[Code of Federal Regulations]
[Title 7, Volume 11]
[Revised as of January 1, 2006]
From the U.S. Government Printing Office via GPO Access
[CITE: 7CFR1788]
[Page 1178-1182]
TITLE 7--AGRICULTURE
CHAPTER XVII--RURAL UTILITIES SERVICE, DEPARTMENT OF AGRICULTURE
PART 1788_RUS FIDELITY AND INSURANCE REQUIREMENTS FOR ELECTRIC AND
TELECOMMUNICATIONS BORROWERS
Subpart A_Borrower Insurance Requirements
Sec.
1788.1 General and definitions.
1788.2 General insurance requirements.
1788.3 Flood insurance.
1788.4 Disclosure of irregularities and illegal acts.
1788.5 RUS endorsement required.
1788.6 RUS right to place insurance.
1788.7-1788.10 [Reserved]
Subpart B_Insurance for Contractors, Engineers, and Architects, Electric
Borrowers
1788.11 Minimum insurance requirements for contractors, engineers, and
architects.
1788.12 Contractors' bonds.
Subpart C_Insurance for Contractors, Engineers, and Architects,
Telecommunications Borrowers
1788.46 General.
1788.47 Policy requirements.
1788.48 Contract insurance requirements.
1788.49 Contractors' bond requirements.
1788.50 Acceptable sureties.
1788.51-1788.53 [Reserved]
1788.54 Compliance with contracts.
1788.55 Providing RUS evidence.
Authority: 7 U.S.C. 901 et seq.; 7 U.S.C. 1921 et seq.; 7 U.S.C.
6941 et seq.
Source: 64 FR 2, Jan. 4, 1999, unless otherwise noted.
Subpart A_Borrower Insurance Requirements
Sec. 1788.1 General and definitions.
(a) The standard forms of documents covering loans made or
guaranteed by the Rural Utilities Service contain provisions regarding
insurance and fidelity coverage to be maintained by each borrower. This
part implements those provisions by setting forth the requirements to be
met by all borrowers.
(b) As used in this part:
Borrower means any entity with any outstanding loan made or
guaranteed by RUS.
Irregularity has the meaning found in Sec. 1773.2.
Loan documents means the loan agreement, notes, and mortgage
evidencing or used in conjunction with an RUS loan.
Mortgage means the mortgage, deed of trust, security agreement, or
other security document securing an RUS loan.
Mortgaged property means any property subject to the lien of a
mortgage.
RUS means the Rural Utilities Service and includes the Rural
Telephone Bank.
RUS loan means a loan made or guaranteed by RUS.
(c) RUS may revise these requirements on a case by case basis for
borrowers with unusual circumstances.
Sec. 1788.2 General insurance requirements.
(a) Borrowers will take out, as the respective risks are incurred,
and maintain the classes and amounts of insurance in conformance with
generally accepted utility industry standards for such classes and
amounts of coverage for utilities of the size and character of the
borrower and consistent with Prudent Utility Practice. Prudent Utility
Practice shall mean any of the practices, methods, and acts which, in
the exercise of reasonable judgment, in light of the facts, including
but not limited to, the practices, methods, and acts engaged in or
approved by a significant portion of the electric utility industry in
the case of an electric borrower or of the telecommunications industry
in the case of a telecommunications borrowers prior thereto, known at
the time the decision was made, would have been expected to accomplish
the desired result consistent with cost-effectiveness, reliability,
safety, and expedition. It is recognized that Prudent Utility Practice
is not intended to be limited to optimum practice, method, or act to the
exclusion of all others, but rather is a spectrum of possible practices,
methods, or act which could have been expected to accomplish the desired
result at the lowest reasonable cost consistent with cost-effectiveness,
reliability, safety, and expedition.
(b) The foregoing insurance coverage shall be obtained by means of
bond and policy forms approved by regulatory
[[Page 1179]]
authorities having jurisdiction, and, with respect to insurance upon any
part of the mortgaged property securing an RUS loan, shall provide that
the insurance shall be payable to the mortgagees as their interests may
appear by means of the standard mortgagee clause without contribution.
Each policy or other contract for such insurance shall contain an
agreement by the insurer that, notwithstanding any right of cancellation
reserved to such insurer, such policy or contract shall continue in
force for at least 30 days after written notice to each mortgagee of
suspension, cancellation, or termination.
(c) In the event of damage to or the destruction or loss of any
portion of the mortgaged property which is used or useful in the
borrower's business and which shall be covered by insurance, unless each
mortgagee shall otherwise agree, the borrower shall replace or restore
such damaged, destroyed, or lost portion so that such mortgaged property
shall be in substantially the same condition as it was in prior to such
damage, destruction, or loss and shall apply the proceeds of the
insurance for that purpose. The borrower shall replace the lost portion
of such mortgaged property or shall commence such restoration promptly
after such damage, destruction, or loss shall have occurred and shall
complete such replacement or restoration as expeditiously as
practicable, and shall pay or cause to be paid out of the proceeds of
such insurance form all costs and expenses in connection therewith.
(d) Sums recovered under any policy or fidelity bond by the borrower
for a loss of funds advanced under a note secured by a mortgage or
recovered by any mortgagee or holder of any note secured by the mortgage
for any loss under such policy or bond shall, unless applied as provided
in the preceding paragraph, be used as directed by the borrower's
mortgage.
(e) Borrowers shall furnish evidence annually that the required
insurance and fidelity coverage has been in force for the entire year,
and that the borrower has taken all steps currently necessary and will
continue to take all steps necessary to ensure that the coverage will
remain in force until all loans made or guaranteed by RUS are paid in
full. Such evidence shall be in a form satisfactory to RUS. Generally a
certification included as part of the RUS Financial and Statistical
Report filed by the borrower annually (RUS Form 7 or Form 12 for
electric borrowers, RUS Form 479 for telecommunications borrowers, or
the successors to these forms) is sufficient evidence of this coverage.
Sec. 1788.3 Flood insurance.
(a) Borrowers shall purchase and maintain flood insurance for
buildings in flood hazard areas to the extent available and required
under the National Flood Insurance Act of 1968, as amended (42 U.S.C.
4001, et seq.) The insurance should cover, in addition to the building,
any machinery, equipment, fixtures, and furnishings contained in the
building.
(b) The National Flood Insurance Program (see 44 CFR Part 59 et
seq.) provides for a standard flood insurance policy; however, other
existing insurance policies which provide flood coverage may be used
where flood insurance is available in lieu of the standard flood
insurance policy. Such policies must be endorsed to provide:
(1) That the insurer give 30 days written notice of cancellation or
nonrenewal to the insured with respect to the flood insurance coverage.
To be effective, such notice must be mailed to both the insured and RUS
and other mortgagees if any and must include information as to the
availability of flood insurance coverage under the National Flood
Insurance Program, and
(2) That the flood insurance coverage is at least as broad as the
coverage offered by the Standard Flood Insurance Policy.
Sec. 1788.4 Disclosure of irregularities and illegal acts.
(a) Borrowers must immediately report, in writing, all
irregularities and all indications or instances of illegal acts in its
operations, whether material or not, to RUS and the Office of the
Inspector General (OIG). See 7 CFR 1773.9(c)(3) for OIG addresses. The
reporting requirements for borrowers are the same as those for CPA's set
forth in Sec. 1773.9
[[Page 1180]]
(b) Borrowers are required to make full disclosure to the bonding
company of the dishonest or fraudulent acts.
Sec. 1788.5 RUS endorsement required.
In the case of a cooperative or mutual organization, RUS requires
that the following:
Endorsement Waiving Immunity From Tort Liability'' be included as a
part of each public liability, owned, non-owned, hired automobile, and
aircraft liability, employers' liability policy, and boiler policy:
The Insurer agrees with the Rural Utilities Service that such
insurance as is afforded by the policy applies subject to the following
provisions:
1. The Insurer agrees that it will not use, either in the adjustment
of claims or in the defense of suits against the Insured, the immunity
of the Insured from tort liability, unless requested by the Insured to
interpose such defense.
2. The Insured agrees that the waiver of the defense of immunity
shall not subject the Insurer to liability of any portion of a claim,
verdict or judgment in excess of the limits of liability stated in the
policy.
3. The Insurer agrees that if the Insured is relieved of liability
because of its immunity, either by interposition of such defense at the
request of the Insured or by voluntary action of a court, the insurance
applicable to the injuries on which such suit is based, to the extent to
which it would otherwise have been available to the Insured, shall apply
to officers and employees of the Insured in their capacity as such;
provided that all defenses other than immunity from tort liability which
would be available to the Insurer but for said immunity in suits against
the Insured or against the Insurer under the policy shall be available
to the Insurer with respect to such officers and employees in suits
against such officers and employees or against the Insurer under the
policy.
Sec. 1788.6 RUS right to place insurance.
If a borrower fails to purchase or maintain the required insurance
and fidelity coverage, the mortgagees may place required insurance and
fidelity coverage on behalf and in the name of the borrower. The
borrower shall pay the cost of this coverage, as provided in the loan
documents.
Sec. Sec. 1788.7-1788.10 [Reserved]
Subpart B_Insurance for Contractors, Engineers, and Architects, Electric
Borrowers
Sec. 1788.11 Minimum insurance requirements for contractors,
engineers, and architects.
(a) Each electric borrower shall include the provisions in this
paragraph in its agreements with contractors, engineers, and architects,
said agreements that are wholly or partially financed by RUS loans or
guarantees. The borrower should replace ``Contractor'' with ``Engineer''
or ``Architect'' as appropriate.
1. The Contractor shall take out and maintain throughout the period
of this Agreement insurance of the following minimum types and amounts:
a. Worker's compensation and employer's liability insurance, as
required by law, covering all their employees who perform any of the
obligations of the contractor, engineer, and architect under the
contract. If any employer or employee is not subject to workers'
compensation laws of the governing State, then insurance shall be
obtained voluntarily to extend to the employer and employee coverage to
the same extent as though the employer or employee were subject to the
workers' compensation laws.
b. Public liability insurance covering all operations under the
contract shall have limits for bodily injury or death of not less than
$1 million each occurrence, limits for property damage of not less than
$1 million each occurrence, and $1 million aggregate for accidents
during the policy period. A single limit of $1 million of bodily injury
and property damage is acceptable. This required insurance may be in a
policy or policies of insurance, primary and excess including the
umbrella or catastrophe form.
c. Automobile liability insurance on all motor vehicles used in
connection with the contract, whether owned, non-owned, or hired, shall
have limits for bodily injury or death of not less than $1 million per
person and $1 million each occurrence, and property damage limits of $1
million for each occurrence. This required insurance may be in a policy
or policies of insurance, primary and excess including the umbrella or
catastrophe form.
2. The Owner shall have the right at any time to require public
liability insurance and property damage liability insurance greater than
those required in paragraphs (a)(1)(b) and (a)(1)(c) of this section. In
any
[[Page 1181]]
such event, the additional premium or premiums payable solely as the
result of such additional insurance shall be added to the Contract
price.
3. The Owner shall be named as Additional Insured on all policies of
insurance required in (a)(1)(b) and (a)(1)(c) of this section.
4. The policies of insurance shall be in such form and issued by
such insurer as shall be satisfactory to the Owner. The Contractor shall
furnish the Owner a certificate evidencing compliance with the foregoing
requirements that shall provide not less than 30 days prior written
notice to the Owner of any cancellation or material change in the
insurance.
(b) Electric borrowers shall also ensure that all architects and
engineers working under contract with the borrower have insurance
coverage for Errors and Omissions (Professional Liability Insurance) in
an amount at least as large as the amount of the architectural or
engineering services contract but not less than $500,000.
(c) The borrower may increase the limits of insurance if desired.
(d) The minimum requirement of $1 million of public liability
insurance does not apply to contractors performing maintenance work,
janitorial-type services, meter reading services, rights-of-way mowing,
and jobs of a similar nature. However, borrowers shall ensure that the
contractor performing the work has public liability coverage at a level
determined to be appropriate by the borrower.
(e) If requested by RUS, the borrower shall provide RUS with a
certificate from the contractor, engineer, or architect evidencing
compliance with the requirements of this section.
Sec. 1788.12 Contractors' bonds.
Electric borrowers shall require contractors to obtain contractors'
bonds when required by part 1726, Electric System Construction Policies
and Procedures, of this chapter. Surety companies providing contractors'
bonds shall be listed as acceptable sureties in the U.S. Department of
Treasury Circular No. 570. The circular is maintained through periodic
publication in the Federal Register and is available on the Internet
under ftp://ftp.fedworld.gov/pub/tel/sureties.txt, and on the Department
of the Treasury's computer bulletin board at 202-874-6817.
Subpart C_Insurance for Contractors, Engineers, and Architects,
Telecommunications Borrowers
Sec. 1788.46 General.
This subpart sets forth RUS policies for minimum insurance
requirements for contractors, engineers, and architects performing work
under contracts which are wholly or partially financed by RUS loans or
guarantees with telecommunications borrowers.
Sec. 1788.47 Policy requirements.
(a) Contractors, engineers, and architects performing work for
borrowers under construction, engineering, and architectural service
contracts shall obtain insurance coverage, as required in Sec. 1788.48,
and maintain it in effect until work under the contracts is completed.
(b) Contractors entering into construction contracts with borrowers
shall furnish a contractors' bond, except as provided for in Sec.
1788.49, covering all of the contractors' undertaking under the
contract.
(c) Borrowers shall make sure that their contractors, engineers, and
architects comply with the insurance and bond requirements of their
contracts.
Sec. 1788.48 Contract insurance requirements.
Contracts entered into between borrowers and contractors, engineers,
and architects shall provide that they take out and maintain throughout
the contract period insurance of the following types and minimum
amounts:
(a) Workers' compensation and employers' liability insurance, as
required by law, covering all their employees who perform any of the
obligations of the contractor, engineer, and architect under the
contract. If any employer or employee is not subject to the workers'
compensation laws of the governing state, then insurance shall be
obtained voluntarily to extend to the employer
[[Page 1182]]
and employee coverage to the same extent as though the employer or
employee were subject to the workers' compensation laws.
(b) Public liability insurance covering all operations under the
contract shall have limits for bodily injury or death of not less than
$1 million each occurrence, limits for property damage of not less than
$1 million each occurrence, and $1 million aggregate for accidents
during the policy period. A single limit of $1 million of bodily injury
and property damage is acceptable. This required insurance may be in a
policy or policies of insurance, primary and excess including the
umbrella or catastrophe form.
(c) Automobile liability insurance on all motor vehicles used in
connection with the contract, whether owned, non-owned, or hired, shall
have limits for bodily injury or death of not less than $1 million per
person and $1 million per occurrence, and property damage limits of $1
million for each occurrence. This required insurance may be in a policy
or policies of insurance, primary and excess including the umbrella or
catastrophe form.
(d) When a borrower contracts for the installation of major
equipment by other than the supplier or for the moving of major
equipment from one location to another, the contractor shall furnish the
borrower with an installation floater policy. The policy shall cover all
risks of damage to the equipment until completion of the installation
contract.
Sec. 1788.49 Contractors' bond requirements.
Construction contracts in amounts in excess of $250,000 for
facilities shall require contractors to secure a contractors' bond, on a
form approved by RUS, attached to the contract in a penal sum of not
less than the contract price, which is the sum of all labor and
materials including owner-furnished materials installed in the project.
RUS Form 168b is for use when the contract exceeds $250,000. RUS Form
168c is for use when the contractor's surety has accepted a Small
Business Administration guarantee and the contract is for $1,000,000 or
less. For minor construction contracts under which work will be done in
sections and no section will exceed a total cost of $250,000, the
borrower may waive the requirement for a contractors' bond.
Sec. 1788.50 Acceptable sureties.
Surety companies providing contractors' bonds shall be listed as
acceptable sureties in the U.S. Department of Treasury Circular No. 570.
The circular is maintained through periodic publication in the Federal
Register and is available on the Internet under ftp://ftp.fedworld.gov/
pub/tel/sureties.txt, and on the Department of the Treasury's computer
bulletin board at 202-874-6817.
Sec. Sec. 1788.51-1788.53 [Reserved]
Sec. 1788.54 Compliance with contracts.
It is the responsibility of the borrower to determine, before the
commencement of work, that the engineer, architect, and the contractor
have insurance that complies with their contract requirements.
Sec. 1788.55 Providing RUS evidence.
When RUS shall specifically so direct, the borrower shall also
require the engineer, the architect, and the contractor, to forward to
RUS evidence of compliance with their contract representative of the
insurance company and include a provision that no change in or
cancellation of any policy listed in the certificate will be made
without the prior written notice to the borrower and to RUS.