Builder's Risk
You've got a general liability policy but now the bank (or homeowner) wants to protect what your building. You call your agent and he thinks it's either property or a Builder's Risk policy. Panic? No......here's a "basic" answer.
Your construction project, whether a large or moderate undertaking, require that insurance coverage be selected with the utmost care. Generally, the builders risk (or course of construction) exposure may be insured under either a commercial property or an inland marine policy. [different types of insurance policies]
Forms and rates associated with commercial property builders risk coverage ordinarily are filed with state insurance regulators. Forms and rates of inland marine builders risk policies, however, are not subject to filing requirements and thus are referred to as "nonfiled" forms. Insurers have more flexibility in underwriting nonfiled classes because they can create their own coverage provisions and rates, which can be tailored to the particular risk exposure.
Picture a typical construction project-perhaps a school, an apartment building, or an office building-and consider the parties involved in the planning and execution of the project, the general layout of the site, the building materials and construction equipment needed to complete the project, and the work force required.
Builders risk insurance is designed to insure construction projects, and it covers buildings and other structures while being built, including building materials and equipment intended to become part of the building or structure. Coverage applies to property while at the job site, off site in storage, and in transit. (Coverage for construction equipment, i.e., forklifts, bulldozers, mobile tools, and so on, would be provided by contractors equipment insurance.)
Typical parties to a construction contract could include:
* Project owner - party that owns building or is having building constructed
* Architect/engineers
* General contractor/contractors/ subcontractors
* Lenders
* The construction contract itself, while not a party, is a crucial element of a construction project
There you go.....
Wednesday, November 25, 2009
Thursday, November 5, 2009
Warranty Language
Most applications for General Contractors have an area where the GC initials that they get certificates of insurance from all their subcontractors. I have 3 contractors in the office today and explained this requirement. As usual everyone agrees that it will be done but sometimes in the rush of life the GC forgets. Recently a Breach of Contrator's Warranty case was litigated in the California Court of Appeal. Mr. Barry Zalma writes on the insurance industry claims pratice team for IRMI. As a Construction Risk Insurance Specialist I receive weekly updates and this article by Mr. Zalma (www.zalma.com) hit home.
---------LINK http://www.irmi.com/expert/articles/2009/zalma10-insurance-claims-practices.aspx
Breach of Contractor's Warranty Defeats Coverage
October 2009
Insurers who insure the liability of contractors will often include in their policy a warranty that compels the general contractor to obtain proof that all its subcontractors are insured. In an important case, North American Capacity Ins. Co. v. Claremont Liab. Ins.Co., 99 Cal. Rptr. 3d 225, 177 Cal. App. 4th 272 (Cal. App. Dist. 2, Aug. 4, 2009), dealing with a clause rarely litigated, the California Court of Appeal enforced such an agreement and issued a warning to all general contractors who do not comply with similar warranties that they may be eliminating their own coverage.
by Barry Zalma
So don't forget to collect certificates and get contracts in place with your sub contractors.
---------LINK http://www.irmi.com/expert/articles/2009/zalma10-insurance-claims-practices.aspx
Breach of Contractor's Warranty Defeats Coverage
October 2009
Insurers who insure the liability of contractors will often include in their policy a warranty that compels the general contractor to obtain proof that all its subcontractors are insured. In an important case, North American Capacity Ins. Co. v. Claremont Liab. Ins.Co., 99 Cal. Rptr. 3d 225, 177 Cal. App. 4th 272 (Cal. App. Dist. 2, Aug. 4, 2009), dealing with a clause rarely litigated, the California Court of Appeal enforced such an agreement and issued a warning to all general contractors who do not comply with similar warranties that they may be eliminating their own coverage.
by Barry Zalma
So don't forget to collect certificates and get contracts in place with your sub contractors.
Friday, August 14, 2009
Ran across an excellent article by Advisen Ltd (https://www.advisen.com/) about the current pressures on General Liability and Workers Compensation due to the economy.
-- http://www.irmi.com/expert/articles/2009/advisen07-insurance-industry-market.aspx -
General liability and workers compensation policies both posted average decreases in renewal premiums. Directors and officers liability (D&O) policies renewed at higher premiums on average, but the increase was due to financial sector companies, a segment that has been bloodied by the subprime mortgage meltdown and credit crisis. Property policies renewed at essentially no change.
Workers compensation recorded a 2.8 percent average decrease in renewal premiums, as compared to a 1.7 percent drop in the second quarter of 2008, and general liability posted a 1.1 percent drop as compared to nearly a 5 percent decline a year ago. D&O increased 2.9 percent, a reversal of the 6.4 percent average decrease in the second quarter of 2008. However, excluding financial services companies, D&O policies renewed with a 4.1 percent average decrease. Property premiums fell less than 1 percent, which compares to a 6.1 percent drop in the second quarter of 2008.
Click here for Average Change in Renewal Premium: 2nd Quarter 2009 versus 2008.
Rates continue to drift downward despite the loss of $81 billion in policyholders’ surplus in 2008 and the first quarter of 2009, according to the Insurance Information Institute. Deteriorating investment markets was the principal cause of falling surplus. Policyholders’ surplus is a measure of insurance capacity, meaning that, as surplus falls, the "supply" of insurance also decreases.
"Insurance capacity is disappearing at a startling rate, but the market nonetheless remains competitive," says Dave Bradford, executive vice president of Advisen Ltd. and editor-in-chief of RIMS Benchmark Survey™. "As a result of the recession, the demand for insurance capacity also has decreased, which has kept pressure on rates. Companies are downsizing, which means that there is simply less to insure."
Falling demand has prolonged the soft market, but leading indicators tracked by Advisen Ltd.—most specifically the ratio of policyholders’ surplus to U.S. Gross Domestic Product, which measures the supply of insurance capacity relative to the demand for that capacity—suggest that the market is close to its bottom.
"If the gloom of the global recession has a silver lining for risk managers, it is the competitive insurance market," says Daniel H. Kugler, ARM, CEBS, CPCU, AIC, ACI, member of RIMS board of directors and assistant treasurer, risk management, at Snap-on, Inc. "The soft market appears to be winding down, but except for increases already taking place in some financial segments, there are no strong signals that rates will rebound sharply in the near future."
-- http://www.irmi.com/expert/articles/2009/advisen07-insurance-industry-market.aspx -
General liability and workers compensation policies both posted average decreases in renewal premiums. Directors and officers liability (D&O) policies renewed at higher premiums on average, but the increase was due to financial sector companies, a segment that has been bloodied by the subprime mortgage meltdown and credit crisis. Property policies renewed at essentially no change.
Workers compensation recorded a 2.8 percent average decrease in renewal premiums, as compared to a 1.7 percent drop in the second quarter of 2008, and general liability posted a 1.1 percent drop as compared to nearly a 5 percent decline a year ago. D&O increased 2.9 percent, a reversal of the 6.4 percent average decrease in the second quarter of 2008. However, excluding financial services companies, D&O policies renewed with a 4.1 percent average decrease. Property premiums fell less than 1 percent, which compares to a 6.1 percent drop in the second quarter of 2008.
Click here for Average Change in Renewal Premium: 2nd Quarter 2009 versus 2008.
Rates continue to drift downward despite the loss of $81 billion in policyholders’ surplus in 2008 and the first quarter of 2009, according to the Insurance Information Institute. Deteriorating investment markets was the principal cause of falling surplus. Policyholders’ surplus is a measure of insurance capacity, meaning that, as surplus falls, the "supply" of insurance also decreases.
"Insurance capacity is disappearing at a startling rate, but the market nonetheless remains competitive," says Dave Bradford, executive vice president of Advisen Ltd. and editor-in-chief of RIMS Benchmark Survey™. "As a result of the recession, the demand for insurance capacity also has decreased, which has kept pressure on rates. Companies are downsizing, which means that there is simply less to insure."
Falling demand has prolonged the soft market, but leading indicators tracked by Advisen Ltd.—most specifically the ratio of policyholders’ surplus to U.S. Gross Domestic Product, which measures the supply of insurance capacity relative to the demand for that capacity—suggest that the market is close to its bottom.
"If the gloom of the global recession has a silver lining for risk managers, it is the competitive insurance market," says Daniel H. Kugler, ARM, CEBS, CPCU, AIC, ACI, member of RIMS board of directors and assistant treasurer, risk management, at Snap-on, Inc. "The soft market appears to be winding down, but except for increases already taking place in some financial segments, there are no strong signals that rates will rebound sharply in the near future."
Monday, August 3, 2009
CGL Endorsements to Avoid
Found an excellent article in one of my insurance journals on endorsements any contractor should avoid. I'll post all three over the next few days.
----------------- article by Chris Boggs at http://www.mynewmarkets.com/article_view.php?id=102583
Contractual Liability Limitation
Insureds regularly enter into contractual relationships to accomplish specific business purposes. However, the unendorsed commercial general liability policy specifically excludes liability assumed by contract ("2. Exclusions: b. Contractual Liability"); but the policy gives back coverage through exceptions to the exclusion.
Only one of the two exceptions to the contractual liability exclusion spells out the parameters by which contractually accepted liability is covered in the CGL. Exception "(2)" states that protection is provided when:
The liability is assumed by an "insured contract;"
The bodily injury or property damage occurs AFTER the execution of the contract;
Defense and other fees are assumed in the contract (indemnify and hold harmless wording required); and
A suit alleges injury or damage covered by the policy.(See "Contractual Risk Transfer Coverage Extended from the Unendorsed CGL" for greater detail.)
The key to the breadth of the exception is the definition of "insured contract." Attachment of the Contractual Liability Limitation (CG 21 39) exclusion alters the definition of "insured contract" by removing the "all other business-related contracts" provision provided by definition "f."
CG 21 39 should be avoided if at all possible. All protection normally available for and extended to many contractually-created indemnitees is deleted by attachment of this exclusion. The list of contracts under which the insured can accept contractually-transferred liability is limited to a short schedule which includes: lease agreements; sidetrack agreements; easement or license agreements; obligations to indemnify a municipality; and an elevator maintenance agreement. NO OTHER CONTRACTS are covered as "insured contracts" when the Contractual Liability Limitation (CG 21 39) is attached.
Altering the definition of "insured contract" by attachment of the CG 21 39 requires the insured to make adjustments to the policy anytime it enters into a contract or agreement not contemplated in the remaining short list of acceptable contracts - provided the insured is aware of the need. The exclusion may lead to the requirement to attach additional insured endorsements, even though not requested, to meet specific contractual provisions and avoid a breach of contract or worse, an uncovered claim.
One reason among several an underwriter may choose to use this drastic exclusion is the breadth of coverage extended to the indemnitee under the contractual liability exception. The sole negligence of the indemnitee (transferor) can be picked up under the unaltered wording ("Contractual Risk Transfer Coverage Extended from the Unendorsed CGL"), making the coverage granted by the unendorsed policy broader than coverage granted by most additional insured endorsements.
Agents can recommend an alternative endorsement to the underwriter wanting to avoid the unknown breadth of protection being accepted in business contracts (normally covered under "f."). The Amendment of Insured Contract (CG 24 26) endorsement redefines the meaning of "insured contract" to match the coverage granted by most additional insured endorsements. The CG 24 26 adds "…provided the 'bodily injury' or 'property damage' is caused, in whole or in part, by you or by those acting on your behalf" to the all other business contract wording provided in "f."; thus requiring the insured be at least partially responsible for causing the injury or damage before coverage extends to the contractual indemnitee.
Avoid the Contractual Liability Limitation (CG 21 39) when possible. Its presence as part of the policy requires other endorsements (additional insured in particular) be attached to meet contractual guidelines. If the underwriter wants some control, offer the Amendment of Insured Contract (CG 24 26) as an alternative.
----------------- article by Chris Boggs at http://www.mynewmarkets.com/article_view.php?id=102583
Contractual Liability Limitation
Insureds regularly enter into contractual relationships to accomplish specific business purposes. However, the unendorsed commercial general liability policy specifically excludes liability assumed by contract ("2. Exclusions: b. Contractual Liability"); but the policy gives back coverage through exceptions to the exclusion.
Only one of the two exceptions to the contractual liability exclusion spells out the parameters by which contractually accepted liability is covered in the CGL. Exception "(2)" states that protection is provided when:
The liability is assumed by an "insured contract;"
The bodily injury or property damage occurs AFTER the execution of the contract;
Defense and other fees are assumed in the contract (indemnify and hold harmless wording required); and
A suit alleges injury or damage covered by the policy.(See "Contractual Risk Transfer Coverage Extended from the Unendorsed CGL" for greater detail.)
The key to the breadth of the exception is the definition of "insured contract." Attachment of the Contractual Liability Limitation (CG 21 39) exclusion alters the definition of "insured contract" by removing the "all other business-related contracts" provision provided by definition "f."
CG 21 39 should be avoided if at all possible. All protection normally available for and extended to many contractually-created indemnitees is deleted by attachment of this exclusion. The list of contracts under which the insured can accept contractually-transferred liability is limited to a short schedule which includes: lease agreements; sidetrack agreements; easement or license agreements; obligations to indemnify a municipality; and an elevator maintenance agreement. NO OTHER CONTRACTS are covered as "insured contracts" when the Contractual Liability Limitation (CG 21 39) is attached.
Altering the definition of "insured contract" by attachment of the CG 21 39 requires the insured to make adjustments to the policy anytime it enters into a contract or agreement not contemplated in the remaining short list of acceptable contracts - provided the insured is aware of the need. The exclusion may lead to the requirement to attach additional insured endorsements, even though not requested, to meet specific contractual provisions and avoid a breach of contract or worse, an uncovered claim.
One reason among several an underwriter may choose to use this drastic exclusion is the breadth of coverage extended to the indemnitee under the contractual liability exception. The sole negligence of the indemnitee (transferor) can be picked up under the unaltered wording ("Contractual Risk Transfer Coverage Extended from the Unendorsed CGL"), making the coverage granted by the unendorsed policy broader than coverage granted by most additional insured endorsements.
Agents can recommend an alternative endorsement to the underwriter wanting to avoid the unknown breadth of protection being accepted in business contracts (normally covered under "f."). The Amendment of Insured Contract (CG 24 26) endorsement redefines the meaning of "insured contract" to match the coverage granted by most additional insured endorsements. The CG 24 26 adds "…provided the 'bodily injury' or 'property damage' is caused, in whole or in part, by you or by those acting on your behalf" to the all other business contract wording provided in "f."; thus requiring the insured be at least partially responsible for causing the injury or damage before coverage extends to the contractual indemnitee.
Avoid the Contractual Liability Limitation (CG 21 39) when possible. Its presence as part of the policy requires other endorsements (additional insured in particular) be attached to meet contractual guidelines. If the underwriter wants some control, offer the Amendment of Insured Contract (CG 24 26) as an alternative.
Tuesday, June 9, 2009
Disability Insurance - Individuals
Most people insure their homes and cars and occasionally their lives. Most forget to insure against lost wages.
Individual disability income insurance pays you benefits if you can't work because you're sick or injured. Some individual policies pay partial benefits if you can only work part-time due to sickness or injury. Individual policies specify how much you will be paid, how soon after you are disabled benefits will begin, and when benefits will end. Policies generally provide replacement of 50 to 70 percent of income. Monthly benefits are payable for a fixed period set forth in the policy, e.g. 5 years or to age 65/67. Benefits begin following a waiting period, which is the period between the time you become disabled and the time your benefit payments begin. Waiting periods can range from one week to a year or even two years. In general, the longer the waiting period the lower the cost of the policy.
If you purchase an individual disability income insurance policy for yourself, and pay premiums with after-tax dollars, the benefits you receive are generally tax free.
Two features that may be part of disability income policies are important for you to understand: non-cancelable protection and guaranteed renewable protection. An insurer cannot cancel or refuse to renew either type of policy, as long as premiums (i.e., price of insurance protection for a specified period) are paid on time. These features differ, though, in important ways.
Non-cancelable. The policy's premium can never be raised above the amount shown in the policy, and benefits may not be reduced - as long as premiums are paid on time.
Guaranteed renewable. You have the right to renew the policy with the same benefits, but the insurer can increase your premiums - as long as they are increased for all other policyholders in the same class (i.e., having the same characteristics).
Initial premiums for guaranteed renewable policies may be lower than for non-cancelable policies, but the guaranteed renewable premiums can go up over time. Less expensive policies that may not offer a non-cancelable or guaranteed renewable option are sometimes available.
Riders on Individual Disability Insurance Policies
Most insurers offer several optional benefits (called riders) to enhance disability income coverage. Common riders include:
Cost of Living Adjustments. COLA provides for an annual increase in benefits (generally after you have been disabled for a year), usually based on a Consumer Price Index or a predetermined percentage. This helps your benefits keep pace with inflation, and is particularly important if you are disabled for a long time.
Future Purchase Option (Guaranteed Insurability Option). This rider allows you to purchase additional disability income insurance as your income increases, without providing proof of medical insurability. Even if you develop a condition that would normally prevent you from obtaining additional coverage after you purchase your original policy, you could still increase your benefits.
Residual Benefit. This pays you a portion of your monthly disability benefit if you have a drop in income due to a disability (e.g., if you are working part time). In most cases you need to satisfy a minimum percentage loss in earnings (e.g., a 20 percent loss) to qualify.
Social Security Rider. If you are disabled, these riders pay you additional benefits if you are not able to receive Social Security disability benefits because of the Social Security Administration's definition of disability. Usually, an individual disability policy with this rider will pay after the waiting period for the policy and during the five-month period (sometimes up to a year) while you are waiting for Social Security to kick in. If Social Security denies your claim, this rider will continue to pay benefits for the duration of the benefit period. Before purchasing a rider to your policy, ask yourself if you would be able to pay for the benefits provided by this rider out of your own pocket.
Disability is an important part of protecting your family. While not cheap it can be the difference between bankruptcy and protecting your assets.
Individual disability income insurance pays you benefits if you can't work because you're sick or injured. Some individual policies pay partial benefits if you can only work part-time due to sickness or injury. Individual policies specify how much you will be paid, how soon after you are disabled benefits will begin, and when benefits will end. Policies generally provide replacement of 50 to 70 percent of income. Monthly benefits are payable for a fixed period set forth in the policy, e.g. 5 years or to age 65/67. Benefits begin following a waiting period, which is the period between the time you become disabled and the time your benefit payments begin. Waiting periods can range from one week to a year or even two years. In general, the longer the waiting period the lower the cost of the policy.
If you purchase an individual disability income insurance policy for yourself, and pay premiums with after-tax dollars, the benefits you receive are generally tax free.
Two features that may be part of disability income policies are important for you to understand: non-cancelable protection and guaranteed renewable protection. An insurer cannot cancel or refuse to renew either type of policy, as long as premiums (i.e., price of insurance protection for a specified period) are paid on time. These features differ, though, in important ways.
Non-cancelable. The policy's premium can never be raised above the amount shown in the policy, and benefits may not be reduced - as long as premiums are paid on time.
Guaranteed renewable. You have the right to renew the policy with the same benefits, but the insurer can increase your premiums - as long as they are increased for all other policyholders in the same class (i.e., having the same characteristics).
Initial premiums for guaranteed renewable policies may be lower than for non-cancelable policies, but the guaranteed renewable premiums can go up over time. Less expensive policies that may not offer a non-cancelable or guaranteed renewable option are sometimes available.
Riders on Individual Disability Insurance Policies
Most insurers offer several optional benefits (called riders) to enhance disability income coverage. Common riders include:
Cost of Living Adjustments. COLA provides for an annual increase in benefits (generally after you have been disabled for a year), usually based on a Consumer Price Index or a predetermined percentage. This helps your benefits keep pace with inflation, and is particularly important if you are disabled for a long time.
Future Purchase Option (Guaranteed Insurability Option). This rider allows you to purchase additional disability income insurance as your income increases, without providing proof of medical insurability. Even if you develop a condition that would normally prevent you from obtaining additional coverage after you purchase your original policy, you could still increase your benefits.
Residual Benefit. This pays you a portion of your monthly disability benefit if you have a drop in income due to a disability (e.g., if you are working part time). In most cases you need to satisfy a minimum percentage loss in earnings (e.g., a 20 percent loss) to qualify.
Social Security Rider. If you are disabled, these riders pay you additional benefits if you are not able to receive Social Security disability benefits because of the Social Security Administration's definition of disability. Usually, an individual disability policy with this rider will pay after the waiting period for the policy and during the five-month period (sometimes up to a year) while you are waiting for Social Security to kick in. If Social Security denies your claim, this rider will continue to pay benefits for the duration of the benefit period. Before purchasing a rider to your policy, ask yourself if you would be able to pay for the benefits provided by this rider out of your own pocket.
Disability is an important part of protecting your family. While not cheap it can be the difference between bankruptcy and protecting your assets.
Wednesday, June 3, 2009
The 1099 Dilemna
Many contractors hire "employees" in a 1099 (see IRS guidelines for terminology) capacity in an attempt to bypass the cost of Workers Compensation as well as payroll liabilities. Sometimes the "1099" gambit is also used to hire employees who might not be legally in the United States. While these all might appear as valid reasons there are a number of reasons for not taking this course of action:
- It's illegal. That should be enough of a reason.
- Typically 1099 "employees" do not carry insurance and General Liability carriers have wised up to this scam and ask for certificates of insurance for all sub-contractors or they will charge for the exposure at higher rates.
- Workers Compensation carriers will require certificates of insurance (or waivers of WC for sole proprietorship) or charge for the exposure.
- In case the 1099 employee has an "on-the job" workers compensation claim they burden of proof can lie on the contractor to actually prove that the 1099 contractor was in fact eligible to be paid as a 1099. We typically provide our contractors with a check sheet that helps them determine if the employee can be paid as a 1099. Visit www.martinburlingame.com or email martin@martinburlingame.com for more information.
- You have "independent contractor" liability exposure and can be sued for negligent hiring or supervision (read your GL policy)
- Policy exclusions can limit the protection of the insurance policy towards "completed operations" by subcontractors.
- GL policies may (almost all do) require that subcontractors carry insurance in equal limits the contractor thereby pushing additional costs down on 1099 contractors.
- It's illegal and can result in fines from both the State and Federal government.
Quite often we get contacted by contractors who are facing large workers compensation audits or audits by their GL carriers. Many of these audits are a direct result of the miss use of independent contractors. Consult your agent and your policy and if in doubt err to the side of caution.
Tuesday, May 12, 2009
Is your Insurance Company sound?
Well there's been a series of news articles in The Insurance Journal (www.insurancejournal.com) about 1st quarter 2009 loses for some of the major insurance carriers. Meanwhile profitable insurance companies are making purchases as quickly as they can. (see
Contractors should be concerned about the solvency of their insurance company. While price is an important consideration the ability for the carrier to pay claims should be equally (if not more) important. Two sources for checking the financial stability of your insurance company are:
AM Best is one of the leading sources for ratings. Anyone can go to www.ambest.com and check the ratings for their current insurance company. A quick search of their web site shows that:
"Best's Credit Ratings are independent opinions regarding the creditworthiness of an issuer or debt obligation. Best's Credit Ratings are based on a comprehensive quantitative and qualitative evaluation of a company's balance sheet strength, operating performance and business profile, or, where appropriate, the specific nature and details of a debt security. "
While AM Best lists most insurance companies they do not list Risk Retention Groups (or if they do the RRG is so new that their AM Best rating can be lower than what would be expected.
Another source is Demotech at www.demotech.com. Demotech includes Risk Retention Groups and other carriers not covered by AM Best and either assigns them a rating or a CFO (Comparative Financial Observation) which is color coded.
A third source is the Internet. Yes I know that sounds redundant but many companies are publicly traded and their quarterly financials are on line for investors. A quick review of the balance sheet can show profit (or for many losses).
Any contractor (or insured) should check both sources and any other outside source for financial stability information. Your agent should also be able to provide information about the financial stability of the carrier.
Contractors should be concerned about the solvency of their insurance company. While price is an important consideration the ability for the carrier to pay claims should be equally (if not more) important. Two sources for checking the financial stability of your insurance company are:
AM Best is one of the leading sources for ratings. Anyone can go to www.ambest.com and check the ratings for their current insurance company. A quick search of their web site shows that:
"Best's Credit Ratings are independent opinions regarding the creditworthiness of an issuer or debt obligation. Best's Credit Ratings are based on a comprehensive quantitative and qualitative evaluation of a company's balance sheet strength, operating performance and business profile, or, where appropriate, the specific nature and details of a debt security. "
While AM Best lists most insurance companies they do not list Risk Retention Groups (or if they do the RRG is so new that their AM Best rating can be lower than what would be expected.
Another source is Demotech at www.demotech.com. Demotech includes Risk Retention Groups and other carriers not covered by AM Best and either assigns them a rating or a CFO (Comparative Financial Observation) which is color coded.
A third source is the Internet. Yes I know that sounds redundant but many companies are publicly traded and their quarterly financials are on line for investors. A quick review of the balance sheet can show profit (or for many losses).
Any contractor (or insured) should check both sources and any other outside source for financial stability information. Your agent should also be able to provide information about the financial stability of the carrier.
Friday, April 24, 2009
EIFS - Is it back?
I was rereading an old article by Ann Rudd Hickman (an author at IRMI) about EIFS and the incredible meltdown in General Liability coverage in 2003-2006. Stucco contractors performing EIFS saw rates increase 400-600% in a one year period almost driving the entire industry out of business. Now, 5-6 years later EIFS coverage is available, and while not cheap, it is affordable.
EIFS received a bad rap due a rash of claims a few years ago which caused insurance companies to panic and pull out of the EIFS market. Price rose and many of the smaller contractors were squeezed out of the business leaving a core group of experience installers. While insurance premiums continue to be higher than a "stucco only" contractor the price for EIFS insurance is no longer exorbitant and quite often can be included inside the General Liability policy limits.
EIFS contractors contacting my agency should plan of providing proof of certification along with references for current and past EIFS jobs. With proper documentation an insurance packet can be put together to validate the carrier extending EIFS coverage for a small additional price.
Feel free to call the agency at 719-531-7000 or visit our web sites www.drywall-insurance.com or stucco-insurance.com or EIFS-insurance.com
Martin
WHAT IS EIFS
Exterior Insulation and Finish Systems (EIFS) are multi-layered exterior wall systems that are used on both commercial buildings and homes. They provide superior energy efficiency and offer much greater design flexibility than other cladding products. In simple terms it's a synthetic stucco that can be easily applied and has both the advantage of longevity and insulation. For more information on EIFS and the pros and cons visit http://www.eima.com/EIFS received a bad rap due a rash of claims a few years ago which caused insurance companies to panic and pull out of the EIFS market. Price rose and many of the smaller contractors were squeezed out of the business leaving a core group of experience installers. While insurance premiums continue to be higher than a "stucco only" contractor the price for EIFS insurance is no longer exorbitant and quite often can be included inside the General Liability policy limits.
EIFS contractors contacting my agency should plan of providing proof of certification along with references for current and past EIFS jobs. With proper documentation an insurance packet can be put together to validate the carrier extending EIFS coverage for a small additional price.
Feel free to call the agency at 719-531-7000 or visit our web sites www.drywall-insurance.com or stucco-insurance.com or EIFS-insurance.com
Martin
Wednesday, April 22, 2009
ACV v. Replacement Cost
We get asked a lot about the difference between ACV (Actual Cash Value) and Replacement Cost. Here are the "insurance speak" definitions from IRMI:
ACV: In property and auto physical damage insurance, one of several possible methods of establishing the value of insured property to calculate the premium and determine the amount the insurer will pay in the event of loss. ACV is typically calculated one of three ways: (1) the cost to repair or replace the damaged property, minus depreciation; (2) the damaged property’s "fair market value;" or (3) using the “Broad Evidence Rule,” which calls for considering all relevant evidence of the value of the damaged property.
Replacement Cost: A property insurance term that refers to one of the two valuation methods for establishing the value of most of the insured property for purposes of determining the amount the insurer will pay in the event of loss. It is usually defined in the policy as the cost to replace the damaged property with materials of like kind and quality, without any deduction for depreciation.
The easiest way to explain the two (for my clients) is that your home owner insurance cost is replacement cost (your $650k home built in 1930 is still worth 650k and probably more than when it was built when lumber was cheap and milk was .02 cents) while your Auto is ACV (depreciated cost).
For contractors this is important because tools have a purpose and the drill bought 2 years earlier still does the job it was bought for. Some policies have tools (and scheduled equipment - see prior post) at ACV which is a royal pain in the a$$. Imagine your frustration if the 2003 $52k skid loader is stolen and your agent (and adjuster) tell you it's only worth $23k and oh-by-the-way it now costs $75k to buy one.
Make sure your policy has replacement cost for tools and scheduled equipment. Demand it.
ACV: In property and auto physical damage insurance, one of several possible methods of establishing the value of insured property to calculate the premium and determine the amount the insurer will pay in the event of loss. ACV is typically calculated one of three ways: (1) the cost to repair or replace the damaged property, minus depreciation; (2) the damaged property’s "fair market value;" or (3) using the “Broad Evidence Rule,” which calls for considering all relevant evidence of the value of the damaged property.
Replacement Cost: A property insurance term that refers to one of the two valuation methods for establishing the value of most of the insured property for purposes of determining the amount the insurer will pay in the event of loss. It is usually defined in the policy as the cost to replace the damaged property with materials of like kind and quality, without any deduction for depreciation.
The easiest way to explain the two (for my clients) is that your home owner insurance cost is replacement cost (your $650k home built in 1930 is still worth 650k and probably more than when it was built when lumber was cheap and milk was .02 cents) while your Auto is ACV (depreciated cost).
For contractors this is important because tools have a purpose and the drill bought 2 years earlier still does the job it was bought for. Some policies have tools (and scheduled equipment - see prior post) at ACV which is a royal pain in the a$$. Imagine your frustration if the 2003 $52k skid loader is stolen and your agent (and adjuster) tell you it's only worth $23k and oh-by-the-way it now costs $75k to buy one.
Make sure your policy has replacement cost for tools and scheduled equipment. Demand it.
Friday, April 17, 2009
Inland Marine Coverage - Are your tools insured?
Are your tools covered? If someone breaks into you pickup truck and steals your tools will your insurance company pay for them and more importantly can your business survive without your tools.
Many contractors believe that their tools are covered under their General Liability policy. It's a shocking revelation when a claims adjuster informs you that tools are not covered under your General Liability policy.
Typically contractor tools are covered under an Inland Marine policy.
The definition of Inland Marine:
A group of property insurance coverages designed to insure exposures that cannot be conveniently or reasonably confined to a fixed location or insured at a standard rate under a standard form. Includes coverage for property in transit over land, certain movable property, property under construction, instrumentalities of transportation and communication (such as bridges, roads, piers, and television and radio towers), legal liability coverage for bailees, and computerized equipment. Many inland marine coverage forms provide coverage without regard to the location of the covered property; these are sometimes called "floater" policies. Inland marine coverage forms are generally broader than property coverage forms due to the relative freedom from rate and form regulation of inland marine insurance as compared with property insurance.
Contractor tools cannot be reasonably confined to one location and therefor fall under an Inland Marine policy. Tools are either classified as "scheduled" or "unscheduled". Unscheduled tools (depending of the carrier) are usually the smaller hand tools of the contractor profession. Insurance companies usually lump the aggregate amount of tools (say $3800 of miscellaneous hammers, screwdrivers, hand saws etc..) into a blanket amount, apply a deductible and either provide Replacement Cost Coverage or Actual Cash Value Coverage (see separate blog about the differences).
Scheduled items are items over a set value (for some carriers $2500). Bobcats, Dumpsters, Skid loaders, Expensive tools all are classified in this category. The insurance company only provides coverage if the item is "scheduled" (thus the name scheduled item). The contractor provides the make/model/serial number and value and the item is scheduled onto the policy. If the item is added mid-term an endorsement is issued by the insurance carrier and mailed to the contractor showing the date the item was added, the information about the item and the value.
Smaller contractors can get a BOP (Business Owner Policy) which usually allows for "scheduled" or "unscheduled" tools but larger contractors, or contractors in fields where standard carriers are unwilling to provide insurance, need to ask their agent to provide an inland marine policy to cover the tools.
Martin Burlingame
Many contractors believe that their tools are covered under their General Liability policy. It's a shocking revelation when a claims adjuster informs you that tools are not covered under your General Liability policy.
Typically contractor tools are covered under an Inland Marine policy.
The definition of Inland Marine:
A group of property insurance coverages designed to insure exposures that cannot be conveniently or reasonably confined to a fixed location or insured at a standard rate under a standard form. Includes coverage for property in transit over land, certain movable property, property under construction, instrumentalities of transportation and communication (such as bridges, roads, piers, and television and radio towers), legal liability coverage for bailees, and computerized equipment. Many inland marine coverage forms provide coverage without regard to the location of the covered property; these are sometimes called "floater" policies. Inland marine coverage forms are generally broader than property coverage forms due to the relative freedom from rate and form regulation of inland marine insurance as compared with property insurance.
Contractor tools cannot be reasonably confined to one location and therefor fall under an Inland Marine policy. Tools are either classified as "scheduled" or "unscheduled". Unscheduled tools (depending of the carrier) are usually the smaller hand tools of the contractor profession. Insurance companies usually lump the aggregate amount of tools (say $3800 of miscellaneous hammers, screwdrivers, hand saws etc..) into a blanket amount, apply a deductible and either provide Replacement Cost Coverage or Actual Cash Value Coverage (see separate blog about the differences).
Scheduled items are items over a set value (for some carriers $2500). Bobcats, Dumpsters, Skid loaders, Expensive tools all are classified in this category. The insurance company only provides coverage if the item is "scheduled" (thus the name scheduled item). The contractor provides the make/model/serial number and value and the item is scheduled onto the policy. If the item is added mid-term an endorsement is issued by the insurance carrier and mailed to the contractor showing the date the item was added, the information about the item and the value.
Smaller contractors can get a BOP (Business Owner Policy) which usually allows for "scheduled" or "unscheduled" tools but larger contractors, or contractors in fields where standard carriers are unwilling to provide insurance, need to ask their agent to provide an inland marine policy to cover the tools.
Martin Burlingame
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