Quest for Insurance
‘IS THIS REALLY HAPPENING?'Eventually a few quotes from other insurance companies trickle in and things begin to look up. Now, with very little time to spare before renewal time, he begins reviewing the new coverage terms and sees that something is off. Coverages are inferior to his previous policy. The premiums are higher, needed endorsements are no longer an option, new exclusions exist, and there are new terms being thrown around like “non-admitted carrier”, “claims made” coverage, or “risk retention group.” He wonders: Can this really be happening?
You’ve just been given a glimpse into the life of a contractor.
What about the upcoming work the company has already bid? Will the profitability of the project be compromised? What about work that’s in progress? How is he going to explain the changes to his GCs? What if the GC doesn’t accept the new coverage? You can see the dilemma.
I recently met with several contractors who had experienced exactly what I have just described above. As each one relayed their story and discussed their needs, I saw no apparent reason why these companies should be struggling to find adequate coverage. These were good, strong companies that take pride in their work. They have hired good talent, and spent money on educating their key employees. They have built a reputation by delivering quality product on time, and back their work when things go wrong. They have built something from nothing, which is what being an entrepreneur in this country is about. This is when I love my job.
These contractors were concerned with the ramifications of the different policies they were seeing, and rightly so. Just because you buy liability coverage doesn’t guarantee it’s going to do what you want it to do. Regardless of what insurance carrier you choose, there are critical components that typically exist in most construction contracts, and the insurance must meet those requirements. They knew this and were looking for guidance and solutions. I told them if the insurance policy does not get the job done, they need to consider passing on the policy and choosing something else, even if it means spending a few more dollars.
BEST DEAL MAY BE NO DEALWhen I receive a call from contractors in trouble (and by “trouble” I mean they just got held off of a job due to their coverage deficiencies or lack of), there are usually some common denominators to their predicament. They usually purchased the “best deal” they could find, and there was very little discussion about whether the coverage they were purchasing met contractual requirements usual to jobs they take on. Their agent also blamed the lack of options on market conditions and an overall lack of serious options.
For example, a contractor explained that he was quoted a “claims made” policy for EIFS work his company was to perform on a condo job. The state they were domiciled in carries a 10-year statute of repose. They were told that “there’s nothing else out there”.
Now, going into the intricacies of “claims made vs. occurrence” will have to follow in the next article, but we need to understand some basics here. For a loss to be paid under a “claims made” form, coverage would be triggered by receipt of a claim inside the policy period, meaning while the policy is in force. Why would you purchase this option? You cannot guarantee that the carrier is going to offer terms for the next 10 years, nor can you guarantee that you’ll want that policy for that duration either. But once the policy is canceled, claims for work during that time period made years later will not be covered. Condominium jobs have a stronger likelihood of loss than maybe any other type of construction, especially given that in the state we’re talking about, claims can be made for up to 10 years. This is not the time to be purchasing coverage that may or may not be there.
Risk retention groups can also present challenges. Contracts often require the sub’s GL carrier to have a minimum “AM Best” rating that will be stated (usually A-VII). While AM Best is an organization that rates insurance carriers on their performance and overall financial strength, many RRG’s do not fall under their watchful eye. Unless you can negotiate this requirement out of your contracts, choosing a risk retention group may create additional challenges. Also, if excess liability limits are needed, you may have a tough time finding a carrier who will offer terms with an RRG as the underlying insurer.
EVALUATING COVERAGESCritical coverages such as contractual liability are also an imperative, although I’m surprised at how many carriers are trying to offer products without it. In evaluating the many coverages available, an experienced broker can review your contracts, explain what you need and steer you in the right direction. Remember: What you agree to in writing is what you’ll be expected to live up to, which is why it’s so critical to understand what risk you are assuming yourself, and what you’d like the insurance to pay for.
With all that said, what coverage is available today? When a contractor meets standards I have set, general liability and excess liability coverage can be procured encompassing all classes of work, including EIFS. Contractors are able to work both commercial and residential projects, including custom homes and condominiums. Mold coverage is also available. Pricing is at its lowest in seven years. Contrary to industry perception, my clientele as a whole has a long and profitable history. They are carefully selected and make up some of the finest contractors in this country, which is why they enjoy great pricing and the flexibility to work freely in their respective marketplace.
I see EIFS a little differently than some in my industry. The recent Oak Ridge Lab results tell us that EIFS outperforms brick and stucco both in moisture absorption tests and thermal efficiency.
The EIFS industry is not going away. Those in the industry who are having trouble finding the right coverage should not compromise. It’s imperative to find a qualified professionals who can direct you; it just might take some searching to locate them. You’ll know when you find them because they won’t be talking to you about shortcuts, they’ll focus more on managing your risk and finding real solutions.