Construction Insurance Bulletin

The latest of dozens or even hundreds of construction contracts is lying on your desk. They all contain any number of project requirements that you hope your insurance covers. But does it?

Contracts are usually drawn up by legal experts who focus on what their client wants from the agreement, especially in the areas of performance and cost. These contracts frequently require services and products that are outside the scope of a contractor’s insurance coverage. This can create problems, because a missed deadline, a cost overrun, or a faulty installation could easily lead to a claim against the contractor.

The best way to review an insurance issue is with our team of professionals. We’re not attorneys, but we’ll be happy to work with you and your legal counsel to review the provisions of your construction contracts and their insurance implications. Once we understand the comprehensive insurance requirements, we can tell you which of those requirements your current program already meets, which you can meet by changing your program (and at what cost), and which — if any — available insurance policies can’t meet. At this point, you’ll be in a better position to bid and sign.

One of the true values of Workers Compensation law is the “exclusive remedy” provision to the employer. Basically, in return for providing coverage for injuries arising from the job, this provision protects you from being sued by the employee for the injury, regardless of who has been negligent. Thus, the benefits provided automatically by Workers Compensation become the “exclusive remedy” for the injury.

However, there’s one way to bypass this barrier to employer liability. It’s called “third party over.” Let’s say that an employee is injured when the scaffolding on which he’s standing collapses. Workers Compensation pays the claim, so he can’t sue the employer. However he chooses to sue the scaffolding company, alleging improper equipment and installation. He wins a judgment, which leads the scaffolding company to sue the employer/contractor, claiming improper usage of the scaffolding. In effect, the employer/contractor is being sued for damages arising from injury to its own employee — just what Workers Compensation is designed to prevent.

Is such a suit legal? Yes. Because the scaffolding company isn’t the injured person’s employer, there’s no prohibition against his suing them — and Workers Compensation law clearly can’t prohibit the scaffolding company from claiming against the contractor, either contractually or by alleging negligence.

If you face such a situation, would your Workers Compensation coverage protect you (because the claim originated from an injury to an employee)? Or would you have to turn to your General Liability coverage, as you would when sued by an outside party? The answer: Either policy might cover this situation, depending on the basis of the suit. For truly comprehensive protection, you need to carry several types of insurance. No one policy does it all. A claim that might fall just outside the purview of one policy can be either a disaster, or simply a hand-off to another type of coverage.

Keeping your entire umbrella of insurance protection current and coordinated might seem complicated — but that’s where our agency comes in. When it comes to risk management and insurance, helping you focus on what you do best is what we do best.

One of the ongoing dilemmas in Building insurance claims involves determining a valid cost for the replacement or restoration of damaged property. When this insurance is first written, there are a number of approaches for arriving at a reasonable amount of coverage — yet nearly all of the commonly used methods have their weaknesses.

For example, some businesses want coverage equal to what they have paid for the building. However, this ignores the value assigned to the location, which might have increased (or decreased, depending on the location) significantly. Others prefer using real estate appraisals; but this leads back to the sales price, not the construction price. Square footage and building material cost estimators are also common. However, even if they are fairly accurate in methodology, they depend on the accuracy of the data put into the formulas (garbage in — garbage out). Add the effect of changing zoning or building ordinances, and it’s no wonder that insurance industry experts estimated that the average commercial building might be underinsured by as much as 40%.

As a construction professional, you’re well placed to know the cost of restoring or rebuilding after a loss. What others “guesstimate,” you must do accurately for a living. Ordinances and zoning laws that are Greek to most people form part of your everyday knowledge base.

We can review the valuations of your buildings and recommend any necessary changes to your coverage. From that point, let’s explore opportunities to improve the accuracy of building valuations for your clients and ours. Perhaps together we can make inroads into that 40% gap.

Owners and general contractors usually ask to be added to a subcontractor’s policy as “additional insureds” in order to protect themselves against vicarious liability claims arising from the activities of the sub.

Let’s say that a subcontractor’s employee accidentally drops a tool from a scaffold, injuring a pedestrian on the sidewalk below. Although any liability claim against the sub will go directly to the sub’s insurance, the GC and owner might also find themselves drawn into the suit. For example, the claimant might argue that they were liable for bringing the sub onto the jobsite. Adding them as additional insureds to the sub’s policy is an attempt to make the sub coverage the primary source of defending and paying the claim.

However, such arrangements carry numerous potential pitfalls, such as inadequate coverage (due to exclusions or limitations) and/or inadequate coverage limits (due to previous claims draining the available limits).

As an alternative, the subcontractor might buy a separate Liability policy tailored to protect the named insured for vicarious liability from the actions of the sub. Two such policies are the OCP (Owners and Contractors Protective Liability policy) and PMPL (Project Management Protective Liability). Each provides separate limits of coverage from the sub’s regular Liability policy. Although the two differ in several ways, each offers an attractive solution to the vicarious liability issue.

If you’d like to choose either of these options in your contractual arrangements as an owner/GC or as a sub, our Construction insurance professionals stand ready to help. Give us a call.

You buy Commercial Liability insurance to help protect yourself against regularly occurring events that might strike your business. A client slipping on your steps, an accident involving your vehicle or equipment – these are the types of accidents you hope to avoid and for which insurance can help cushion the blow if the worst happens.

However, your business also operates under certain assumptions; for example, that your work will be done correctly and your products will perform as expected. If either of these is untrue, you’ll create unhappy customers who will either want their money back or seek remedial action. Even though you haven’t injured or damaged their property, they’re just plain unhappy with your business.

Your Liability policy refers to such situations as “impaired property claims” and does not cover them.

For example, if an air conditioning repair service claimed to have finished its task for a client but mistakenly used the wrong part, the client might demand that the contractor come back and do the job right. If there’s no injury beyond the contractor failing to fulfill the original agreement, and everything can be put right by replacing the wrong part with the correct one, the air conditioner would be considered “impaired property” – and a Liability policy wouldn’t pay the additional costs of redoing the repair.

On the other hand, if the faulty part had damaged the air conditioner or dwelling (perhaps shorting out and starting a fire), Liability insurance would cover the resulting property damage claim.

Situations like this reinforce the need to provide ongoing risk management and skills training for your employees. For more information on protecting your business from loss, give us a call.

Let’s say a general contractor or owner/developer asks you for a “cross liability” endorsement, but you can’t find this provision in the policy itself or as an endorsement. Should you be worried?

Probably not. Standard Liability coverage includes a cross-liability provision known as a “Separation of Insureds” agreement, with language that reads something like this: “Every insured claimed against under this policy will be treated, at the time of the claim, as if they were the only insured under the policy.” This clause essentially allows one party that the policy covers (for example, the general contractor) to sue a second party covered in the same policy (you). In this case, the GC is asking to be added to your Liability coverage – while reserving the right to sue you.

If the GC sues you, under the cross-liability provision you’ll be treated as if you’re the only insured under your policy: The insured status of the party suing you is irrelevant.

The Cross Liability endorsement provides an excellent example of the extensive coverage that makes your Liability policy such a valuable resource for protecting the financial assets of your business.

If you have any questions about your coverage, please feel free to get in touch with us.

To be in business means to sign contracts – and every one of those contracts requires that you agree to provide some guarantee. A common question is “will my insurance back me up on those guarantees?”

The answer can be complicated. For one thing, it’s essential to determine if the contract is one of the types that your Liability coverage specifies as an “insured contract.” Although other policy provisions can also apply (such as exclusions and limitations), if a particular contract isn’t considered an “insured contract,” look no further – your policy won’t apply.

Standard Commercial Liability policies usually define “insured contracts” to include:

• Leases.
• Sidetrack agreements (made with a railroad if you have tracks crossing your property).
• Easement or license agreements.
• Obligations required by ordinance to indemnify a municipality.
• Elevator maintenance agreements.

Almost all Liability policies also include a broader provision that covers contracts under which your businesses assume the “tort liability” of another party for bodily injury or property damage. “Tort liability” is defined as liability that would exist in the absence of a contract or agreement. In other words, the liability you’re assuming must arise from the negligence of the other party to the contract. If the injured person can sue this other party without reference to any contract or agreement (“tort liability”), then a contract under which your business agrees to assume this liability will be considered “insured.”

Although it’s important, the definition of “insured contract” is only the starting point for determining if Liability coverage applies. Instead of assuming that your policy covers your contractual agreements, give one of our specialists a call. We can review the specific provisions of your current coverage as they might apply to your proposed contract and advise you about possible gaps.

If you’re planning to buy new construction equipment, do you feel the need to “kick the tires” before you make a decision? Let the Internet help save you time and money. Go to http://www.constructionequipmentguide.com/pages/newproducts/ to take a virtual equipment tour that includes illustrations, pricing, and a text description of each item that you can print or download.

However, this site won’t provide informed guidance on buying the insurance you’ll need for your new equipment. Here’s where our agency comes in. Before you make a final decision, we can offer our professional opinion on how the purchase will affect your coverage and pricing options. For example, if you’re choosing between two pieces of equipment, we can estimate the cost for insuring each (a factor you might consider in making your choice). We can also let you know in advance that it might be hard — or even impossible — to provide the right coverage on a piece of equipment at a cost you can afford.

The higher the value of your planned purchase, the more we can help by getting involved in the decision-making process in advance. Feel free to get in touch with us.

As online and other methods make your business purchasing increasingly easy, don’t let the simplicity of the process lead you to skip the steps needed to make a wise decision.

You might be tempted to handle a minor damage claim yourself, without bothering to file it with your insurance company. For one thing, paying up won’t cost you much. What’s more, you might feel that reporting too many claims could drive up your premiums — and even risk the cancellation, or non-renewal, of your policy.

However, before you dig into your pocket to pay that nickel-and-dime claim, bear in mind that your Commercial General Liability policy probably has language like this:

No insured will, except at that insured’s own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without our consent.”

In other words, if anything goes wrong with this claim, don’t expect your policy to help. Let’s say a visitor to your worksite suffers a “minor” injury after stepping on a nail – and you agree to pick up the tab for them to go to the ER, without reporting the incident to the insurance company. A week later, the victim’s attorney lets you know that the wound has turned into a serious infection that will require a long and costly hospital stay. If you turn to the insurance company to pay the claim, you might well be out of luck — and thousands of dollars out of pocket! Even if the company does pay the claim, you’ve taken an unnecessary risk.

The solution: Inform your insurer about every claim, no matter how “minor” as soon as possible. This meets the terms of your policy. If you pay the loss yourself, well and good! If not, the company will step in — saving you the time, expense, and hassle of dealing with it.

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.