Construction Insurance Bulletin

Wrap-up or “Wrap” Construction insurance can provide a highly effective tool to reduce costs and avoid headaches in insuring large, complex projects and the workers building them.

Wrap policies usually offer superior coverage, higher policy limits and greater contract certainty than traditional Commercial General Liability, Workers Compensation, and (often) Builders Risk insurance written for individual subcontractors and types of risk. What’s more, Wrap coverage can minimize potential cross-litigation on construction projects.

Although they’ve been available for decades, these policies have become widespread in recent years, due to the skyrocketing costs of raw materials, financing, and litigation. There are two types of Wrap coverage; owner-controlled insurance policies (OCIP), and contractor-controlled insurance policies (CCIP). Either variety allows the owner to spread the risk among different parties, while providing a seamless insurance safety net for every company and individual involved – which can translate into profit, based on loss experienced over the life of the policy.

Because of their extensive coverage, Wrap policies are usually more expensive than other types of Construction insurance for the owner or primary contractor, who will pass on the extra cost among the general contractors and sub-contractors on the project. This is a small price to pay considering the peace of mind that comes from having all coverages and insured parties protected under a single policy.

Because of their complexity, insurance companies often tailor Wrap policies for each project, writing them on a customized (“manuscript”) basis. Our agency’s professionals would be happy to work with you and your insurer in creating coverage that’s comprehensive and cost-effective. That’s what we’re here for.

One of the biggest challenges that a contractor faces on a job site involves the status of independent contractors. Understanding the difference between an “employee” and an “independent contractor” can help you to avoid becoming the legal employer of a contractor’s or a subcontractor’s workers. The best way to deal with this problem is by requiring that all contractors carry Workers Compensation insurance and taking reasonable steps to verify that coverage is in place. You should also:

• Check state law for the definition of independent contractors; if needed, seek legal advice for clarification.
• If the law requires independent contractors to register, check the state’s online portal to verify that the contractor in question is registered.
• Have a written contract with every independent contractor that outlines the relationship and does not restrict the contractor’s freedom to work for others.
• Make sure that the contractor provides their own tools and equipment.
• To avoid the appearance that an independent contractor is drawing a paycheck, provide payment based on completion goals, rather than weekly or bi-monthly — and require invoices for payment.

For more information, please feel free give us a call at any time.

Although you’re probably familiar with using Construction Surety bonds, you might not be aware of the legal relationships involved.

This type of bond is not an insurance policy, but a guarantee by a “surety’ that a contractor (“principal”) will perform its obligation under the bond. Failure to do so means that the “beneficiaries” of the bond can sue either the principal or the surety for the entire amount of liability. The person or firm to whom the principal and surety owe their obligation (“obligee”) is usually the owner. However, if a subcontractor furnishes a bond, the obligee might be the owner, the general contractor, or both.

There are three basic types of Construction Surety Bonds: Bid bonds, performance bonds, and payment bonds.

A bid bond guarantees the owner that the contractor will honor its bid and sign all documents if awarded the contract. If the principal fails to do so, the principal and surety must pay any additional costs to the owner in rebidding the contract — usually the difference between the two lowest bids.

A performance bond allows the owner to sue the contractor and the surety for failure to complete the contract according to its terms. Many performance bonds give the surety three choices: Completing the contract through a new contractor; selecting a new contractor to work directly with the owner; or allowing the owner to complete the work, with the surety paying the costs.

A payment bond guarantees the owner that subcontractors and suppliers will be paid what the principal owes. On a private project, the owner may also benefit by providing subcontractors and suppliers a substitute for mechanics’ liens. If the principal fails to pay subcontractors or suppliers, they have the right to collect from the principal or surety up to the amount of the bond.

To learn more about the benefits that Surety Bonds offer, feel free to get in touch with us.

Unfortunately, many construction businesses see on-the-job accidents as an inevitable result of such tasks as hammering, cutting, hoisting, and other high-risk activities.

Charlie Bacon, CEO of mechanical design, construction, and service contractor Limbach Facility Services, has devoted his 30+ years in the industry to proving otherwise.

Shortly before Bacon joined Limbach in 2004, a horrific worksite fatality weakened morale throughout the company, encouraging him to develop the firm’s award-winning safety program. This reinvigorated the workforce, while turning around the company’s Workers Compensation record. In 2004, Limbach suffered 94 claims with net payables of $1.5 million. By 2011, the number of claims had plummeted to 31, with only $170,000 in net payables — and slashed Workers Comp premiums dramatically.

Limbaugh’s Incident and Injury-Free (IIF) program focuses on modifying behavior. Says Bacon, “We want people to choose to be safe instead of being told to be safe.” IFF includes a variety of elements:

• Every worker signs a personal-commitment card, pledging allegiance to a safe workplace.
• A safety-training exercise asks workers to write the letter they would want their families to receive if they were killed on the job.
• Any employee has the right to stop what they’re doing if they believe that they cannot work safely.
• Each company office has a full-time safety manager who develops technical recommendations, champions the safety culture, and keeps in touch with injured employees throughout the claims process.
• At the end of every day, work crews hold a “huddle” to discuss any safety issues.
• Whenever there’s an accident (or even a near miss), managers must provide written “Safety Alerts,” which are the first items discussed at the weekly meeting of top management.

What’s not to like?

As insurance professionals, it’s our responsibility to help you manage your job site safety and Workers Compensation programs. Here are eight ways that we can do the job:

1. Help you assess liability exposures before you take on high-risk work.
2. Stress the financial benefits of working with injured workers, medical providers, and Workers Comp adjusters to get employees back to full-time or modified work.
3. Assist you in creating and maintaining a comprehensive safety and accident program, with specific penalties for violations and rewards for consistent safe working practices.
4. Work with you, your safety consultant, and loss control specialists from your insurance carrier on a joint annual review of safety programs to see what is, and isn’t, working.
5. Review and reconcile annual loss runs and experience modifications with you and your Workers Comp adjuster. In case of any discrepancies, we’ll ask the adjuster how he or she derived the numbers, especially the reserves (which should be based on worst case/best case scenarios of estimated claims costs). If these reserves are far higher than anticipated costs, we’ll ask the adjuster, in writing, to reduce them.
6. Help you close lingering Comp claims or modify their benefits by seeking an independent medical exam, nurse case management, and/or peer review.
7. Advise you on implementing an effective modified duty program for claimants with minor injuries.
8. Set up in-person or phone interviews with adjusters and create a joint action plan with them to deal with injured employees who will never return to work for you.

As always, we stand ready to offer our advice. Just give us a call.

What do cranes, compressors, concrete mixers, and welding rigs have in common? All are types of construction equipment. And all are also types of equipment that a construction business must move around regularly. When the time comes for the move, are they carried on or towed by another vehicle, or do they have the capability to go from one location to another under their own power?

For example, some cranes have crawler treads to move them about a job location. However, transporting them to another job means packing them onto a trailer. Other cranes are combinations of truck and crane. When it’s time to move, the operator climbs into the cab and drives to the next site. Is such a piece of equipment a truck with a crane attached, or is it a crane with wheels?

Such combination vehicles, known in insurance terms as “mobile equipment,” have their own insurance implications and rules on how to provide Liability and/or Physical Damage coverages. To be certain that your policies remain tailored to your current inventory of equipment, give us a call. Together, we can work through your list of equipment, and determine which types need which policy.

Let us help you make sure that when your equipment moves, your insurance goes along for the ride.

It’s a regular occurrence for contractors: You receive a request from another party (an owner, general contractor, lien holder, other contractor, or a government entity) to add them as an additional insured on your insurance policies. Whether that’s a good idea is up to you — but the party often makes it clear that if you want to do business you’ll need to add them as an additional insured.

However, it’s not necessarily a good idea to add this entity to all of your policies. For example, your Excess Liability coverages — such as those under Umbrella insurance — were probably bought specifically for your own protection in case of catastrophic loss. If an additional insured, who might be well within their rights, is added to your policies with protection up to your basic coverage limits, will they also be allowed to “piggyback” up to the full amount of your coverage?

We’d advise you not to set up any procedure that makes all of your coverage limits available automatically to any additional insured. Add them to the specific coverages and amounts that they request, but go no further. If in doubt, consult with your attorney about contractual requirements and possible gaps between what the entity is requesting in being added to your coverage and what your coverage will actually provide.

Once you’re certain what you’re being asked to do, and have decided that it’s in your best interest to meet this request, there’s one more action to take before adding the additional party to your coverages. Contact us to determine if your current coverage already meets the needed conditions, or what modifications (if any) might be required to do so.

Remember: Although we want to help you meet your needs, our focus always remains on protecting you, even if against unreasonable demands from other entities. We’re here to help.

Hurricane Sandy, tornadoes, flood — all of these disasters affected construction firms during the past year. Some companies took direct hits, while others suffered from massive service demands, and shortages of help and supplies.

Although your business might never face such massive “destruction and distress,” other events –everything from IT failure to vandalism — could trigger a crisis.

Whether it’s a catastrophe or a stressful disruption, the best way to prepare for any potential disaster is to develop a catastrophe plan in advance. This plan should allow your staff to mobilize the right resources quickly in the right order so you can get up and running with as many contingencies as possible accounted for in advance.

How do you go about developing a plan? What’s the process? Who should you include? How often should you review and update it? An effective plan should involve a “business resumption team” with managers from these areas:

• Information technology
• Communications, both internal and external
• Moves and relocations
• Services and logistics
• Salvage and security
• Customer service

Before a crisis erupts, the team will determine what activities to follow, assign responsibilities for these tasks, and provide the resources and information needed. When compiled and organized, these activities, responsibilities, resources, and information make up the disaster plan.

Don’t wait for a crisis to uncover the gaps in your preparations. Get started now on creating and/or updating your plan.

Feel free to give us a call so we can offer our advice and recommendations. Insurance might not solve all your crisis planning problems, but it can provide a solid foundation.

Whenever you’re asked to bid on a job, you’re usually required to certify that the price is firm and that there won’t be any unexpected expenses and cost overruns once the project is underway. Because this is standard practice in the industry, it’s understandable that some contractors are surprised that their insurance costs don’t operate the same way — especially when the contractor has asked agents for “bids” on the insurance package.

Neither Workers Compensation nor General Liability, two of the key coverages in Construction insurance, usually set fixed premiums. Because payrolls and/or revenues the contractor pays or earns during the policy period determine the premiums, and there’s no way to know these costs in advance, the premiums will also be estimates. Once actual payrolls and revenues are known (usually after an insurance company audit after the end of the policy period), the company will set the final premium based on these figures. The contractor — you — will then receive either a refund (if your insured losses were lower than expected) or a bill for the additional premium due (when these losses are higher than expected).

Although it’s never pleasant to owe more money after a policy has expired, keep two things in mind: First, if the insurer were able to predict the final results accurately, it would have charged this amount in advance. Second, an additional premium due after an audit shows that you had a better year than expected — and that’s always good news!

If you have any questions about how your insurance works or how premiums are calculated, just give us a call. We’re here to help.

Flimflam artists and the sad stories of their victims are the stuff of local newspapers and police blotters. However, as business headlines attest, all the con artists aren’t working the streets. Some are doing quite well in boardrooms and corporate offices.

Insurance is far from immune to these charlatans. Whether it’s a great deal on Construction Bonds, a scheme to lower your Workers Compensation costs, or a “new” concept in Health coverage, an old adage might apply best: There’s no such thing as a free lunch.

How can you tell the difference between a great deal and a scheme to pick your pocket? Before making any commitments, check out unknown entities with an organization that makes it their business to protect you from the fly-by-nights. These include your local Chambers of Commerce or Better Business Bureau. When it comes to insurance, your state insurance regulator is probably the best source of both valid information and enforcement when fraud is uncovered. To check out an insurance company, use such rating services as Standard & Poor’s and A.M. Best. These can usually be found at your local library or online.

Don’t forget one of the best ways to avoid being taken to the cleaners by a con game: Deal with reputable, professional insurance representatives, such as ourselves. We’re here for the long term, so you can trust us not to be interested in short-term scams at the cost of long-term loss of reputation and livelihood.

Call anytime – we’re here to help.