Besides NASBP modernizing its Bylaws to have flexibility and expediency to address critical governance matters, NASBP has implemented the following eight new and important initiatives of which I hope you are involved.

1. To assure that members and affiliates continue to shape NASBP through their involvement with NASBP Committees, NASBP has revised its Committee appointment process. On an annual basis, the President will appoint Committee members to each NASBP Committee. In 2010, Committee members will be asked to renew annually their commitment to the initiatives of the Committee and to serve on the Committee to help it meet its objectives and goals. If you want to renew your commitment, right now, to the NASBP Committee(s) of which you belong, click here to complete the Committee Interest form.

2. NASBP has included the members of the NASBP 5-15 Leadership Circle, NASBP’s “farm team” of young industry leaders, in more NASBP activities and leadership roles. To continue as the leading voice for surety bond producers in our industry, we must help this group to continue to grow. Nelson A. Rockefeller, the 41st U.S. Vice President and 49th Governor of New York, stated, “It is essential that we enable young people to see themselves as participants in one of the most exciting eras in history, and to have a sense of purpose in relation to it.” Members, consider nominating someone in your agency to the 5-15 Leadership Circle. Click here to access the new NASBP web page that includes information about the Leadership Circle and the nomination form.

3. Also, NASBP has begun a new grassroots advocacy program to help NASBP increase and maintain the Association’s visibility and advocacy efforts on Capitol Hill. In November, NASBP created a Program, called “Every Day is Advocacy Day,” to encourage NASBP members and affiliates who travel to Washington, DC for business or for vacation to visit with their federal representatives in Congress with the help of NASBP staff. This effort is essential to continue the momentum of government relations initiatives undertaken in 2009, such as the Legislative Fly-in Day, into 2010. Plan to participate in the “Every Day is Advocacy Day” Program by contacting Larry LeClair at lleclair@nasbp.org and letting him know when you will be visiting Washington, DC.

4. NASBP has updated the contact information for each NASBP Government Affairs Representative to strengthen the NASBP grassroots network and enable NASBP to take action quickly in the 2010 Legislative Session. With this updated contact information and new Government Affairs Representatives added to this list, NASBP will be able to activate its grassroots network at a moment’s notice. Members, if you are not already an NASBP Government Affairs Representative and would like to be one, sign up by contacting Larry LeClair at lleclair@nasbp.org.

5. To assure students are informed of today’s industry practices and current regulations and legislation, the NASBP Professional Development Committee is updating and revising the industry resource guide, The Basic Bond Book. Jointly produced with the Associated General Contractors of America, this guide continues to be an integral component to educating entrants into the industry through the Level I of the NASBP William J. Angell Surety School. NASBP anticipates the revised guide will be available for use by students who attend the Level I Summer School. Keeping the School’s materials, like The Basic Bond Book, reflective of today’s surety professionals’ experiences is critical to the School’s mission. The School helps members and affiliates develop continuity in their businesses. Reward someone on your staff by registering them for the 2009 School. Click here.

6. The Association has been exploring exciting changes to NASBP membership. Based upon a recommendation from the NASBP Membership Committee at the Annual Meeting in La Quinta, California in April 2009, NASBP has begun looking at adding another membership class by creating an Associate membership category for NASBP. A tremendous amount of thought and deliberation has gone into this topic. At the Mid Year Board Meeting in Louisville, Kentucky, I formed a task force to oversee policy in relation to implementation of this category. The task force and Executive Committee will be thorough in their efforts to assure that the Associate class will not dilute the value of NASBP membership.

7. NASBP has organized more than 20 Virtual Seminars for 2010 to help members and affiliates stay on top of the issues that impact their surety businesses. NASBP selected these topics after analyzing issues that surety professionals have been grappling with and that are likely to continue to challenge them in 2010 as well as new ones that may be on their horizon. Click here to register your company for upcoming seminars. The NASBP Virtual Seminars are an excellent opportunity to educate not only surety professionals, but also your support staff and your clients.

8. Are you aware that an outstanding NASBP Annual Meeting is scheduled to be held in San Antonio, Texas April 25-28, 2010? This event will provide surety professionals substantive knowledge and guidance to become better surety advocates in 2010 as well as networking opportunities with top executives in the surety industry. The Program will include Bill Berkley, Chairman and CEO of the W.R. Berkley Corporation, who will share his unique perspective on the business environment as well as the surety industry. In addition, NASBP has organized other educational sessions for the Meeting that will address current issues related to commercial surety, claims, and surety advocacy as well as a panel of contractors providing the state of the construction industry and the surety product. Click here to register.

How will you, as a surety professional, meet the challenges of 2010 and still prosper? The answer is, “By participating in NASBP and utilizing the many tools and resources that NASBP has to offer.” What I have said earlier bears repeating, “My success in the surety industry can be directly associated with my involvement in NASBP.” I welcome the challenges of 2010. With the NASBP initiatives, tools, and resources listed above, and many more not mentioned here, I believe NASBP and its membership are well prepared. I look forward to “the exhilaration of victory” and being triumphant over the challenges of 2010! I hope you will join me.

Have a great holiday!

Todd P. Loehnert
President

General liability and professional liability are two areas of insurance that surety professionals and their contractor clients should be aware of and treat as “caution lights” throughout the year with all construction projects.

Many of the items that contractors should carefully review when participating in a wrap-up program (whether CCIP or OCIP) were outlined in the March/April 2009 Pipeline article, titled “Considerations for Subcontractors Participating in Wrap-Ups.” This article will address the following two situations of which all owners and contractors need to be cognizant of under a traditional project insurance delivery method.

I. General Liability—Do I Really Have an Occurrence?
Typically, insurers take the position that defective work is a business risk for the contractor and they do not intend to cover these losses. The standard General Liability policy is structured to prevent against providing coverage for these exposures.

The General Liability insuring agreement provides the insurer “will pay those sums the Insured becomes legally obligated to pay as damage because of Bodily Injury (BI) or Property Damage (PD) to which this insurance applies.” “This insurance applies to Bodily Injury and Property Damage only if the BI or PD is caused by an “Occurrence.” The standard policy definition of “Occurrence” means “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

To determine if there was an “Occurrence,” it must also be determined if there was an “accident.” Without an accident, there can be no occurrence and therefore no coverage; however, there is no definition of “accident” under a typical ISO General Liability policy. Because of this, standard case law holds that where an occurrence policy defines an occurrence as meaning an accident, the term accident is given the following common meaning:
“An event that takes place without one’s foresight or expectation; an undesigned, sudden and unexpected event. Hence, often, an undersigned and unforeseen occurrence of an afflictive or unfortunate character, a mishap resulting in injury to a person or damage to a thing”…J.E. Construction Co. vs. Chubb & Sons, Inc. 486 F. 3d at 341.

As a result, insurers have successfully denied completed operations claims by arguing that there was no occurrence as there was no “damage to a thing”—only defective work.
Consider the following real example:

A contractor was required to install a tile floor with heating coils to be installed below the tile. The work on the heating coils was subcontracted to one subcontractor and the tile work to another. Following completion of the work, and while the work was being used for its intended purpose, the tile began to deteriorate, crack and pop out.

The Owner filed a claim against the prime contractor, who tendered to it’s insurer under their General Liability policy anticipating “Exclusion L-Damage to Your Work” would not apply since the damaged work, or the work out of which the damage arose, was performed on behalf of the prime by the subcontractor. The insurer denied coverage and prevailed arguing “Exclusion L-Damage to Your Work” should not be considered until it was determined that the Insuring Agreement had been met by establishing there had been an “Occurrence.” The prevailing argument included that there was no “damage to a thing”—only defective work.

In order to possibly avoid this potential coverage gap, a contractor’s insurance carrier should provide a “Resulting Damage to Your Work” endorsement that amends the Insuring Agreement under Section I – Coverage A, Bodily Injury and Property Damage Liability. This endorsement enhances the definition of “Occurrence”, under the following conditions:

Damages because of “property damage” include damages the Insured becomes legally obligated to pay because of “property damage” to “your work,” and shall be deemed to be caused by an “occurrence,” but only if:

• The “property damage” is entirely the result of work performed on the contractor’s behalf by a subcontractor(s) that is not a Named Insured
• The work performed by the subcontractor(s) is within the “products-completed operation hazard”; and
• The “property damage” is unexpected and unintended from the standpoint of the Insured.

II. Professional Liability-Be Careful What You Ask For!
It is not uncommon for Owners and Contractors (all tiers) to ask to be named as Additional Insureds under a Professional Liability policy, which is being provided by the design professional. Any claim made by any Insured against any other Insured is typically excluded under a standard Professional Liability policy. This is commonly referred to as the Insured vs. Insured Exclusion. Contractors should think twice before making this request as they may be eliminating the very coverage they think they are gaining.

More information about Wrap-Ups and project specific insurance is available from Construction Insurance Partners, an insurance brokerage firm with a niche specialty in Controlled Insurance Programs (Wrap-Ups). Contact John Campbell at phone: (314) 554-9754 or e-mail: johnc@cip-stl.com.

Contained in the NASBP Code of Ethics are principles regarding the confidentiality of client and colleague information that all NASBP members have agreed to strive to uphold. In today’s business environment, it is prudent for firms to consider using technology in an effort to preserve these confidences. An area in the workplace that might be vulnerable to inadvertent disclosure or misappropriation of information is e-mail. According to the NASBP Automation and Technology Committee and the NASBP Ethics Committee, tools are available that can help protect confidential information sent via e-mail.

This list is not comprehensive, but does provide a starting point for your own research. If you have any questions, please contact Dave Golden, Technology Manager, at dgolden@nasbp.org.

• BioWrap
• Cisco IronPort
• EnTrust
• MessageLabs
• Microsoft Office – Encrypt e-mail messages (Outlook 2007)
• Microsoft Office – Encrypt e-mail messages (Outlook 2003)
• Perimeter eSecurity
• ZixCorp

Earlier this year NASBP had MarshBerry conduct a benchmarking study for NASBP members. The results of this study provide members of NASBP performance standards for their agencies and, specifically, for their bond operations. This was the second benchmarking study of this type that NASBP has engaged MarshBerry to conduct. The first was conducted in 2005.

Executive Summary

In summary, the results from this survey showed that:

• Overall, the performance of agencies with bond business was comparable to industry standards for the independent agent. This is much different than the 2005 study. In 2005, agencies with bond business had a higher level of performance than the average independent agency. This was driven primarily by the commission percentage agencies receive on bond business.
• The commission percentage agencies receive on bond business drives above average employee productivity.
• Overall, performance of bond agencies in managing receivables, number of days of working capital and tangible net worth was lower than industry standards for the average P&C independent agency. Not to make this level of performance acceptable, but agencies with bond business typically have a higher than average percentage of agency bill business.
• The bond profit center is more profitable when bond commission represents less than 50% of total agency commission. This is mainly due to lower overhead costs such as support payroll and operating expenses; which can be attributed to allocations, people and expenses, or economies of scale.
• Sixty-three percent (63%) of bond producers are paid straight commission averaging a difference of four (4) points between the new and renewal commission percentage paid to producers. In 2005, 51% of bond producers were paid straight commission and, on average, there was a three (3) percentage point difference between the new and renewal commission percentage paid to producers.
• Seventy-two percent (72%) of the agencies have a bond manager and about half of bond managers (47%) are paid a salary, plus some type of bonus or percent of business sold. This has changed slightly from 2005 where 76% of the agencies had a bond manager and 41% of these bond managers were paid a salary, plus some type of bonus or percent of business sold.

Highlights

In discussing highlights from the 2009 NASBP Benchmarking Study, keep in mind the profile of those agencies that participated in the survey. These are averages for all agencies that provided responses. See Table 1 below.

Profitability

Overall agency profitability was down in 2009 compared to 2005. In 2009, pre-tax profit as a percent of total revenues for the average agency was 9.7% compared to 14.2% in 2005. A similar decline was seen for the best 25%, going from 17% in 2005 to 12.9% in 2009.

These declines were primarily due to customer service payroll and operating expenses. These two expenses are the most difficult for agencies to manage and control. See Table 2 below.

When looking at and comparing just the bond department. There was a slight decline in pre-tax profits as a percent of total bond commissions from 2005 to 2009, 23% to 21.7%. There was a similar decline in pre-tax-profits for those agencies that were primarily bond from 16.5% in 2005 to 15.7% in 2009. Not a significant difference, but a difference. (Primarily bond agencies are those agencies where bond commission represented more than 50% of the agency’s total commissions.)

Productivity

Overall agency productivity and service personnel productivity for 2009 was above average when compared to industry standards for the independent agency which was also the case in 2005. Performance levels improved since 2005 for the entire agency as well as for production and service personnel. See Table 3 for 2009 productivity levels.

Overall, productivity of bond service personnel has improved since 2005. Service personnel performance also improved for those agencies that are primarily bond (where bond commission is 50% or more of their total commission). Bond service personnel productivity for the best 25% is comparable to 2005 performance. See Table 4 below for 2009 bond service personnel productivity.

This summarizes the main points identified from the NASBP Benchmarking Study. To access the results of the study, click here.

NASBP has planned more than 20 Virtual Seminars that will address the hottest topics surety professionals will want to be apprised of in 2010. The new series will kick-off on January 12, at 2pm ET when Doug Terrill, Senior Vice President of MarshBerry & Company, Inc., will present, “Agency Profitability: MarshBerry Benchmarking Results.” Terrill’s presentation will review the results of a survey NASBP engaged MarshBerry to conduct of NASBP members in June of 2009.

Following the MarshBerry presentation, NASBP has scheduled these Virtual Seminars for the first quarter of 2010:

• “2009 Tax Law Changes Affecting Businesses,” presented by Jeff Wilmes, Partner, BKD, LLP, Evansville, Indiana on Tuesday, February 9.
• “The Year Ahead: An Economic Outlook,” presented by John Brock, Professor of Economics of the University of Colorado in Colorado Springs, Colorado on Tuesday, February 23.
• “Fraud Prevention: Helping Your Clients Improve Internal Controls,” presented by Karen Courney, Partner, Wolf & Company LLP, Oak Brook, IL and Chip Dillman, Senior Audit Manager, Greer & Walker LLP, Charlotte, North Carolina on Tuesday, March 9.
• “Federal Contracting Opportunities: Small Business is Big Business,” presented by Steven L. Reed, Partner, Smith, Currie & Hancock LLP, Washington, DC on Tuesday, March 23.

The balance of the 2010 calendar year will include NASBP Virtual Seminars on the following topics:

• “Understanding the Use of Letters of Credit in Construction Projects”
• “Federal and State Assistance Programs for Small and Emerging Contractors”
• “Red Flags in the Bidding Process”
• “What Surety Professionals Need to Know About Contractor Insurance Coverage”
• “The Future is Now—Green/LEED Construction”
• “A Primer on Financing Public Projects”
• “Recent Bond Claims Activity and the Role of Producer in the Claims Process”
• “Know What Your General Indemnity Means for the Principal”
• “What Surety Professionals Need to Know About the New AIA Bond Forms”
• “Creating and Sustaining a Sales Culture that Promotes Your Brand and Your Business Objectives”
• “Onerous and Fraudulent Bonds—Recognizing the Problems and Strategies to Resolve Them”
• “Considerations When Working with Native American Sovereigns”
• “Federal False Claims Act—Helping Your Clients Understand Their Exposure”
• “E&O Insurance—An Overview of Producer Liability and Agency Law”
• “Emerging Commercial Surety Opportunities”
• “Financial Reporting: Helping Your Clients Put Their Best Foot Forward”
• “Joint Venture and Teaming Agreements—Creating the Team to Win Contract Awards”
• “Succession Planning—A Priority for Your Agency and for Your Clients Too!”
• “Using NASBP Resources to Increase Your Agency’s Success”
• “An Overview of the New ConsensusDOCS Forms”
• “Onerous Contract Terms: Damages, Performance Guarantees, Default Triggers & Other Contract Nasties”
• “Energy Efficiency and Performance Guarantees”
• “Annual Government Relations Town Hall—What’s Ahead in 2011”

The speakers and descriptions for the above Virtual Seminars will be announced on the web site and in Pipeline closer to the presentation date.

NASBP Virtual Seminars, introduced in 2009, have attracted nearly 2,000 listeners since their inception and provided indispensible information and education for members and affiliates. Several members and affiliates have indicated that they participate in the Virtual Seminars, because they provide an opportunity to bring their office staff together to hear an expert deliver a presentation, to ask questions, and to discuss a topic of immediate relevance to the industry.

For more information about the Virtual Seminars and to register for upcoming programs, click here.

Virtual Seminar Recordings Available Soon!

NASBP plans to make NASBP Virtual Seminar recordings of past NASBP Virtual Seminar presentations available for purchase in early 2010. Look for additional information in the next issue of Pipeline.

E-mail questions, comments, and suggestions about the NASBP Virtual Seminars to Cathrine Nelson at cnelson@nasbp.org.

Here are some of the services the Program will provide to members and affiliates who are planning to be in Washington, DC and wish to meet with their federal representatives. NASBP staff will:

• Accompany the member/affiliate on their visit(s) and provide additional issue support;
• Provide a sample meeting request letter and “how to” instructions to secure a Capitol Hill appointment;
• Follow-up to confirm that these appointment(s) have been secured;
• Draft/compile briefing materials and leave-behind packets of information for the member/affiliate to take on their visit(s);
• Provide the member/affiliate a sample “thank you” letter that they may modify and send to each of the Congressional offices that they visit; and
• Collect and analyze the member’s/affiliate’s reports about each Congressional office visit.

NASBP encourages members and affiliates to take advantage of the new “Every Day is Advocacy Day” Program and to arrange a valuable face-to-face meeting with their elected officials and/or their elected officials’ legislative staff. To sign-up for the Program or to find out more, contact Larry LeClair at lleclair@nasbp.org.

The Chair of the Government Relations Committee, Thomas Padilla, reminds the members and affiliates who don’t plan to visit Washington, DC, that they can instead arrange to visit their federal members of Congress in their home state offices. “Visits can and should happen when there is opportunity back home in the member of Congress’s home state,” stated Padilla. “Since 2010 is an election year, members of the entire House of Representatives and a third of the Senate will be spending more time in their home state offices with constituents like you.” “An election year is always a good time to make contact with them,” he added.

The Program will bridge the gap between NASBP Legislative Fly-in Days, build critical connections, and keep the NASBP message before Congress throughout the year!

The winter session of the William J. Angell Surety School will be held in Houston, Texas, and seats are filling up fast. The dates for this session are:

• Level I – January 24–27, 2010
• Lever II – January 24–29, 2010

For in-depth information about the School and to register today, click here.

New Procedure

In 2010, each new member of NASBP will be asked to include a grassroots advocacy contact, who can be either the member’s key contact or a surety professional within the member’s company. NASBP’s goal is to ensure that NASBP has at least one grassroots advocacy contact in all of the NASBP member firms.

Perkins, who is the co-chair of her firm’s green building and sustainability practice group, describes how the document is the construction industry’s first and only standard contract document specifically designed to address the unique issues and risks involved with building green projects. She also explains how the document may help the parties understand how each other’s roles and responsibilities relate to the achievement of the project’s green objectives.

ConsensusDOCS™ Green Building Addendum Informational Resources

• Perkins’ November 11, 2009 audio broadcast on the Green Building Addendum. To access the audio broadcast, click here (MP3) (2.7mb, 4 Minutes 32 seconds)
• Script of that Perkins’ broadcast. To access the script, click here.
• ConsensusDOCS press release announcing the publication of the Green Building Addendum. To access the press release, click here.

Other ConsensusDOCS™ News

New Subcontractor Request for Information Form

This month, ConsensusDOCS released a new document titled, ConsensusDOCS™ 790, Subcontractor Request for Information. This document is used by subcontractors to request information or instructions. The full library of ConsensusDOCS documents, including the 13 new documents issued in 2009, are described in the ConsensusDOCS brochure.

ConsensusDOCS Documents Testimonials Say It All

Testimonials about ConsensusDOCS are continually being posted to the ConsesusDOCS web site. Access them by clicking here.

Purchase ConsensusDOCS Documents at the NASBP Member/Affiliate Discount

NASBP members and affiliates can receive up to 20% off their purchases of ConsensusDOCS forms if they insert the Partner Code, NASBP, and the Promotion Code, 400, when prompted during the purchase process from the ConsensusDOCS site, http://www.ConsensusDOCS.org.

For more information about ConsensusDOCS and NASBP’s participation as an endorsing member, click here.

NASBP is an endorsing organization of the ConsensusDOCS coalition, an unprecedented effort by more than 20 other industry organizations to identify industry best practices and to incorporate such practices in a new generation of consensus industry standard form documents.

Buckman-Mitchell, Inc.
http://www.bminc.com
Visalia, CA
Key Contact: Linda Loflin

Pippel Insurance Agency
http://www.pippelinsurance.com
Palmer, AR
Key Contact: John Crawford

New Affiliate

Bond Experts II Ltd.
kris@bondexperts.net
Portland, OR
Key Contact: Kristine Yates

• American Home Assurance Company (NAIC# 19380)
• Granite State Insurance Company (NAIC# 23809)
• Insurance Company of the State of Pennsylvania (The) (NAIC# 19429)
• National Union Fire Insurance Company of Pittsburg, PA (NAIC# 19445)
• New Hampshire Insurance Company (NAIC# 23841)

For a complete listing of all states where these companies are licensed to transact surety business, please refer to the Circular 570 and its supplements at:
http://fms.treas.gov/c570/c570.html
http://fms.treas.gov/c570/supplements.html

The Silver and Gold Awards for Excellence in Surety Bond Promotion recognize LSAs that conduct at least five and 10 public relations activities, respectively, in a calendar year to promote surety bonds. These efforts may include presentations to various non-surety audiences involved in construction, exhibiting at trade shows or other meetings or conducting media efforts such as writing an article for a publication. The Platinum award recognizes individual NASBP and SFAA members whose efforts to promote surety bonds have had a significant impact on the construction industry.

The prestigious Tiger Trust recognizes NASBP and SFAA members who persuade a private construction project owner or lender to require surety bonds on a project.

The deadline to submit awards entries and Tiger Trust nominations is February 5, 2010. Visit http://awards.suretyinfo.org for details about the competition, advice on the type of activities considered eligible, past winners and, of course, to complete the online nomination forms. Please carefully review the “How to Enter” section before you fill out the nomination forms, and remember, gathering details about eligible accomplishments may take time, so please start early. Entries received after the deadline will not be considered.

The SIO Policy Board will judge awards entries in March 2010, and awards will be presented at the NASBP and SFAA annual meetings in the spring.

If you have any questions, and to confirm your entry has been received, please contact Marc Ramsey at mramsey@surety.org or (202) 778-3629.

Construction Executive Publishes SIO Surety Section

The Associated Builders and Contractors Construction Executive magazine published SIO’s annual Surety Section in its November 2009 edition. Order reprints or download a PDF via SIO’s online store at www.sio.org/fstore.html.

This year’s Surety Section features articles on a wealth of surety topics including the surety market overview, executives’ insights, balance sheets, BIM, the role of risk management, the importance of communication with the surety, maximizing bonding capacity, the role of the construction CPA, ConsensusDOCS, how bond waivers hurt small and emerging contractors, what helps small and emerging contractors, the rules for state projects funded by stimulus plan and information resources for contractors.

A special thank you goes out to the advertisers who supported this publication, as well as the authors who contributed their time and expertise to provide the articles. These commitments help make SIO’s annual Surety Section a success year after year!

Comments and suggestions always are welcome. Send e-mail to sio@sio.org.