Risk Transfer Methods
As the economy picks up, the utilization of risk transfer methods—including the purchase of quality insurance—is as important as ever. From the start-up to the experienced contractor, each one has corporate assets, future earning potential, as well as the welfare of the workers who depend on them for employment, to think about. One way to become distracted, and even outright diverted from your growth goals, is to have losses that are uncovered by insurance.
For me, it underscores how critical the role of an insurance broker is. So with that in mind, I thought I might briefly address some areas that contractors should be paying particular attention to.
In a nutshell, general liability policies pay for damages you are legally obligated to pay for because of “bodily injury” or “property damage” caused by your company’s operations. It is critical that contractors take the time to understand that while the coverage afforded by your typical general liability policy is broad in nature, the attachment of endorsements and exclusions can begin to narrow the scope of what claims your policy will respond to.
For EIFS contractors, the marketplace continues to present particular challenges as some insurance carriers create endorsements in attempt to avoid covering work over wood substrates, the installation of direct applied systems, limit you to only using products made by certain manufacturers, or removing coverage for EIFS related work all together. One carrier went as far as creating language on their application (that must be signed by the contractor) that commits the installer to a five-year warranty should something go wrong.
Language matters and insurance company’s create these endorsements and exclusions for a reason. It’s their attempt to limit their exposure to work they feel is beyond their appetite.
For those that have been fortunate enough to avoid losses, one thing that should be pointed out is that claims don’t happen the way they used to in the good old days. Many years ago, if an incident occurred, most likely an effort would be made to find out who the responsible party was before any legal action began. Now it’s common to see every contractor who is in some way related to the alleged damages brought in to a complaint, immediately shifting the burden of providing a defense to those listed. Often times the loss history of a contractor is peppered with various incidents that have defense payouts without any actual judgments.
This is why paying special attention to policy language is so critical. The quality of the work you perform often has nothing to do with whether you might be unexpectedly drawn into a suit, and your policy is your protection.
When purchasing insurance, remember that you are well within your rights to demand copies of all endorsements and exclusions prior to binding any coverage, as well as ask for explanations of anything that you are signing.
Another area of concern in a growing economy is exposure audits. General liability policies are often based on a certain anticipated payroll or sales amount. If that number is exceeded the carrier will want to collect premium for the overage. Because audit premiums are usually due in one lump sum shortly after the term is over, this can be problematic if not planned for.
“A million dollars isn’t what it used to be.” We never thought we’d ever say that, right? Umbrella/Excess policies provide another layer of liability over your general liability, auto liability, employer’s liability and employee benefits liability policies. So how much should you purchase? General contractors commonly ask for $5 million these days but look at your asset level and realize that the umbrella is there to protect what you have worked so hard to build.
For EIFS contractors, it’s a slightly different story. By and large, affordable coverage can be hard to find at the moment, especially when you are talking about coverage for work over wood substrates. Again, understand what you are purchasing and if you are struggling, seek out experts who can help. General contractors will continue to ask for this coverage.
Most contractors aren’t aware that, should they be sued for damage resulting from mold, their general liability policy will most likely not cover it. Coverage needs to be added or purchased separately. It is becoming more common for general contractors to request this coverage and it is widely available in the marketplace. Mold/pollution policies cover other incidents such as product getting into a storm drain, etc.
Scaffolding materials can be covered under an inland marine policy. Commercial property policies, which cover your business contents, only provide protection for your listed locations and within 1,000 feet (varies) of that location. Once your scaffolding and other equipment leave that perimeter, they are most likely uncovered as they move from job to job unless listed on an inland marine policy. These policies are typically inexpensive and offered by most insurance carriers.
Another important thing to consider: do you know who is on your scaffolding? Once erected, if other trades operate on your scaffolding, you could have exposure should someone get injured. Limiting access, ensuring industry safety guidelines are followed, as well as having authorized users confirm they have been trained can help. Also consider hold harmless agreements. Having users sign a well-structured agreement can mitigate potential damages.
Even an organization with good HR policies and procedures in place can be sued, and the cost of defending yourself can be enormous.
Coverage for defense costs and damages related to various employment-related claims, including allegations of wrongful termination, discrimination, workplace harassment and retaliation deriving from the employer-employee relationship is available and affordable. Some carriers even offer help lines to assist you with day-to-day questions, in an effort to help you avoid future incidents.
These claims have been on the rise and roughly 40 percent of companies don’t carry any coverage, thinking they are already protected by their other policies.
Does your company engage in wrap work? Enrolling in an Owner Controlled Insurance Program has its advantages, and on some large and complex jobs, it’s required. But the fact that it is required does not mean you are out of control. The same rules mentioned above in the General Liability section apply here, because in a way, you are purchasing (along with many others) another policy specifically for that particular project.
Prior to accepting the job, a review of the coverage is prudent. For example, large deductibles can be problematic for smaller contractors unaware of what they have agreed to. Deductibles can range from $10,000 to $50,000. If the deductible seems high, request a lower tier.
Also, EIFS contractors should demand proof of the existence of EIFS coverage in the OCIP policy prior to enrolling.
Recently, a general contractor referred a plaster contractor to me because after a review it was determined their coverage was inadequate and they could not be awarded a contract until it was resolved.
During our first discussion, we reviewed their general liability policy page by page. They were astonished to find three different problematic exclusions that left their company’s balance sheet wide open. This left them wondering why these things weren’t pointed out to them or why an insurance company would even sell that type of policy to begin with.
Ultimately, it’s up to the policyholder to understand what they purchase, further underscoring the need for a great collaboration between contractor and an experienced broker.
I hope that in some way the information here will empower you to take control over your insurance purchasing process. Just as the generation of top line revenue is important to any business, avoiding unanticipated costs has to be a close second.