Construction Insurance Bulletin

As a construction manager, you’re the traffic cop on the project, giving directions – and taking risks. Construction Managers Errors & Omissions Insurance (also known as Construction Managers Professional Liability Insurance or Construction Management Firm E&O) can protect you against client allegations of professional negligence or failure to perform as promised in your contract.

Here’s why you should have this coverage:

• Standard Liability insurance won’t fill the bill. Your Commercial General Liability (GGL) policy does not cover errors, contract performance disputes, or other Professional Liability risks. A contractor without going without E&O is like a physician practicing medicine without Malpractice Insurance.
• You need to protect your pocketbook. Losing a lawsuit could be a serious financial blow – and even if a claim is baseless, it will cost your company dearly to defend it.
• Stuff happens. No matter how high your level of experience and expertise, no one is perfect. Even a minor error (from equipment failure to human oversight) can lead to a serious, and costly accident or injury.
• You can’t be everywhere at once. The larger and more successful your business, the harder it becomes for you to personally handle every aspect of each project. An E&O policy will cover not only your mistakes, but those of your employees and independent contractors.
• Your clients might require it. Some clients won’t give you their business unless you and your subcontractors carry this coverage. Even without this requirement, having E&O insurance can help strengthen relationships with your clients by reassuring them that your company can meet its financial obligations under the contract.

Our Construction insurance specialists would be happy to tailor a Contractors E&O policy to the needs of your business. Just give us a call.

Layoffs during the recession have resulted in a shortage of qualified workers in specialized areas of construction – and the problem will probably get worse as the industry picks up during the recovery. In this environment, some contractors might be tempted to stretch their hiring standards to fill out a project roster, increasing the danger of losses from on-site injuries and defect claims, among other risks.

The past two years have seen a sharp drop in the unemployment rate for former construction workers, but not a corresponding increase in construction industry growth. This means that these workers who have been unemployed are often finding other types of work, becoming full-time students, or have given up looking for a job in the building trades industry.

Because each construction company works in a unique environment and culture, a worker from one firm going to another might not have the required expertise. What’s more, construction is a profession that takes time to learn. Tight profit margins and financial problems can pressure smaller and midsize contractors into cutting corners by hiring inexperienced workers. This increases the risk of on-site accidents and injuries –and leads to poorer quality work that can easily result in costly and annoying defective construction claims (see the article “Construction Managers E&O Insurance: Nobody’s Perfect! ”

In addition as the building industry comes out of the recession, OSHA has become far more aggressive and vigilant in monitoring worker safety.

The bottom line: Avoid the temptation of hiring inexperienced workers as a way to save money, and you’ll keep your risk of on-site accidents and injuries – not to mention your insurance premiums – under control. What’s not to like?

No matter how large or small the job in the building trade is, it’s always the best policy to carry insurance again liability for losses from injuries, accidents, or property damage during construction.

Residential building contractors need a Liability policy to protect them from lawsuits from homeowners for construction-related losses, or from workers injured on the job. Make sure that your contract requires every sub to carry their own Liability insurance and exempt you from responsibility from damage they might produce during construction. The amount of coverage you need will depend on the size of the contract. As a rule of thumb, it’s wise to have two or three times the size of the project budget.

Commercial contractors usually carry millions in Liability insurance. Contractors with higher risk of damages (for example, roofers or contractors in highly specialized trades) often take out higher coverage.

Your Liability policy will set coverage amounts (limits) for both each occurrence and overall (aggregate) values. Limits are also set for: 1) fire damage to property under construction; 2) medical expenses for injured workers on the jobsite who might not be covered under Workers Compensation; and 3) personal and advertising injury (claims that promotion or advertising caused a financial or personal loss to the owner of the home or building).

While many contractors pay their Liability premiums up front, those with cash flow problems others prefer to finance them through an indemnity corporation with a down payment and monthly payments over six months to a year.

As always, our insurance experts stand ready to help you find comprehensive Liability coverage at a rate you can afford. Feel free to get in touch with us at any time.

With economic recovery in much of the construction industry slow to take hold, more small and midsize contractors are trying to stay above water by pursuing work that goes well beyond their field of expertise – making it harder for them to get the insurance they need.

To maintain operating capital and/or avoid laying off workers, these businesses are bidding –often at rates far lower than normal on new types of projects – assuming more contractual obligations, and expanding the tasks they perform on site. Although these decisions might mean the difference between solvency and bankruptcy for contractors, they also expose their businesses to serious legal and financial dangers.

Profit margins for some contractors have eroded so far that there’s no longer any room for errors in bidding, which has resulted in more and more surety bond failures and subcontractor default claims.

The turnaround in the economy has kick-started growth in some construction markets, ranging from civil infrastructure and health care facilities to schools and rental apartment buildings. This has led to more contractors with expertise in other fields (such as commercial office space, large-scale retail, and specialty trades) bidding on these projects – often without knowledge of the special risks involved. For example, a paving company that expands from parking lots to bid on surfacing a highway would have to consider such factors as workforce size, night work, and the flow and proximity of moving traffic.

Many middle market general contractors are performing operations usually done by subcontractors – such as site preparation, steel erection, and pouring concrete – that can create worker safety and product defect liability issues. More and more of these contractors are having their on-site safety managers supervise safety protocols among the subcontractors’ workers, as well as their own workers.

Before you seek out new types of businesses that might expose you to unfamiliar risks, check with us on the most cost-effective way to provide the insurance protection you need.

Safety consultant Robert Tuman has inspected more than 1,000 completed buildings (as well as buildings under construction) during his 30-year career. In a recent article for Property/Casualty360.com, he shared these horror stories of design errors that could easily have resulted in serious injury or death to construction workers:

• Case No. 1: On my way to inspecting a roofing client. I found a roof hatch opening only 6 inches from the unprotected roof edge, with no room for a guardrail or any type of protection from a 60-foot fall.
• Case No. 2: I saw workers walking on glass panels and the metal ribs supporting them in the middle of an all-glass barrel roof 75 feet above a pedestrian atrium in order to replace broken panels.
• Case No. 3: While inspecting a building under construction, I observed eight shaky frames of occupied pipe staging which were not tied into the building – a clear violation of OSHA rules that requires tying staging into a building at the fourth vertical frame, and then every 26 feet vertically.

To protect your workers from the costly, dangerous – even potentially fatal – risks that can easily arise from flawed building designs, we’d recommend that you hire a consultant to help you develop and implement a comprehensive risk management plan for you and the building owner to sign. This program should include workplace safety rules, corrective actions to take, and a method for providing feedback on unsafe conditions. To get worker buy-in to the plan, stress the fact that they’ll be keeping themselves, and their teammates, safe.

As always, our agency’s Construction insurance specialists stand ready to offer their advice.

Complying with comprehensive legal and regulatory codes plays an essential role in constructing safe, energy-efficient, and “sustainable” buildings – and helps drive up the cost of Construction Insurance.

The International Code Council, a think tank of building officials and engineers, keeps writing increasingly complex building codes that cover every aspect of residential and commercial construction from foundation to roofs. Consider this: the ICC manuals doubled in thickness from 2003 to 2009. By adopting new ICC standards, local and state governments seek to limit their liability and protect their communities more effectively. The National Fire Protection Association and the International Fire Code Council have developed and adopted stronger building codes to protect building occupants and firefighters.

Continuing revisions and updates to building access standards under the Americans with Disabilities Act require extensive and costly improvements.

What was once seen as a moral obligation to sustainable building practices is becoming mandatory. You might have heard the terms Platinum, Gold, Silver, and Bronze, which distinguish the “greenness” of a building. More and more municipalities are requiring new buildings to meet the rigorous LEED design, construction, operations, and maintenance standards developed by the U.S. Green Building Council.

Compliance with all of these legal and regulatory requirements is boosting construction costs and lengthening timetables throughout the nation. At the same time, failure to comply with building codes has triggered a significant increase in the number and size of insurance claims – which keeps driving up premiums – and pressures contractors to recover their costs by raising prices.

To help you keep up with the potpourri of building codes, keep your Construction insurance program protecting you and keep your premiums under control, feel free to consult the professionals at our agency. We’re here to serve!

Many construction businesses will be paying more for Liability coverage, as insurance companies are raising rates to make up for years of low premiums (during the so-called “soft market”). That’s the conclusion of a recent report by the U.S. Construction Practice of Marsh, the world’s largest insurance broker.

Other factors driving these increases include skyrocketing inflation of medical costs and new laws in some states expanding the coverage requirements for Liability insurance.

The Commercial General Liability (CGL) market for construction firms continues to harden, with rate increases of up to 15%. Businesses with poor loss histories are experiencing even larger hikes, and (in some cases) will not have their policies renewed. Insurance companies are also raising renewal rates by 8% to 10% on Umbrella and Excess Liability coverage.

The report found that Workers Compensation rates are rising as underwriters grapple with flat premiums and escalating medical costs. Upcoming changes to the National Council on Compensation Insurance “experience modification” calculations – which help set rates – could drive up premiums significantly.

On the other hand, Construction Insurance experts expect little change in rates for such coverages as Project-Specific General Liability, General Liability Wraps, Controlled Insurance Programs (CIPs), Builders’ Risk, Environmental Insurance, and Contractors Professional Liability.

The good news, says Michael Anderson, Leader of Marsh’s U.S. Construction Practice: “Construction firms that proactively distinguish their risk profiles from their peers are best positioned to secure more favorable terms, conditions, and pricing from underwriters.”

As professional insurance agents, we can advise you on navigating this challenging environment to obtain comprehensive, cost effective Liability coverage that can help protect your business. Just give us a call.

An environmentally-friendly heating system that just doesn’t work…Units certified by the Leadership in Energy and Environment Design (LEED) program that don’t meet certification requirements…Contractors facing lawsuits from building owners because they were denied tax breaks from promised green structures…

As sustainable buildings become increasingly common, more and more contractors are facing potential losses from their green construction activities. In response, insurance companies are tailoring Property policies to meet these needs. However, it can be hard to define what makes a building green – and how to determine green-related damages.

According to the California Department of Resources, Recycling, and Recovery (CalRecycle), “A green building, also known as a sustainable building, is a structure that is designed, built, renovated, operated, or reused in an ecological and resource-efficient manner to protect occupant health, improve employee productivity; use resources more efficiently; and reduce the overall environmental impact.” The Environmental Protection Agency defines a green building process as “the practice of maximizing the efficiency with which buildings and their sites use resources – energy, water and materials – from siting, design, and construction, to operation, renovation, and reuse.”

As a rule of thumb, the definition of “green” should match the needs of the owner and the environmental standards of the region. For example, the determining factor might be low water use in the desert Southwest, and lower heating bills in the Northeast.

So far, most claims filed under “green” Construction policies have come from advanced systems used in sustainable buildings – technologies so new that insurance companies might not understand fully how they work and what their shortcomings might be. In the final analysis, the deciding factor will probably lie in the contractual agreement between the building owner and the construction contractor.

If you are, or plan to be, active in green construction, we can work with your insurance company to help tailor the coverage you’ll need.

A gas line explosion…A short circuit that fries electric wiring…Even a lightning strike…Any building site under construction or renovation is highly vulnerable.

Builder’s Risk insurance will pay for loss or damage to a structure (and, in some cases, of the materials, fixtures and/or equipment used to build or renovate it) caused by a variety of perils – such as windstorms, hail, theft, and vandalism. The policyholder can also extend coverage to include;

• Property in transit to the job site or stored at a secure offsite location.
• Scaffolding, construction forms, and temporary structures on the site.
• Removing debris from covered property.
• Paying firefighters to save or protect property.
• Replacing blueprints or construction plans.

As a rule, Builders Risk insurance does not cover losses due to mechanical breakdowns, floods, earthquakes, water damage, or rioting.

These policies are often written for a three month, six month, or 12 month coverage term. If the project is not completed by the end of the initial term, it may be extended in many cases, but usually only one time. Coverage ends when the property is ready for use or occupancy.

The amount of coverage, usually based on the project budget, should reflect the total completed value of the structure (including costs of materials and labor), but not the value of the land.

Depending on the circumstances, either the building contractor, developer, or owner(s) can buy Builders Risk. If a bank issues a construction loan, it will usually require the borrower to purchase a policy. In many cases, showing proof of insurance might be mandatory under city, county and state building codes

For more information on this valuable coverage, please feel free to get in touch with our Construction Insurance specialists at any time.

Your Liability insurance premiums are based on two fundamental factors: First, the types of operations you perform (carpentry, electrical, etc.); and second, the amount of payroll and/or revenue assigned to, or arising from, those services. Although your business and insurance programs might use other methods and variables, these are the two key factors in nearly all Liability ratings. Therefore, it’s important to calculate your payroll and revenue numbers as accurately as possible.

One possible area of confusion arises from the fact that insurance rating rules don’t calculate these numbers in the same way that your tax advisor or bookkeeper would for general business purposes. This is to your advantage, because most of the insurance rules dictate what you don’t have to count in determining payroll and revenues used to rate Liability premiums. For example, special rating rules minimize the amount of any overtime pay you must include in the total used in calculating premiums.

We can help show your accountant or bookkeeper the rating rules that will help track these numbers to give the most accurate premium. Be sure to advise us of any significant changes in your operations that might require revising the classification of your business for liability rating purposes. Having the right numbers assigned to the correct classifications can make obtaining an accurate premium audit quick, clean, and hassle free.

If it affects your insurance, it affects us. Let’s work together to keep your insurance program a great value for your investment.