Due to the down economy and the competitive nature of insurance carriers, Contractor’s General Liability Insurance policies can differ tremendously depending on the wording of their policy exclusions and coverage definitions etc. Quotes reflecting $1Million Aggregate, $1M per each occurrence cannot be compared “apples to apples” based on price alone. Don’t be fooled that all carrier policies are the same because this is far from the truth. Carriers use different coverage forms; for example, some may use standard ISO forms, others may use their own proprietary coverage forms. If you are looking for insurance that meets your needs, as well as meets the requirements of a client or general contractor (hiring you as a subcontractor), you will want to discuss these needs with your broker so that your quote satisfies the required criteria. Examine your particular type of construction and the risks that insurance carriers attribute to your line of work before shopping for a policy so you are ready to answer the insurer’s questionnaires. For example concerns for roofers and exterior painters will include how many feet high you may work. For concrete contractors, landscape installers and plumbers who may do some digging they’ll want to know how deep you dig and whether you check with the city before digging. Remember, an insurance carrier’s policy pays out on covered perils when things have “gone wrong”, not when all is right. They want to know about your safety programs, employee training, and other precautions you take to prevent injuries and property damage.
Most contractors’ liability policies have a minimum earned premium as well as 100% earned fees. This basically means they require a non-refundable down payment, so it would be a shame to lose your deposit because you didn’t do your homework up front and purchase the appropriate or required coverages and endorsements. (Certain endorsements may not be available with lower priced policies so if a general contractor or client requires special wording or endorsement forms you will want to communicate this to your broker. Packaging other coverages with your general liability may also allow your broker to discount parts of the package so let them know this as well.
Obtaining contractors insurance should involve the following:
- It is YOUR ultimate responsibility to understand the basics of your coverage needs and determine what maximum value of protection you want as well as what is required of you by clients, general contractors, cities, and other entities so that you can communicate this to your agent or broker.
- Put together your annual estimated gross receipts, employee field payroll, employee clerical payroll, and subcontractor costs so that you are prepared when you begin to shop. Having a business plan and knowing your projections is part of being a responsible business owner. Although it is impossible to be 100% accurate with your estimates, it is expected that you have given this serious thought and are not “flying by the seat of your pants” so to speak.
- Regardless of how busy you are, it is your responsibility when you receive insurance proposals to review the coverage forms and exclusions in order to determine whether the policy gives you coverages you requested, and that you are covered for all operations you perform. Yes I understand that you aren’t a licensed insurance agent or broker, but you should understand the basics AND the possible limitations to contractors’ general liability coverages. Communicating everything you can about your business operations helps your broker present the proposal that best suits your needs. Keep in mind that at lower prices you may not get everything you need in a policy. In other words, “we can’t have our cake and eat it too”. With the exclusions and limitations in many of the lower priced contractor liability policies, there may still be exposures you’ll need to be mindful of.
- For a better understanding of contractors liability insurance, research the definitions of the following terms: manifestation clause, occurrence, manuscript occurrence, sunset period, contractual liability limitations, claim defense costs, additional insured wording, and exclusions. You also want to understand the difference between an admitted carrier and a surplus lines carrier (which may suit your type of business best (for example, roofers will rarely, if ever, find quotes with an admitted carrier). This research helps you understand the coverages you are getting for the quoted premium.
- For guides and webinars offering help with risk management and understanding insurance gaps and definitions visit www.answers.com and http://en.wikipedia.org/wiki/Liability_insurance and www.insurance.ca.gov . They’ll offer offer definitions of terms as well as expand on coverage types. I also recommend www.constructionweblinks.com and http://www.cslb.ca.gov/Contractors/EducationOpportunities.asp for educational opportunities and webinars.
- Agents and brokers sell the policy and provide support services after the purchase. Brokers, (like myself) do not work directly for one carrier, they represent the client to many carriers as opposed to Agents, who represent one carrier to lots of clients. Agents and brokers don’t determine the rates, the actuarial and underwriting departments of each carrier does that based on specific descriptions of operations identified by classification codes. It is important to answer questionnaires appropriately up front so quotes come back to you accurately reflecting the appropriate coverages for your line of work. You’ll want to look for a good price for the appropriate coverage, in other words don’t base your decision only on the price. (Hard not to do in this economy I know).
Additional Helpful Tips
- Even if you are an Owner Operator (with no employees or subcontractors), you may still need more than a general liability policy. If you install doors, windows, solar panels and such you will want to ask about
- installation floaters which covers property you may be handling, but owned by your client prior to completed installation. If you carry tools and equipment ask about equipment policies and commercial auto that may or may not be able to be packaged into your general liability quote. Price is not everything. The lowest cost may not provide enough protection, understand your needs and ask the right questions, don’t base your decision solely on price.
- You could receive quotes from captive agents who only quote with one carrier, and from brokers who work for you shopping multiple carriers to find and present the best price. You may want to ask the broker what other carriers were approached before they presented the proposal they did.
- In certain lines of construction, (ie roofing, foundation work etc), reasonably priced policies that offer appropriate coverage is difficult to find, so you may need to consider quotes from Risk Retention Groups (RRGs). RRGs offer excellent alternatives and as long as your additional insureds accept the endorsements provided, they may be your best bang for the buck. Most RRGs are not rated by the third party company www.ambest.com but it doesn’t mean they aren’t a financially stable alternative. Do your homework and ask for more information from your broker if you have any concerns.