General Liability Insurance For Contractors – 4 Tips to Avoid Coverage Surprises

General liability insurance is one of the first types of policies you will need if you are starting a new business. At Clinard Insurance we are seeing many new small business startups.  Starting your own company is popular these days with the layoffs we are seeing in our economy. The best choice is often to pursue something that you love doing and so we are seeing lots of people starting new businesses around their building skills. But just because you love to build things doesn’t mean you know the best way to protect yourself and your company from lawsuits.

Here are some tips for pitfalls that you should avoid when buying general liability insurance.

 

Choosing the right agent. The first place people generally go for their business insurance is the insurance agency that handles their home and auto insurance. In some cases this will work out well. But the risk is that your current agent may be licensed to sell you general liability insurance on your new company while really possessing very little experience in evaluating the hazards and risks of your specific type of company. I would suggest that you go out there and look for an agent that specializes in insuring other small businesses like yours. Ask your competitors who they used. At Clinard Insurance we have a niche specialty in small contractors and we speak their language and understand their needs. If your agent doesn’t specialize in your business, I suggest you find one who does.

 

Claims Made or Occurrence Policy Type: Construction claims made policies became popular in the mid 1980’s and have been around ever since. The promise of these policies were lower rates, but at what long-term damage? In some instances there is no cost savings. Claims made polices for a contractor are the worst possible policy you can buy. Let me explain: Claims made policies allow you to make claim on your policy only during the year they are in force. Contractors have claims down the road, not always just in the same year as the project is built!  Also, if you want to leave that company and go to another company, you will have to purchase additional insurance to cover you for the next 10 years… that’s right, 10 years! Why? Because the law allows customers to file a lawsuit for construction problems for up to 10 years after the project was completed.

 

An Example:

You build a new room addition, everything goes well and you and your customer are very happy with the final outcome… 4 years later your customer calls you and says that the roof is leaking and water came in the house and ruined his new $25,000 grand piano. He expects you to repair the roof, the drywall, wallpaper, carpets and, of course, replace the grand piano….

A claims made policy will not allow you file a claim 4 years later unless you stayed with that same company the whole time. If you intend to change companies after you have had a claims made policy, you must make a decision. If you want to have protection for any claims that have not occurred yet, but will in the future, you will have to purchase “tail” coverage. This coverage will extend the time in which you can file a claim. And tail coverage is not cheap. 

If you decide not to buy the “tail” you will not be able to report a claim against the claims made policy. And to make matters worse, some companies do not offer the 10 year extension.

So…. When your claims made policy comes up for renewal, you must decide:

  • Do I leave the company and pay the additional insurance for coverage for the next 10 years, or go without protection.
  • Do I stay with the same company? Their prices on the new year may stay the same or go up sharply.
  • Do I switch to another company who has better rates and coverages?

This limits the marketplace available to you, and makes it harder to accept a better bid from another insurance company. Claims made policies may work in other industries, but for Contractors they are a disaster. Take time after reading this report to see if your current policy is either an occurrence form or a claims made form…..

 

Insurance Company Rating It is up to you to do the due diligence and ask your agent about the financial health of the company from whom you are buying your general liability insurance. As the previous tip implied, sometimes the claims may be very much delayed and you need to know that your company can pay a claim for you 10 years from now. Use only A rated or higher insurance companies to protect your business.

 

Exclusions, Understand Them Clearly   Be sure to take the time to ask your agent about the policy exclusions and what they may mean for you. Here are some exclusions that contractors should consider when purchasing a general liability insurance policy:

Pesticide, Herbicide and Fungicide Exclusion, Employment Practices Liability Exclusion, X.C.U exclusion, Contractors Warranty Exclusion, Professional Liability Exclusion, Asbestos, Independent Contractors. If you don’t know exactly what these mean for you on your policy, contact your agent and get the help you need to understand it clearly. This may change the way you run your business.

 

Subcontractors   Be sure that you understand just how your policy treats subcontractors. Are you covered if they have no insurance or not enough for the loss?  How much coverage should you require of your subcontractors? How often should you obtain certificates of insurance? How can you be sure that the certificate of insurance is legitimate. (I have seen fraudulent certs for sale on eBay before). If you are not clear about the answers to these questions vis-à-vis your business and your general liability policy, you should call your agent right away and get the answers you need to sleep well at night.

 

As you can see buying general liability insurance is not a simple as calling your agent and asking for a quote. You need an experienced professional that understands the policy forms and your business. At Clinard Insurance we specialize in helping small contractors navigate the dangerous waters of the insurance world. If we can help you further, or if you would like more information about Clinard Insurance Group, please visit our web site.

Commercial Construction Tips – How to Avoid Going Over Budget

A commercial construction project can seem like a never-ending balancing act, like keeping a series of plates spinning. One plate represents keeping the project on schedule. Another spinning plate is ensuring that construction is completed properly and safely. And still another spinning plate is containing the project budget.

A commercial construction budget is influenced by a number of factors. Exceeding the budget can easily occur for reasons beyond the control of the owner, contractor, and project manager, including:

• A sharp increase in materials costs during construction.

• Weather fluctuations that slow or halt construction.

• Work stoppages.

• Frequent alterations to the design, materials.

Make a list

As one industry writer stated, estimating a project’s cost is the first step of construction cost containment. The project budget should list the essentials (non-negotiables) as well as the negotiables (the aspects of the project that can be reduced, modified, or eliminated in order to contain costs. Each line item should be carefully researched, sourced, and have a realistic cost applied to it. The budget should also include contingency funding.

Cost control challenges

Cost containment challenges are not always line item-related. There are a number of less-obvious but significant challenges to staying on budget, including:

• Poorly defined scope of project.

• Flawed estimating methodology

• Lack of project management policies and controls.

• Unrealistic scheduling.

• Insufficient planned-to-actual cost comparisons.

The big three

This trio of cost containment issues has been stated before and they are worth stating again. If The Big Three of budget issues are carefully managed, you can reduce or eliminate a number of budget overruns:

1. Incomplete design documentation: the architect’s rendering, plans, and specs that are turned over to the owner or project manager do not always include the in-depth details necessary for realistic budgeting.

a. Solution: the contract between the owner and architect should specify that all members of the architecture team will provide complete details, specs, documents, and drawings related to the project.

2. Pre-bidding document review: some contractors do only a general review of documentation before submitting their bids.

a. Solution: the language of the project owner’s contract should require all contractors who submit bids to acknowledge, in writing, that they have reviewed all specifications and plans. The bid price should cover all identified and “implied or express design intent” work.

Any materials or changes to design that the contractor feels are essential to successful completion of the project (but weren’t identified in the project/owner’s documentation) also should be included in the bid, along with explanations for the additional items.

This requirement should reduce or eliminate the need for contractors to seek additional compensation based on additional work necessitated by information “not shown on the original plans and specifications.”

3. The low-ball bid: underbidding can put the entire project at risk and cause it to far exceed the budget.

a. Solution: solicit bids only from trusted contractors who have successfully completed similar projects. They should have documentable records of completing projects on budget and on time.

Another cost containment option

Another cost containment option is to hire a skilled construction cost estimator. That person or team works with you to help you avoid out-of-control expenses, keep construction costs down, and ensure the project is completed within the agreed-upon timeframe.

It’s up to you

Ultimately, it is the owner and project team who are responsible for overseeing each phase, change order, and plan alteration to the construction project. There should be a well-defined process for change order submittal, review, and authorization. There also should be continual monitoring and updating of the budget so that you and your team know where the project financially stands all the way to completion.