in the performance
of the contracted work.
Coverage Assessment
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For each peril that exists in the contractedwork, perform a risk assessment of: Who could be harmed? What could go wrong?
How bad could it be? How much could it cost?
Rate the perils and assign insurance amounts
based on the Risk Rating.
Coverage Assessment
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Additional Insured
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Protects the state when named in anaction that is not its responsibility orfault.
Ensures that the contractor orservice providers insurance companywill expend funds to have the states
name removed.The state benefits by not having to
use its assets for litigation purposes.
Additional Insured
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Should be issued as an endorsementto the contractors insurancecoverage.
The endorsement to the contractorsinsurance coverage may be issued on ablanket basis that applies to any
entity the contractor enters into acontract with.
Notice of CancellationCh
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or Change
Requires the contractor or serviceproviders insurance company tonotify us if:
There is a possibility of the policylimits being exhausted.
The policy is cancelled or non-renewed.
Certificates of Insurance
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r f f n ur n
Certificate(s) of Insurance
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( )
Requires the contractor to prove tothe state that it has met theinsurance requirements of the
contract.One way to prove this request is by
submitting a Certificate of Insurance
stating the coverage and policy limits.
What Does SIR Mean? d f lf d R
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Stands for Self-Insured Retention.
Works like a deductible.If you see this on a Certificate of
Insurance, it means the contractor
will perform all the functionsnormally undertaken by an insurancecompany for claims within the SIR.
Any losses must exceed the SIRamount before the insurance companywill handle the claim.
What Document(s) areA pt bl t V if
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Acceptable to Verify
Insurance Coverage?Certificate of Insurance.Letter from corporation stating they
are self-insured. This should beaccompanied by a financial statement,unless you are certain about the entitysfinancial stability.
Letter from bank stating the amountheld in reserves to pay claims andlawsuits.
Make sure the coverage and policy limitsmatch the contract requirements
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match the contract requirements.Look at the policy effective date and
expiration dates to make sure they coincidewith the contract term. If not, requestanother certificate several months beforethe policy expires.
The State of Oregon or your agency isnamed as the certificate holder andadditional insured.
What do the comments in the description
section say? Contact the agent with anyquestions.Is there an SIR (self-insured retention)
listed?
Reading Certificates of Insurance
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Acrobat Document
Contractual
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Risk Assessment ExampleLottery Purchase ofPoker/Slot Machines
What is the scope of thecontractual activity?
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contractual activity?What is the overall activity?
Procurement of 325 Video Poker/Slot Machines
What are the activitycomponents?
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components?
Design and development ofspecifications for themachines.
Manufacture of the machines. Quality control and testing. Transportation of the
machines to the LotteryWarehouse.
When and where does the activity
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When and where does the activitytake place(s)? Victoria B.C. 5/26/05 through 11/30/05
Who will be performing theactivities? Victoria Games, Inc.
ABC Trucking, Inc. a Common Carrier,F.O.B. Shippers Dock
Will the contractor interact with
the public, staff, vendors, etc.?
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the public, staff, vendors, etc.?
There will be interaction between themanufacturer and various Lottery employeesduring design, development, manufacturing,and quality control.
The Common Carrier will have interactionwith Lottery employees during the deliveryof the machines to the Lottery Warehouse
Will there be any hazardous materials
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yinvolved?
Only at the manufacturing site and related toproperty disposal of the machines when theyare no longer useable. The manufacturer hasall appropriate premises coverage for the on-
site pollution exposure and maintainsregulatory compliance. Lottery has madearrangements for appropriate disposal ofmachines.
What could go wrong?Who could be harmed?
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Who could be harmed?
Bodily injury and/or illness tocontractor employees on-site.
Bodily injury and/or illness toLottery employees on-site duringdesign, development, qualitycontrol, and testing.
Bodily injury to vendors or patronsof the machines if they aredefective and start a fire, causeelectrocution, sharp edges, etc.
Bodily Injury:
What could go wrong?Who could be harmed?
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Who could be harmed?
Machines could be damaged at themanufacturers location or duringtransport.
Machines could be defective and cause afire at the vendors location.
Machines could be stolen while in transit.
Machines could improperly pay out causingfinancial loss.
Property Damage:
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What could go wrong?Who could be harmed?
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Who could be harmed?
Faulty manufacturing due to improperdesign.
Dangerous conditions in machines dueto faulty design.
Payouts of machines could bedefective, causing financial loss to the
Lottery and vendors.
Design Flaws:
What could go wrong?Who could be harmed?
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Bodily injury and/or illness to thevendor or patrons using the machines.
Damage to property of vendor or near
or adjacent property owners due toconditions in machines that causes fire. Financial loss to vendors if machines
are defective an cause improper
payouts. Financial loss to patrons if machines are
defective and dont pay out as much asthey should.
Liability:
Is there any impact on workload ordamage to our systems?
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damage to our systems?- Delay in installation and implementationof marketing program for machines invendor locations.
- Additional costs for repair or re-design
of machines.
What are the potentiall i t d
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loss exposures associatedwith this activity?
Bodily injury
Property damage
Design flaw
Liability
Rate the Severity of EachPotential Loss Exposure.
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Potential Loss Exposure.
How bad can each loss be?What could it cost? Bodily Injury:Minor, Hundreds to
Thousands Property Damage: Major, Thousands to
Millions
Design Flaw: Critical, Thousands toMillions
Liability: Major, Thousands to Millions
What is the Likelihood ThatEach of These Potential
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Each of hese otent al
Losses Will Happen?
Bodily Injury - Unlikely
Property Damage - Possible
Design Flaw Possible
Liability Possible
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Determine the Risk Rating
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Determine the Risk Rating
or Level of Risk for EachLoss Exposure.
Bodily Injury:Low Risk Property Damage: Extreme Risk Design Flaw: Extreme Risk
Liability: Extreme
Weighing the Value of OpportunitiesRating Value Description (Opportunity)
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1 Insignificant
Minor budgetary, funding, or resourcegain; Little or no gain in public and/orclient relations.
2 Minor Low budgetary, funding, or resourcegain; Some gain in public and/or client
relations.
3 Moderate Moderate budgetary, funding, orresource gain; Adequate public and/orclient relations.
4 Major Major budgetary, funding, or resourcegain; Good public and/or clientrelations.
5 Critical Huge budgetary, funding, or resourcegain; Excellent public and/or client
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Determine Non-InsuranceRisk Control Measures
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Include safety protocols and training requirements inthe contract.
Verify that all of the contractors employees areproperly trained and/or certified as required for the
scope of work. Verify that all Lottery employees going to the
manufacturers location are properly trained and/orcertified as required for the duties they will perform.
Require the contractor to log all incidents and to
include mitigation strategies for preventing theincident in the future.
M
Bodily Injury:
Determine Non-InsuranceRisk Control Measures
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Contractual terms that hold the contractorresponsible for damage to the machines whileon their premises.
Contractual terms that hold the contractorresponsible for defects in the product that arenot discovered during quality control or testing.
Negotiation of contract with manufacturerand/or common carrier for responsibility formachines during transit and security protocol.
Property Damage:
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Determine Non-InsuranceRisk Control Measures
Li bilit
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In depth review and supervision ofmanufacturers quality control and testing ofmachines for electrical components and otherparts that could cause bodily injury, propertydamage, or financial loss to vendors, patrons,or others (as appropriate).
Warranties on the machines that coverpotential defects found after installation.
Liability:
Assignment ofInsurance Coverage
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Insurance Coverage
Bodily Injury: Low Risk CGL. Property Damage: Extreme Risk CGL,
Truckers Coverage, Inland Marine
coverage for Domestic Goods inTransit and Goods of BaileesCustomers.
Design Flaw: Extreme Risk Professional Liability
Liability: Extreme Risk - CGL
Assignment ofInsurance Amounts
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Commercial General Liability (CGL): $2 millionper occurrence with $5 million aggregate.
Truckers Coverage: $2 million per accident.
Inland Marine: Domestic Goods in Transit: The value of theshipment.
Goods of Bailees Customers: The value of the
product at completion. Professional Liability: $1 million peroccurrence with $2 million aggregate.
Did We Forget Something?
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Doesnt this project have a pre-determined timeframe forcompletion and detailedspecifications?
Lottery should consider requiringPerformance Bond for the
amount of the contract or theirmaximum probable loss if thecontractor does not perform.
Bonding Related Questions to Ask
How much will it cost to find another contractor e.g.
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gRFP, staff time, etc. and complete the project if this
contractor does not complete? If the contractor does not complete the project
within the specified timeframe, how much will it costthe Lottery and/or vendors?
If the product is completed, but not as specified,how much could it cost the Lottery if another vendorhas to fix the machines?
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The End