[Federal Register Volume 59, Number 118 (Tuesday, June 21, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-14981]
[[Page Unknown]]
[Federal Register: June 21, 1994]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Office of the Assistant Secretary for Public and Indian Housing
24 CFR Parts 905 and 965
[Docket No. R-94-1676; FR-3275-F-02]
RIN: 2577-AB21
Lead-Based Paint Liability Insurance Coverage for Housing
Authorities
AGENCY: Office of the Assistant Secretary for Public and Indian
Housing, HUD.
ACTION: Final rule.
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SUMMARY: Public housing agencies and Indian housing authorities
(collectively, housing authorities or HAs) conducting lead-based paint
testing and abatement activities need to assure that they have adequate
liability insurance coverage to cover the hazards inherent in these
activities, in order to comply with insurance requirements of their
Annual Contributions Contracts with HUD. This rule prescribes the
nature and quality of liability insurance to protect HAs and
contractors performing this work for HAs. The rule is being issued to
comply with directions in the Department's appropriation act for Fiscal
Year 1992 to adopt regulations specifying the nature and quality of
insurance to cover HAs in the performance of this work.
EFFECTIVE DATE: July 21, 1994.
FOR FURTHER INFORMATION CONTACT: John Comerford, Director, Financial
Management Division, Office of Assisted Housing, Department of Housing
and Urban Development, 451 Seventh Street, SW., Washington, DC 20410,
telephone (202) 708-1872. A telecommunications device for hearing or
speech-impaired persons is available at (202) 708-0850. (These are not
toll-free telephone numbers.)
SUPPLEMENTARY INFORMATION:
I. Paperwork Reduction Act Statement
The information collection requirements contained in this rule have
been submitted to the Office of Management and Budget (OMB) for review
under the Paperwork Reduction Act of 1980 (44 U.S.C. 3501-3520) and
approved under OMB control number 2577-0187, which is valid through
August 1994.
II. Background
A. HUD Contract Requirements for Insurance
Under their Annual Contributions Contract (ACC) or Mutual Help
Annual Contributions Contract (MHACC) with HUD, Public Housing Agencies
(PHAs) and Indian Housing Authorities (IHAs) (hereinafter referred to
as HAs) must carry adequate (1) owner's, landlord's, and tenant's
public liability insurance; and (2) manufacturer's and contractor's
public liability insurance (both now combined and referred to by the
insurance industry as commercial general liability insurance). When the
conditions of the ACC or MHACC were formulated in 1969, it was not
anticipated that there was any reason to address the issue of bodily
injury due to the ingestion of lead-based paint, since the health
hazard of this chemical was not well-known. Also, at that time, no
pollution exclusion in the general liability policy was thought to
apply to claims of this nature.
However, during subsequent years, as environmental claims started
arising, insurance companies began to exclude pollution and
environmental liability; and it is the opinion of most insurance
companies that, since lead is a chemical which is included in the
definition of a ``pollutant'', claims arising from lead poisoning are
excluded from current policies. However, some courts have differed with
the insurance companies' position on pollution exclusions.
HAs are engaging in lead-based paint testing and abatement, often
funded by HUD under the Comprehensive Improvement Assistance Program or
Comprehensive Grant Program, which support rehabilitation work needed
to improve the condition of public housing units. The Department
published a document in the Federal Register to guide these activities,
entitled ``Lead-Based Paint: Interim Guidelines for Hazard
Identification and Abatement in Public and Indian Housing'' (55 FR
14556, April 18, 1990, and revised 55 FR 39874, September 28, 1990, and
56 FR 21556, May 9, 1991). Use of these guidelines is the subject of
other program regulations and notices of funding availability, and it
is not addressed in this rule.
B. Appropriations Act
The Departments of Veterans Affairs and Housing and Urban
Development Appropriations Act for Fiscal Year 1992, Pub L. 102-139,
105 Stat. 736 (approved October 28, 1991) (``1992 Act'') included an
express provision concerning selection of insurance to protect against
the liability hazards involved in the testing and abatement of lead-
based paint, at 758 and 759:
Hereafter, until the Department of Housing and Urban Development
has adopted regulations specifying the nature and quality of
insurance covering the potential personal injury liability exposure
of public housing authorities and Indian housing authorities (and
their contractors, including architectural and engineering services)
as a result of testing and abatement of lead-based paint in
federally subsidized public and Indian housing units, said
authorities shall be permitted to purchase insurance for such risk,
as an allowable expense against amounts available for capital
improvements (modernization): Provided, That such insurance is
competitively selected and that coverage provided under such
policies, as certified by the authority, provides reasonable
coverage for the risk of liability exposure, taking into
consideration the potential liability concerns inherent in the
testing and abatement of lead-based paint, and the managerial and
quality assurance responsibilities associated with the conduct of
such activities.
In other words, until a final rule is effective, HAs may proceed
with lead-based paint abatement activities, selecting their own lead-
based paint liability coverage so long as they determine it is
appropriate for their needs.
A proposed rule was published on November 2, 1993 (FR 58513) which
covered this subject. This final rule responds to comments received on
that proposed rule.
III. Public Comments
The Department received comments from nine public sources. Three
were from housing authorities. Two were from testing/abatement
contractors or consultants. Three were from PHA-owned insurance
entities or their administrators, and one was from a trade association.
Comment. Three sources questioned HUD's reasoning in not attempting
to secure another master insurance policy that would provide liability
coverage for both the contractor performing testing and abatement work,
as well as the HA, and requested reconsideration of this decision. Two
of the sources also recommended that such master policy also cover any
type of contractor (plumbing, heating, mechanical, electrical, painting
and decorating) who might come in contact with lead-based paint while
performing their work.
Response. The Department rejects this recommendation for a number
of reasons. In its report to Congress dated September 24, 1991,
concerning the previous master policy which expired on October 1, 1993,
the HUD Inspector General questioned the involvement of HUD staff in
the procurement of that policy. The IG felt that since this was not a
Federal procurement, but an HA procurement subject to State procurement
statutes and regulations, HUD's involvement should have been only in an
advisory capacity. In addition, it is extremely doubtful that any
insurance company would consider issuing a liability insurance policy
to a HA that would cover as insured parties, contractors engaged in
performing various types of skilled work only while working on HA
premises. Should the housing authorities or any contractor trade
associations desire to secure a master policy that meets the
requirements of this rule and provides adequate protection for the
exposure, they are free to do so. Also, since the passage of the
Residential Lead-Based Paint Hazard Reduction Act of 1992, which is
Title X of the Housing and Community Development Act of 1992 (42 U.S.C.
4851-4856), other public and private housing owners are required to
engage in lead-based paint testing and abatement. Since contractors
performing these operations need insurance when working for other
housing owners, a master policy obtained by HUD insuring them only
while performing work for HAs would not fill all of their needs. In
addition, there appears to be a more available market for this type of
insurance than prevailed in 1990 when the previous master policy was
obtained.
Comment. The rule should have a ``grandfather clause'' allowing HAs
and contractors to continue coverage that was obtained prior to the
effective date of the rule even though the policy does not meet the
rule requirements.
Response. The Department agrees that it should not require midterm
cancellation of any policy that would result in a short rate penalty in
order to comply with the rule and has modified the rule accordingly. It
will be necessary, however, to comply with the requirements of the rule
when the policy in force on the effective date of the rule expires.
Comment. In order to expand the availability of insurance policies
that would qualify under the rule, allow a ``claims made'' form as long
as it has a discovery period.
Response. The Department is willing to allow a ``claims made''
form, as long as it has a discovery period of at least five years, and
the rule has been changed to that effect.
Comment. Professional Liability insurance for architects and
engineers cannot be obtained on an ``occurrence'' form and insurance
companies insuring the contractors and HAs for liability do not want to
add this coverage to their policies.
Response. It was not the intent that this rule was to apply to
Professional Liability policies obtained by architectural and
engineering firms, and the rule has been clarified accordingly. The HA,
however, should have these firms provide evidence that they do have
some type of Professional Liability insurance in effect.
Comment. Even though the contractor purchases the insurance and
names the HA as an additional insured, the HA should also be required
to purchase primary insurance to cover any exposure to liability for
claims not directly related to work being done by the contractor.
Response. While such an exposure may exist, the Department believes
that the exposure is more limited than the exposure that already exists
prior to any abatement work, and liability insurance to protect against
claims for the mere existence of lead-based paint has never been
required. Although not a requirement, there is no prohibition against
the HA purchasing this insurance if it feels it is necessary and can
afford to do so.
Comment. The rule should allow defense costs to be included within
the policy limit, since some of the insurance companies providing this
insurance are now issuing policies on this basis.
Response. To make coverage more readily available, the Department
is willing to allow a limit being placed on the cost of defense prior
to being deducted from the limit of liability, as long as the defense
limit is not less than $250,000 per claim. The rule has been amended to
that effect.
Comment. The rule should encourage insurers to underwrite the risk
by requiring them to analyze the risk of each abatement project and
assure that there is proper guidance and technical assistance
throughout the abatement process.
Response. The Underwriting Department of each insurance company is
charged with the responsibility of approving and accepting each risk
they insure. Most insurance companies also have Loss Control
Departments that work with their insureds in an effort to promote safe
work habits and procedures and reduce losses. It would be inappropriate
for HUD to attempt to dictate to the insurance company how they should
underwrite and service the accounts they insure.
Comment. Since the statutory requirement found in the 1992
Appropriations Act that coverage be purchased through a competitive
process expires with the promulgation of this regulation, HAs should be
entitled to purchase this coverage from a HA-owned insurance entity
without competitive bidding.
Response. We agree. Since issuance of the Final Rule setting
Financial Standards for Housing Authority-Owned Insurance Entities
which became effective on November 4, 1993, HAs are now authorized to
obtain any line of insurance from a non-profit insurance entity that is
owned and controlled by HAs and approved by HUD. Since this is now
permitted by 24 CFR 905.190 and 965.201, no additional clarification in
this rule is necessary.
Comment. Paragraph (e) should be eliminated from the rule since it
is gratuitous.
Response. The provision concerning the HA's responsibility for
supervision of testing and abatement activity has been moved to the
general paragraph.
Comment. Requiring small (some as low as one or two persons)
contractors to purchase this type of insurance will have an enormous
impact on small businesses due to the high minimum premiums and total
cost involved.
Response. While this may very well be true, the Department is not
willing to waive the insurance requirement for small businesses. The
underwriting standards of insurance companies may preclude them from
insuring accounts that do not generate a certain minimum premium.
However, if the Department were to waive the insurance requirement for
small contractors, it would place both the contractor and the HA at
risk for uninsured claims.
Comment. The minimum required limit should be raised to $1,000,000
per occurrence with no annual aggregate being permitted.
Response. The $500,000 limit is only a minimum. Higher limits are
permitted and highly recommended. It was not felt that the Department
should require substantially higher minimum limits than required for
other forms of insurance, particularly automobile and commercial
general liability. The absence of an annual aggregate limit would be
very desirable. However, few insurance companies are willing to issue a
policy without one. To insist upon having no annual aggregate limit
would severely restrict the market availability and certainly increase
the cost.
Comment. The rule should address all forms of insurance including
workers compensation, general liability and professional liability.
Response. This rule is concerned only with the provisions of Pub.
L. 102-139, 105 Stat. 736 concerning selection of insurance to protect
against the liability hazards involved in the testing and abatement of
lead-based paint.
IV. Findings and Certifications
A. Environmental Review
A Finding of No Significant Impact with respect to the environment
was made in accordance with HUD regulations at 24 CFR part 50 that
implement section 102(2)(C) of the National Environmental Policy Act of
1969, 42 U.S.C. 4332, when the proposed rule was issued. No changes
made in this final rule require any changes in that finding. The
Finding of No Significant Impact is available for public inspection and
copying between 7:30 a.m. and 5:30 p.m. weekdays in the Office of the
Rules Docket Clerk, room 10276, 451 Seventh Street, SW., Washington, DC
20410-0500.
B. Federalism Impact
The General Counsel, as the Designated Official under section 6(a)
of Executive Order 12612, Federalism, has determined that the policies
contained in this rule will not have substantial direct effects on
states or their political subdivisions, or the relationship between the
Federal Government and the States, or on the distribution of power and
responsibilities among the various levels of government. This rule
merely gives standards used by HUD in approving the sources of
insurance coverage selected by HAs in accordance with longstanding
provisions of the contracts between them and HUD. As a result, the rule
is not subject to review under the order.
C. Impact on the Family
The General Counsel, as the Designated Official under Executive
Order 12606, The Family, has determined that this rule does not have
potential for significant impact on family formation, maintenance, and
general well-being, and, thus, is not subject to review under the
order. No significant change in existing HUD policies or programs will
result from promulgation of this rule, as those policies and programs
relate to family concerns.
D. Impact on Small Entities
The Secretary, in accordance with the Regulatory Flexibility Act (5
U.S.C. 605(b)), has reviewed this rule before publication and, by
approving it, certifies that this rule does not have a significant
economic impact on a substantial number of small entities. The rule is
limited to specifying the nature and quality of liability insurance for
the hazards of testing for and abatement of lead-based paint; and while
it may be more difficult for small entities to obtain the insurance or
to obtain it at a reasonable cost, this is a factor controlled by the
insurance marketplace, and not by the establishment of this rule.
E. Regulatory Agenda
This rule was listed as item 1703 under the Office of Public and
Indian Housing in the Department's Semiannual Agenda of Regulations
published on April 25, 1994 (59 FR 20424, 20474) under Executive Order
12866 and the Regulatory Flexibility Act.
F. Catalog
The Catalog of Federal Domestic Assistance numbers for the public
housing and Indian housing programs affected by this rule are 14.850
and 14.851.
List of Subjects
24 CFR Part 905
Aged, Energy conservation, Grant programs--housing and community
development, Grant programs--Indians, Individuals with disabilities,
Lead poisoning, Loan programs--housing and community development, Loan
programs--Indians, Low and moderate income housing, Public housing,
Reporting and recordkeeping requirements.
24 CFR Part 965
Energy conservation, Government procurement, Grant programs--
housing and community development, Lead poisoning, Loan programs--
housing and community development, Public housing, Reporting and
recordkeeping requirements, Utilities.
Accordingly, the Department amends 24 CFR parts 905 and 965 as
follows:
PART 905--INDIAN HOUSING PROGRAMS
1. The authority citation for part 905 continues to read as
follows:
Authority: 25 U.S.C. 450e(b); 42 U.S.C. 1437aa, 1437bb, 1437cc,
1437ee, and 3535(d).
2. A new Sec. 905.195 is added to subpart B, to read as follows:
Sec. 905.195 Lead-based paint liability insurance coverage.
(a) General. The purpose of this section is to specify what HUD
deems reasonable insurance coverage with respect to the hazards
associated with testing for and abatement of lead-based paint that the
IHA undertakes, in accordance with the IHA's ACC or MHACC with HUD. The
insurance coverage does not relieve the IHA of its responsibility for
assuring that lead-based paint testing and abatement activities are
conducted in a responsible manner.
(b) Insurance coverage requirements. When the IHA undertakes lead-
based paint testing and abatement, it must assure that it has
reasonable insurance coverage for itself for potential personal injury
liability associated with those activities. If the work is being done
by IHA employees, the IHA must obtain a liability insurance policy
directly to protect the IHA. If the work is being done by a contractor,
the IHA may obtain, from the insurer of the contractor performing this
type of work in accordance with a contract, a certificate of insurance
providing evidence of such insurance and naming the IHA as an
additional insured; or it may obtain such insurance directly. Insurance
must remain in effect during the entire period of testing and abatement
and must comply with the following requirements:
(1) Named insured. If purchased by the IHA, the policy shall name
the IHA as insured. If purchased by an independent contractor, the
policy shall name the contractor as insured and the IHA as an
additional insured, in connection with performing work under the IHA's
lead-based paint testing and abatement contract. If the IHA has
executed a contract with a Resident Management Corporation (RMC) to
manage a building/project on behalf of the IHA, the RMC shall also be
an additional insured under the policy in connection with the lead-
based paint testing and abatement contract. (The duties of the RMC are
similar to those of a real estate management firm.)
(2) Coverage limits. The minimum limit of liability shall be
$500,000 per occurrence written, with a combined single limit for
bodily injury and property damage.
(3) Deductible. A deductible, if any, may not exceed $5,000 per
occurrence.
(4) Supplementary payments. Payments for such supplementary costs
as the costs of defending against a claim must be in addition to, and
not as a reduction of, the limit of liability. However, it will be
permissible for the policy to have a limit on the amount payable for
defense costs. If a limit is applicable, it must not be less than
$250,000 per claim prior to such costs being deducted from the limit of
liability.
(5) Occurrence form policy. The form used must be an ``occurrence''
form, or a ``claims made'' form that contains an extended reporting
period of at least five years. (Under an occurrence form, coverage
applies to any loss if the policy was in effect when the loss occurred,
regardless of when the claim is made.)
(6) Aggregate limit. If the policy contains an aggregate limit, the
minimum acceptable limit is $1,000,000.
(7) Cancellation. In the event of cancellation, at least 30 days'
advance notice is to be given to the insured and any additional
insured.
(c) Exception to requirements. Insurance already purchased by the
IHA or contractor and in force on the date this rule is effective which
provides coverage for the hazards involved in the testing for and
abatement of lead-based paint, shall be considered as meeting the
requirements of this rule until the expiration of the policy. This rule
is not applicable to architects, engineers, or consultants who do not
physically perform lead-based paint testing and abatement work.
(d) Insurance for the existence hazard. An IHA may also purchase
special liability insurance against the existence hazard of lead-based
paint, although it is not a required coverage. An IHA may purchase this
coverage if, in the opinion of the IHA, the policy meets the IHA's
requirements, the premium is reasonable, and the policy is obtained in
accordance with applicable procurement standards of this subpart B. If
this coverage is purchased, the premium must be paid from funds
available under the Performance Funding System or from reserves.
3. A new Sec. 905.585 is added to subpart H, to read as follows:
Sec. 905.585 Insurance coverage.
For the requirements concerning an IHA's obligation to obtain
reasonable insurance coverage with respect to the hazards associated
with testing for and abatement of lead-based paint, see Sec. 905.195.
PART 965--PHA-OWNED OR LEASED PROJECTS--MAINTENANCE AND OPERATION
4. The authority citation for part 965 continues to read as
follows:
Authority: 42 U.S.C. 1437, 1437a, 1437d, 1437g, 3535(d). Subpart
H is also issued under 42 U.S.C. 4821-4846.
5. A new Sec. 965.215 is added to subpart B, to read as follows:
Sec. 965.215 Lead-based paint liability insurance coverage.
(a) General. The purpose of this section is to specify what HUD
deems reasonable insurance coverage with respect to the hazards
associated with testing for and abatement of lead-based paint that the
PHA undertakes, in accordance with the PHA's ACC with HUD. The
insurance coverage does not relieve the PHA of its responsibility for
assuring that lead-based paint testing and abatement activities are
conducted in a responsible manner.
(b) Insurance coverage requirements. When the PHA undertakes lead-
based paint testing and abatement, it must assure that it has
reasonable insurance coverage for itself for potential personal injury
liability associated with those activities. If the work is being done
by PHA employees, the PHA must obtain a liability insurance policy
directly to protect the PHA. If the work is being done by a contractor,
the PHA may obtain, from the insurer of the contractor performing this
type of work in accordance with a contract, a certificate of insurance
providing evidence of such insurance and naming the PHA as an
additional insured; or it may obtain such insurance directly. Insurance
must remain in effect during the entire period of testing and abatement
and must comply with the following requirements:
(1) Named insured. If purchased by the PHA, the policy shall name
the PHA as insured. If purchased by an independent contractor, the
policy shall name the contractor as insured and the PHA as an
additional insured, in connection with performing work under the PHA's
lead-based paint testing and abatement contract. If the PHA has
executed a contract with a Resident Management Corporation (RMC) to
manage a building/project on behalf of the PHA, the RMC shall be an
additional insured under the policy in connection with the lead-based
paint testing and abatement contract. (The duties of the RMC are
similar to those of a real estate management firm.)
(2) Coverage limits. The minimum limit of liability shall be
$500,000 per occurrence written, with a combined single limit for
bodily injury and property damage.
(3) Deductible. A deductible, if any, may not exceed $5,000 per
occurrence.
(4) Supplementary payments. Payments for such supplementary costs
as the costs of defending against a claim must be in addition to, and
not as a reduction of, the limit of liability. However, it will be
permissible for the policy to have a limit on the amount payable for
defense costs. If a limit is applicable, it must not be less than
$250,000 per claim prior to such costs being deducted from the limit of
liability.
(5) Occurrence form policy. The form used must be an ``occurrence''
form, or a ``claims made'' form that contains an extended reporting
period of at least five years. (Under an occurrence form, coverage
applies to any loss regardless of when the claim is made.)
(6) Aggregate limit. If the policy contains an aggregate limit, the
minimum acceptable limit is $1,000,000.
(7) Cancellation. In the event of cancellation, at least 30 days'
advance notice is to be given to the insured and any additional
insured.
(c) Exception to requirements. Insurance already purchased by the
PHA or contractor and in force on the date this rule is effective which
provides coverage for the hazards involved in testing for and abatement
of lead-based paint, shall be considered as meeting the requirements of
this rule until the expiration of the policy. This rule is not
applicable to architects, engineers, or consultants who do not
physically perform lead-based paint testing and abatement work.
(d) Insurance for the existence hazard. A PHA may also purchase
special liability insurance against the existence hazard of lead-based
paint, although it is not a required coverage. A PHA may purchase this
coverage if, in the opinion of the PHA, the policy meets the PHA's
requirements, the premium is reasonable, and the policy is obtained in
accordance with applicable procurement standards. (See 24 CFR part 85
and Secs. 965.205.) If this coverage is purchased, the premium must be
paid from funds available under the Performance Funding System or from
reserves.
6. A new Sec. 965.705 is added to subpart H, to read as follows:
Sec. 965.705 Insurance coverage.
For the requirements concerning a PHA's obligation to obtain
reasonable insurance coverage with respect to the hazards associated
with testing for and abatement of lead-based paint, see Sec. 965.215.
Dated: June 13, 1994.
Joseph Shuldiner,
Assistant Secretary for Public and Indian Housing.
[FR Doc. 94-14981 Filed 6-20-94; 8:45 am]
BILLING CODE 4210-33-P