Construction Insurance Bulletin

Unfortunately, a number of erroneous beliefs about worksite safety are widespread in the construction industry.

Here are seven common safety myths – and why they don’t pass the reality check:

1. Safety programs ensure worker safety. In practice, this means that binders on a variety of topics (usually regurgitated OSHA standards) end up gathering dust on a back shelf.
2. Safety is common sense. Taking risk is a very personal matter. Some people skydive, others bungee jump; some race automobiles, others rock climb.
3. Incentive programs improve safety. Because these programs usually reward not having a recordable incident, they benefit workers been lucky enough to avoid accidents – not to mention a natural tendency not to report injuries.
4. Progressive punishment ensures safety compliance. The best punishment can do is achieve temporary compliance. Effective policing must be continuous and consistent, with clear consequences.
5. Firing noncomplying workers solves safety problems. This is like trying to cure a disease by treating its symptom. Instead, find the error that led to unacceptable behavior and change it.
6. Safety training is a leading safety indicator. The sign-in sheet shows only who attended the meeting. For training to work, managers need to test what individual workers learned – or didn’t learn.
7. Inspections and audits will uncover most workplace hazards. Inspections provide snapshots of workplace conditions at a given time, rather than an accurate picture of ongoing operations or activities.

Every construction firm needs to evaluate its safety systems, practices, and procedures critically, challenge the status quo where needed – and take decisive action.

Our agency’s professionals would be happy to offer their advice at any time, free of charge.

Air, water, and soil pollution pose a serious financial threat for contractors. One small misstep can require thousands – or even millions – to clean up.

Consider these scenarios:

• Remodeling a school kicks up dust.
• Using construction materials generates fumes that pollute the air.
• Hitting an underground storage tank leads to the release of liquid pollutants.
• Spraying to remove a bees’ nest from a work area releases insecticides.
• Tying into a sewer line improperly causes sewage to back up.

Your Comprehensive General Liability (CGL) policy provides severely limited protection against these types of pollution claims. Not to worry! Contractors Pollution Liability (CPL) insurance can protect you. (These policies are sometimes written together with Contractors Professional Liability coverage – see the previous article).

CPL covers Bodily Injury and Property Damage – whether by settlement or verdict – as well as the expenses of investigating, defending, or settling claims. Most policies also cover the costs of removing or neutralizing pollutants and restoring the damaged property.

CPL policies usually include a “hammer clause” that works like this: if the contractor chooses to fight a claim, rather than settle it, the insurance company’s liability for damages and claims expenses is limited to what it would have had to pay if the contractor had approved the settlement. As you can imagine, most contractors choose to settle when their insurer recommends this approach.

As with Contractors Professional Liability coverage, CPL policies are usually written on a case-by-case basis, with the size of the policy depending on your situation (for example coverage might be worldwide or limited to the U.S). Our agency would be happy to work with you, and the quality insurance companies we represent, to tailor a program suited for your needs. Feel free to get in touch with us at any time.

New approaches to building projects, as well as new techniques, are leading to increased demand for Professional Liability insurance for contractors.

A few years ago, people would shake their heads at the idea of this coverage, asking how contractors could be held liable for professional risk when they don’t provide professional services.

However, there has been a blurring of the once-sharp lines between contractors and architects and designers, as more and more contractors are being drawn into the design process. Under the traditional “design-bid-build” method, a project would be designed, bids put out, and the project built. However, the spread of the “design-build” concept – which decreases the amount of time, and the cost, of the project involved – has meant that medium sized and large contractors often take the design responsibilities in-house, and even subcontract them to design firms.

These contractors’ biggest exposure is for claims filed against them for project delays and cost overruns. However, traditional General Liability insurance offers coverage only for Bodily Injury and Property Damage, and does not cover financial or economic losses. Contractors Professional Liability insurance fills this gap.

Because these policies are relatively recent, only a limited number of insurance companies offer them. These companies haven’t paid enough claims for underwriters to establish the underwriting history and set standard rates – which means that policies are usually negotiated on a case-by-case basis. The amount of insurance can be up to $50 million; if a contractor needs more capacity, coverage can be added through excess layers.

If your firm is (or might be) taking on project design responsibilities, a comprehensive Contractors Professional Liability policy can help protect your pocketbook – and provide peace of mind. To learn more, just give us a call.

In the residential-construction industry, plaintiffs’ attorneys keep coming up with new creative ideas for class-action lawsuits – a shift from litigation by individual homeowners to more inclusive claims, such as the Chinese drywall class-action suit settled last year for $80 million.

More and more of these Construction Defect claims by developers and builders, often filed in plaintiff-friendly jurisdictions such as Southern California, allege potential water damage from faulty pipe fittings and minor leakages in homes. For example, Karen Rice, vice president of construction claims at XL Group North America’s Los Angeles office, says that although fewer homes have been built in this region during the past several years, XL hasn’t seen a reduction in residential water leak litigation so far. She adds that plaintiffs are filing leakage suits within an average of three to five years, rather than six or seven years, “probably because of the [ailing] economy.”

According to Rice, “these are pinhole, minute leaks, causing some water damage; there really isn’t any water damage that we can tell.” Thomas Varney, risk-consulting manager in the Americas for Allianz, points out that such leaks often occur because a worker failed to tighten, cap, or complete a connection to the plumbing or sprinkler system properly – often in an area that’s not visible, or on a higher floor that might have a significant amount of water.

The best way to help protect your business against these types of claims is to set, and enforce, comprehensive and effective safety practices, guidelines, and criteria in the workplace.

Our Construction insurance specialists would be happy to review your safety program. Feel free to get in touch with us at any time.

In the construction world, we’re often quick to reprimand our workers about safety violations. Such phrases as “Hey, put your helmet on!”, “Seriously, do you really think this is a good idea?” and “Get off that ladder now!” come to mind. All too seldom, do we say, “Thanks. You’re doing a great job in keeping the site safe!”

As you walk your work sites or wander the shop, it’s important to search out potential hazards and people who are not following what’s expected. However, don’t forget to recognize and acknowledge the workers who are doing their jobs right. When you recognize the power of thanking those who do well, their peers pay attention. That’s the reason why merit badges work.

Whether you’re a supervisor, foreman, or project manager, your job is to encourage safe behavior by motivating – not threatening – your workers as often as possible. Showing gratitude goes a long way in forming your crew and your friends. Take the time, and you’ll soon be surrounded by people who want to work for you. When you recognize this, you will understand the power of thanks.

Without trust, there’s little chance of success in any business – including yours. Your role is to help your workers stay out of trouble and eliminate acts and conditions on the job that can harm them. Whenever possible, it’s better to work with them, rather than acting as an obstacle.

Help your construction crews understand the hazards of the work they do and how to get them corrected. Establish a level of trust, and say “Thanks!” more often than “Stop!”

Remember, you catch more flies with honey than vinegar.

Contractors often install pipes, water-based heat transfer systems, sprinkler systems, and drain lines components made of chlorinated polyvinyl chloride (CPVC) because they’re less expensive, and easier, to work with than those made of metal. These pipes and fittings can cause serious – and costly – damage when they leak or burst.

CPVC components can fail for a variety of reasons. Because this material is a thermoplastic made by combining raw materials, one or more ingredients might be faulty. Errors in manufacturing can lead to defects in the extrusion or injection-mold processes. Other potential risks include inadequate warnings, and improper shipping and handling.

To minimize your exposure to losses when working with products made of CPVC, construction risk management professionals recommend that you:

• Use proper handling and storage procedures – for example, avoid exposing CPVC components to sunlight.
• Make sure that the booster pump pressure is not too high when designing the piping system.
• Do not use CPVC components in pressurized-air applications.
• Review assembly techniques carefully.
• Check the type of adhesive used, and the amount (the Goldilocks principle).
• Set the right amount of dry time.
• Inspect the alignment of pipes and fittings.

Last, but not least, do not mix CPVC pipes and fittings with those made from its distant cousin, polyvinyl chloride (PVC), which has different chemical properties, physical characteristics, and capabilities.

Of course, most of these precautions apply just as well to installing pipes or fittings made of any material.

As always, our agency’s Construction insurance professionals would be happy to offer their advice on keeping your workplace as safe as possible.

Most public construction projects, and many private projects, require the general contractor to carry a contract bond: a financial guarantee to the project owner from a “surety underwriter” (surety) that the contractor will meet the contract provisions.

Unfortunately, contractors sometimes run into setbacks that can keep them from fulfilling their contract obligations and trigger a bond default – an event that could put them out of business.

Smaller and midsize contractors (those with work backlogs of $5 million to $100 million) are often more vulnerable than their larger counterparts to this risk. The reason: Smaller building projects are usually easier to cancel because the owners are more likely to stick with larger, more complex projects, due to their greater importance and longer planning lead times.

If you’re experiencing, or can reasonably expect, problems in meeting your contract terms – such as excessive overhead, a liquidity squeeze, cost overruns and/or scheduling delays – it makes sense to develop contingency plans that address such concerns.

Just as important, make sure to let your surety know about your situation immediately. After all, the surety has a vested financial interest in avoiding a costly default by working with you and the project owner to work through these difficulties.

Never withhold bad news from your surety. When, not if, the surety learns about your deteriorating financial condition (even if you’re able to meet the terms of the contract), you automatically become a riskier candidate for future bonds. The surety – or any other bond underwriter – will probably limit you to bids on smaller projects with less financial risk, or keep you from bidding on any projects until you can demonstrate financial stability.

A difficult economy is squeezing small contractors to do more jobs within narrower margins, exposing them to costly errors Customers are more demanding and quick to claim negligence when they aren’t satisfied with the results.

When a small contractor makes a mistake that results in a loss, he must often spend the time and his own money to fix the work – usually costing thousands of dollars. Expensive mishaps happen every day on jobs such as these:

• Carpet Installer: A contractor picks up the wrong carpet at the dealer and mistakenly installs it in a customer’s home. The installer has to remove the incorrect carpet and replace it with the correct product. Total contractor loss: $3,000.
• HVAC Contractor: When installing a new cooling unit on the roof of a commercial building, a contractor fails to complete the foundation support. The unit breaks through the roof, destroys the equipment, and causes significant damage to the building and personal property, costing the contractor: $25,000.
• Fence Erection: A contractor misreads the site plan while installing a fence. As a result, the fence is installed significantly over the property line and has to be removed and reinstalled. Total contractor loss: $35,000.

The General Liability policies of these contractors would not cover these losses. However, Contractors Errors & Omissions (E&O) insurance can pick up the tab for claims of negligence, providing financial protection and peace of mind for contractors in today’s “litigation society.” Insurance companies have tailored policies for small contractors in a wide variety of specialties – everything from HVAC dealer/ distributors, janitorial contractors, and locksmiths, to septic-tank cleaners, masonry contractors, and interior-tile and stone artisans.

To learn how Contractors E&O coverage can help protect your business, feel free to get in touch with us.

Construction projects involve significant financial risk for the contractors and subcontractors who must pay workers and purchase materials. To help protect themselves against these financial losses, builders have a number of insurance options. Two of the most widely used coverages are Builders Risk and Installation Floaters. The choice you make depends on the nature of each job.

Builders Risk insurance pays for damage to materials or partially completed work due to accidents, fires, weather damage, material defects, and incorrect installation or workmanship. This coverage ensures that the time and money that the builder has invested in the project aren’t lost when the costs of repairing, repurchasing or reconstructing add up and diminish profits.

Installation Floaters cover specific items that a contractor is planning to install. For example, a roofer might buy a policy to pay for the cost of roofing supplies, both during transit and while stored at the work site. An Installation Floater covers either all risks or specific sources of losses for moveable property (materials or equipment) specifically named in the policy.

Because of its more narrow coverage, an Installation Floater generally costs less than a Builders Risk policy. However, it leaves the builder more vulnerable to losses that aren’t covered. This coverage would be appropriate for a contractor performing a specific installation task, or a subcontractor who takes on limited risk to perform a specific duty for a contractor as part of a larger project.

As Construction insurance professionals, we’d be happy to recommend the type of coverage best suited to protect you against losses on each job. Just give us a call at any time.

By definition, you operate away from your premises. Let’s say that a hailstorm damages two of your bulldozers on a job site – or a carrier transporting one of your backhoes is hijacked at a rest stop. Did you know that Property insurance will not reimburse you for these losses!

To cover loss or damage to construction equipment when it’s on the job or in transit, you need an Equipment Floater policy. This type of coverage goes back as far as the 17th century when Lloyd’s of London extended insurance on ship cargos beyond ocean voyages to their final destinations. Because this property was essentially “floating,” these policies came to be known as Floaters.

Equipment Floaters for construction businesses cover a variety of mobile equipment – from bulldozers and backhoes to forklifts, bobcats, and cranes – when they’re away from your premises. (Please note that coverage does not extend to cars, trucks, and vans, for which you should have, Commercial Vehicle insurance).

You can buy an Equipment Floater policy on either a “named peril” basis – which lists the specific risks covered – or as an “all risk” policy – that includes losses from all causes not specifically listed. In most cases, the policy will not pay for losses or damage from such reasonably foreseeable causes as mechanical breakdown, wear and tear, and improper loading or use of the equipment.

As Construction Insurance professionals, we’d be happy to help you choose an Equipment Floater that’s best for you. Feel free to get in touch with us at any time.