Entries from December 2008 ↓
Construction Defect, General Liability
Most General Liability insurance carriers are wary of insuring contractors as a result of a high frequency and severity of construction defect claims that have occurred nationwide. As a result, many insurance carriers, especially those in the excess & surplus lines marketplace, are frequently using the following exclusions that take away much needed coverages:
* Residential Construction Exclusion: Believe it or not, residential construction is riskier than commercial construction due to the the frequent class action lawsuits filed within certain subdivisions.
* Tract / Row / Condo / Town Home Exclusion: These types of project are considered risky since they seem to invite class action lawsuits as well as lawsuits from home owners associations looking for a deep pocket to fund normal maintenance and wear and tear issues just prior to the running of a statute of repose for construction defect lawsuits.
* Subcontracted Work Exclusion: Many policy forms actually exclude lawsuits arising out of work performed by subcontractors.
* Product And Completed Operations Exclusions: Some carriers that want to eliminate almost all of their risk for construction defect claims will insert this exclusion.
Why would insurance carriers and agents that cater to contractors even offer a policy with these exclusions to their clients that would be negatively impacted? This is a good question that defies logic. As a general rule, only insurance agents that are inexperienced would set up their contractor clients with such deficient policies. An insurance agent that is knowledgeable and specialized in contractors would know how to find carriers that don’t have these problem exclusions.
Furthermore, these problem exclusions are just the tip of the iceberg when designing quality coverages for contractors.
Source: Trina Swartz, Beware Of Leaky Contractors Coverage, Agent Market Source, Fall/Winter 2008-2009
Construction Defect, General Liability, green building
As was discussed in a previous blog posting entitled “Green Building Risk Management Obstacles”, there are many potential risks involved in the emerging field of green building. Current insurance policy forms may not provide adequate coverage for all green building risks at this time.
To follow is a summary of the types of policies that are needed:
General Liability: Current General Liability forms may adequately cover claims for negligence resulting in bodily injury and property damage.
Bonding: Current License And Permit Bonds may provide limited protection against the risk that the project will not be completed per state and local code requirements. Surety Bond forms may adequately protect against the risk that the job will not be completed per the plans and specifications or due to financial problems of the contractor.
Professional Liability (Errors & Omissions): Professional Liability insurance is needed to protect against pure economic damages (not associated with bodily injury and property damage) in the event that the green goals are not accomplished resulting in financial loss to the buyer in terms of increased annual operations expenses, lack of savings, or loss of resale value. This type of Professional Liability form for green contractors is not widely available in the market and as a result a specialist insurance agent should be approached for placement.
Source: Green Building: New Benefits For Society And New Challenges For Risk Management; Insurance Journal, November 17, 2008; Vol. 86, No. 22; by Kenneth C. Gibbs
Uncategorized
Theodore L. Senet, a noted Los Angeles construction and insurance attorney, recently listed nine risk management issues dealing with green construction:
1. Compliance with developing green building codes and local requirements
2. Compliance with contract requirements related to certification levels
3. Compliance with contract requirements related to energy savings and operational performance
4. Obtaining tax incentives or meeting tax credit requirements
5. Meeting investment criteria and financing requirements
6. Additional time and costs related to the design, approval and fabrication of new building products and systems
7 The ability of new green products and systems to perform to traditional performance standards
8. The sequencing, constructability and commissioning of new systems, products and processes
9. Compliance with project schedules and the impact on fast track projects
Source: Green Building: New Benefits For Society And New Challenges For Risk Management; Insurance Journal, November 17, 2008; Vol. 86, No. 22; by Kenneth C. Gibbs
Workers' Compensation
The second most common myth regarding Workers Compensation for the construction industry is “I don’t need to carry Workers Compensation insurance since I only use insured subcontractors and do not have any direct employees”.
Like the other myths I will be discussing, this is not necessarily accurate.
Even if you have a current certificate of insurance on all of your subcontractors showing that they carry Workers Compensation, you are still not adequately protected. In fact, all it means is that at the time the certificate was issued they had insurance in place.
If the subcontractor’s insurance is canceled after the certificate is issued, it is very unlikely you will be notified. Neither the insurance agent nor the insurance company is legally obligated to notify you. The certificate merely states that they will “endeavor to” let you know the coverage is no longer in force. With the current state of the economy, it is becoming more and more common for the subcontractor to obtain insurance in order to have the certificate issued, and then letting the policy cancel for non-payment. The end result is that you will still end up with an uninsured subcontractor desite your efforts.
In conclusion, the best way to protect yourself and your assets is to purchase your own Workers Compensation policy and add the subcontractor classification codes on an “if any” payroll basis.
