Liability Issues For Builders

In an effort to reduce costs, add value, and become more efficient, the building industry is constantly looking for new products and ways to be innovative which may or may not stand the test of time.  Some prime examples of this are synthetic stucco (EIFS), masonite siding, polybutylene plumbing, and Chinese drywall. 

About 10 years ago the insurance industry was hit hard with a construction defect crisis due to the use of some of these products.  At the time, most of the costs of covering these defects were covered by the General Liability policies of the builders, manufacturers, and distributors.  This led to two major insurance changes for these industries:  First, most insurers left the market deciding that they could not be profitable at any premium with these classes of business.  Second, the remaining insurers decided that they did not want to fund the next wave of construction defect claims.  This resulted in adopting exclusion endorsements that could be added to their policies that are designed to limit their risk.

The following are some common exclusions which can severely limit coverage for builders:

1)  EIFS Exclusion:  If you install or repair Synthetic Stucco, you very likely will need to purchase a special General Liability policy from the high-risk insurance markets.

2)  Soil Movement Exclusion:  Expansive soils can lead to and have been a major source for construction defect claims.  You can usually pick up coverage for this through certain home owner's warranty products.

3)  Absolute Pollution Exclusion: This is a powerful exclusion that can have consequences beyond what you normally think of as pollution. This is exemplified in the recently emerging Chinese drywall crisis where its alleged that drywall from certain plants in China release noxious fumes that cause corrosion of metal in a home, a foul smelling odor, and health problems. The insurance carriers plan on denying these claims by using the Absolute Pollution Exclusion. Pollution is broadly defined under this exclusion as any solid, liquid, or gaseous contaminant or irritant. Once again, if you are concerned about this exposure, you can buy a special Pollution Liability policy through the high risk marketplace.

4)  Prior Completed Operations Exclusion: The standard General Liability policy form normally picks up coverage for building operations completed prior to the start of the policy term as long as the covered “property damage” or “bodily injury” occurs during the policy term. However, with the addition of the Prior Completed Operations Exclusion, coverage for prior completed operations is eliminated. This presents a problem because the General Liability forms from the prior years don’t pick up this coverage to the extent that the “property damage” or “bodily injury” occurs after the expiration of the prior policy terms. Some versions of this endorsement limit its scope to “property damage” only. You may want to attempt to negotiate the elimination of this endorsement if it appears on your policy.

5)  Products / Completed Operations Exclusion: This exclusion has perhaps the most devastating impact of any of the construction defect exclusions. Quite simply, this exclusion eliminates coverage for all “bodily injury” and “property damage” that occurs after the home has been sold. This would require you as a builder to purchase separate warranties through another company or find an insurance carrier that will remove this exclusion.

6)  Exclusion: Damage To Your Work Performed By Subcontractors On Your Behalf (CG2294): Around 2004, most carriers began adding this exclusion to builder’s General Liability policies to eliminate the favorable coverage exception that was granted to builders (that were general contractors) under the Property Damage To Your Work Exclusion listed above. The presence of CG2294 eliminates coverage for construction defect claims. If CG2294 appears on your policy, there are two viable solutions. First, ask if your carrier has a “buyback” of the lost coverage for an additional premium charge. Second, search for a carrier that has a less severe version of this exclusion that only eliminates coverage for “property damage” to the faulty work itself but not to resulting “property damage” to the non-faulty work.  The best thing to do is to make sure you are collecting certificates of insurance from your sub-contractors naming you as an additional insured on their policy.  Also, make sure you are working with subs who are stable enough to remain in business long after the job is completed.  This exclusion has been added to separate liability between subs and GC's so the GC's insurance is designed to protect them for things which they are actually liable for. 

It is imperative that builders employ aggressive risk management techniques to protect themselves and limit their losses.  A couple things I recommend:  First, contractually transfer these risks to your subcontractors by using hold-harmless agreements and enforcing insurance requirements.  Second, make sure you thouroughly document construction files and be proactive in dispute resolution.  Please contact me if you have any general questions about this or specific questions about your policy.

Include/Exclude Option on Work Comp

As the Owner of a business, you have the option under the Workers Compensation Laws to either include or exclude your payroll from your policy.  So, the first question you would ask is “Why would I want to pay for work comp insurance on myself when I would never file a claim?” Besides, you have health insurance, right?

The Owner of a small business often finds they become the installer, delivery driver, salesperson, receptionist, etc. 

Consider this:

You have a large job to finish and your best worker is out sick for the day.  You decide that you will have to throw on some boots and do it yourself.  You get to the job site and climb the ladder to start the job.  For some reason, the ladder becomes unstable and you fall 15 feet to the cement below breaking your arm and causing a serious head injury.  3 months earlier, you decided that it would be better to exclude yourself from work comp coverage because you hate the fact that you are required to purchase this to do business and you want to pay as little as possible for it.  Suddenly, we have a very serious situation to address.  Will your health insurance take care of your hospital bills, medication, rehab?  Maybe.  But it isn’t very likely as most health insurers specifically exclude work-related injuries.  NEVER ASSUME THAT YOUR HEALTH INSURANCE WILL COVER THIS!! 

I highly recommend that all Owners, Officers, Partners, or Members of a company include their payroll on Workers Compensation Insurance.

Here is the breakdown in Utah:

LLC Members, Partners, and Sole Proprietors: Are automatically excluded from the workers compensation coverage, but by written request may elect to be included. Each member, partner, and or sole proprietor that elects coverage will be rated on a stated amount of $39,000 in payroll regardless of the amount of money paid to them by the company (Utah stated payroll effective 12/01/2010).


Officers of a Corporation: Are automatically included in the workers compensation coverage, but by written request may elect to be excluded. Each officer that does not opt out of coverage is subject to a minimum payroll of $39,000 up to a maximum payroll $159,000 per officer (Utah stated payroll effective 12/01/2010). Each officer's payroll that falls in between is subject to their actual payroll.

If you decide to Exclude yourself from Work Comp coverage then there are other options to make sure you are protected in the event of an accident which MIGHT include a rider on your health insurance policy, a long-term disability policy, a life insurance policy, etc.

The safe thing to do is to add that little extra payroll into your Workers Compensation coverage as you never know from day to day which hat you will be wearing to work.  Contrary to somewhat popular belief, the work comp system is a great way to protect owners and employees from accidents in the workplace that affect them and their families.  If you have any questions or would like to discuss this in more detail please contact me.  BE SAFE OUT THERE!

OSHA Crane and Derricks Rule

THIS NEW RULE WILL HAVE WIDESPREAD IMPLICATIONS FOR GENERAL CONTRACTORS, SUB-CONTRACTORS, PROJECT OWNERS, CRANE OPERATORS, TRUCKING COMPANIES, AND OTHERS.

Cyber Liability

I found this article at http://www.riskandinsurancechalkboard.com/ it provides great information and advice on Cyber Liability.  If you store private information on your company computers you will want to consider purchasing this type of insurance.  Any storage of personal information such as credit card numbers, social security numbers, etc. can expose you to this type of loss which is not covered under your General Liability.  The article follows:

I am sure in the 1960's TV show Lost in Space, Will Robinson never envisioned that the Galaxy would suffer a greater threat from cyber hackers than asteroids. Most businesses today are not insured for the criminal risk of unauthorized access to their network systems. These uninvited guests no longer just cause a minor disruption or annoyance. According to the Ponemon Institute study of 2009, the average cost of a data breach globally is over $3 million. Some of the costs incurred are system damage, recovery costs and lost business due to business disruption, as well as negative publicity that results. The focus in this article is the necessary costs associated with notification and credit monitoring for those affected. There are insurance products in the marketplace designed to address cyber liability, but until recently there has been minimal interest.
What has been learned in recent years is that theft and fraudulent use of personal information is not always the major cost of a breach in security. If a corporate database is infiltrated by an outsider, there is the potential infection of personal data that is stored, financial and credit card information of customers and social security numbers of employees. When this occurs, there is a need for individual notification to anyone who may be exposed to the breach.There are over 40 states now that have legislated notification requirements for security breaches and more stringent  federal guidelines are expected in the future.

According to the Ponemon study, the actual cost for individual notification and credit monitoring is in excess of $200. On an individual basis, this may not appear to be that catastrophic. However, consider the need to notify 10,000 customers of possible compromised access to credit/debit cards coupled with post-breach credit monitoring.  We are now talking about costs in excess of $2 million. This is just the “damage control” expense side of the breach and does not begin to address any third party litigation that may follow.

These remediation costs, along with any regulatory fines or penalties, have been an area where most insurers offer minimal limits of coverage. Today, more insurers realize that these costs are the major focus and need for this insurance. Darwin Insurance and Allied World Insurance now extend this coverage up to full policy limits, which also includes regulatory fines or penalties. It is clear this coverage continues to evolve in line with legislative changes and a better understanding of the exposure to loss.

It would be wise for any business responsible for personal information -- credit information, social security numbers or medical data -- to evaluate the need for this insurance. In the words of the Robot, “Danger, danger Will Robinson!”. It is best to be aware of the dangers associated with cyber business risks even if you don’t buy the insurance.

Insuring Your Auto Fleet

The majority of business insurance claims come from their Auto Insurance.  The more vehicles a business has on the road, the more likely they are to have claims.  However, there are several things you can do as a business owner to reduce claims, get the best rates, and make sure you are properly insured.

First, what can you do to reduce claims? 

1. Hire quality employees and check their driving records before allowing them to drive company vehicles.  A general rule in insurance is that frequency leads to severity.  If a driver has a number of violations or accidents on their record, they are far more likely to be involved in a serious accident.  If someone is driving a vehicle with a company name on it and they injure another person, that person will likely come after the company rather than the individual because they perceive that is where they will get the most money.  So, hire people that represent your company well.
2. Maintain your vehicles.  Companies with large auto fleets will find that it is a pretty big expense to constantly change out tires, replace brakes, fix windshields, and service the engine of all those vehicles.  Therefore, they can get lazy in doing it or will put it off because of the expense involved.  This simple step can prevent major accidents from occurring.
3. Implement company policy for drivers.  There should be a zero-tolerance rule for driving under the influence of any drug, rules for cell phone use, speed limitations, seatbelt use, using a guide while backing, limiting distractions, and whatever else you feel is appropriate.

How do I get the best rates?

1. Reduce claims by implementing the above controls and showing the insurance company that you monitor and enforce them.
2. Show pictures of an organized, clean, well-maintained fleet of vehicles.  This shows the insurance company that you take pride in your assets and that you take the responsibility seriously to do everything you can to reduce risks.  If a loss control visit it performed and the insurance company finds a fleet of vehicles with cracked windshields, worn tires, safety violation issues, etc. they are unlikely to offer much credit on their insurance quote.
3. Stay with one insurance company for several years as long as they remain competitive with other markets.

How do I know if I am properly insured?

1. Place your insurance through a quality agent who knows your operations and is able to advise you on all aspects of Auto coverage.
2. Use the same insurance company for your Auto and General Liability insurance.  There are several gray areas as to which policy should respond in certain situations.  Using the same company will eliminate any questions as to who should pay the claims.
3. Make sure you are insuring your business property and property of others that you carry in your vehicles or on your trailers.
4. Purchase an Umbrella policy that you feel comfortable with so you know that you will have adequate limits in the event of a large claim.

These are only a few things to think about when trying to properly insure your company vehicles.  Please contact me if you have any concerns or questions about your Business Auto Policy.

Medical Emergency Travel Insurance

Don't play with reality visiting Canada. You have to defend your financial future in case of medical emergency. Visitors to Canada insurance can help if you buy it before arrival. You will regret


Even unexpected happiness can cause medical problems in the future. So, you should be ready for any events in your live with proper insurance plan coverage.

Canada Life participating policyholder 2009 Canadian dividend scale announcement

Canada Life participating life insurance offers consumers important advantages and choice as part of a sound financial security plan. The company committed to maintaining choice and flexibility for clients and advisors.

While some companies have exited the participating life insurance market, Canada Life promises to continue to be a leader in this area. They believe in participating life insurance and know the value it has delivered to policyowners. Canada Life is part of an organization that is the leading provider of participating life insurance in Canada. In 2007, the organization's collective participating life insurance sales grew by 15 per cent, surpassing $100 million in premium. Their extensive portfolio of life insurance products gives advisors choice in how best to serve their clients' financial security needs.

Participating life insurance policies are eligible for a periodic policyholder dividend. A review has been completed of the Canada Life participating account experience. Regarding the company statement, the 2008 dividend scale for Canada Life individual life insurance participating policies will continue to apply in 2009.

• Participating policyholder dividends are estimated to be $168 million in 2009.
• The interest rate for dividends on deposit will remain at 2.75 per cent or if greater, the minimum guaranteed interest rate in the contract.
• The policy loan interest rate will remain at 7.5 per cent, or if lower, the guaranteed interest rate in the contract.