Inside This Special Report …..

                       

And how you as a Contractor can finally get the peace of mind you work so hard for!

 By Bob Schiermyer

This report was put together at the request of my clients. I have been talking about the 7 Deadly Sins for years.

Ten years ago, this report would not have been necessary, but times have changed.

Ten years ago you could bid a job, complete the job and move on to the next job. Lawsuits happened just to the next guy. Insurance policies were simple and life was wonderful…

Insurance has changed drastically in the last ten years and now there are traps… not intentional traps, but changes in the industry that you have to keep abreast of.

This brings us to the 7 Deadly Sins ...

 

 Choosing The Wrong Agent or Broker

 

As strange as this may seem, your biggest problem might be your current insurance agent or broker. Not that he is not trying to do a good job, but if he does not handle Construction insurance on a day-to-day basis he is out of touch with a marketplace that is changing day to day.  Keeping up with the Construction Industry is a full time job.

If your broker is not Independent, he may not have the tools Available to do a good job. Non-Independent agents must represent one company only.  He may not represent the best company for your business.  Make certain that your agent specializes in contractors.  Don’t use a generalist!

 

 

 

 

 

 

Be Aware of General Liability Exclusions

First off lets get one thing clear… All policies have exclusions.  You hear terms like all risk, special form, comprehensive, full coverage. Those phrases do not mean there are no exclusions.

In a contractors general liability policy all the exclusions are listed on the (Dec) front page of the policy or on the second page of the policy. The problem is that they are usually listed by form number, not by name.

In order to make sure you understand the exclusions, look at the form numbers on the front page and go find that form (by number) in the policy. (Usually the form number is in the bottom left hand corner)

If you see a form number on the front of the policy but you cannot find that form in the policy, your policy is not complete! Someone forgot to add that form to the policy when the policy was put together. People make mistakes! If you find a form number on the front of the policy and cannot find that form in the policy, call your insurance broker and ask them for the missing page(s). It may be a very important exclusion.

The exclusions are critical. When you get a proposal for insurance, the first thing you should look at are the exclusions.

For instance, if you are a concrete contractor and you do house pads, if you have an exclusion for foundation work in your policy you have a problem. The worse thing is you will not find out about your problem until you have a claim and it is denied. By then it’s too late.

Here is a list of exclusions I have found in many policies; this list is by no means "all inclusive". 

DESIGNATED WORK

Claims arising from any classification or class code not listed on the declaration page of this policy. For example: You are a roofing contractor and you get a quote that is 50% less than all other quotes. The policy comes in and your company is classified as a landscape contractor. Any claims will be denied because you were not classed correctly.

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.

ASBESTOS

No Coverage for exposures to asbestos, asbestos fiber, or any material containing asbestos or asbestos products, including without limitation, the costs of asbestos removal or damage in the course of effecting such removal (Very common exclusion)

PROFESSIONAL LIABILITY

Claims arising out of the rendering of or failure to render any professional services by you or any engineer, architect or surveyor who is either employed by you or performing work on your behalf in such capacity. Professional services include: the preparing, approving, or failing to prepare or approve; maps, shop drawings, opinions, reports, surveys, field orders, change orders or drawings; and Supervisory, inspection, architectural or engineering activities. For example, if you make a structural change without the architect's approval, there is no coverage. (Very common exclusion)

Construction Management Errors

* See Professional Liability

CONTRACTORS WARRANTY

This means that if you hire sub contractors, you must get a certificate of insurance from them. If you do not, the amount of your contract with the sub will be added to your payroll or gross receipts and you will be charged. In other words you will pay for the subs general liability. Some companies use a stricter version of this. They require the sub to have the same limits of insurance as you do.

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, collapses, and underground. Not a good exclusion for Grading, Excavation contractors.

CLAIMS IN PROGRESS

* See Prior Claims

KNOWN LOSSES

* See Prior Claims

ROOFING

Some roofing exclusions are plain and simple. NO ROOFING. Some are not as strict. You must read the exclusion carefully. Some roofing exclusions say there is no coverage while the roof is under construction or repair. For example: You tore off a roof, since the weather forecast called for sunny skies you decide there is no need to cover the roof overnight. It Rains… 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. 

EARTH MOVEMENT

See subsidence

NUCLEAR

Self Explanatory

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.

CONDOS

No condos

TOWNHOUSES

No townhouses

APARTMENTS

No apartments

EMPLOYMENT RELATED PRACTICES

Refusal to employ, wrongful termination, Coercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation, discrimination or other employment-related practices, polices, acts or omission

PRIOR CLAIMS

Claims that are in progress prior to the commencement of this policy

PESTICIDE, HERBICIDE AND FUNGICIDE 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. 99% of all contractor claims occur years after building was built.

Exterior insulation and finish system

Exterior insulation and Finish system means the design, manufacture, construction, fabrication, preparation, installation, application, maintenance or repair, including remodeling, 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 out 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.

 

 

 

 

 

 

 

 

Selection Of A Builders Risk Policy

Most of us understand that a builders risk policy provides protection for damage from fire, theft and similar perils while a building is under construction.  Many insureds might not realize that there is a huge difference in the scope of coverage when comparing one builders risk policy to another.

There are certain features which should be included in your policy.

 

·       Is theft of building materials covered up to the policy limit?

Many policies exclude theft or have a specific limit, such as $2,500 or $5,000.  Also, building materials which are on site, but not yet installed, should be covered.  For example if kitchen cabinets, a range or a tub are dropped off at a job site and stolen before they are installed, are you protected? 

·       The foundation should be included.  If there is a serious fire and the foundation needs to be removed and replaced, you need to have coverage. 

·       Paving, curbing, fences, trees, shrubs, plants, lawns and outdoor fixtures should be covered.  If trees and shrubs valued at $15,000 are dropped off at a job site on a Friday and they are stolen over the weekend, you need to be protected. 

·       Pollution clean up and removal should be included.  If you or a sub contractor accidentally spills tar, oil or gasoline at the construction location and you are required to clean it up, are you covered? 

·       Does your policy have the option to include profit?  If you have a fire when the building is near completion, wouldn’t you want your profit to be included in the loss? 

·       Many policies provide coverage during construction and up to 30 days after completion.  A broader builders risk policy would continue to cover the building indefinitely if it is completed and unoccupied.  Do you have continuous coverage on a spec or a model home? 

·       The reporting of starts should be simple and the payment should be economical.  A monthly rate might be better for one builder, whereas an annual plan might work out better for another.  

 

 

 

 

 

  Auto Insurance – Things To Look For …

Automobile Insurance provides liability, uninsured motorists, underinsured motorists and physical damage coverage for all vehicles owned by you and used in business.

If you do not own any vehicles under the company name, you should still carry non-owned and hired auto liability coverage.  This coverage provides protection where an employee or a subcontractor uses their own vehicle to run an errand for you, is involved in an accident, and you are included in the legal action.

If you need to temporary lease a vehicle for a few days, you should have hired physical damage included in the auto coverage.  Hired auto liability coverage will provide liability protection, but you also should have the vehicle itself covered for comprehensive and collision coverage.

Some contactors do not own any personal autos, but have all the vehicles titled in the company name.  Since commercial auto insurance is more restrictive than personal auto insurance, you should add an endorsement, Drive Other Car (commonly called DOC coverage), to your policy.  You would then be more adequately covered if you would use another auto, such as renting a vehicle in your personal name when you are on vacation.  

 

 

 

 

 

 

  Property Insurance Does Not Cover Everything

Basically, property insurance covers your buildings, office equipment, building materials, tools and equipment against loss by fire, windstorm, theft, vandalism, etc., subject to certain exclusions.  Terms, such as “all risk” or comprehensive, are commonly used, but there are still exclusions.  Also, the policy normally only provides coverage if the loss occurs on the premises.  You should make arrangements to cover other items such as tools and equipment off premises.

Computer coverage is important.  You can protect the computer under the property policy like any other piece of furniture.  However, a specific computer policy provides broader coverage, such as damage form a power surge.  The software (media) can also be specifically covered under a computer policy.

You may have need for other specific coverages, such as flood or earthquake.  Employee dishonesty is another area which should be considered.  Most owners totally trust their employees, but there have been many cases where a trusted employee embezzled thousands of dollars.  

 

 

 

 

 

  Problems With Subcontractors

Your subcontractor needs to have insurance coverage.  The biggest sin with a subcontractor is not receiving a certificate of insurance from the sub prior to his doing any work for you.  If the general contractor waits until the job is underway or finished, the chances of obtaining a certificate of insurance are greatly diminished.  Many successful general contractors do not pay the subcontractor until after the certificate of insurance is received.  If there is not a certificate on file when the policy is audited, the general contractor will be charged premium for the subcontractor’s payroll.

The certificate should indicate that coverage is carried for both General Liability and Workers Compensation.  Be certain that the subcontractor’s name that appears on the certificate is the same as the name on your check to him.

The subcontractor should have adequate limits of liability insurance.  Most companies consider a limit of at least $1,000,000 each occurrence to be adequately insured.  Many companies do require that the subcontractor have the same limits as the general contractor.

It also makes sense to have the subcontractor include the general contractor as an additional insured on the sub’s liability policy.  If the subcontractor is at fault, his policy should respond first.  The general contractor should avoid having his liability policy being charged for a claim loss when another party’s (subcontractor) insurance should be responsible for the claim.    

 

 

 

 

 

 

 Companies Rating

Insurance companies are given a report card by an independent rating organization, A. M. Best Company.  They are given a grade, similar to when you were in school, of A, B, C, D, or F.

An insurance company with less than an “A” rating can present a problem for two reasons:

1.    There is always the risk that they will go out of business.

2.    Some organizations such as the state, county or city may not accept any insurance company with less than an “A” rating.

Also, if you are a subcontractor, many general contractors will not accept an insurance company with any rating less than an “A”.  If you do not know the rating of your insurance company, please feel free to give my office a call and we would be happy to look it up for you.

Thank you for taking the time to read the 7 Deadly Sins Report.  You could be just minutes away from saving insurance dollars. Take the first step and apply now for a free, no obligation quote.  In most situations, our response time is within 48 hours.

  ** Remember, it doesn’t cost anything for a second opinion.

Call Now 513-621-3021         
800-294-4019
Bob Schiermyer
414 Walnut Street
Cincinnati, OH  45202-3977

© 2001, Bob Schiermyer and A. M. Peck & Co., Inc.  The reader assumes all responsibilities for his/her own actions in regards to any items discussed in this report.  Adherence to all applicable laws and regulations governing the use of any product or service described in this report is the sole responsibility of the reader.  The author assumes no responsibility or liability whatsoever on the behalf of the reader. Readers are encouraged to consult directly with an insurance professional.