Our home builder clients often ask if they really need to pay $225 a year for Non Owned And Hired Auto Liability coverage. They reason that this coverage is not needed if they don’t have many employees or if their subs have their own auto liability insurance.

First of all, what is Non Owned Auto Liability? Non Owned Auto Liability protects the named insured (home builder) in the event that they are sued as a result of an accident involving a vehicle that is not owned by the company. For example, such accidents could arise from vehicles that are owned by employees such as executive supervisors to run errands on behalf of the company. Such errands could be a trip to the post office or supply house. Under the law, the home builder has vicarious liability under these circumstances.

In addition, it is possible that similar liability could arise from auto accidents involving vehicles owned by so called “subs” while running an errand for the home builder. It is possible that under some circumstances that the “sub” would be reclassified as an employee by a court resulting in vicarious liability for the home builder.

Even if the employee or so called “sub” does carry their own liability insurance, their limits of coverage may be inadequate to cover the amount of the damages and as a result the home builder may be shot gunned into the lawsuit.

It is important to note that Non Owned Auto Liability does not cover the driver himself. It only covers the business entity that is a named insured.

Second, what is Hired Auto Liability? A hired auto is one that is rented, leased, or borrowed by the named insured. For example, a home builder may fly into an airport for a business trip and may rent a vehicle from Hertz. If this is the case, the Hired Auto Liability will respond to auto accidents arising from the negligence of the insured driver. Unlike Non Owned Auto, Hired Auto Liability does cover the driver. Hired Auto Liability does not cover damage to the vehicle itself.

Another critical issue is whether or not the home builder should purchase the Collision Damage Waiver from the rental car company? This issue will be explored in a subsequent posting.

As a result of the recent housing slowdown, some home builders have put a hold on new construction activity.  They often struggle with the decision about whether or not to allow their General Liability insurance to non renew in order to save money.

I recently counseled a client on this issue and advised him to consider the adverse consequences before allowing his General Liability policy to non renew. Most contractors mistakenly believe that their General Liability policy will respond to a lawsuit as long as the policy was in force during the construction (when the alleged negligent act occurred). This is a reasonable assumption;however, the General Liability policy language calls for a different result due to its “occurrence based trigger”.

In order for coverage under a General Liability policy to be possibly triggered, the bodily injury or property damage must occur while the policy is in force. The problem with allowing a policy to non renew is that there will be no coverage for any bodily injury or property damage that occurs after the policy is no longer in force.

As a result, a home builder would have no General Liability coverage in the event that any of the following scenarios occur after the non renewal:

*Fire damage caused by faulty wiring destroys house, contents, and injures an occupant.

*Disappearing staircase that was not properly bolted collapses, resulting in a broken hip to home owner.

*Gradual water intrusion due to faulty flashing continues to damage sheathing and two by fours under siding.

After bringing these potential problems to the attention of our client, he decided to pay his renewal bill for his General Liability as he did not want to face these uninsured risks.

“Illegal immigrants injured on the job are entitled to workers’ compensation benefits, the South Carolina Supreme Court has ruled.”

The court ruled that allowing Workers’ Compensation benefits for illegal aliens does not violate federal law (IRCA) and not allowing such benefits would encourage employers to hire illegal aliens to circumvent the need to provide Workers’ Compensation.

Link: National Underwriter News Release

According to a January 14 edition of Insurance Journal Magazine, dramatic increases or decreases in residential and commercial building activity growth could trigger a rise in construction defect or Workers’ Compensation claims.

States that are noted to be in the danger zone for underwriters based on dramatic decreases in contruction activity growth include NJ, KY, LA, FL, and MS.

While the article does not speculate the reasons for such increased losses due to changes in growth, two common reasons are most often cited by other experts. A rapid increase in construction growth is normally associated with an increase in construction defect claims due to an influx of inexperienced contractors in the market. A rapid decrease in construction growth is normally associated with an increase in Workers’ Compensation claims because workers often become disgruntled due to layoffs or cut backs and file Workers’ Compensation claims in retaliation as a way to make up for income loss.