Construction Insurance Bulletin

When settling Building Insurance claims, it can be tough to determine the real cost of replacing or restoring damaged property. Unfortunately, the methods that policyholders, insurance companies, and agents usually use to set the right amount of coverage all have their weaknesses; according to insurance experts, this means some buildings might be underinsured by up to 40%!

This shouldn’t be a surprise. Basing the amount of coverage on the purchase price of a building doesn’t factor in possibly significant changes in the value of the location. The same problem applies with using real estate appraisals, which are based on the sale price.

Although setting coverage by estimating square footage and material costs can be fairly accurate, these methods depend on the validity of the data plugged into the formulas. What’s more, changes in zoning or building regulations can have a significant impact of the value of the building.

As a construction professional, you can’t afford to “guestimate” the cost of building repair or restoration after a loss. For example, you probably have a strong grasp of arcane and complex zoning and building ordinances in your everyday work.

We’d be happy to provide a complimentary review of the valuation of your buildings for coverage purposes and recommend any needed changes. We can then explore opportunities to improve the accuracy of building valuations for your clients — and ours, so that we can help close that 40% “underinsurance gap.”

In your construction business, you use vehicles every day and insure them with commercial auto insurance for construction vehicles. Unfortunately, accidents can happen as you drive on the road or operate the vehicles on a job site. Utilize several safety tips as you protect your construction crew, fleet and company.

Create a Vehicle Operating Policy

Your employee handbook should include your company’s policy for proper vehicle operation. It will include details about driver expectations and safety procedures. Include any information your insurance company requires, too. With this policy, you help your employees understand safe driving practices and minimize accident risk.

Inspect Vehicles Annually

The pickup, dump and flatbed trucks you operate on the road must be inspected annually before you and your employees may legally drive them. Schedule inspections and any required emissions testing with a qualified inspection station. For the excavators, cranes, bulldozers and other vehicles in your fleet that don’t require an annual inspection, implement regular maintenance checks to ensure these vehicles operate properly. Keep accurate and updated records of every inspection as you prove that you’ve met your legal obligations, prioritize safety, and protect your employees and company.

Train Employees

Your employees must know how to operate vehicles safely before they start the engine. Give every employee an operating exam, and retest annually as you verify that they can safely operate the vehicles on the road or job site.

Between annual exams, provide trainings on safe operating procedures. Every employee should know defensive driving techniques, all Department of Transportation (DOT) guidelines, job site safety procedures and what to do after an accident.

Establish a Troubleshooting Reporting Procedure

While your employees may operate your fleet vehicles, you ultimately hold the responsibility for the vehicles’ safety. Set guidelines that outline how your employees should report any issues they find as they operate the vehicles. Employees should know where to find the forms, how to complete them and where they should be delivered. You must then follow through and fix any reported problems.

Conduct Risk Management Surveys

To promote safety, you should know and minimize as many risks as possible. In addition to educating operators on the risks of the specific vehicles they operate, monitor drivers as you identify and address risky behavior. Be aware of risks on the job site, too, such as loose dirt, drop-offs or right turnarounds, as you keep your vehicles and employees safe.

Your construction vehicles provide invaluable service for your business. Take proactive steps to keep your fleet in top working order and equip your employees to operate those vehicles safely. For more safety tips, talk to your construction insurance agent.

Anyone who works in construction knows the dangers — and costs — involved.

Accidents are expensive. For starters, a mishap will increase your General Liability and Workers Compensation premiums, as well as expenses for lawyers and other personnel brought in to investigate the incident. Other costs include reduced productivity and diminished morale, disruption of project work schedules, and other fees (such as OSHA fines). What’s more, you might well come under media scrutiny, leading to a loss of reputation that can be difficult — if not impossible — to repair.

On an industry-wide basis, workplace accidents make it harder to attract and keep new workers to meet current and projected needs. Although worker attrition is problematic throughout the economy, it’s a particular concern in construction. The industry historically has had trouble attracting and retaining good workers, due partly to its negative image as a dirty and dangerous occupation. Ironically, the high attrition rate — which is closely linked to unsafe working conditions — perpetuates itself because newer workers on a job site are more susceptible to accidents.

Reducing your risk of loss from accident is a two-part process. For starters, you’ll need a comprehensive insurance program that offers the best protection at the best price. Just as important, make sure that you develop, update, and enforce job site safety programs, with incentives to get your workforce involved.

Our insurance professionals stand ready to help you keep your workers safe — and your costs under control. Just give us a call.

The construction industry relies on skilled tradesmen who specialize in different jobs like plumbing, electrical or drywall installation. As a contractor, you may hire dozens of tradesmen for a project. Assess a tradesman’s skill, experience and qualifications in several ways as you ensure the job is done right.

Ask for References

A plumber may say she has experience repairing water treatment system pipes, but you must verify her experience before you hire her. Contact the references she provides and ask about her quality of work, reliability and timeliness. Use this information to decide if the subcontractor is right for your specific project.

See Proof of Insurance

If a tradesman installs the wrong material or otherwise delays the construction project or damages the existing building, you could be liable. Ask the tradesmen you hire to verify insurance coverage, and keep a copy of their current business owners or liability policy in your files.

Evaluate a Tradesman’s Subcontractors

The tradesmen you hire may employ subcontractors, too. Assess these subcontractors as you verify that everyone on the job site will maintain high-quality work and safety standards. If you cannot personally vet the subcontractors, include a clause in the contract stating that the tradesmen are responsible for the actions and behavior of their subcontractors.

Sign a Safety Policy Agreement

Because every construction site includes safety risks and potential hazards, you will need a safety policy agreement for each project. It outlines specific job site risks and details ways to reduce accidents, and you and the tradesmen will both review and sign the agreement.

Agree to a Contract

You and the tradesmen you hire should agree to and sign a contract that includes details like the work requirements, timeline and payment. Prepare new contracts for each project and tradesman, store a signed copy in your records and provide a copy to the tradesman.

Perform Regular Assessments

You may work with the same tradesmen for years, but you should still perform regular assessments for each new project. These assessments ensure that the tradesmen you hire continue to provide quality work and maintain a safe environment.

Monitor the Job Site

While your assessment of tradesmen is important, continue monitoring the job site. Be sure your tradesmen continue to comply with their contract. If you see concerns or violations, address the tradesman directly and ensure changes are made. With regular monitoring, you catch problems while they’re still manageable and keep the project operating smoothly.

Your construction business relies on a variety of skilled tradesmen. Assess each one carefully as you produce quality work, maintain safety and protect your reputation and business.

An accounting firm on a building’s top floor accused the roofing contractor of ruining its computer network equipment, even though the contractor wasn’t working on the building at the time. The contractor had finished replacing the roof in September.

Heavy snows fell that winter, and it started melting rapidly when March brought above-normal temperatures. The accounting firm’s systems support analyst came in to work on a Monday morning to find pools of water in the server room and the servers inoperable. Given that the first four months of the year are a somewhat busy time for accountants, the firm could not remain without its computer network for long.

It rush-ordered new servers, paid a premium for express shipping, then paid even more to have technicians remove the ruined servers, install the new ones, load the data from backup records kept off site, and perform network testing, all within a period of a few days. The cost to the firm was high, both in terms of repair and replacement costs and extra expenses for its accountants to access an alternative network. The firm sued the building owner and the roofing contractor to recover thousands of dollars in losses.

This is where the contractor’s Completed Operations Liability insurance coverage came in handy. This insurance covers the contractor’s legal liability for bodily injuries or property damage that his work causes after he has finished it. Before the insurance applies, however, the incident must meet several conditions:

• • The incident must be an “occurrence.” The policy defines this as an accident, but it can also be damage that happens over time because of harmful conditions. The roof suddenly letting melting snow gush all over the servers is an occurrence. So is the roof allowing melted snow to seep into the walls over a period of months, causing plywood and insulation to rot?

• • It must occur during the policy term. It is not necessary for the contractor’s mistake to happen during the policy term, but the injury or damage must occur then. The contractor finished the roof in September, his liability insurance policy renewed in January, and the damage to the servers occurred in March. The policy that took effect in January applied, not the one in effect in September.

• • It must occur away from the contractor’s own premises. Liability insurance does not apply to damage to premises the contractor owns or rents.

• • The injury or damage must arise from the contractor’s work. This means that the contractor’s portion of the job led to the injury or damage. The roof was supposed to keep water out of the building; water entering the building implicates the work done.

• • The contractor’s work must be completed or abandoned. It’s complete at the earliest of: When all the contract work is complete; when all the work at that job site is complete; or when the customer puts the work to its intended use. The contractor finished the roof in September and the building owner put it to immediate use, so the insurance company will consider it to be complete.

The insurance will not apply to bad work that did not cause damage to something else unless a subcontractor did the job for the contractor. If the building owner discovered the problem with the roof before the accountant’s servers took a shower, the insurance would not apply to fixing the roof. It also doesn’t cover liability for the building becoming unusable or less usable because it contains the contractor’s defective work. Work with one of our insurance agents to ensure that you have the proper coverage. Completed operations losses can be catastrophic; financial protection is essential!

As a contractor, your contractors pollution insurance covers any erosion you cause. You want to follow all federal, state and local erosion control guidelines, though, as you prevent runoff, protect ecosystems and avoid fines. Consider nine effective construction site erosion control techniques.

• • Reforestation

    Restore or restock woodlands around the property to increase soil retention and reduce degradation. Fairly simple to install, you only need seedlings or saplings, dibbers and measuring ropes.

• • Buffer Strip

    Narrow strps of permanent vegetation slow runoff and trap sediment. The root system controls soil erosion caused by winds and reduces landslide risk, too.

• • Geotextile Roll

    Made from coconut, straw or similar fibers and bound together with mesh rope, geotextile rolls cover newly graded soil and prevent bank erosion. Vegetation can be planted over the geotextile roll to increase stability. Over time, the materials will biodegrade and cause no harm to the environment. Easy to install and low maintenance, this erosion control technique is best for small streams and stable water levels.

• • Brush Mattress

    A system of branches and stakes, a brush mattress is often used on banks near perennial streams. This biodegradable erosion technique can be washed away in heavy rain, but it is easy to install and maintain.

• • Gabions

    Use gabions, cages or containers filled with  small rocks, on banks that are highly prone to erosion. While gabions aren’t always pretty, they are sturdy, easy to customize with rocks or concrete, and useful almost anywhere. Always ensure the supportive footing is secure and regularly inspect the gabions for mesh damage.

• • Riprap

    Rubble and rocks of all sizes and types form a riprap. It is an effective control erosion technique on embankments, bridge abutments, shorelines, streambeds and other seaside locations. Use a riprap on slopes with a rise that’s less than 2:1 or the riprap could become unstable and erode.

• • Rootwad Composites

    Stabilize stream banks, lower stream flow velocities and provide aquatic habitats for wildlife when you install rootwad composites. They incorporate interlocking tree material on the base of stream slopes. Complicated to install, this erosion control is cost effective.

• • A-Jacks

    Placed at the base of slopes, A-Jacks consist of interlocking cement stakes. They increase stability and are useful for high erosion areas. While they’re available in a variety of sizes, they do not biodegrade.

• • Tree Revetment

    Anchor wood to the bank with a tree revetment. It reduces water flow velocity but is not recommended for high erosion areas. This technique requires ongoing maintenance, too.

With these nine erosion control techniques, you protect your job site and the environment. Determine which technique is right for each individual project, and update your contractors pollution insurance policy regularly to protect your business

The weather outside is frightful, whether it’s January in Buffalo or July in Phoenix. Extreme weather conditions can be a major problem for construction workers, most of whom have to perform their tasks outdoors. During the summer, high temperatures and humidity can cause dehydration, heat stroke, cramping, exhaustion, and rashes. The need for workers to wear protective clothing, such as long denim pants and heavy boots, exacerbates the heat’s effects.

Those parts of the body not covered up become vulnerable to sunburns and skin cancers resulting from exposure to the sun’s rays. Summer lightning storms can cause fatal injuries to workers. During the winter, low temperatures and high winds can combine to make conditions bitterly cold. This can lead to hypothermia and frostbite, in addition to a greater potential for slip and fall accidents due to the presence of ice and snow.

For these reasons, all contractors should make protection against extreme weather conditions part of their regular safety procedures. Some regulations from the federal Occupational Safety and Health Administration require this. For example, one regulation requires employers to provide personal protective equipment and special training to workers if they will work under conditions so severe that they qualify as environmental hazards. Among the required protective equipment is clothing to cover an employee’s eyes, head, face, arms and legs. Another regulation requires employers to provide equipment protecting employees from over-exposure to the sun.

Some steps contractors can take to prevent illness or injury resulting from weather conditions are:

• Learning the signs that indicate the weather is making a worker ill
• Monitoring workers for signs of illness
• Training workers on how to protect themselves from the elements
• Setting an expectation that workers will dress appropriately for weather conditions
• Providing shade during hot weather and heated areas during cold weather in which workers can take breaks
• Scheduling work for cooler periods in the summer and warmer periods in the winter

Workers should dress in layers during the coldest weather and should, to the extent practical for the work, keep exposed skin covered with gloves, hats, and scarves to protect against frostbite. During hot, sunny weather, employees should wear wide-brimmed hats, long-sleeved shirts made of light material, and ultraviolet-resistant sunglasses. They should also apply sun block at regular intervals during the day.

In addition to higher Workers Compensation costs, employee injuries and illness rob a contractor of the productive services of good workers, divert management’s attention from the core business, and make the employer less attractive to good, skilled workers. Although contractors cannot completely protect their workers from the effects of extreme weather conditions, with some simple steps and training they can make losses from these conditions less likely and less severe.

In the construction industry, performance bonds serve as a guarantee that the contractor will finish the project correctly and satisfactorily. As a contractor, you must knozw the details about performance bonds as you protect your business.

What is a Performance Bond?

A performance bond is issued by your insurance company or a bank and guarantees to the project owner or manager that you will meet your contractual obligations. You’ll need to put up real estate or another investment as collateral.

After you purchase a performance bond, you’re ready to complete the construction project. If you don’t follow through on your commitment, the bond company pays out the bond, and you must repay the bond company.

Who Needs a Performance Bond?

Contractors who perform private sector or government work need a performance bond for each project. It ensures that contractors do the job right and don’t waste taxpayer money.

Documents Required to Request a Performance Bond

Insurance and bond companies require different types of paperwork depending on the cost of the project and its difficulty. In general, you will need to assemble the following documents before you request a performance bond.

• A copy of the contract
• Completed surety application
• Detailed CPA-prepared financial statements from the past two years

How Much Does a Performance Bond Cost?

Performance bonds cost a percentage of the contract value. For large projects, the percentage is usually one percent. Smaller contracts may require a bond of as much as three percent.

Your creditworthiness, type of job and state in which you live also affect the bond’s cost. You’ll add its total cost to your project bid.

What Happens After the Performance Bond is Cashed?  

When you don’t complete your contractual obligations, the project manager can file a claim against the performance bond. The bonding company will evaluate the claim. If it’s legitimate, the company will pay the bond amount to the project manager. Remember that the contract for each project must be specific. A vague contract with terms that are open to interpretation could void the performance bond.

The only person who can receive the performance bond payment is the property or project owner.  With that bond money, the project manager can pay to complete the project or hire a replacement contractor who will finish the job properly.

If the bond company pays out a claim, you are responsible to repay the debt. You can cover the cost with your collateral or another form of payment.

Performance bonds protect project owners and ensure they receive quality work as outlined in the contract. Before your next bid, be prepared with a performance bond.

As concerns grow about the potential effects of global warming and people pay more attention to reducing their carbon footprints, green construction is becoming a larger part of the solution. A McGraw Hill study found that in 2008 the value of green construction starts might have been as high as $49 billion, and it could reach $140 billion by 2013.

Building owners are attracted by energy cost savings, tax incentives, and the good publicity that comes from using an environmentally-friendly facility. Although green construction has become a lucrative business for contractors, it carries some risks that conventional construction methods do not have or have to a lesser extent.

Much of the difference between green construction and conventional methods is in areas of emphasis and materials. Green construction, because it is relatively new, uses new materials that might not have a proven long-term track record. The focus of a green building is energy conservation; objectives such as moisture control to prevent mold growth receive less attention.

Also, compared with conventional buildings, green buildings allow more air in from the outside, with potential impacts on building occupants’ health. Before construction begins, contractors must work with the project owner to identify the specific green objectives the owner wants to accomplish. With that knowledge, the contractor can determine how much additional risk the objectives present and create risk management plans to deal with it.

Price pressures can also be an issue. Green construction can be more expensive than conventional construction, yet project owners might be unwilling to pay a large premium for it. Contractors will be under pressure to hold costs down. This might cause them to take shortcuts that could increase the risk of creating defects in the building. The owner and contractor must work together to create a plan that balances cost savings with sound construction practices.

Green buildings carry a risk that their components might not perform as well over time as do those of conventional buildings. Because they stress innovative techniques and materials, green buildings use materials that have not undergone the years of testing that conventional materials have. Green construction favors using renewable resources and emphasizes insulation to reduce energy use.

Conventional buildings use materials with a history of good performance and emphasize keeping water and other elements out. To reduce performance risks, contractors should arrange for peer reviews that predict how materials will interact with other materials and building systems, predict how the building will hold up in actual use, and analyze waterproofing and humidity control capability.

Although green buildings are a relatively new concept, building owners expect them to perform at least as well as conventional buildings over the long term. Contractors who erect them might be vulnerable to lawsuits if a building fails to meet the U.S. Green Building Council standards. The USGBC offers its LEED certification to buildings that meet standards; the council can also revoke certification if it finds that a building is not performing as expected. Losing certification can harm a contractor’s reputation.

The peer reviews of materials and systems should help to reduce this risk. The green construction business is almost certain to grow rapidly during the next several years, and contractors will naturally want to take advantage of that. To reduce their risks, they should work with organizations such as the USGBC to get education and training on materials, construction techniques, and risk management. Together with peer review of materials and collaboration with project owners, these measures should help contractors complete quality and environmentally sound buildings.

Bidding on residential remodeling projects requires accuracy. With an accurate bid, you show your competence and make a viable living. Consider five//// tips that help you estimate an accurate remodel bid.

1. Become familiar with the client’s house.

Whether you’re bidding on your first or fiftieth remodel project, you must do a thorough walk-through of the home. You’re better equipped to give an accurate bid when you know exactly what the house looks like and what the job entails.

During your walk-through, look for details like the room dimensions, desired materials and job scope. You should also consider any complications like an older heating system or the possibility of mold.

2. Be clear about the homeowner’s expectations.

Talk to the homeowners to ensure you understand exactly what they want and expect. When you’re on the same page, you can create a bid that includes everything they want.

3. Calculate all costs related to the project.

It’s easy to forget important details when preparing a remodel estimate. Consider these often underestimated or overlooked expenses.

4. Ensure the bid is profitable for you.

Remodel jobs can include a profit margin of as much as 20 percent, but if your bid is too low, you could earn as little as three percent. Crunch the numbers at least twice to ensure you can stay in business and provide for your family.

5. Submit your bid personally.

Show that you’re dependable and hands-on when you submit your bid in person. This step also gives you a chance to discuss the bid with the homeowners. You can explain charges and answer any questions as you equip the homeowners to make an informed decision.

With these five steps, you submit bids for remodel projects that are accurate. You can then build a successful construction career.