Colsa Insurance Agency, Inc. Blog
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
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.
A new survey has found that cyber risks have risen to become the number one concern among businesses, replacing the COVID-19 pandemic and business interruption as the top risks in 2022.
The second-most cited risk was business interruption and supply chain disruptions, followed by natural catastrophes, according to the "Allianz Risk Barometer 2022."
The rankings follow a year that saw an explosion in cyber attacks, massive business interruption and supply chain disruptions that have left factories idle and store shelves bare, and record damage caused by natural catastrophes.
This annual survey provides perspective on the number and variety of threats businesses face, and which ones are causing the biggest headaches.
Here are the rankings of the top eight risk cited by risk managers in the Allianz survey:
1. Cyber risks — Ransomware has become the number one cyber exposure for business, according to the barometer, just ahead of data breaches. Cyber criminals have refined their business models and tactics, which has made it easier for them to carry out ransomware attacks.
Hackers have also started targeting technology and software supply chains, physical critical infrastructure or digital single points of failure.
2. Business interruption — The COVID-19 pandemic has caused the greatest global supply chain disruption in history, which in turn can lead to business interruption, particularly for manufacturers unable to secure much-needed parts. The supply chain has been disrupted by a number of factors, including pandemic-induced port closures in China, port congestion and factory closures.
The biggest supply chain concern is cyber attacks on infrastructure and on supply chain and logistics technology.
3. Natural catastrophes — In 2021, the U.S. experienced 20 separate billion-dollar weather and climate disasters, putting it in second place for the most disasters in a calendar year, behind the record 22 billion-dollar events in 2020.
4. COVID-19 pandemic — Pandemic risk dropped from the number two spot in the 2021 rankings as businesses have become more confident in their contingency plans and safety protocols.
"Many companies are taking advantage of the increased awareness of business interruption, and we have seen more organizations investing in tools and systems to improve transparency of supply chains, work through scenarios and update their business continuity," said Philip Beblo, global property industry lead for Allianz.
5. Regulatory and legal changes — Under the Biden administration, there's been an uptick in regulatory activity, including workplace safety standards for protecting workers against COVID-19 infection. There are also new state laws and regulations that require businesses to make operational and organizational changes to comply.
6. Climate change — The U.S. continues to see increases in the frequency and intensity of storms, wildfires and tornadoes, which are causing more expensive property damage, business interruption and insured losses.
"The risks to businesses from global warming are being experienced with increasing force and immediacy — as direct damage after extreme weather events, but also leading to tightening regulation, and as threats to brand and reputation," said Line Hestvik, chief sustainability officer at Allianz.
7. Fires and explosions — Fires (excluding wildfires) and explosions caused in excess of $15 billion worth of damage globally between 2013 and 2018, according to an Allianz analysis of 470,000 insurance industry claims during the period.
Besides property damage, a major fire or explosion can prevent companies from operating for some time and such incidents are the most frequent drivers of business interruption insurance claims.
8. Shortage of skilled workers — Another issue that the pandemic has exacerbated is the skilled worker shortage. Nearly seven in 10 companies reported talent shortages — the highest in 15 years, according to a ManpowerGroup survey.
As the economy has reopened in the wake of business closures during the start of the pandemic, companies in most sectors have had trouble finding new staff and hanging on to valued employees as competition for talent is fierce.
As more Americans work from home than ever before, many employers are wondering about their obligations under OSHA as well as how to reduce the chances that workers may be injured while telecommuting.
Obviously, the chances of an injury when working from home are small. The most common issue that is likely to arise is long-term injuries from poor workstation design, which can result in carpal tunnel syndrome and other stress and ergonomic injuries that develop over time.
For the most part, employers should approach workplace safety for telecommuting workers as they would safety for office workers, particularly workstation design and arrangement (ergonomics) as well as work scheduling and distribution.
Duties under OSHA
OSHA's General Duty Clause applies to any place an employer has staff working, be that at the company's facilities or worksites, at a customer's worksite, or even if they work from home.
Under the clause, employers have a general duty to "furnish to each of his employee's employment and a place of employment which are free from recognized hazards that are causing or are likely to cause death or serious physical harm to his employees."
Fortunately, most workplace safety specialists say that employers have little responsibility in ensuring a safe workplace. In fact, OSHA has issued guidance stating that it:
Workers' comp still in play
While that is good news, employers are still responsible for any injuries an employee suffers while working from home under workers' compensation laws.
For an injury to be considered work-related it must:
With that in mind, employers do have an obligation to ensure that a home worksite is safe in order to prevent injuries, even if OSHA does not require it.
The international law firm of Foley & Lardner, LLP recommends that employers:
While you as an employer are not required under OSHA regulations to inspect your workers' home's for compliance, it is a good idea to give them guidelines for how to set up their home office and also work with them to supply any needed furniture or accessories they would need to safely carry out their work tasks.
You may also want to consider asking them to install a smoke alarm in their home and that they have a plan to evacuate in case of fire or other emergency. Also if they have a lot of electrical equipment, there should be sufficient ventilation.
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:
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.
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.