May 3, 2020
April 17, 2020
The US Bureau of Reclamation is now the fourth and final federal agency to publish its plans for e bike use
the proposed regulation are reprinted below:
List of Subjects in 43 CFR Part 420
E-bikes, Recreation.
For the reasons stated in the preamble, Reclamation proposes to amend part 420 of title 43 of the Code of Federal Regulations as follows:
Part 420 Off Road Vehicle Use
1. The authority citation for part 420 continues to read as follows:
Authority
32 Stat. 388 (43 U.S.C. 391 et seq.) and act amendatory thereof and supplementary thereto; E.O. 11644 (37 FR 2877).
2. Amend § 420.5 by revising paragraph (a) and adding paragraph (h) to read as follows:
§ 420.5
Definitions.
* * * * *
(a) Off-road vehicle means any motorized vehicle (including the standard automobile) designed for or capable of cross-country travel on or immediately over land, water, sand, snow, ice, marsh, swampland, or natural terrain. The term excludes:
(1) Nonamphibious registered motorboats;
(2) Military, fire, emergency, or law enforcement vehicles when used for emergency purpose;
(3) Self-propelled lawnmowers, snowblowers, garden or lawn tractors, and golf carts while being used for their designed purpose;
(4) Agricultural, timbering, construction, exploratory, and development equipment and vehicles while being used exclusively as authorized by permit, lease, license, agreement, or contract with the Bureau;
(5) Any combat or combat support vehicle when used in times of national defense emergencies;
(6) “Official use” vehicles; and
(7) Electric bikes as defined by § 420.5(h), except those being used in a manner where the motor is being used exclusively to propel the E-bike.
* * * * *
(h) Electric Bicycle (also known as an E-bike) shall mean a two- or three-wheeled cycle with fully operable pedals and an electric motor of not more than 750 watts (1 h.p.) that meets the requirements of one of the following three classes:
(1) Class 1 electric bicycle shall mean an electric bicycle equipped with a motor that provides assistance only when the rider is pedaling, and that ceases to provide assistance when the bicycle reaches the speed of 20 miles per hour.
(2) Class 2 electric bicycle shall mean an electric bicycle equipped with a motor that may be used exclusively to propel the bicycle, and that is not capable of providing assistance when the bicycle reaches the speed of 20 miles per hour.
(3) Class 3 electric bicycle shall mean an electric bicycle equipped with a motor that provides assistance only when the rider is pedaling, and that ceases to provide assistance when the bicycle reaches the speed of 28 miles per hour.
Subpart B Designated Areas and Permitted Events
3. Amend § 420.21 by adding paragraph (d) to read as follows:
§ 420.21
Procedure for designating areas for off-road vehicle use.
* * * * *
(d) The appropriate regional director should generally allow E-bikes whose mechanical features are being used as an assist to human propulsion on roads and trails upon which mechanized, non-motorized use is allowed, in compliance with the requirements of this section, unless the authorized officer determines that E-bike use would be inappropriate on such roads and trails. If the appropriate regional director allows E-bikes in accordance with this paragraph, an E-bike user shall be afforded the rights and privileges, and be subject to all the duties, of non-motorized bicycles.
April 9, 2020
Bureau of Land Management (BLM) is now the third federal agency in three days to publish its plans for e bike use
I don't know if this was intentional or not but three federal agencies on three separate days (back to back) have all published their proposed rules for e bikes in/on their respective lands or parks. The rules are all very similar in that they all make explicit reference to the three classes of ebikes similar to what most states have proscribed however their are slight variations in all three agencies approaches due to where the agencies are at now with e bike regulation and how usage might differ in each of the three different types of federal lands or parks.Once again all the usual suspects are coming out against all these regulations. The latest announcement on class 1 ebikes being banned on NFS land was just spotted by one of our readers here.
The Bureau of Land Management (BLM) likely oversees the largest acreage of land (see fn 1 below) upon which ebikes can/may be used and often this land is managed differently than the National Parks for obvious reasons. So as a result the proposal from BLM is a bit longer than the other two agencies proposals (NPS and FWS). If you would like to read the entire 25 page BLM proposal (quite a detailed history) it is linked here. The proposed rules themselves are set forth below. Public commenting period will run from April 10, 2020 to June 10, 2020. The direct commenting link is here.
(footnote 1: The BLM administers more surface land (245 million acres or one-tenth of America's land base) and more subsurface mineral estate (700 million acres) than any other government agency in the United States.)
List of Subjects in 43 CFR Part 8340
Public lands, Recreation and recreation areas, Traffic regulations.
43 CFR Chapter II
For the reasons set out in the preamble, the Bureau of Land Management proposes to
amend 43 CFR part 8340 as follows:
PART 8340—OFF-ROAD VEHICLES
1. The authority citation for part 8340 continues to read as follows:
Authority: 43 U.S.C. 1201, 43 U.S.C. 315a, 16 U.S.C. 1531 et seq., 16 U.S.C. 1281c, 16
U.S.C. 670 et seq., 16 U.S.C. 460l-6a, 16 U.S.C. 1241 et seq., and 43 U.S.C. 1701 et seq.
Subpart 8340—General
2. Revise §8340.0-5 to read as follows:
§8340.0-5 Definitions.
As used in this part:
(a) Off-road vehicle means any motorized vehicle capable of, or designed for, travel on or
immediately over land, water, or other natural terrain, excluding:
(1) Any nonamphibious registered motorboat;
(2) Any military, fire, emergency, or law enforcement vehicle while being used for
emergency purposes;
(3) Any vehicle whose use is expressly authorized by the authorized officer, or otherwise
officially approved;
(4) Vehicles in official use;
(5) E-bikes, as defined in paragraph (j) of this section:
(i) While being used on roads and trails upon which mechanized, non-motorized use is
allowed;
(ii) That are not being used in a manner where the motor is being used exclusively to
propel the E-bike; and
(iii) Where the authorized officer has expressly determined, as part of a land-use
planning or implementation-level decision, that E-bikes should be treated the same as
non-motorized bicycles; and
(6) Any combat or combat support vehicle when used in times of national defense
emergencies.
(b) Public lands means any lands the surface of which is administered by the Bureau of
Land Management.
(c) Bureau means the Bureau of Land Management.
(d) Official use means use by an employee, agent, or designated representative of the
Federal Government or one of its contractors, in the course of his employment, agency,
or representation.
(e) Planning system means the approach provided in Bureau regulations, directives and
manuals to formulate multiple use plans for the public lands. This approach provides for
public participation within the system.
(f) Open area means an area where all types of vehicle use is permitted at all times,
anywhere in the area subject to the operating regulations and vehicle standards set forth
in subparts 8341 and 8342 of this title.
(g) Limited area means an area restricted at certain times, in certain areas, and/or to
certain vehicular use. These restrictions may be of any type, but can generally be
accommodated within the following type of categories: Numbers of vehicles; types of
vehicles; time or season of vehicle use; permitted or licensed use only; use on existing
roads and trails; use on designated roads and trails; and other restrictions.
(h) Closed area means an area where off-road vehicle use is prohibited. Use of off-road
vehicles in closed areas may be allowed for certain reasons; however, such use shall be
made only with the approval of the authorized officer.
(i) Spark arrester is any device which traps or destroys 80 percent or more of the exhaust
particles to which it is subjected.
(j) Electric bicycle (also known as an E-bike) means a two- or three-wheeled cycle with
fully operable pedals and an electric motor of not more than 750 watts (1 h.p.) that meets
the requirements of one of the following three classes:
(1) Class 1 electric bicycle shall mean an electric bicycle equipped with a motor that
provides assistance only when the rider is pedaling, and that ceases to provide assistance
when the bicycle reaches the speed of 20 miles per hour.
(2) Class 2 electric bicycle shall mean an electric bicycle equipped with a motor that may
be used exclusively to propel the bicycle, and that is not capable of providing assistance
when the bicycle reaches the speed of 20 miles per hour.
(3) Class 3 electric bicycle shall mean an electric bicycle equipped with a motor that
provides assistance only when the rider is pedaling, and that ceases to provide assistance
when the bicycle reaches the speed of 28 miles per hour.
Subpart 8342—Designation of Areas and Trails
3. Amend §8342.2 by adding paragraph (d) to read as follows:
§8342.2 Designation procedures.
*****
(d) E-bikes.
(1) Authorized officers should generally allow, as part of a land-use
planning or implementation-level decision, E-bikes whose motorized features are being
used to assist human propulsion on roads and trails upon which mechanized, nonmotorized
use is allowed, unless the authorized officer determines that E-bike use would
be inappropriate on such roads or trails; and
(2) If the authorized officer allows E-bikes in accordance with this paragraph (d), an Ebike
user shall be afforded all the rights and privileges, and be subject to all of the duties,
of user of a non-motorized bicycle.
[FR Doc. 2020-07099 Filed: 4/9/2020 8:45 am; Publication Date: 4/10/2020]
April 7, 2020
National Park Service sets forth their proposed e bike rules
The National Park Service (on the day after the National Wildlife Refuge System proposed somewhat similar and less complex rules; see that story here) has now set forth their own proposed e bike rules below. The comment period on the proposed rules (set forth in full at the bottom of this article) will run from April 8 2020 to June 8 2020. Comments can be made directly here. Clearly some groups are not going to be happy about ebikes in the NPS parks. Some industry insiders agree. More opinions here and here.
On August 29, 2019, Secretary of the Interior Bernhardt signed Secretary’s Order 3376, “Increasing Recreational Opportunities through the use of Electric Bikes.” The Order acknowledges there is regulatory uncertainty regarding whether e-bikes should be managed similar to other types of bicycles, or, alternatively, considered motor vehicles. The Order states that this regulatory uncertainty has led to inconsistent management of e-bikes across the Department and, in some cases, served to decrease access to Federally owned lands by users of e-bikes. In order to address these concerns, the Order directs the NPS and other Department of the Interior agencies to define e-bikes separately from motor vehicles and to allow them where other types of bicycles are allowed.
On August 30, 2019, the Deputy Director of the NPS, Exercising the Authority of the Director, issued Policy Memorandum 19-01, Electric Bicycles, which refers to a three-class system that limits the maximum assisted speed of an e-bike. The Memorandum requires superintendents to adopt state law in the same manner for e-bikes. The rule would amend 36 CFR 1.4 to add a new definition of “electric bicycle” that is the same as the definition used in the Policy Memorandum, with one minor difference, namely that the definition of e-bikes in the proposed rule would include devices of not more than 750 watts.
The rule would also state that superintendents will designate the areas open to e-bikes and notify the public pursuant to 36 CFR 1.7. E-bikes would not be allowed in other locations. The rule would also give superintendents the authority to limit or restrict e-bike use after taking into consideration public health and safety, natural and cultural resource protection, and other management activities and objectives. If warranted by these criteria, superintendents may use this authority to manage e-bikes, or particular classes of e-bikes, differently than traditional bicycles in particular locations. For example, a superintendent could determine that a trail open to traditional bicycles should not be open to e-bikes, or should be open to class 1 e-bikes only. Every restriction or closure that limits the use of e-bikes will be supported by a written record explaining the basis for such action.
Except on park roads and other locations where the use of motor vehicles by the public is allowed, the rule would prohibit an operator from using the electric motor to move an e-bike without pedaling. This restriction is consistent with the Policy Memorandum and intended to allow the public to use e-bikes for transportation and recreation in a similar manner to traditional bicycles. It would only affect the use of class 2 e-bikes, which have a motor that may be used exclusively to propel the e-bike. The NPS specifically requests comment on whether this restriction is appropriate or workable. Alternatively, the NPS could allow superintendents to implement this restriction at the park level if necessary in specific locations.
36 CFR Part 4
National Parks, Traffic Regulations.
In consideration of the foregoing, the National Park Service proposes to amend 36 CFR parts 1 and 4 as set forth below:
PART 1—GENERAL PROVISIONS
1. The authority citation for part 1 continues to read as follows:
Authority: 54 U.S.C. 100101, 100751, 320102
2. Amend § 1.4 by adding, in alphabetical order, a definition for “Electric bicycle” and
revising the definition for “Motor vehicle” to read as follows:
§ 1.4 What terms do I need to know?
(a) * * *
* * * * *
Electric bicycle means a two- or three-wheeled cycle with fully operable pedals and an
electric motor of not more than 750 watts that meets the requirements of one of the following
three classes:
(1) "Class 1 electric bicycle" shall mean an electric bicycle equipped with a motor that
provides assistance only when the rider is pedaling, and that ceases to provide assistance when
the bicycle reaches the speed of 20 miles per hour.
(2) "Class 2 electric bicycle" shall mean an electric bicycle equipped with a motor that
may be used exclusively to propel the bicycle, and that is not capable of providing assistance
when the bicycle reaches the speed of 20 miles per hour.
(3) "Class 3 electric bicycle" shall mean an electric bicycle equipped with a motor that
provides assistance only when the rider is pedaling, and that ceases to provide assistance when
the bicycle reaches the speed of 28 miles per hour.
* * * * *
Motor vehicle means every vehicle that is self-propelled and every vehicle that is propelled by electric power, but not operated on rails or water, except an electric bicycle, a
snowmobile, and a motorized wheelchair.
* * * * *
PART 4— VEHICLES AND TRAFFIC SAFETY
3. The authority citation for part 4 continues to read as follows:
Authority: 54 U.S.C. 100101, 100751, 320102.
4. Amend § 4.30 by adding paragraph (i) to read as follows:
§ 4.30 Bicycles
* * * * *
(i) Electric bicycles.
(1) The use of an electric bicycle may be allowed on park roads, parking areas, and
administrative roads and trails that are otherwise open to bicycles. The Superintendent will
designate the areas open to electric bicycles and notify the public pursuant to 36 CFR 1.7.
(2) The use of an electric bicycle is prohibited in locations not designated by the
Superintendent under paragraph (i)(1) of this section.
(3) Except where use of motor vehicles by the public is allowed, using the electric motor
to move an electric bicycle without pedaling is prohibited.
(4) Possessing an electric bicycle in a wilderness area established by Federal statute is
prohibited.
(5) A person operating or possessing an electric bicycle is subject to the following
sections of this part that apply to bicycles: sections 4.12, 4.13, 4.20, 4.21, 4.22, 4.23, and
4.30(h)(3)-(5).
(6) Except as specified in this section, the use of an electric bicycle is governed by State law, which is adopted and made a part of this section. Any act in violation of State law adopted
by this paragraph is prohibited.
(7) Superintendents may limit or restrict or impose conditions on electric bicycle use, or
may close any park road, parking area, administrative road, trail, or portion thereof to such
electric bicycle use, or terminate such condition, closure, limit or restriction after:
(i) Taking into consideration public health and safety, natural and cultural resource
protection, and other management activities and objectives; and
(ii) Notifying the public through one or more methods listed in 36 CFR 1.7, including in
the superintendent’s compendium (or written compilation) of discretionary actions referred to in
section 1.7(b).
April 6, 2020
U.S. Fish and Wildlife Service seeks public comments on use of e-bikes on the National Wildlife Refuge System
The U.S. Fish and Wildlife Service is seeking public comments on the use of e-bikes on the National Wildlife Refuge System. The National Wildlife Refuge System Administration Act closes national wildlife refuges in all States except Alaska to all uses until opened. This proposed rule only pertains to the National Wildlife Refuge System (map) and NOT to National Parks (map) nor general National Forrest service land (map). The Refuge System is a network of 568 national wildlife refuges and 38 wetland management districts. More than 59 million Americans visit refuges every year so the ebike companies may still be interested in this and it may affect decisions made on other federal land.
Department of the Interior (DOI) Secretary’s Order 3376 directs DOI bureaus to begin the process of obtaining public input on proposed new regulations that will clarify that operators of low-speed electric bicycles (e-bikes) should enjoy the same access as conventional bicycles, consistent with other Federal and State laws. Refuge managers will have the ability in the short term to utilize the flexibility they have under current regulations to accommodate this new technology, that assists riders as they pedal, in a way that allows them to enjoy the bicycling experience. DOI’s guidance will enable visitors to use these bicycles with a small electric motor (not more than 750 watts or 1 horsepower) power assist in the same manner as traditional bicycles. The operator of an e-bike may use the small electric motor only to assist pedal propulsion. The motor may not be used to propel an e-bike without the rider also pedaling.
The comments on the proposed rule below can be made most effectively using the government's regulations.gov portal. The direct link to comment is here. The comment period begins on or about April 7 2020 and ends 60 days after on June 7, 2020.
The proposed amendment is set forth below:
50 CFR Part 27
Subpart C—Disturbing Violations: With Vehicles
2. Amend § 27.31 by redesignating paragraph (m) as paragraph (n) and adding a new
paragraph (m) to read as follows:
§ 27.31 General provisions regarding vehicles.
(m) If the refuge manager determines that electric bicycle (also known as an e-bike) use
is a compatible use on roads or trails, any person using the motorized features of an e-bike as an
assist to human propulsion shall be afforded all the rights and privileges, and be subject to all of
the duties, of the operators of non-motorized bicycles on roads and trails. An e-bike is a two- or
three-wheeled electric bicycle with fully operable pedals and an electric motor of not more than
750 watts (1 h.p.) that meets the requirements of one of the following three classes:
(1) Class 1 e-bike shall mean an electric bicycle equipped with a motor that provides
assistance only when the rider is pedaling, and that ceases to provide assistance when the bicycle
reaches the speed of 20 miles per hour.
(2) Class 2 e-bike shall mean an electric bicycle equipped with a motor that may be
used exclusively to propel the bicycle, and that is not capable of providing assistance when the
bicycle reaches the speed of 20 miles per hour.
(3) Class 3 e-bike shall mean an electric bicycle equipped with a motor that provides
assistance only when the rider is pedaling, and that ceases to provide assistance when the bicycle
reaches the speed of 28 miles per hour.
May 29, 2019
Hearings on round two of the 25% tariff increase set for June 17 2019
In order to submit a written formal comment before June 17 2019 you can click the green button near the top of the page entitled "submit a formal comment" on this page
This is a list of bicycle products affected by this current proposed Tariff as attached in the request to testify by Matt More on behalf of QBP and BPSA regarding this current round of proposed Tariffs (Docket No. USTR-2019-0004)
There are now over 1200 letters officially on file (as of June 13 2019) with the USTR voicing opposition to the tariffs
In accordance with the direction of the President, the U.S. Trade Representative (Trade Representative) proposes a modification of the action being taken in this Section 301 investigation of the acts, policies, and practices of the Government of China related to technology transfer, intellectual property, and innovation. The proposed modification is to take further action in the form of an additional ad valorem duty of up to 25 percent on products of China with an annual trade value of approximately $300 billion. The products subject to this proposed modification are classified in the HTSUS subheadings set out in the Annex to this notice. The Office of the U.S. Trade Representative (USTR) is seeking public comment and will hold a public hearing regarding this proposed modification.
DATES:
To be assured of consideration, you must submit comments and responses in accordance with the following schedule:
June 10, 2019: Due date for filing requests to appear and a summary of expected testimony at the public hearing.
June 17, 2019: Due date for submission of written comments.
June 17, 2019: The Section 301 Committee will convene a public hearing in the main hearing room of the U.S. International Trade Commission, 500 E Street SW, Washington, DC 20436, that begins at 9:30 a.m.
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May 10, 2019
Official list of goods and items affected by Tariff increase on May 10 2019 (part of China trade war)
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July 30, 2018
CPSC asks for responses on a series of questions addressing direct notice and other forms of consumer recall notification
AGENCY:
ACTION:
SUMMARY:
DATES:
ADDRESSES:
FOR FURTHER INFORMATION CONTACT:
SUPPLEMENTARY INFORMATION:
I. Background
A. Recall Effectiveness Workshop
B. Recall Effectiveness Report
- Collaborate on ways to improve direct notice to consumers; and
- collaborate with firms to explore how technology can be used to enhance recall response.
II. Information Requested
A. Direct Notice
B. Product Registration
C. Targeted Notice
D. For Consumers and Other Stakeholders
III. Confidentiality
February 9, 2018
In what may be the first "gig economy" case to be fully decided on the merits a California federal court finds that an independent contractor is not an employee [ Lawson v Grubhub Inc. Case No.15-cv-05128-JSC ]
I highly recommend reading the full decision here as it's a good road map to follow in making the independent contractor employee determination. However part of why it's important not to read too much into individual cases was the judges finding that the Plaintiff was fundamentally "not credible.". Lawson, by his own admission, "gamed the Grubhub driver app". This credibility finding may have hurt the plaintiff in many ways.
This is a good example of the uncertainty involved in trying to determine employment status which is governed in California by the multi-factor test set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal.3d 341 (1989).
The Grubhub case likely has limited precedential value as each employee vs independent contractor determination relies heavily on the specific facts unique to the relationship between the worker and the employer/company. This is what makes these cases so difficult. They literally must all be decided by a trier of fact making the process very expensive and very uncertain for any employer who quite frankly has the deck stacked against it as well as large financial disincentives for litigating these matters.
Plaintiff's counsel did indicate there would be an appeal and was surprised that the federal court did not wait for the California Supreme Court in its anticipated decision in Dynamex Operations West, Inc. v. Superior Court. There the California Supreme Court has agreed to review a Court of Appeal decision that expanded the definition of “employee.” The lower Court of Appeal in Dynamex adopted the much-broader definition of “employ,” meaning “to engage, suffer or permit to work.” expanding the meaning of the term “employee,” to nearly every labor relationship a company would be likely to have.
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August 17, 2017
California Proposition 65 regulations amended to require more specificity on warnings
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December 29, 2016
List of California legislation (bills) that became Law in 2016
In 2016 the Legislature sent Governor Brown 1,059 pieces of legislation, 898 of which the governor signed into law. He vetoed 159 and two become law without signing. We show 5,103 bills were introduced in the State Legislature. Only 20.75% of the bills made it to the Governor's desk and only a mere 17.6% were signed and became law. If we assume each bill is an average of 7 pages long (and some are much longer) that would be about 6,300 pages of new laws! Happy reading! Some of these are real gems.....only became possible through the hard work of lobbyists and special interests! Quite frankly I'm pretty impressed with our 78 year old Governor's ability to wade thru this mess. Having a full time state legislature (unlike most states) is quite frankly both a blessing and a curse.
Now keep in mind that this list is only "legislation" signed or vetoed in 2016. It does NOT include changes in the California administrative code (non legislative) and related "codes" passed by State agencies. Nor does it include voter initiatives passed in 2016. Nor does it include cases decided by the various appellate level courts in California that can greatly affect how a given law is interpreted or enforced, or create all new obligations in and of themselves ("Judicial law" or precedent). This also does not include local laws or ordinances passed by various California counties (58) or other municipalities (482) or other governmental entities. Finally this list only includes laws passed or vetoed in 2016. Some of these take effect January 1, 2017 (typically) but many may not take effect until later or some even earlier (rare). Also keep in mind there are laws passed in 2014-2015 that may just now be taking effect in 2017.
There really is something in this 37 page list for everyone. We were not able to put it in chronological order due to the fact that it was hard enough to avoid duplication with the many press releases that came out in a 12 month period. The order signed is also really not important. What is important is the date the law becomes effective, which can vary for each piece of legislation. The veto and signing statements are hyperlinked in the list but the legislation passed/signed is not. The fastest way to look it up is by typing in the bill number here and making sure you have the right year (2016). Let us know if you see any duplicative entries or if you think we have missed something. The last date anything was signed or vetoed was September 30, 2016 and we are not aware of anything still pending on the Governors desk as of this writing.
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January 15, 2016
The pitfalls of insurance coverage and additional insured certificates issued by Asian based non US admitted insurers
Editor's note: Steven W. Hansen an attorney who defends product manufacturers, distributors and retailers in product liability lawsuits and provides consultation on all matters related to the manufacture and distribution of consumer products. For further questions visit swhlaw.com.
How the problem arises
We receive lots of inquiries each year from both clients and their insurance brokers about how handle additional insured certificates issued to U.S.-based companies from their key Asian based manufacturing suppliers, who almost without exception, use policies issued by Asian based non U.S. admitted/regulated insurers. If you are not closely monitoring and vetting all your suppliers additional insured certificates each year then you better go back to square one, read our article on audits, then read this article. This article does not address EU (European) or Japan based non-U.S. insurers. That is a separate future article.
This article is an attempt to outline some of the many issues with coverage provided by Asian based insurers ("AI's" for purposes of this article) and how to begin to spot these issues and develop strategies to overcome them. This article has been assembled from our first hand experience in claims with Asian based insurers and dealing directly with our client's coverage problems arising therefrom. Your first hand experience and opinion may vary, but we feel that these issues at least need to be identified and addressed by those companies least familiar with them.
Why the coverage exists
You need to understand there is a reason for insurance issued by AIs. First of all there is a need as Asian based manufacturers are usually asked about this coverage by the U.S. companies they supply (or it is required to close the deal). Secondly, AI's are utilized as their coverage is usually much cheaper than U.S.-based coverage, even for the same limits of coverage. There is a good reason for this; in most cases the AI coverage is more limited in scope than most U.S. policies issued to the U.S. companies buying products from Asia and also because the AI's "loss ratio" tends to be lower. This means that the ratio of dollars paid out on claims to dollars of premiums collected is better than comparable U.S. insurers loss ratios. This may be partly due to the fact that the AI's can freely deny so many U.S. claims using their restrictive policies and their is no recourse by U.S. additional insureds in U.S. courts against the AI's directly.
Questions that have to be asked when vetting such coverage
The first question of course is the experience of your insurance broker and in house attorney in dealing with such AI's and their claims process. If you/they don't know the right questions to ask then seek outside expertise.
Unknown Ratings
One problem with AI's is they tend to not be rated by U.S. insurer rating agencies with respect to their financial strength. The reasons for this are varied but can be due to the fact that the AI's will not submit to regular audits by the U.S. rating agencies. The lack of a U.S.-based rating can seriously limit the use of AI's coverage when your company is trying to sell items to large companies like Walmart or Amazon.
Restrictive policies
AI's also tend to issue very restrictive policies when compared to U.S. policies. One way they do this is by only offering "claims made" (versus "occurrence") coverage which creates a whole host of issues as to how claims need to be timely handled. If you have never heard these phrases, again go back to square one. AI's also tend to use manuscripted or non standard policy provisions unlike those issued by most U.S. insurers. This unique policy terminology becomes a bigger problem as U.S. courts never get the opportunity to interpret it as they do U.S.- based policies. U.S. policies also tend to use very standard (copyrighted) policy language not used by their Asian counterparts. The reason this language is used by U.S. insurers of course is so that there is some degree of predictability when courts interpret the language.
Inexperienced claims staff
Not only are the policies a problem but the claims staff (internal and third party) can be inexperienced (or in some cases untrained) and are usually totally unfamiliar with the U.S. legal process and case law as it respects the claim process, coverage and liability. Or sometimes what knowledge they do have is used against the U.S. additional insureds. In our experience most AI staff routinely confuse coverage and liability. In some instances claims are never even opened as legitimate claims are "denied" (or more likely "ignored") before they ever reach the AI, or are denied for reasons that would receive much higher scrutiny in the U.S.
Limited policies
The AI policies are usually financially restrictive as well when compared to U.S.- issued policies. There are often large self insured retention amounts (SIR's) on these policies, in addition to low per claim and aggregate limits as well as limits on total defense costs that erode the available limits of the policy even further (so called "burning limits" policies). The Asian suppliers (with the blessing of the AI and the AI broker) also tend to issue too many additional insured certificates to too many U.S. companies which further erodes the viability of the policies. This creates a very murky situation should multiple claims later arise.
Limited usefulness
Due to these issues above many U.S.-based insurers will not give U.S.-based certificate holders any "credit" for these AI issued certificates. What this means is that these AI certificates are not worth the paper they are written on (at least insofar as U.S. insurers are concerned). Thus U.S. insureds won't get any rate reductions on their own U.S. coverage due to the fact that U.S. insurers are betting on the AI's not coming through for the U.S. additional insureds when needed.
Risky strategy
At the end of the day what this really means is that whether or not your U.S.-based company gets a defense and indemnification in a U.S. suit (or other country other than the AI's home country) from an AI comes down to how much pressure can be applied by your company to the Asian supplier, to its Asian based broker and ultimately the AI. That's a very risky strategy which can drastically change from one year to the next as players in the game change, let alone the viability of your long term business relationship with the Asian supplier.
Looking Forward
Again this all comes down to due diligence, experience in the AI market, timing and relative bargaining power. If your company is not getting the right advice from the insurance brokers and attorneys consulting with it, asking the right questions and offering solutions at the right time in the process, you will not get anywhere and may end up being counterproductive. Trying to retroactively work around or safeguard against these issues/pitfalls can be frustrating as you are not negotiating directly with the AI, nor are you on equal footing with them as compared to your Asian supplier. Many "contractual workarounds" attempted with the Asian insured supplier will not yield results for the simple reason that the AI is not a party to the contract and its insured has no power to bind it. The biggest problem with insurance is that you don't know you have a problem usually until years after the coverage was placed. At that point its too late to try to "fix" it.
Evolving picture
There are a lot more legal and underwriting issues and strategies involved than just the few mentioned in this article. Its never too late to start fixing these potential gaps in coverage. But they generally take a few policy renewals to iron out. And even then its an ongoing yearly battle as the players and policies in the shell game often change.
The information in this column is subject to change and may not be applicable in your state. It is intended as a thought-provoking discussion of general legal principles and does not constitute legal advice. Any opinions expressed herein are solely those of the author.
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