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PROPERTY & CASUALTY
JUN 26, 2017
Risk Transfer—Via Contract or Insurance, It’s a Crucial Financial Step
property & casualty
There are two primary ways construction companies and contractors can shift or share their exposure to financial costs due to accidents, negligence, errors and other causes of liability or property loss: 1. contractual agreements and 2. insurance.
Most large-construction contracts are written to specifically identify who bears responsibility for loss costs under different circumstances. Such contracts typically carry indemnification provisions that require one of the parties to pay damages and costs incurred by another party if a liability claim occurs. The costs might even be apportioned based on a percentage formula. You must be cautious with such contractual language – a contract might be enforceable even if the “responsible” party never had the proper insurance or other financial wherewithal. Action: Before signing any such agreement, have an insurance specialist evaluate your coverage in light of any indemnity provisions.
These provisions frequently are not included in small-construction contracts, many of which are hardly more than a statement of the work desired and the costs. For example, let’s say you undertake a home remodel job. You sub out the electrical work. The electrician creates a circumstance that leads to a fire. The homeowner may sue you for the damages even though it was the sub’s work that was at fault. After all, it was you with whom the homeowner contracted.
If your contracts with subs are not clear and legally binding, they may be useless. And they might jeopardize your insurance coverage if your policy is not written to apply to outside parties.
In most cases with subcontractors, the general or lead contractor will want to consider the use of an “additional insured” clause in the contractors liability policy. These can become complicated, but your insurance agent will work with you and Amerisure to make sure you understand your coverage options.
When It’s Your Property That Is at Risk
Liability provisions and insurance can help when you are dealing with harm to others or their property. But what about when it’s your construction tools, machinery or work that is exposed to loss? There are several ways to mitigate financial losses from destruction of or damage to your own property. Let’s look at some of the most basic concerns.
Your business property, such as machines (paint sprayers, lathes, lifts, etc.), tools (pneumatic guns, ladders, table saws, etc.), building supplies (paint, drywall, fixtures, etc.), and expensive applicators and replacement parts, may be kept at your business address or stored at your worksite. In many cases, that equipment is also mobile. Thus, it can be found at different locations or in transit based on need.
For tools and equipment that you move from site to site, you should consider inland marine coverage. A builders risk policy can provide some coverage for tools, equipment and systems that are stored on site awaiting installation. Your agent can help you understand how the two policies complement each other. Both are highly recommended and can protect your company from losses due to theft, vandalism, and natural or man-made disasters.
As you build, whether from the ground up or renovating an existing space, you invest a lot of time, payroll and supplies. If your work were to be obliterated or severely damaged during construction, the loss costs could be financially devastating. You would have lost all that time and material. And, you would be on the hook for getting rid of what was damaged and re-doing the work with all new supplies. That isn’t a risk most contractors can bear alone. Builders risk insurance can help cover the costs of replacing materials as well as business income loss and debris removal.
Most contractors have at least one business auto, and that may be driven by others during work duties. Whenever you own any vehicles used primarily for business purposes, you need to talk to your insurance agent about a business auto policy. Commercial auto insurance is meant to cover both damage to your vehicle and harm caused to others or their property through using your business vehicle – whether that is a pickup, a large truck, a van, or any kind of company car. If your employees use personal vehicles for work at your business, ask your Amerisure agent about how their driving risks expose your firm to lawsuits and insurance claims. You might need non-owned commercial auto coverage.
One important way to reduce some of your risk—that of a loss of valuable papers, records and securities—is by moving contracts, drawings, schematics, plans, payments and personnel records online with backup to the cloud. Holding a single, paper document in your office or vehicle is an unnecessary risk. Though insurance is available to cover these items, prevention is the best protection. Yes, online channels can be breached, but professional backup services should ensure your important records are replicable.
In terms of client payment by paper check, make it a habit to deposit that immediately. Most banks offer digital deposits. Take advantage of this technology.
Even with the best laid plans, combining construction insurance, contractual indemnification provisions and solid risk management, contractors probably will face a property or liability claim at some point. In that claim process, lawyers and insurance professionals who specialize in construction claims will scour your legal and insurance agreements. Through retentions—the portion of a claim you agree to pay—you will bear some of your own risk. If you feel confident in your risk management program, you might be willing to bear more of the financial burden for property or liability losses. You will lower the cost of insurance if you retain more risk.
Our experts will work with you to help you assess the value of the property you want protected and the various ways you can share your risk of financial loss with us and third parties so you get the broadest protection at the best price that will stand up at claim time.