Category: Commercial

Most contractors carry general liability insurance policies. However, very few understand the need for additional comprehensive errors and omissions coverage. To protect themselves from the costly results of unintentional work errors, contractors must have E&O insurance. There are several important issues to consider about this type of coverage.

Contractors are prone to errors and omissions claims. The business risks they face on a daily basis may include unintentional damage to the insured party, impairment of property, damage to products or a wide variety of other damages. Since most courts are quick to rule against contractors in these types of claims, they are much more vulnerable to trouble. Although many individuals view this coverage as unnecessary, it is important to remember that a simple liability policy does not offer coverage for damages due to errors and omissions. This means that contractors are financially responsible for the costs resulting from client claims. Keep in mind that only E&O coverage offers protection to contractors who face these issues.

Always choose insurance companies that have experience with contractors. It is important to work only with companies that have a solid history of E&O practices specifically with contractors. Policies designed for contractors have special clauses and inclusions that are not found in other E&O policies. The best practice is to avoid relying on coverage titles, and carefully review the document’s provisions. While every contractor benefits from this special coverage, it is especially important for those who work on design build projects or in construction management. A contractor’s E&O document is written as a claims-made form, which means that it covers omissions and errors occurring during the policy’s period. Incidents occurring prior to the enactment of the policy are not covered.

Carefully read the fine print of the policy. E&O insurance for contractors often has stipulations limiting the coverage capacity named in the policy. This emphasizes the importance of purchasing a policy that is designed to specifically describe the various types of coverage provided. Keep in mind that coverage does not include damages caused by subcontractors. For this reason, general contractors should always hire subcontractors with steady records of quality work. Paying the price for substandard work performed by others is always costly. In addition to being fully aware of what policies provide, contractors must specify their desired coverage. It is important to remember that not all E&O policies offer coverage for legal expenses.

Although all contractors makes mistakes, only those who properly protect themselves are able to recover. Susceptibility to legal action and the high risk of claims are two issues every contractor should keep in mind. Litigation can be costly, so having a solid E&O policy provides security.

For most companies, business interruption insurance may be as important for survival as fire coverage. It is difficult to find a business that did not obtain insurance for windstorm and fire damage. However, too many business owners do not consider how they would continue functioning if a windstorm or fire actually did damage their property. This is especially true with small business owners. Business interruption insurance is not sold independently. It is an additional type of coverage for a property insurance policy. In some cases, it may be included in a package policy for business owners.

Businesses that must completely cease operations while the premises are repaired often lose money to their competitors. Quickly resuming business after a disaster is essential for survival. If a company must vacate the premises because of damages from a disaster, business interruption coverage extends protection for lost income. It also provides coverage for the profits that would have been earned if the business had not sustained damage. The profit reimbursement is based on an average of financial records, so it is imperative to keep them up-to-date and accurate. These beneficial policies also cover operating expenses that may not be halted due to the damage. For example, electricity would still be needed for most businesses, so the insurer would provide money for electricity bills.

It is important to make sure the policy limits are generous enough to cover the business for more than a week. Keep in mind that it may take much longer than most people anticipate to resume operations. If a major disaster happens, it may take several weeks to resume operations. The waiting period for business interruption coverage to start is usually about 48 hours. Policy pricing is based on the risks a particular business faces. Businesses in some locations are more likely to sustain certain types of damage than others. In addition to this, the nature of the business plays a major part in determining policy pricing. For example, a restaurant would be more expensive to insure than a travel agency. This is due to the restaurant’s heated appliances and grease creating a higher risk for fires. While a restaurant would have a hard time operating out of an alternate location, the travel agency would easily be able to do this. These are just examples of some of the issues determining premium amounts. To get a clearer price estimate for a specific business, discuss individual business details with an agent.

Another type of protection to consider with business interruption coverage is extra expense insurance. This type of addition reimburses companies for slightly more than the amount of regular operating expenses. By receiving extra money, the business is less likely to have to shut down for restoration. If any extra expenses decrease business interruption costs, they will usually be covered. Extra expense coverage alone may be enough to compensate some businesses. To learn the risks and options, discuss them with an agent.

Good risk management plans allow workers’ compensation coverage for any hired subcontractors. Since subcontractors are not able to hide behind statutes for contracts, workers’ compensation coverage may be required whether there are statutory provisions or not.

For those who are in contractor and subcontractor relationships, over 40 states have statutory regulations regarding workers’ compensation benefits. Employees of subcontractors must also be offered workers’ compensation benefits if they are injured. The benefits are paid by the immediate employer or the company hiring the immediate employer for the job. As a rule, general contractors face the responsibility of offering workers’ compensation to employees of uninsured subcontractors. This is true regardless of the number of employees the subcontractor has. Premiums are also assigned to the general contractor.

General Contractors & Independent Contractors
It is important to avoid confusing the subcontractor-general contractor relationship with an owner-independent contractor relationship. A general contractor is the entity the owner contracts with to complete various projects. A portion or all of the tasks are then assigned to subcontractors. In order for a general contractor’s relationship to function, there must be three separate parties. These parties include the owner, an independent contractor and a subcontractor. If any portion of a job is subcontracted, a general contractor’s status changes to independent contractor.

An independent contractor is a party contracting directly with an owner or principal to complete a job. In most cases, independent contractors perform jobs that the principal or owner does not normally do. The entire job is completed by the independent contractor and employees. Keep in mind that they are not considered employees of the principal or owner.

As a rule, principals are not usually financially responsible for an independent contractor’s injured employees. They are also not responsible for the injuries of employees of subcontractors hired by the independent contractor. General contractors are financially responsible for an uninsured subcontractor’s injured employees.

Principals & General Contractors
If the subcontractor and general contractor both lack workers’ compensation coverage, the principal may be sued for out-of-pocket expenses incurred by an injured worker. Since the principal does not qualify as a general contractor or employer, financial responsibility is not usually an issue. While employer status is nonexistent, there are other theories of liability that may constitute the need to pay compensation. For example, failing to provide a safe workplace could result in the principal paying an injured non-employee individual. In such a case, a workers’ compensation policy or a general liability policy usually provides adequate defense.

It is important for general contractors and principals to require any contracting entities to provide workers’ compensation coverage. When an independent contractor or subcontractor purchases this coverage, the act shows that the party does not have any misconceptions about an employer-employee relationship. Contracts between principals and general contractors should be specific in placing responsibilities. In the contract, a general contractor should agree that failing to require this insurance could result in personal statutory responsibility for the subcontractor’s injured employees. The general contractor should also agree to hold the principal harmless in an injury case.

Establishing Relationships With Subcontractors
While relationships between contractors and subcontractors are most commonly found in the construction business, they are also found in other industries. For example, cities hire special consultants to analyze traffic patterns. The consultant then hires engineers to perform various studies. They may also perform maintenance on traffic lights, or the work may be contracted out. There are plenty of other examples. However, all contractors and subcontractors
are subject to the laws regarding workers’ compensation. To avoid facing financial responsibility for injured workers, it is important for general contractors to require all lower tiers of workers to carry their own workers’ compensation insurance.

There are several ways for contractors and subcontractors to allocate the risks of damage on job sites to subcontractors. Constructing a contract that requires subcontractors obtain insurance is one of the best risk management strategies. The subcontractor’s coverage should also include the contractor or higher subcontractor as an insured party. With this option, contractors have the same rights as policy holders under commercial general liability policies. Both the hiring contractor and the party purchasing the policy have the same rights and coverage provisions. By requiring this coverage for subcontractors, general contractors are able to prevent paying for the expensive legal fees arising from damages on a job site.

When a subcontractor’s employee is injured on the job, the subcontractor usually tries to sue the higher tier subcontractor or general contractor to cover damages. The hiring party then faces the expenses of court costs, legal fees, damages and lost salary for the injured worker. However, a hiring party that requires all subcontracted parties to have CGL insurance naming them as additional insured parties has protection from such financial burdens. In some cases, the CGL policy is primary to any others. This means that CGL policies naming the hiring contractor as an additional insured party must be the first to pay legal fees and damages.

With these policies, there are no requirements for subcontractors to ask for indemnification for loss claims as a condition for the hiring party’s coverage. There is also no need for determining the faults of each party involved. Having a subcontract that requires subcontractors to provide adequate insurance is enough. The simple requirement of the policy to pay for legal fees is one of the most advantageous aspects of this coverage. Another advantage is that the scope of coverage is broad. Insurance companies must pay for attorneys’ fees whenever there are allegations of a complaint. Although the insurance company may not be required to pay all damages claimed by an injured worker, they have a strong duty of defense.

When the Commercial General Liability policy was formed, the creators did not intend for pollution events to be covered. The effects of these events are very costly, and special policies are required for businesses facing such risks. These special policies are designed by companies that have expertise in pollution events. Routine events are what the CGL form covers. Falls, construction accidents and property damage are some examples of such routine events. Contractors who have accidents that result in irritants, fumes or other harmful substances being released may still receive some coverage from a CGL policy.

It is important for contractors to understand the extent of pollutant coverage. The CGL form extends coverage for pollutants released only on properties not owned, rented or occupied by the general contractor. However, coverage is not extended for personal property. For example, if a contractor accidentally cracks a gas pipeline at a fuel station, coverage may be extended because the contractor does not own, rent or occupy the station. However, if the same contractor knocked over a large oil drum on his own business property, the effects of the incident would not be covered by the policy.

Contractors also have coverage for any pollutants released on a job site that were not provided by them. Consider the previous example. Since the gasoline at the fuel station was brought by a supplier, it was already in the pipelines when the contractor arrived. However, if that same contractor had brought some chemicals to take to the next job site and spilled them while at the station, he would not be covered. Chemicals and pollutants brought by the contractor may only be covered if they were brought for that specific job. If the chemicals were brought for the fuel station job instead of the following one, the spill may be covered. For example, if a contractor is painting inside of a building and others get sick, he is covered. The policy also covers pollution from completed operations. If pipelines carrying damaging chemicals started leaking several months after being installed, the contractor would be covered.

In most construction contracts, the subcontractor’s CGL policy must include the general contractor and project owner as additional insureds. The policy does not include pollution incidents occurring at places that were not owned, rented or occupied by an insured. However, exceptions are made for premises belonging to any entity named as an additional insured. This means that subcontractors would not have pollution coverage on most job sites without naming the general contractor and property owner as additional insureds.

Keep in mind that the CGL’s pollution coverage is not complete. For example, if a contractor brought a front-end loader to a job site and fluid spilled everywhere, the cleanup would not be covered. In addition to this, the policy does not extend coverage for pollutants released in connection with a contractor’s environmental remediation work. It also does not cover such work performed by hired subcontractors. For contractors and subcontractors who do this type of work, a special pollution liability policy is required. It is important for all contractors to discuss their operations with an agent. This will help the agent determine whether current coverage is sufficient. If it is not, an agent will be able to recommend insurance products that close any deficiency gaps. Pollution fines and cleanup expenses are very costly, so it is important to be prepared before an incident happens.

With construction contracts, a general contractor must be added as an additional insured on the subcontractor’s liability insurance policy. Most contracts require liability coverage because there may be claims arising from completed or ongoing work. This also means that the general contractor runs the risk of facing a lawsuit from the flaws in the subcontractor’s work. For this reason, subcontractors need completed operations insurance.

In the past several years, the insurance industry took steps to remove completed operations coverage from the policy forms commonly used for additional insureds. The ISO Form CG 20 10 of 1985 offered coverage for the organization or person listed on it. The named party was covered for liabilities arising from their work or work performed for them by someone else. Materials and equipment were also covered. From the wording on the form, the courts decided that additional insureds were covered for any completed operations. However, ISO revised the form in 1993. ISO had never intended to extend this coverage, so the form was changed to offer coverage only for the named insured’s ongoing projects. At the same time, Form CG 20 37 was introduced. It provided liability coverage for additional insureds helping with the named insured’s operations. However, operations were only covered if they were away from the premises rented or owned by the named insured.

To understand how this works, consider an example scenario. Company A is subcontracted to do electrical work, and Company B is subcontracted to do plumbing work for a new project. Contractors from both companies are working at the general contractor’s work site on the same day. While a plumbing worker from Company B is installing parts in a bathroom, the electrical contractor from Company A accidentally drops a tool on the plumbing worker. The Company B employee is injured, so he sues the general contractor and Company A. Company A’s CGL policy has the CG 20 10 endorsement with the general contractor listed as an additional insured. Since the injury took place during ongoing operations, the policy will cover the general contractor in the lawsuit filed by the injured worker.

However, if an electrical contractor performs work and leaves without intention of returning, it is the general contractor’s responsibility to ensure quality work. If the general contractor accepted it and a fire started because of faulty wiring after the job was done, the building owner could sue the general contractor. Since the electrical contractor’s work was finished and approved, the CG 20 10 endorsement would not apply. In order for the general contractor to be covered, the policy would have to include the CG 30 37 endorsement. No losses would be covered by either endorsement if the general contractor was at fault. To qualify for coverage, an incident must be at least partially another party’s fault.

Since construction is risky business, it is important for all contractors to discuss their insurance questions with an agent. Contractors must fully understand their contractual obligations and what coverage is available to meet their needs. Agents are able to provide information about policy terms, costs and additional insured options. It is crucial to have ample coverage before taking on a project where losses are likely to be incurred.

When accidents happen on construction sites, the result usually involves property damage. Faulty wires cause fires, which burn the walls. Collisions often put dents in expensive equipment, and paint may be inadvertently sprayed onto nearby cars. If such incidents occur, the contractor must look to his or her general liability policy to compensate for damages. Although the CGL policy covers several types of incidents, not every situation is covered.

In order for a situation to be covered, three requirements must be met. First, there must be a legal obligation for the contractor to pay the damages. The contractor’s tort liability is covered by insurance, so most negligent acts are covered. However, if the contractor fails to complete the work he or she agrees to, there is no coverage.

The second requirement is that the damage must happen out of an occurrence, which the policy defines. In a CGL policy, an occurrence is an accident that includes repeated or continuous exposure to the same harmful conditions. In order to qualify for coverage, the damage must be accidental. The insurance company will decide if the incident was accidental.

The third requirement is that an accident must result in damage to the property. Such damage is defined as a physical injury to the property. This may include loss of use of the damaged property and loss of use of any other accompanying property that the incident affects. Since computer data is not tangible property, it is one of the exclusions in this type of coverage.

Unfortunately, if a contractor is legally liable for a damage claim, the policy may not cover it if the claim is categorized as faulty workmanship. If damage results from work performed by the contractor or a hired subcontractor to “the particular part” of property being fixed, the damage may not be covered. For example, assume a contractor is fixing a wiring system for an old light fixture. If the fixture falls and damages the floor during the process, the fixture itself would not be covered. This is because the fixture was the particular part of property that the contractor was working on. However, the contractor was not working on the floor, so the damaged flooring would be covered.

In some cases “that particular part” may be difficult to define. For example, if a contractor accidentally starts a fire and burns a multi-level roof, only a portion of the roof may be covered. The language in the policy is not clear enough for a definite answer to such a situation, so outcomes may vary. However, one provision in the policy is very clear. It states that coverage does not apply to any particular part that must be repaired because of incorrect work performed by the contractor. In the previous scenario, if the light fixture did not work after the contractor repaired it, the policy would not cover a replacement.

Inland marine policies may help for some types of losses that a regular policy does not cover. There are also other types of losses that contractors must pay for upfront. However, it is important to know what to expect before entering the job site, so discuss coverage options with an agent.