Insurance and Replacement/Repair Costs

Definitions

Insurance: An ongoing policy purchased in order to protect against loss or damage of a tangible item, or to minimize liability due to negligence or other causes. Insurance can be purchased for either a single item (e.g., for a single piece of equipment) or for a group of items (e.g., renter's insurance to cover items located in a rented facility) or for specific contexts in which liability is a significant concern. Typically, routine scheduled payments are made on an insurance policy.

Self-Insured: If an insurance policy is not purchased, then in the event of loss or damage, the cost of a replacement item or repairs would be paid or damages (for a liability) covered from current available funding sources in lieu of insurance. Items that are typically self-insured are low cost (e.g., small computing devices) where the cost of an insurance policy is greater than the replacement cost, or areas where liability is assumed to be minimal. 

UW Insurance

The UW does not typically purchase property or equipment insurance unless specifically requested to do so by a department. Any requested insurance policies and their associated costs will be the responsibility of the department requesting and utilizing the policy.  The cost of such insurance is not covered under UW’s Indirect (F&A) cost pool. For information on Insurance at the UW, see the Risk Services website.

Insurance and Sponsored Awards

Loss and Replacement of Self-Insured Items

The cost of an insurance policy is typically not an allowable expense on a sponsored award. Most items purchased on a sponsored award are of low value (e.g., supplies, small computing devices) and a more reasonable and cost effective practice would be to self-insure rather than pay for an insurance policy. Federal sponsors may allow for replacement costs, assuming the department can attest to sound management practices and safeguarding of sponsor-funded assets.

If an item does need to be replaced, the department has to identify the funds available to purchase the replacement. The replacement cost may be charged to the Award, but any sponsor approval requirements must be followed even if sponsor approval was obtained for the original purchase. The request for sponsor approval should indicate that it is a replacement item. For more information about equipment purchases on federal awards, see the PAFC Equipment web page

As always, any action that has the potential to impact the ability to complete Award objectives will require written sponsor approval: for instance, purchasing a replacement item is an unplanned expenditure that could limit other activity on the award.

For example:

  • A $500 widget is accidentally destroyed in a laboratory experiment. The department can replace the widget and charge the replacement cost to the sponsored Award, without Sponsor approval, assuming there are sufficient funds in the Award to cover the cost.
  • A $500 widget was left in an unsecured area and stolen. The replacement cost of the widget may be disallowed by the sponsor, as it could not be proven that the department took adequate measures to safeguard the widget.
  • A $6,000 piece of equipment was accidentally destroyed in a laboratory experiment. The sponsor requires approval for all equipment purchases over $5,000. The department must obtain sponsor approval to purchase the replacement equipment, since the value is over the $5,000 threshold, and prove to the sponsor that there are sufficient funds in the budget to cover the cost without having an impact on the department’s ability to complete the terms of the award.  

Loss and Replacement of Insured Items

If an item has been insured, either using Award funds as approved by the sponsor or by another funding source, charging the deductible cost to the funding source may be allowable assuming the department has followed sound management practices and safeguarded sponsor-funded assets. Sponsor requirements must be followed for the purchase of replacement items, even if the cost of the deductible is under an approval threshold. 

For example:

The sponsor required, and the department purchased, insurance for a $10,000 piece of equipment. The equipment was stolen and the insurance policy had a $1,000 deductible. The replacement item was purchased with $9,000 of insurance funds and $1,000 paid by the department. If the sponsor requires approval for the purchase of any item with a purchase cost of $5,000 or above, then sponsor approval will be needed to charge the $1,000 to the award.

Purchasing Requirements

Insurance is only an allowable expense on an Award under specific circumstances. Ensure that the criteria described below have been met prior to the purchase of insurance on a sponsored Award:

  1. The Federal awarding agency has specifically required or approved the insurance cost. For example, the sponsor may require that insurance be purchased on a high-value piece of equipment purchased on the Award.
  2. The types of insurance, and extent and cost of coverage are in accordance with the UW’s policies of sound business practice (reasonable coverage and cost). See Administrative Policy Statement APS 14.1 "University Risk Management and Insurance Programs" and the Office of Risk Services for more information.

Note: Medical liability (malpractice) insurance is allowable if the research involves human subjects or training of participants in research techniques. Medical liability insurance must be charged as a direct cost and must be apportioned to the Awards and/or other funding sources based on how the UW allocates risk.

Unallowable Costs

  • To correct defects on the UW’s materials or workmanship.
  • Losses which could have been covered by permissible insurance: if insurance was an allowable expense but the insurance was not obtained, the replacement cost would not be allowable.
  • Replacement or repairs of an insured item: if an item is insured, any costs incurred that would otherwise be covered by insurance are unallowable.

Best Practices

  • Understand which items on an Award are self-insured or require insurance coverage.
  • Ensure that the Sponsored Award either requires or allows for the purchase of insurance, in writing.
  • Ensure the cost and coverage terms of the insurance, including the deductible amount, are considered to be reasonable.
  • Confirm the purchase of insurance is part of the UW’s policies and a sound business practice.

Post Award Fiscal Compliance email: gcafco@uw.edu

For questions and issues relating to Effort Reporting, email: effortreporting@uw.edu

Login to ECC

Powered by Drupal