Lead Paint: How The EPA’s New RRP Rules Affect Your Liability

If you’re a contractor in the US, you already know about the Renovation, Repair and Paint Rules issued by the Environmental Protection Agency in 2010.  But many contractors may not have considered how these rules may affect their business’s liability.  We believe that these laws increase contractor’s exposure to Pollution Liability losses. 

About Lead Paint Hazards

Lead paint was outlawed in 1978 after it was found to be harmful, especially to small children.  It can cause hypertension, high blood pressure and even brain damage.  As you can imagine, if somebody is held liable for a child getting brain damaged due to lead paint, the financial loss will likely be substantial.  

Summary of Lead Paint Rules

1.  Be Certified – The new rules require that all renovation contractors working in residential homes, schools or child care facilities built before 1978 must have at least one certified employee on the job at all times.  For information on how to get certified visithttp://www.epa.gov/opptintr/lead/pubs/toolkits.htm.
2.  Notification – The new rules also require contractors to provide notification to homeowners and child care facilities about the dangers of lead paint dust.  A standard notification issued by the EPA is available here:  http://www.epa.gov/lead/pubs/renovaterightbrochure.pdf.  There is a standard form that contractors can use to document that notice has been given to the homeowner or child care facility available here:http://www.epa.gov/lead/pubs/pre-renovationform.pdf
3. Follow Containment Guidelines – Anytime paint is disturbed in pre-1978 buildings, contractors must contain the work area, minimize dust and clean-up thoroughly according to the EPA’s Regulations on Residential Property Renovation at 40 CFR 745, Subpart E.

Definition of Negligence

Negligence is what a prudent person would NOT do in the same situation.  Contractors who are negligent can be held liable for damages resulting from such negligence. 

Conclusion

Due to the fact that these new regulations went into effect less than 2 years ago, there is really not any case history to show exactly how they will affect your liability.  However, based on the definition of negligence, it is reasonable to assume that a contractor could be considered negligent if he fails to get certified, notify the owner or properly contain the lead dust.  Due to the fact that negligence can result in tort liability, we believe that these new rules significantly increase liability exposures for renovation, repair and painting contractors. 

What Can You Do?

Don’t assume that your Commercial General Liability (CGL) policy will cover you for losses related to lead paint.  Most likely it will not.  Lead paint dust is a pollutant and should be covered by a Commercial Pollution Liability (CPL) policy.  If you are a remodeling or painting contractor, contact your broker and make sure that you have the coverage you need.  There are several new CPL programs that have emerged in the last couple of years and policies have become more affordable than you might expect. 

For more information, please contact Tarah Gruber at 619-487-0376 orTarah@redhotinsurance.net.  Or visit www.redhotinsurance.net.  Click here for a quote on Pollution Liability Insurance. 

Subcontractor Warranties – CONTRACTORS BEWARE!

As a business owner, you’re probably aware of the fact that insurance companies will do whatever it takes to deny coverage in the event that you have a claim.  Subcontractor warranties written into commercial general liability policies are an easy way for them to do so.

As a general contractor, you are ultimately responsible for the ongoing and completed operations of your subcontractors.  There are two ways you can protect yourself:

1.       Include an indemnification agreement in your favor in the contract.

2.       Be named as an additional insured on your subcontractor’s general liability and collect updated certificates of insurance. 

This works great, until your subcontractor lets his policy cancel.  As the general contractor, you can request that the insurance carrier notify you in the event of a cancellation, but not all insurance carriers will agree to do that.  Furthermore, if a subcontractor has let his insurance policy lapse, odds are that he will not have the means to cover a loss even if you do have an indemnification agreement.   This is why subcontractor warranties can be so dangerous for contractors. 

Most subcontractor warranties have language that states that the subcontractor’s insurance must be in effect at the time of the occurrence.  Many subcontractor warranties stipulate that the subcontractor must carry adequate coverage for their operations.  So, as a general contractor, how are you supposed to know if the subcontractor’s policy cancels or is inadequate?  You are not the one paying the bill and you’re not an attorney that analyzes insurance policies either.  The best thing you can do to protect yourself is to hire subs that you can trust and buy a general liability policy that does not contain a subcontractor warranty.  

The experts at Orr & Associates can analyze your current coverage to find this exclusion and many others that you should know about.  For more information please contact Tarah Gruber at 619-487-0376 orTarah@redhotinsurance.net.  Or visit www.redhotinsurance.net.

The Seven Deadly Endorsements – Part 7 General Liability Endorsements That Are Bad For Contractors

Endorsement #7 – Designated Work Exclusion

A Designated Work Exclusion is a form used by insurance carriers to exclude specific types of work from coverage.  This general liability endorsement can be harmless or very bad for a contractor depending on what it says.  This is a “fill in the blank endorsement”.  Below is an example:

This exclusion can be especially dangerous for contractors if part of what they do is listed.  For example, a painting contractor might think he is covered to do all aspects of painting for which he is licensed.  When he bought his insurance policy, he wrote Interior Painting on his insurance application.  Six months into the policy, the painter does an exterior painting job not realizing that he had a Designated Work Exclusion which listed “Exterior Painting” as an excluded operation.  During the exterior job, an overspray results in the damage of several cars.   In this scenario, the painting contractor would have no coverage for the damage to the vehicles. 

If you notice that your policy has a Designated Work Exclusion, take a second look to be sure that parts of your operations are not excluded.  The experts at Orr & Associates can review your current insurance policies to find this and other key exclusions which you should be aware of.  We’ll give you the knowledge and tools to make the right decisions about your insurance.  For more information, please contact Tarah Gruber at 619-487-0376 orTarah@redhotinsurance.net.  Or visit www.redhotinsurance.net.

The Seven Deadly Endorsements – Part 6 General Liability Endorsements That Are Bad For Contractors

Endorsement #6 – The Manifestation Provision

Although there is not a standard manifestation provision, this type of wording has been adopted by many insurance carriers as a way to restrict coverage for losses resulting from long term exposures like construction defects.    The manifestation provision restricts coverage to occurrences that “first manifest” during the policy period.  Therefore, an occurrence is deemed to have happened when the damage is first discovered. 

Example of Standard Wording

Example of Manifestation Wording

So why is manifestation wording so bad for contractors?  Here’s a scenario: 

A general contractor builds a house in 2008 when he has a manifestation policy.  He continues to renew his coverage for the next two years.  In 2011 he lets his coverage lapse because he is unable to find work.  Late in 2011 there is a claim resulting from a construction defect on the house he built in 2008.  The contractor will have no coverage due to the fact that the damage was first discovered in 2011. 

Some insurance professionals will argue that manifestation wording provides sufficient coverage for contractors as long as the policy doesn’t have a Prior Work Exclusion and it is renewed year after year.  While there may be some validity to this argument, the fact remains that carriers are able to deny more claims with this wording than without it.  That is why some carriers offer discounts of up to 40% to have this wording added to your policy. 

The experts at Orr & Associates can review your current policies and uncover manifestation wording and other endorsements that you should know about.  We can give you the knowledge and tools to make the right decisions about your insurance.  For more information, please contact Tarah Gruber at 619-487-0376 or Tarah@redhotinsurance.net.    Or visit www.redhotinsurance.net.

Check back tomorrow to read about Deadly Endorsement #7.

The Seven Deadly Endorsements – Part 4

 General Liability Endorsements That Are Bad For Contractors

                                                    Endorsement #4 – The CG 21 39

One of the most important considerations a contractor must make is the amount of liability he assumes in a contract and whether or not his insurance covers contractual liability.  In most construction contracts, liability is transferred through an indemnification agreement.  There are different types of indemnification agreements and laws regarding such agreements vary from state to state.  Here’s how it typically works though:

1. A general contractor is automatically liable for the work of his subcontractor.

2. The GC transfers that liability back to the subcontractor through an indemnification agreement. 

3. As a result, the subcontractor is now obligated to indemnify the GC in the event of a loss, including the GC’s defense costs. 

Now the question is: Will the subcontractor’s liability policy cover the subcontractor’s contractual obligation to indemnify the GC?  The answer is maybe. 

First, let’s look at the standard language regarding contractual liability in an ISO Occurrence Policy.  The coverage for contractual liability is actually found in the exclusions section.  See below:

As you can see, contractual liability is excluded unless the contract is an “insured contract”.  To find out what is an insured contract, we must go to the Definitions section of the policy.

Under the definitions Section 9.f. an indemnification agreement would be considered an insured contract. 

The CG 21 39 simply deletes sections 9.f. from the definitions of an “insured contract”.  The result is that a subcontractor can now be on the hook to pay for the legal expenses and liability of the general contractor in the event of a loss.  So, before you sign your life away on an indemnification agreement, check your insurance policy for a CG 21 39. 

The experts at Orr & Associates can review your current policy to uncover this and other endorsements that you should be aware of.  We will give you the tools to make the right decisions about your insurance and risk management.  For more information, contact Tarah Gruber at 619-487-0376 orTarah@redhotinsurance.net.  Or visit www.redhotinsurance.net.

Check back tomorrow to read about endorsement #4.

The Seven Deadly Endorsements – Part 3 General Liability Endorsements That Are Bad For Contractors

Endorsements #3 – The CG 22 94

The CG 22 94 is one of the most complicated endorsements in contractors liability insurance.  To understand this endorsement, you must first understand the standard “Your Work” exclusion in the ISO CG 00 01 policy.  A standard general liability policy states that damage resulting from your work is covered, but damage to your work is excluded.  For example, a general contractor builds a fence. The damage to the fountain is covered, but the cost to rebuild the fence is not. 

The exclusion reads as follows:

As you can see, the exception to the exclusion is work performed on your behalf by a subcontractor.   With this exception, work completed by a subcontractor is not considered “your work”.   Consequently, if the same fence was built by the insured’s subcontractor, there may be coverage under the general contractor’s policy for both the fountain and the fence. 

The CG 22 94 removes the exception to the exclusion. 

So, as a result, if the general contractor’s policy has a CG 22 94 endorsement, he would have no coverage for the damage to either the fountain or the fence. 

The experts at Orr & Associates know construction insurance.  We can review your current policies to help you find dangerous endorsements like the CG 22 94.  We provide you with the tools you need to make the right decisions about your insurance.  For more information, please contact Tarah Gruber at 619-487-0376 or Tarah@redhotinsurance.net.  Or visit www.redhotinsurance.net. 

Check in tomorrow to read about endorsement #4.

The Seven Deadly Endorsements – Part 2 General Liability Endorsements That Are Bad For Contractors

Endorsement #2 - The Prior Work Exclusion

At face value, prior work exclusions do not always concern contactors. The rationale is, why should they buy coverage for prior work when they already had policies during the time that work was completed? To understand why this endorsement is dangerous, you must first understand coverage triggers. Most general liability policies for contractors are written on an Occurrence form, meaning that coverage is based upon when the loss occurs. Most often a loss is considered to have “occurred” when a project is completed, but not always. It depends on the type of loss and the coverage trigger wording in your general liability insurance policy. 

Many occurrences happen years after a project is completed, especially construction defect losses. Because of this, a contractor with a Prior Work Exclusion may think he is covered, but most likely is not. According to one major carrier in California, this is the number one reason that claims are denied in their contractor’s general liability program. 

The experts at Orr & Associates can analyze your policy and identify prior work exclusions as well as many other exclusions and limitations that you should be aware of. Our goal is to give you the tools to make the right decisions about your insurance. For more information, please contact Tarah Gruber at 619-487-0376 or Tarah@redhotinsurance.net. Or visit www.redhotinsurance.net. 

Check back tomorrow to read about deadly endorsement #3.

The 7 Deadly Endorsements – Part 1 General Liability Endorsements That Are Bad For Contractors

Deadly Endorsement #1 – The Sunset Clause

A general contractor completes a new home in 2008.  He carried a $1,000,000 general liability policy at the time the house was built and has continued to renew his coverage ever since.  In 2011, the contractor is sued for a construction defect on the 2008 home.  He files a claim with his insurance carrier.  The carrier denies coverage and refuses to provide any defense for the contractor.  Why?  The policy had a sunset clause. 

A sunset clause limits the amount of time after a policy expires that a claim can be filed, usually two to five years.  This endorsement is typically seen in policies written for construction related risks.  Considering the fact that most construction defect losses arise years after a project is completed, this endorsement is dangerous for contractors. 

If you are a contractor shopping for general liability insurance, take a second look at your proposal before buying coverage.  The experts at Orr & Associates can analyze your coverage to find this and many other key exclusions that are bad for contractors.  For more information please contact Tarah Gruber at 619-487-0376 or tarah@redhotinsurance.net.  Or visit www.redhotinsurance.net.

Check back tomorrow to read about endorsement #2.

What Business Owners Should Know About Personal Auto Insurance

In April 2007, Laura Anderson was involved in a collision in San Diego, CA.  She was rear-ended by a pick-up truck owned by a licensed plumbing contractor.   The contractor, who was found to be at fault, was driving a truck with his business name and contractor’s license number painted on the side.  Although he sometimes used this vehicle for personal use, he mostly used it for business.  When contacted by the claims adjuster, he explained that he was on the way from one jobsite to the other.  The insurance carrier denied the claim because the contractor’s personal auto policy excluded use of vehicles for commercial purposes.  It took over three years for Ms. Anderson to recoup her losses from the “uninsured” contractor. 

Many contractors and business owners across the country carry personal auto policies on vehicles not realizing that they might be driving around without the right coverage.  So how can you know if your policy covers you?  The answer is not that simple.  Not all personal auto policies are the same.  The one way to be absolutely sure you’re covered properly is to get a commercial auto policy that allows for personal use. 

The experts at Orr & Associates can help you evaluate your auto insurance policy (personal or commercial).  We’ll show you what you need to know and where you need to go to fit your auto insurance needs.  For more information contact Tarah Gruber at 619-487-0376 or Tarah@redhotinsurance.net.  Or visit www.redhotinsurance.net.