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.

​As the economy continues expanding, companies need to be careful about properly managing their risk, according to a report by Advisen Inc., an insurance research and data firm.
Increased activity typically means proportionally additional losses. For example, more trucks driving more miles will inevitably result in more accidents. However, there are other kinds of risk that can actually increase more than the jump in business activity. We look at three such areas here.
 
Workplace safety
Workplace injuries can increase as firms hire workers that have less experience. Typically, when employers expand their workforce to meet the growing demand for their products and services, the number of workers' compensation claims tended to rise disproportionately.
New employees with less experience typically are more likely to sustain a workplace injury. At the same time, experienced staff may look for new job opportunities as compensation begins to take priority over job security.

What you can do: One option is to hire a temporary-staffing firm to fill positions. In these relationships, the client company is not responsible for covering temporary workers.
But you should be aware that OSHA requires what is known as the "dual employer doctrine", under which temps are considered employees of both the agency and the company using them. And you are also not off the hook for providing them with a safe work environment and safety training specific to their job.
And remember: Check to make sure the temp agency has workers' comp insurance.
 
Litigation increases
The risk of being sued rises as employees make mistakes due to pressure on existing staff to increase production, and again when less experienced workers are added to the payroll.
Your workers may be putting in extra hours. But fatigued workers make mistakes. For example, some of the worst industrial disasters have been in part the result of tired workers. Bhopal, Chernobyl and the Exxon Valdez oil spill all involved decisions made late at night or extremely early in the morning by people working long hours.
In addition, inexperienced employees are more like contribute to incidents where outsiders are hurt.

What you can do: Conduct thorough interviews, check references and carry out background investigations when appropriate to avoid hiring people with known problems. You are responsible for the actions of your employees.
Also, make sure that you are not overworking your staff. Provide proper breaks so they can rest, especially in jobs that require attention and strength.
 
Labor law violations
Trends in litigation and regulation make it more likely that companies will be charged with labor law violations. Employees are braver now about filing complaints, thinking they have a good chance of landing a new job if they are fired.
In addition, the federal and many state governments have cracked down on wage and hour law violations.
As well, some companies may try to add to their worker pool by using more independent contractors, in order to avoid hiring new workers. But the federal government has mounted a serious crackdown on companies that inappropriately classify employees as independent contractors.

What you can do: Pay close attention to your payment systems and audit your systems to make sure you comply with wage and hour laws as well as meal and rest break laws.
 
The takeaway
The lesson is to increase your vigilance in managing your risk and review your existing risk management strategies for gaps due to business growth.
You can take the following steps to reduce your chances of increased claims:

• Maintain high standards when hiring new employees, such as conducting thorough interviews, checking references and, where appropriate, investigating backgrounds;
• Properly train and supervise new employees during a growth phase;
• Consider your current policies on temporary workers, and weigh the benefits of a flexible workforce against liability issues that temporary workers pose;
• Revisit your policies about independent contractors, especially in light of the U.S. Department of Labor's efforts to ferret out misclassification;
• Pay attention to overtime rules to ensure compliance with the law; and
• Keep shareholders informed as much as possible about any mergers or acquisitions, including terms of the transaction.