Biggie # 1
Choosing the Wrong Agent or Broker.
I’ve been in the business for quite awhile now. And many agents don’t have a clue about the coverages that contractors require. Most agents will just give you a quote without really knowing what they’re doing. Make sure that the agent you work with has the experience required to offer you the proper coverages.
You also want to be sure that you work with an independent agent instead of what I call a “Tied Down Agent”. A “tied down insurance agent” only represents 1 insurance company. When the agent giving you a quote only represents one company, they don’t have any options other than the company they represent. The company that they respresent may not be your best coverage option. An independent agent can choose the company that’s best for you.
Biggie # 2
Buying a Claims Made Policy. Always buy an Occurrence Policy if Possible!
Avoid claims made insurance policies if at all possible. Claims made policies for a contractor are the worst possible policy you can buy. Claims made policies allow you to make a claim on your policy only during the policy year they are in force. Contractors have claims down the road not in the same year as the project is built! However you should be able to find an occurrence type policy at a competitive rate.
The problem with claims made policies is that you’re stuck with that policy. If you want to leave that company and go to another company you will have to purchase additional insurance to cover you for the next 10 years…that’s right 10 years! Why? Because in many states, customers can file a lawsuit for construction problems up to 10 years after the project was completed.
An example: You build a new room addition, everything goes well and you and your customer are very happy with the final outcome… 4 years later your customer calls you and says that the roof is leaking and water came in the house and ruined his new $25,000 grand piano. He expects you to repair the roof, the drywall, wallpaper, carpets and, of course, replace the grand piano…
A-Claims- made policy will not allow you to file a claim 4 years later unless you stayed with the same company the whole time. If you intend to shop other companies after the claims made policy expires you must make a decision, since you cannot make a claim against a claims made policy after the policy expires unless you buy extended liability coverage called a “tail.” The tail coverage extends the period of time you can report a claim.
If you decide not to buy the “tail” you will not be able to report a claim against the claims made policy. ? And to make matters worse, some companies do not offer the 10-year extension. When your policy comes up for renewal with a claims- made policy you must decide.Do I leave the company and pay the additional insurance for coverage for the next 10 year period or go without? Do I stay with the same company? Their prices on the new year may stay the same or go up sharply. Do I switch to another company who has better rates and coverages?
This limits the marketplace for you, and makes it harder to accept a better bid from another carrier. Claims made policies may work in other lines of insurance, but for Contractors they are a disaster. Take time after reading this report to look for your policy and see if your current policy is either an occurrence form or claims made…
Biggie # 3
POLICY EXCLUSIONS!!
All insurance policies have exclusions. Make sure that you understand your policy. If not check with your agent or company to be the policy exclusion won’t affect you. Following are the primary exclusions that many policies contain.
DESIGNATED WORK: Most general liability policies automatically cover a business for just about any type of work that it engages in during the policy year. Let’s say a sub’s premium is based on the carpenter classification. Although, that’s what he does 90% of the time, he may do a little roofing, electrical, or plumbing work. Most policies will cover him for this other work, and if he does enough of it, they’ll just charge him accordingly for those classes of work at his year end audit. If an underwriter didn’t want to cover his roofing or electrical work, he/she could use the designated work endorsement to exclude those classes. This exclusion could be nasty.
INDEPENDENT CONTRACTORS: Claims arising out of: The acts or omissions of independent contractors while working on behalf of any insured, or the negligent hiring or contracting, investigation, supervision, training, retention of any independent contractor for whom any insured is or ever was legally responsible and whose acts or omissions would be excluded . If you use subs, this exclusion can be a killer.
FORMALDEHYDE: Claims arising directly or indirectly out of formaldehyde whether or not the formaldehyde is airborne as a fiber or particle, contained in a product, carried or transmitted on clothing contained in or a part of: any building, building material, insulation product or any component part of any building.
X.C.U. Explosion, collapse, and underground property damage. Not a good exclusion for Grading, Excavation, Sewer, Plumbing, Septic, and Fencing contractors just to name a few.
ROOFING: Some roofing exclusions are plain and simple. NO ROOFING. Some are not as strict. You must read the exclusion care-fully. Some roofing exclusions say there is no coverage while the roof is under construction or repair. For example: You tore off a roof, and since the weather forecast called for sunny skies, you decided there was no need to cover the roof overnight. It rained. There is no coverage. Read all exclusions carefully.
DEMOLITION: Plain and simple. No demolition
SUBSIDENCE: Insurance does not apply to any liability arising out of landslide, mud flow, earth sinking, earth rising or earth shifting.
LEAD: Claims arising out of the actual or alleged presence or actual, alleged or threatened dispersal of lead, lead particles or products containing lead.
NUCLEAR, EARTH MOVEMENT
MULTI UNIT RESIDENTIAL: Any work in connection with the pre-construction, construction, post-construction, reconstruction, exterior remodeling or repairs of any multi-unit residential building
NO APARTMENTS, CONDOS or TOWNHOUSES
EMPLOYMENT RELATED PRACTICES: Refusal to employ, wrongful termination, coercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation, discrimination or other employment-related practices, policies, acts or omissions.
PESTICIDE, HERBICIDE ANDFUNGICIDE EXCLUSION: Not a good idea if you are a landscape contractor.
PRIOR ACTS: This is a very severe exclusion. This says that any work you did prior to the policy date is not covered. For contractors this can be a death sentence on all prior work. 90% of all contractor claims occur after the work was completed.
EXTERIOR INSULATION ANDFINISH SYSTEM: Exterior insulation and finish system means the design, manufacture, construction, fabrication, preparation, installation, application, maintenance or repair, including re-modeling, service, correction, or replacement, of an exterior insulation and finish system (commonly referred to as synthetic stucco) or any part thereof, or any substantially similar system or any part, including the application or use of conditioners, primers, accessories, flashing, coatings, caulking or sealants in connection with such a system when performed by you.
FOUNDATION WORK: Claims arising our of foundation work, including but not limited to the design, specification, inspection, construction, installation, repair, replacement, improvement or reinforcement of any foundation or any part of a foundation. Foundation means the entire substructure below the first floor or frame of a building, including but not limited to any footings, footing beams, piers, grade beams, pilings, pilings or supports upon which the building rests.
If any of these exclusions or other exclusions in your policy are a problem for you, one of three things happened.
- You did not tell your broker that you do this kind of work.
- You did tell your broker and he was not listening.
- Your broker does not have enough knowledge about construction insurance.
Biggie # 4
Subcontractors:
If you subcontract any work out, you need to be sure that you understand how to manage your subcontractors. If you don’t the results can mean financial disaster. You need to make sure that you have a subcontractor agreement that includes the following items for every sub-contractor that walks onto the job site.
- Certificate of Liability insurance from each subcontractor. The limits of the subcontractors insurance policy needs to be at least equal to or greater than the amount of liability coverage that you have.
- The Subcontractors general liability insurance policy needs to name you or your company as an additional insured on their policy.
- Certificate of Workers Compensation Insurance.
- A hold harmless clause in your favor.
- An indemnification agreement in your favor
Thank You for taking the time to read the 4 Big Ones. You could be just minutes away from lowering your insurance costs. Take the first step and apply now for a cost-free, no-obligation quote.
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