Construction Firm Tips for Avoiding Insurance Disasters

When you're in the construction industry you already have lots to worry about: Keeping your workers safe in one of the most dangerous industries, uninsured or underinsured subcontractors, and finding experienced employees from a shrinking pool of talent.

Not only that, but lawsuits lurk in any project, exposing you to serious losses that can threaten the survival of your business. For these reasons, it's important that you understand your insurance coverages and that you know how to address any deficiencies that may exist in your risk management strategy.

To make sure that you are not left exposed, we recommend the following:

Choose the right insurance company

We can help you find an insurance company with the experience in writing policies in your industry and the resources to tailor coverage to your needs. Remember, some large projects and lenders require that you are covered by only an A-rated insurer.

Don't buy the cheapest policy 

If the policy price is significantly lower than other insurers, that may be a red flag. Make sure the insurer will be covering what the project owner, your lenders and other stakeholders require. If you find out your policy is deficient after you've purchased it, you'll have to cancel it and buy a new one. There go your profits.

Understand your policy 

All policies have exclusions and you should understand what the insurance company will cover and what it won't. We can sit down with you and review every line of your policy, including any additional insured endorsements or exclusions, so you know exactly what's covered and what isn't.

Don't buy insurance you don't need 

We can do a thorough review of your business and its risks with your help. It's important your coverage meets your needs and that you don't carry coverage for risks you're unlikely to face.

Use the correct class codes 

It's easy to misclassify certain employees, and if you err it can come back to haunt you. When it's time for renewal, go through your books and make sure you have job descriptions for all of your employees. Keep track of your staff so that you get it right the first time.

Also, keep track of new employees that you hire (or let go) during the course of the year, so that adjustments can be made to your policy.

Avoid the independent contractor trap 

During the last few years, the IRS, the Department of Labor and a number of state agencies across the country have been cracking down on the practice of worker misclassification.

There are many implications for classifying someone who is an employee as a contractor, and all of them are costly. You could be looking at back taxes, owing additional workers' comp premiums, lawsuits, and more.

Don't understate payroll 

If your insurer audits your business and they find that your numbers just don't add up, you could end up having to pay additional premium or risk policy cancellation.

Understand how 'claims-made' coverage works 

"Claims-made" policies have lower up-front and ongoing costs and they only let you make a claim during the policy year during which a project is being built.

The biggest drawback of these policies is that if you have to file a claim years after the project is completed, you may be out of luck, especially if you've switched insurance companies.

Check your subs' insurance certificates 

Know whether or not your policy will cover subcontractors or if they need to carry their own liability coverage. Verify that any subcontractors you use have valid and current certificates of insurance.

Keep your policies current and up to date 
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Many factors should prompt you to revisit your insurance policy: Hiring new employees, buying new equipment or vehicles, or opening a new office. These types of changes should prompt you to review your coverage with us to ensure you stay fully protected.

​One of the biggest mistakes you can make if you incur damage to your business premises is to wait too long before filing the claim with your insurer.

The owners of a hotel in Dallas learned this the hard way when a U.S. Circuit Court of Appeals held that the business had waited too long to file a claim with its insurer after suffering hail damage.

The court ruled that because the hotel had waited more than 19 months to file the claim, it was impossible for the insurer to ascertain exactly when the damage had occurred.

The hotel's property policy required that the insured make "prompt notice" of any claims.

But the insurer rejected the claim when it received it for a hailstorm that had happened more than a year and a half earlier, on the grounds that it could not determine what had caused the damage or when the damage occurred. This was crucial since the policy had expired 17 months earlier - two months after the storm had allegedly damaged the hotel.

Believe it or not, filing late is a common problem and it is one of many mistakes business owners make when filing claims. The following are surefire ways to risk having your claim denied or disputed by your insurance company:

Not contacting your insurer immediately
While most insurance policies state that you must notify the company promptly of a loss, what counts as "prompt" may be a little vague. However, you can wreck your claim by reporting a loss so late that it "prejudices" the insurance company.

For the most part, you should take steps to notify your insurer as soon as possible after you become aware of a loss.
 
Failing to document the damage
Take pictures and itemize everything that was damaged. Often, you will have to make repairs immediately to prevent additional damage, or move machinery to a new location. If so, be sure to photograph the original scene to document how it was before you started your clean-up effort. Also take photos of any repairs you make.
 
Disposing of damaged goods
If your business clean-up includes removal of items such as water-damaged merchandise, flooring or insulation, keep it all, even if it has to pile up in the parking lot. The damaged materials are all evidence of the impact of the disaster on your business.
 
Not appealing an insurer's low estimate
After the claims adjuster inspects the damage, the insurance company will give you a damage estimate. If you think it's too low, you can appeal. We can help if you feel the estimate is too low.

But some businesses will hire an outside adjuster to make a second estimate, and then the claim will go to mediation for a final resolution.
 
Not reading your policy
You should understand exactly what your policy covers. For the most part, commercial property policies will not cover flooding or earthquake damage. That kind of coverage will often require a separate policy or rider.
 
Not being prepared
If your business suffers damage, you'll be better off if you know what to do in advance. Some advance steps you can take are:

• Reviewing your policy to make sure you have adequate coverage.
• Knowing where your insurance policy is kept.
• Keeping an extra copy of the policy off-premises or in a safety deposit box.
• Having our telephone number and e-mail address in the contacts on your smartphone, so you can call us immediately if you suffer a claim.

 
A final word…
Filing a claim is usually not a difficult process, but you should be prepared in advance, like making sure you keep good records of all your assets, including receipts, payment schedules and more.
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Finally, if you are unsure whether you should file a claim on any of your commercial policies, you can always give us a call to discuss the event and we can assist you.

​One of the keys to managing risks when you first start a business is getting the right insurance to cover your operations, property and potential liabilities.
Unfortunately, many business owners fail to update their policies and just renew them year after year even if the company has grown, expanded operations and facilities, and added new equipment and property. If this is the case, the old coverage would be insufficient.

Business owners should review their policies every year to catch any omissions and make sure they are not underinsured. It is common for smaller businesses to secure a basic business owner's policy (BOP) and workers' comp when they first get started. A BOP includes:

• Property insurance for buildings and contents owned by the company.
• Business interruption insurance, which covers the loss of income resulting from a fire or other catastrophe that disrupts the operation of the business.
• Liability protection, which covers your company's legal responsibility for the harm it may cause to others. This harm is a result of things that you and your employees do or fail to do in your business operations that may cause bodily injury or property damage due to defective products, faulty installations and errors in services provided.

 
Outgrowing BOP coverage
As your business expands, you may outgrow the BOP and need additional coverage to manage your risks. Some examples include the following:

• Workers' comp. While you likely added a workers' comp policy when you made your first hire, you will need to update it as you add more staff. If you don't, when your insurer audits you, you may face a hefty bill for additional premium. Be diligent about your policy and inform your insurer as you grow.
• Excess umbrella or liability coverage. You should consider this insurance to cover claims that exceed your BOP's limit, providing you with an added layer of protection to protect your assets.
• Professional liability insurance. These policies provide coverage for mistakes for any professional services you provide. This used to be mainly for doctors, attorneys and accountants, but as our service sector has expanded it includes services provided by coders and software developers, appraisers, consultants, real estate brokers, graphic designers and home inspectors, among others.
• Auto, non-owned and hired coverage. This protects business owners if an employee has an accident while driving a rental or personal vehicle on the job. 
• Employment practices liability insurance. This covers human resources issues related to discrimination, harassment and termination.
• Commercial auto insurance. This coverage protects autos that are not under a personal policy.
• Directors and officers liability coverage. This protects officers and directors in the event they are sued for wrongful acts while on duty.

 
Depending on the business, some or most of these insurance options may be required for adequate protection. Annual reviews with us are ideal for discussing your options. Make sure these elements are considered:

• If computers, equipment or other types of property have been added, this would be reason to increase policy limits.
• While revenue is an important consideration, it is also important to remember that it is a potential liability. 
• A general liability or BOP may be affected if the owner has moved, added or closed locations.
• Hired and non-hired auto insurance is necessary if workers are driving frequently in rented vehicles. 
• For specific types of work and services, employers may need additional endorsements for their general liability policies.
• People who are serving new industries or clients may have problems with their professional liability coverage if they have large amounts of high-risk industries or customers.
• If you experience an increase in the number of workers you have, or there is a higher turnover rate, it is important to think about employment practices liability coverage. And as mentioned, your workers' comp policy should be updated to reflect any staffing changes and that you categorize your workers properly.