Month: February 2015

The construction industry finally seems to be in a sustained recovery. As more projects become available, payrolls and equipment investments are increasing. That’s great news for contractors across the nation. However, adequate insurance coverage is even more essential than it was before. Consider the following trends identified by industry experts at the Insurance Journal for 2015.

The Controlled Insurance Program (CIP) is Growing

Originally designed for use on megaprojects, CIPs have become increasingly common in residential construction. The project owner usually sponsors the CIP, and it bundles workers’ compensation and general liability for all the participants. Many general contractors have made CIPs part of their marketing plan because they allow them to lock in their insurance costs throughout the construction and completed operations periods while streamlining claims process and reducing the need for negotiations between multiple insurers.

While convenient, CIPs also present challenges. Any contractor or project owner contemplating a CIP should carefully research potential exposure and available coverage with their insurance professional and risk advisor. Areas to address include making sure limits are large enough to cover potential losses, proper coverage of parties, the handling of repair and warranty work, possible coverage exclusions, and the allocation of deductibles.

Additional Insured (AI) Protection is Changing

The latest ISO AI form contained a number of revisions that create uncertainty in the construction risk management process. For example, one states, “AI coverage only applies to the extent permitted by law,” and introduces a number of questions. Is the AI coverage void if the contractual indemnity provision is voided under a state’s anti-indemnity statute? The usefulness of your AI coverage will depend on how a court of law may interpret the ISO AI form. Discuss this risk with your insurance professional and risk advisor before purchasing.

Negligence Indemnity is Shrinking

The MacDonald analysis (MacDonald v. San Jose (1972) 29 Cal.App.3d 413) has governed indemnity interpretation for many years. However, recent legislation is changing this. In 2006, changes were made to prevent residential builders from seeking indemnity for their own negligence regardless of classification. In 2009, California civil code was amended to allow subcontractors to select their own counsel or pay a “fair share” of builder defense fees. And in 2013, new statues were drafted that prevent all public and commercial owners and contractors from seeking Type 1 indemnity (indemnity for everything but sole negligence). While these were all changes to California civil code, you’ll want to discuss possible changes to code in your own state with your insurance professional and risk advisor.

Whether you own, rent or lease equipment for your construction business, some form of contractor’s equipment insurance is necessary to protect your investment and reduce your loss in the event of damage to your tools or machinery. However, before you purchase any contractor’s equipment policy, it’s important to review it carefully. In addition to understanding your deductible and coverage limits, pay particular attention to the following sections.

The Inventory

If a backhoe, forklift, jackhammer or any other construction tool is left off of the inventory and later becomes damaged, you could have problems filing a claim. Take the time to double check that the initial schedule of values is complete and accurate, especially if the policy includes a provision specifically excluding property not listed at the time of underwriting.

The Limit of Liability

It’s often best to obtain contractor’s equipment insurance coverage that includes blanket liability. This means it covers the equipment (and their values) listed in the inventory when you purchase the policy as well as insuring newly acquired equipment from date of purchase. Make sure any sub-limits are sufficient to cover your potential investment.

Equipment Valuations

Choose a policy that will provide you with the replacement cost of damaged equipment or an agreed upon amount. It’s generally best to avoid reimbursement at actual cash value, though this may not be possible with older equipment.

Coverage for Rented Equipment

If you’re in the middle of a project and need to rent a boom lift, you don’t want to discover your contractor’s equipment policy doesn’t cover borrowed equipment. Ask for a policy that covers all rented or borrowed tools up to a sub-limit you can increase or decrease based on the item.

Co-Insurance

Co-Insurance protects the insurer in the event that you’ve undervalued your equipment. It’s typically 80 percent, though that amount may vary. Make sure you understand your risk and value your equipment carefully when buying your policy.

Equipment Transit

Make sure the policy includes full coverage on your equipment during transit to and from the jobsite. Coverage may be underwritten with a sub-limit or be subject to the policy deductible.

Continuing Expenses Reimbursement

If equipment is damaged and you need to rent a replacement to continue your project, you don’t want to be on the hook for the cost. Some contractor’s insurance policies will reimburse you for rental expenses when you file a claim. Others will also cover overtime wages ,if needed to complete the project, and transportation of the rented equipment to your jobsite.

Exclusions

Policy exclusions vary by company. Common exclusions include damage caused by flood, earthquake or war as well as normal wear and tear, rust and corrosion. Your contractor’s insurance policy may also exclude equipment stored or operated underground, boom crane collapse, and equipment not included in the original inventory. Exclusions may be found anywhere in the policy wording, not just in the designated exclusion section, so review the entire document carefully.

Do you have questions about construction industry insurance? Whether you need a builder’s risk, business auto, commercial general liability or other contractor’s policy,  we are here for all your construction-related insurance needs.