Revolution in Risk Management
By: Kevin Cunningham
Editor’s Note: Recently, a jury absolved one of North America’s largest crane-rental companies of any fault in a major crane accident because the crane company had acted under the direction of the project’s general contractor. Since the crane-rental company had not made the decisions that led to the accident, it was removed as a defendant in the more-than-$850-million lawsuit. The seeds of that legal victory were sown nearly three decades earlier when a sharp lawyer, an enterprising insurance executive, and a group of tough-minded crane owners began applying a legal concept called the borrowed-servant doctrine to crane accident litigation.
Lately, we’re seeing a lot of opinions and attention about the Borrowed Servant Doctrine being applied to crane operations.
Some of the information is factual and accurate; some of it appears to be self-gratifying blather.
Here’s a historical perspective about how the borrowed servant doctrine began being applied to crane operations 27 years ago.
When used properly in rental agreements, the doctrine is of enormous benefit to crane owners because it puts responsibility for outcomes on whoever makes the key decisions that leads to them.
For example, if the site owner directs a crane operator to make a lift in a certain way from a certain spot and something goes awry, the doctrine holds the site owner responsible, not the crane service company.
The Borrowed Servant Doctrine has existed in law for many decades, but it was first applied to crane rental operations nearly 30 years ago by attorney Robert C. Moore.
At that time, nine owners of major crane rental companies recognized that crane-rental operations were being unfairly held accountable in court for accidents that were beyond their control, and that the resulting payouts were causing their insurance premiums to skyrocket.
The crane-owner group included George Bragg, Earl Johnson, Brock Settlemier, Don Russell, John Bohne, Jimmy Lomma, Delynn Burkhalter, Alan Barnhart, and Larry Curran.
The group asked attorney Moore to find legal grounds that would help them have a more equitable chance of winning in court when someone else made the decisions that led to an accident.
Changing the Scales of Justice
In April 1996, these industry leaders literally changed the course of the scales of justice in crane risk management.
I was there, and I humbly experienced this firsthand at the initial SC&RA risk management task force formed by the board of directors on behalf of their
Those 10 industry pioneers (nine crane owners and attorney Moore) got together on a risk management task force to create a fighting chance for crane owners to prevail when lawsuits were filed against their companies.
That is where the Borrowed Servant Doctrine began its powerful course of helping protect crane owners in the United States.
The protection was sorely needed.
At the time, insurance costs were climbing exponentially because of growing litigation outcomes in high-profile cases like the “Big Blue” accident in Milwaukee and a major tower crane loss in San Francisco.
Our industry needed something radically different to change the trajectory of growing risk factors. Fortunately, this group of industry leaders brought about changes that still help protect all crane owners today.
Contract Changes Reduce Risk
Once attorney Moore identified the Borrowed Servant Doctrine as the legal basis for stronger protection of crane owners, but in order to be most effective, the concept needed to be in the contract between the crane owner and its customer.
In the early 2000s, with the support of the nine crane owners named above, we did that by adding the required language and expanding the daily work ticket that governed the relationship between the crane owner and the customer.
When a customer signed the work ticket at a job, they were acknowledging that they were in control of crane use and its outcomes.
That action expanded the scope of contract risk protection and broadened our claims/contract risk protection by rightfully placing responsibility on the shoulders of the entity that was directing crane operation and making the key decisions.
In addition to expanding the borrowed servant application, we broadened contract scope to include controlling entity and the Spearin Doctrine, which holds that a contractor should not be responsible for damages that, through no fault of its own, occur when the project owner’s plans and specifications are defective.
By the mid 2000s, the contract had evolved with even more improvements in terms and conditions -- and it all had begun with the rollout of the Borrowed Servant Doctrine in 1996.
Contract risk evolution has, over the years, introduced three key improvements:
1. The chain of contractual risk allocation has gained acceptance throughout the construction industry.
2. Equipment value certainty for insurance limits have been included in contract terms and conditions.
3. Responsibility for equipment setup, inspection, operation, and maintenance have gained acceptance.
Over the years, in most instances, the crane rental contract has come to protect the crane owner/lessor.
That means risk would end at the party who hired the crane or the crane and operator.
Before, general contractors typically had assumed they were well insulated from liability when a crane accident involved a crane hired by a subcontractor (or sub-subcontractor).
However, if risk transfer ends at the hiring subcontractor, downstream subcontractors may not have enough insurance to cover a large loss.
That encourages a plaintiff’s lawyer to try to also implicate a general contractor to share in the loss.
The Borrowed Servant Rule Defined
The borrowed servant rule is a legal doctrine that says that if an employer (usually referred to as the special employer) borrows a worker from another employer (usually referred to as the general employer), the special employer can be held liable for the borrowed employee’s actions, even though a permanent relationship does not exist.
Key factors in determining whether a contractor can be deemed as special employer under the rule include:
1. Control and supervision
- Length of employment
- The right to control the details of the work (beyond just speculation of details)
- The right to discharge
- Control of employee schedule to time off / sick time
- Whether the employee agreed to the new situation
2. Express or implied consent of the general employer
3. Work within the scope of the special employer’s work
Forensic Investigation is Crucial
But the idea of the borrowed servant is only half the puzzle.
One crucial factor missing in recent articles about the borrowed servant concept is any reference to forensic accident investigation – a crucial piece of the puzzle.
The Borrowed Servant Doctrine applies only if an accident resulted from a mistake made by a project’s controlling entity, so finding out precisely what caused an accident is vital to using the doctrine as a defense.
If the accident came from equipment failure or some other cause, the Borrowed Servant Doctrine may not apply.
Successful risk transfer starts with the rental contract’s terms, determining an accident’s cause through proper, expert, forensic engineering is vital to protecting the crane owner’s interests.
Key considerations include being aware of job-site actions that could influence the borrowed servant rule and affect contractual intent.
When contracting for the use of cranes, the parties must understand how the contract allocates risk, and how forensic accident investigation is needed to validate use of borrowed-servant rules.
According to Dr. Jim Wiethorn, world renowned forensic engineer and expert witness in crane accidents, “The Borrowed Servant Doctrine can be a very useful risk management tool for crane owners in certain accident scenarios. As long as the crane owner operations include the three key factors (noted previously in this article), coupled with forensic facts and defense counsel’s knowledge and use of ASME B30.5 standards for duties and responsibilities, the Borrowed Servant Doctrine has proven to be an appropriate application for many crane operations.”
Beyond Contractual Risk Management
Having disciplined contract terms and conditions can help protect a company in case of an accident, but it’s equally important to develop effective risk-management systems that help keep accidents from happening.
The new generation of crane-company leaders can strengthen their businesses by building risk management capabilities beyond contract protections.
Here are five new risk management considerations to help today’s crane leaders move beyond the traditional safety and basic contractual risk management contributions that our predecessor owner/leaders so graciously pioneered for the good of our industry back in the day:
1. Reset your company aspiration for risk management.
This requires clear objectives and clarity on risk levels and appetite. Risk managers should talk regularly and openly to company leaders to better understand how people across the company think about risk, and to share strategies that nurture risk-versus-return decision making.
2. Establish agile risk management practices.
As the crane risk environment becomes more unpredictable, the need for agile risk management grows. In practice, this means putting in place cross-functional teams empowered to make quick decisions on innovating and managing risk.
3. Harness the power of data and analytics.
The tools of the digital revolution can help crane companies improve risk management. Data streams from traditional and non-traditional sources can broaden and deepen a company’s understanding of risk, and algorithms can boost error detection and drive predictive analytics to help prevent crane accidents.
4. Develop risk talent for the future.
Crane risk managers who are equipped to meet the challenges of the future will need new capabilities and expanded knowledge of data, analytics, and technology. That will help crane owners truly understand the changing crane-risk landscape.
5. Fortify crane risk culture.
Risk culture includes the mindsets and behaviors that determine a crane organization’s relationship with risk. A sound risk culture lets a crane organization respond quickly and effectively to threats. Improving crane risk culture involves integrating analytics with technology to continuously transform (reduce) risk.
The Next Step
The 10 pioneering crane industry leaders who began applying the borrowed servant concept to crane risk management deserve a ton of credit.
It was radical.
That so many powerful personalities committed themselves to improve risk protection for all crane owners was revolutionary in 1996 – and their results are still having an effect today!
Now, the new generation of crane industry leaders can build on that legacy and take the next big step in reducing crane-industry risk.
They can do that by cooperating to use analytics, technology, and culture in a collective industry-wide effort to meet the risk-management challenges of our future.
I am humbly grateful to have been part of our industry’s original transformation in managing crane risk, and I’m eager to help do it again with today’s generation of crane leaders.