Construction Insurance Bulletin

When stores lease real estate spaces or construction firms win jobs, the party on the other end usually has a very specific set of requirements. One of the main requirements is that the tenant, contractor or borrower must show proof that he or she has adequate insurance. Copies of insurance documents might be sufficient. However, not all companies want copies of documents sitting around. Space is valuable, and most banks do not have enough room to keep such copies of originals for every customer. A very helpful substitute for document copies is a certificate of insurance. This item is simple to create and store. Unfortunately, not all firms and insurance buyers fully understand them.

ACORD constructed the forms that are most commonly used. Their instructions show that these certificates are intended for informational purposes. When some businesses receive these certificates, they think the items are contracts. However, the certificate is simply a snapshot of insurance provisions. It does indicate that a policy exists, but it is not the document that actually provides coverage. The only document that actually provides coverage when shown is the policy itself.

Standard certificates by ACORD state that insurers must provide advance notice to holders if policies are cancelled. Although policyholders rely on these words, they do not create a legal bond between the two parties. The only thing that can obligate the companies to give advance notice is the policy’s specific provisions. Many businesses want these certificates to have specific terms, phrases or words. However, agents have legal boundaries for such requests. The only way agents can add wording to a certificate is if the listed policies contain that wording. Changes are not always allowed.

Many states prohibit agents from handing out certificates implying provisions that are not included in the policies. For example, a certificate holder might want the item to state that coverage is primary and noncontributory. However, policies that do not reflect such information cannot have certificates indicate otherwise. Agents who add language implying otherwise could be in a great deal of trouble. Only the insurer can change policies. If an agent issues a certificate implying a change, this is a violation of the individual’s contract with the insurer and a violation of state insurance law.

Before business owners sign papers for leases or construction jobs, they should verify coverage requirements with an agent. Only an agent can provide in-depth advice about the cost and availability of any missing elements. Agents can only issue certificates after coverage is in place. If certificates are used appropriately, they are valuable business tools. However, they can cause problems when they are used incorrectly.

Liability insurance is important for contractors and subcontractors. This type of coverage offers financial protection from the results of accidents, injuries and property damage caused during a project. When working on a construction project, many workers accidentally damage the property in one way or another. Mishandled tools, dropped items or misinterpreted directions are often the sources of property damage incidents. The regular standards of business require contractors to have proof of adequate Construction Liability coverage prior to starting a project on a structure. This standard is also required for subcontractors.

Commercial Contracting Insurance

Commercial contractors are usually expected to carry multi-million-dollar policies. This allows for coverage of any injuries or construction-related damages to the structure. As a rule, commercial contractors performing riskier tasks have higher coverage amounts. For example, a roofing contractor would have a higher amount than a contractor remodeling the interior of a one-story commercial structure. To finance premiums over the span of several months or one year, indemnity corporations charge contractors a down payment and monthly service fees.

Residential Building Insurance

This type of coverage is important for any worker in the building business. In many cases, homeowners decide to sue the contractor for damages sustained during the process of construction. If there are any injuries on the job site, workers might file lawsuits against the contractor or homeowner. A good Construction Liability policy will help protect contractors from loss in unexpected situations and various types of damage lawsuits. However, the contract must require every subcontracting party to have their own coverage. The contract must also state that the contractor does not claim any responsibility for damages occurring during the construction process that are the fault of one or more subcontractors. Policy amounts are related to the amount of money the contractor executes, so it is important to estimate a realistic figure. To be fully protected, it is best to have at least two or three times as much coverage as the total amount of the construction project.

Although employees in many workplaces use hand tools every day, they might not consider these items dangerous. Accidents happen every day, and hand tools are often involved. Screwdrivers, hammers, wrenches, saws, punches, planes, pliers and chisels are just a few of the tools commonly involved in accidents.

Improper maintenance and misuse are usually the biggest hazards associated with hand tools. Selecting the right tool for the job and using it carefully is the responsibility of the worker. These two simple tasks are the start of proper hand tool safety.

If a worker chooses the wrong tool for the job, an accident will be the likely result. It is important to inspect the item carefully before starting a job. Look for defects. If there are any, the item should be replaced or repaired before starting the job. The tool’s handle should fit tightly into the head. This is especially important with axes and hammers. If the handle is cracked or splintered, it should never be used. Items that have power cords should be inspected carefully. Cords can become frayed or loose over time. If there are exposed wires, the cord should be replaced before the tool is used again. To protect hand tools from unnecessary damage, return them to safe storage places after use.

When choosing hand tools, look for ones that are designed to keep the wrist perfectly straight. To use a cutting tool correctly, hold the handle firmly using the palm of the hand. Always cut away from the body. Cutting toward the body could result in a serious injury or even death. Never push on pliers or wrenches. It is important to pull on them instead. Avoid putting sharp objects in a pocket or tool belt. They should be carried carefully with the sharp edges facing away from the carrier’s body. Sharp tools should also be kept away from walkways or other areas where they could injure people passing by. It is important to consider the safety of people passing by and other workers.

Never toss tools to another worker. All items should be handed from one person to another. Many passersby and workers are injured every year by tools that were tossed carelessly. When working on a scaffold or ladder, obtain tools by raising or lowering them in a bucket attached to a hand line. Tools should never be carried in ways that may interfere with a worker using both hands to climb a ladder or other structure. It is also important to ensure proper safety equipment is used.

All workers should wear the correct protective equipment for the job. For example, ear plugs can protect hearing while using a noisy saw. Shatter-proof safety glasses should always be used to keep flying debris or broken tools from injuring the eyes. If gloves are necessary for a specific job, make sure they fit properly. Wearing gloves that are too small can make the hands go numb and restrict movement. If gloves are too large, they can get caught in machinery and become more dangerous than helpful. Tool handlers should always consider the safety of themselves and others. Employers should encourage workers to ask questions about tools and their uses. Knowledge is a good way to prevent accidents with tools.

Many buildings and homes have ladders for various purposes. Although they are useful, they come with many safety risks, and it is therefore important to take the proper steps to prevent accidents. For example, never leave stepladders or ladders unattended. If a ladder falls, passersby, children and even pets can be severely injured or killed. Whether the ladder falls or someone climbs on it, the results often include a hospital visit. Keep safety in mind at all times while using a ladder, and make sure the ladder is secure before climbing on it. Stabilizing it takes only a few moments, and the result yields a much lower risk for disaster. To make ladder use as safe as possible, consider the following suggestions:

• Carefully analyze the ladder before using it. Look at all of the rungs, and make sure they are sturdy. If they do not have skid-resistant strips, attach some immediately.
• Prop up the ladder in a way that makes the distance between the wall and base one-fourth of its length up to the support point.
• Watch carefully for signs of splits and cracks. If rungs are bent, repair them prior to using the ladder. Bent rungs are very unsafe and should never be present above the lower three feet of the ladder.
• While climbing up or down the ladder, always position the face toward it. Keep at least one hand on it at all times. People who perform ladder jobs requiring both hands should firmly secure themselves to it.
• Although extension ladders offer additional reach, it is necessary to make sure the overlap is at least three feet. Be sure the rung locks are clicked into place securely.
• Avoid using aluminum ladders near sources of live electrical currents.
• Never open a stepladder halfway up. They should always be opened fully, and the braces must be locked tightly.
• Make sure the ladder’s feet are on a dry and even surface. If a surface is wet or uneven, the potential for danger is heightened considerably.
• Never climb higher than the ladder reaches. Absolutely avoid climbing so high that the hips are above the ladder’s final rung.
• Avoid having more than one person on a ladder. It is also important to ensure nobody is standing directly below the person on the ladder. If the individual climbing it dropped an object or fell, the person below could suffer severe injuries.
• Store all tools and equipment in a sturdy tool belt. This lessens the need to climb up and down the ladder multiple times.
• Always read all of the instructions and warnings accompanying a ladder before using it.

With construction contracts, a general contractor must be added as an additional insured on the subcontractor’s Liability insurance policy. Most contracts require liability coverage because there may be claims arising from completed or ongoing work. This also means that the general contractor runs the risk of facing a lawsuit from the flaws in the subcontractor’s work. For this reason, subcontractors need Completed Operations insurance.

In the past several years, the insurance industry took steps to remove completed operations coverage from the policy forms commonly used for additional insureds. The ISO Form CG 20 10 of 1985 offered coverage for the organization or person listed on it. The named party was covered for liabilities arising from their work or work performed for them by someone else. Materials and equipment were also covered. From the wording on the form, the courts decided that additional insureds were covered for any completed operations. However, ISO revised the form in 1993. ISO had never intended to extend this coverage, so the form was changed to offer coverage only for the named insured’s ongoing projects. At the same time, Form CG 20 37 was introduced. It provided liability coverage for additional insureds helping with the named insured’s operations. However, operations were only covered if they were away from the premises rented or owned by the named insured.

To understand how this works, consider an example scenario. Company A is subcontracted to do electrical work, and Company B is subcontracted to do plumbing work for a new project. Contractors from both companies are working at the general contractor’s work site on the same day. While a plumbing worker from Company B is installing parts in a bathroom, the electrical contractor from Company A accidentally drops a tool on the plumbing worker. The Company B employee is injured, so he sues the general contractor and Company A. Company A’s CGL policy has the CG 20 10 endorsement with the general contractor listed as an additional insured. Since the injury took place during ongoing operations, the policy will cover the general contractor in the lawsuit filed by the injured worker.

However, if an electrical contractor performs work and leaves without intention of returning, it is the general contractor’s responsibility to ensure quality work. If the general contractor accepted it and a fire started because of faulty wiring after the job was done, the building owner could sue the general contractor. Since the electrical contractor’s work was finished and approved, the CG 20 10 endorsement would not apply. In order for the general contractor to be covered, the policy would have to include the CG 30 37 endorsement. No losses would be covered by either endorsement if the general contractor was at fault. To qualify for coverage, an incident must be at least partially another party’s fault.

Since construction is risky business, it is important for all contractors to discuss their insurance questions with an agent. Contractors must fully understand their contractual obligations and what coverage is available to meet their needs. Our agents are able to provide information about policy terms, costs and additional insured options. It is crucial to have ample coverage before taking on a project where losses are likely to be incurred.

One of the most popular types of construction in the United States is green construction. This eco-friendly technique gained popularity because of rising energy costs, global climate change and the United States’ dependence on foreign energy providers. People nationwide are taking steps to reduce the carbon footprints of their homes and businesses. However, this type of construction has very important insurance implications, of which all consumers should be aware.

Buildings that are considered green have met several requirements for LEED, which is a certification formally known as Leadership in Energy and Development. LEED was developed by the U.S. Green Building Council in the late 1990s. It was designed to help building owners identify and use construction, maintenance, operations and measurable designs that are better for the environment. In comparison with standard structures, green buildings use water and energy more efficiently. They also have healthier indoor environments and produce less carbon dioxide.

Several municipalities and states have adopted special building codes that require green construction elements. Stricter water efficiency standards have been enacted in California for new residential structures. Tighter energy use standards are under consideration in New York City. Green building requirements have had a major impact on construction costs, which vary by location. Although green construction demands special procedures and materials, contractors who are up to speed with these requirements are hard to find. This means that the cost of complying with such requirements may be considerably higher than the cost of using standard methods and materials. This cost issue will also affect insurance coverage

These factors influence insurance claims:

• What is defined as a major renovation by the code, and what percentage of the building’s area is affected.
• Whether qualified contractors are available in the area.
• Whether green building codes apply to renovations or only to new construction projects.
• How new materials will work with existing components, and whether integrating them will increase the cost and time required for rebuilding.
• How the use of green materials will affect the appearance of the building.
• Delays for obtaining special materials and contractors.
• The likelihood of longer wait times for special contractors after a catastrophe happens.
• The likelihood of waiting for special building inspections and approvals after a catastrophe happens.
• How the building code applies if a natural disaster occurs.
• What standards property owners must meet following a widespread disaster.

Within the next few years, experts predict that the market for non-residential green construction will grow substantially. This means that insurance companies and property owners will have to address serious questions, and the best time to get answers is before losses occur. Commercial and standard Property insurance policies offer very little coverage for ordinance or law losses. These are extra expenses incurred to comply with special requirements. However, additional coverage is available. People who own properties in areas where green building codes exist should discuss these options with an agent.

Automobile insurance covers the owner of the car, the driver of the car, and/or an insured driving a temporary vehicle. If the company owns the vehicle, the company needs to provide liability coverage for its risk of operating the vehicle on the road.

As a driver, you need Liability insurance even if you don’t own a car. Drivers are held responsible regardless of ownership. Entrepreneurs who own a company car and a personal car need both policies.

If you drive your car for business, the company still needs Liability insurance to protect against the risk of operating a vehicle on a public road. Tangential issues include:

Pick-up trucks and vans are excluded from business use in many personal automobile policies. Claims will be denied under these conditions. Courts have been “piercing the corporate veil” recently. If the business and individual are judged to be too closely tied financially, corporate limited liability can be lost. Separating business from personal usage avoids IRS problems when allocating deductible expenses. Keep liability clearly separated. A business issue can destroy your unrelated personal wealth. If employees are transported in your personal car, Workers Compensation coverage blurs into personal liability. Is driving to lunch business or personal? If another employee drives your car causing you an injury, you are exempt from your Liability policy.

Too many scenarios can occur to confuse commercial coverage with personal coverage. If you work for a company as an outside sales representative and drive your own car, use a Business Use Personal Policy. If the company owns the car, your Personal Automobile coverage will provide Liability insurance for you personally, but not the company. If you don’t own a vehicle, but drive a company car personally, purchase a Non-Owners Personal Policy.

Whichever entity owns the vehicle – titled name – requires Liability insurance. Commercial Automobile coverage is designed for automobiles, trucks, vans, pick-up trucks, assorted delivery vehicles, even dump trucks. Rating, that is premium generation, considers multiple drivers of mixed experience and more miles driven.

Personal Automobile policies do not anticipate non-family operators on a regular basis. Usually, the application asks who will be driving the vehicle regularly. It is not favorable to list several employees.

The cargo transportation industry has its own truckers form. Garages and repair shops carry Garage Keepers coverage. The insurance industry creates forms and policies that fit the unique needs of different business models.

Good risk management plans allow Workers Compensation coverage for any hired subcontractors. Since subcontractors are not able to hide behind statutes for contracts, Workers Compensation coverage may be required whether there are statutory provisions or not.

For those who are in contractor and subcontractor relationships, over 40 states have statutory regulations regarding Workers Compensation benefits. Employees of subcontractors must also be offered Workers Compensation benefits if they are injured. The benefits are paid by the immediate employer or the company hiring the immediate employer for the job. As a rule, general contractors face the responsibility of offering Workers Compensation to employees of uninsured subcontractors. This is true regardless of the number of employees the subcontractor has. Premiums are also assigned to the general contractor.

General Contractors & Independent Contractors. It is important to avoid confusing the subcontractor-general contractor relationship with an owner-independent contractor relationship. A general contractor is the entity the owner contracts with to complete various projects. A portion or all of the tasks are then assigned to subcontractors. In order for a general contractor’s relationship to function, there must be three separate parties. These parties include the owner, an independent contractor and a subcontractor. If any portion of a job is subcontracted, a general contractor’s status changes to independent contractor.

An independent contractor is a party contracting directly with an owner or principal to complete a job. In most cases, independent contractors perform jobs that the principal or owner does not normally do. The entire job is completed by the independent contractor and employees. Keep in mind that they are not considered employees of the principal or owner.

As a rule, principals are not usually financially responsible for an independent contractor’s injured employees. They are also not responsible for the injuries of employees of subcontractors hired by the independent contractor. General contractors are financially responsible for an uninsured subcontractor’s injured employees.

Principals & General Contractors. If the subcontractor and general contractor both lack Workers Compensation coverage, the principal may be sued for out-of-pocket expenses incurred by an injured worker. Since the principal does not qualify as a general contractor or employer, financial responsibility is not usually an issue. Although employer status is nonexistent, there are other theories of liability that may constitute the need to pay compensation. For example, failing to provide a safe workplace could result in the principal paying an injured non-employee individual. In such a case, a Workers Compensation policy or a General Liability policy usually provides adequate defense.

It is important for general contractors and principals to require any contracting entities to provide Workers Compensation coverage. When an independent contractor or subcontractor purchases this coverage, the act shows that the party does not have any misconceptions about an employer-employee relationship. Contracts between principals and general contractors should be specific in placing responsibilities. In the contract, a general contractor should agree that failing to require this insurance could result in personal statutory responsibility for the subcontractor’s injured employees. The general contractor should also agree to hold the principal harmless in an injury case.

Establishing Relationships with Subcontractors. Although relationships between contractors and subcontractors are most commonly found in the construction business, they are also found in other industries. For example, cities hire special consultants to analyze traffic patterns. The consultant then hires engineers to perform various studies. They may also perform maintenance on traffic lights, or the work may be contracted out. There are plenty of other examples. However, all contractors and subcontractors are subject to the laws regarding Workers Compensation. To avoid facing financial responsibility for injured workers, it is important for general contractors to require all lower tiers of workers to carry their own Workers Compensation insurance.

The National Institute for Occupational Safety and Health (NIOSH) constantly looks for ways to lower the amount of work-related injuries and illnesses. For example, they work closely with the construction industry to find ways to protect workers from situations and substances that are potentially hazardous.

Hazard Identification. One of the main concerns of NIOSH is reducing hazards with falls, electrocutions and toxicity. Some of the accomplishments include:

• Publicized hazards of lead-based paint and recommended lead exposure reductions to prevent poisoning of workers who are involved in construction of bridges and other various structures composed of steel.
• Pushed for proper elevation of work practices along with utilization of fall arrest and fall prevention systems.
• Provided assistance to manufacturers working to redesign and reduce asphalt emissions during the process of paving.
• Released the description of electrocutions commonly occurring when workers were moving, working from or erecting scaffolding units.

Successful Programs. NIOSH conducted investigations, which led to considerable changes in the workplace. They also contributed to the start of successful programs that save money and lives.

Preventing Electrocutions of Crane Operators and Crew Members. NIOSH researchers found that cranes making contact with power lines were the source of more than 10% of work-related electrocutions. Researchers developed precautions and procedures to ensure safe operation of cranes near power lines.

Controlling Exposure to Asphalt Fumes during Paving. When paving roads, waterproofing and roofing, workers are exposed to fumes of molten asphalt. These fumes cause skin diseases, eye irritation, respiratory tract irritation and cancer. NIOSH works with asphalt manufacturers to develop systems designed to reduce exposure to asphalt fumes by trapping emissions from equipment.

Preventing Injuries and Deaths Caused by Falls. Falls from ladders, scaffolds and buildings are the leading cause of workplace fatalities in the construction industry. NIOSH developed recommendations after investigating more than 70 fall incidents. Their suggestions include:

• Implementation of programs specifically for fall protection.
• Correct use and selection of fall arrest and fall restraint systems.
• Site-specific evaluation of hazards that may cause falls.
• Correct maintenance, erection and use of access equipment.
• Implementation and maintenance of covers on floor openings, guard rails and other safety barriers.

Monitoring Lead Toxicity in Bridge Workers. Since lead-containing paint is used to coat most bridges, workers who are involved in bridge construction and repair face exposure to extremely high levels of lead. To contribute to a reduction of lead toxicity for these workers, NIOSH provided funds for the Connecticut Road Industry Surveillance Project, which is commonly called CRISP. On a yearly basis, CRISP saves the state of Connecticut more than $2 million in Workers Compensation funds. Workers’ lead-blood content decreased by 50% after the launching of this project. CRISP offers the following benefits:

• Surveillance systems designed to monitor the blood levels of workers.
• Medical examinations and necessary procedures to reduce and monitor lead exposure in occupational settings.
• On-site technical assistance for help in reducing exposure to lead.

Nearly all areas on a construction job site are dangerous. To help keep workers as safe as possible on these work sites, the National Institute for Occupational Safety & Health and the Occupational Safety and Health Administration have developed several guidelines. Every construction company must show diligence in enacting best practices for construction safety and follow regulations. The following paragraphs detail some of the most important issues and their guidelines.

Safety Meetings
A safer workplace is likely to come from workers interested in understanding the safety rules and abiding by them. To build the value of safety in workers’ minds, companies need to discuss their individual safety policies, federal laws and state laws. By discussing them instead of simply reading them, it is easier for companies to help workers absorb the information. Discussions also help workers understand why each law, rule and procedure is in place. Another way to help employees better understand these concepts is to hold an interactive safety meeting with all workers before starting a specific project. During this meeting, encourage them to ask questions that will enhance their understanding of each safety rule.

Ladders
Although ladders are found on most job sites, the safety issues surrounding them are often ignored. When selecting a product, it is best to buy one constructed from material that is suitable for the intended job. If possible, choose aluminum. This substance boasts considerable strength, and it is light enough to carry easily. However, aluminum conducts electricity, so it is best to use a fiberglass ladder for jobs that involve working with electrical wires. It is also essential to purchase a ladder that is rated to hold the amount of weight it will be supporting. This rating is posted on the ladder itself. To make an extension ladder as safe as possible, angle it by pulling it back one foot for every four feet of height.

Scaffolding
This large piece of equipment is found on many job sites today. If it is not handled properly, scaffolding is one of the biggest reasons for safety problems. OSHA released several guidelines that workers and supervisors should follow to make the work environment safer whenever scaffolding is used. The wooden planks must be in place at all times, and the scaffolding should always be at least 10 feet from power lines. Guardrails and toe boards must be secured in place at all times. OSHA also released regulations stating that qualified engineers must examine scaffolding before its initial use. It must also be checked on a regular basis after the initial inspection. The company safety officer should be in charge of developing a schedule for these required inspections. It is essential to review the entire set of OSHA regulations regarding scaffolding to ensure that all legal obligations and safety requirements are met.