Home | Subscribe | Contact Us | Advertise Home | Subscribe | Contact Us | Advertise
An Oregon distributor’s VDP error helps coin a new definition of printing.
Oops
Some things to consider about errors & omissions policies
• There are no standard policy wordings for errors & omissions (E&O) coverage. Each policy must be read carefully to make sure the coverage fits your exposures.
• Some policies exclude punitive damages, and some include defense expenses within the limit of liability. The wording of these policies can matter a lot.
• In addition to a completed application, an insurance underwriter may ask for copies of contracts and a description of your internal procedures. Come prepared, and if you don’t have quality control procedures in place, start now.
• Examine your experience with claims in the past, as underwriters may ask about it, too. Is it luck, or are you doing something that prevents them in the first place?
Source: Glenda Wertz, financial services broker at American E&S, excerpted from Insurance Journal, August 2004. www.insurancejournal.com.
When you hear web-to-print technology has changed everything, you know that means the sales cycle is longer and customization and color are ubiquitous. But the radical, sweeping change of web-to-print has touched nearly every corner of the industry, including some you may have forgotten. Many don’t realize that web-to-print work could change your business insurance situation—at least Dick Ipsen didn’t, until last summer’s VDP snafu.
Ipsen, CEO of DiversiForm Inc., Portland, Ore., remembers reading a white paper PSDA published three years ago by Frank Romano. “I realized then that to be a printing company of the future, we had to be the ones to control the data,” he says. The company jumped in with both feet and now handles a lot of data management work for auto dealerships.
Last July, DiversiForm started a routine direct mail campaign for one of the company’s regular accounts. They print several hundred thousand service reminder letters for a series of 30 auto dealerships, part of which is paid for by the dealerships’ parent company in a co-op agreement. DiversiForm also handles the co-op paperwork so that the dealerships can get reimbursed for the media/advertising spending. The company no longer wanted to advertise to bad prospects, and new co-op requirements excluded some of the older records from the mailing.
“Except that’s not what happened,” Ipsen explains. “We made a mistake in writing the variable programming that prints the letters. We didn’t change it to exclude ineligible ones, and the disallowed letters got in the mail.” He estimates that 175,000 letters were affected over four months. The company did not notice until the co-op reimbursement claims were rejected—the allowable ad spend didn’t match the post office receipts. It was a $58,000 mistake.
DiversiForm, like many printers or distributors who own printing equipment, pays for printer’s errors and omissions insurance. Traditional policies like the ones at Sentry, Hartford and others cover mechanical errors and necessary reprints, but this instance tested the definition of “mechanical” and “error.” “The truth is,” Ipsen says, “our control of the data makes us successful, and we wouldn’t have this job if we weren’t controlling the data.” Although DiversiForm is the printer, the company is also responsible for getting the data right, he says. The insurance company denied the company’s appeal, and Ipsen decided to eat the cost.
“In the variable imaging world, the printer controls the information on behalf of the customer and we’re responsible for the mistakes,” he admits. “This is a printing error, in the new world of printing.” The policy, however, only covered damages from printing services, which were “part of the mechanical work of producing printed material,” Ipsen says.
After the claim was initially denied, Ipsen had a conversation with the insurance rep, who revealed that the upcoming 2008 policy would have a broader definition of printing. The new policy would address “errors directly related to the processing peculiar to the printing or the graphic arts industry,” Ipsen cites. As discussions of the definition continued, the insurance company decided to reverse its decision on the claim and consider the situation under the 2008 standards, even though it was filed in 2007. The company reimbursed DiversiForm.
“If this issue hadn’t come up for me, I probably wouldn’t have considered it,” Ipsen says. That sentiment is common among printers and print service providers, says Peter McCann, director of the Graphic Arts Insurance Agency (a co-op owned by the Printing Industry of New England). Introducing new media services requires an examination of a company’s errors and omissions policy.
“If you’ve changed from a printer to an internet marketer, or you’re developing software for inventory or fulfillment, you need to talk to your insurance carrier,” McCann says. “That’s more of an electronic document exposure, not a printing exposure, and it’s a radically different world.” It could be the same insurance, as in Ipsen’s case, or two different policies entirely.
Although McCann isn’t familiar with anyone who’s doing transaction work, he admits certain situations could leave a printer exposed. Running a job that prints to PDF or paper on a record-by-record basis, such as a bank statement, could be one of those.
“I know we’re very lucky in this instance,” Ipsen says. “We’re lucky that we have errors and omissions insurance and that our carrier was flexible with us. But I was ready to learn a lesson,” he says, grateful that it was a positive one.
—Rebecca Trela