Employers Liability Insurance and Third-Party-Action-Over Claims

Third-Party Action-Over claims are one of the fastest growing types of claims in contractor’s general liability insurance.  In a nutshell, lawyers have figured out a way to file a claim on your general liability policy for something that should be covered through your Employers Liability Insurance. The results of these claims for contractors are higher rates on their liability insurance and potential gaps in their liability insurance coverage.  The purpose of this article is to explain how these claims work and educate contractors on what they can do to protect themselves.  

What is Employers Liability Insurance?
Although different from Workers Compensation coverage, Employers Liability is typically included in your workers compensation policy.  It is meant to cover losses that fall outside of the scope of workers compensation like third-party action-over, dual capacity, loss of consortium and consequential bodily injury.  Unlike Workers Compensation, which is typically not capped by policy limits, Employers Liability is subject to limits.  Key Exclusion: Standard Employers Liability policies typically exclude coverage for liability assumed in a contract. 

What is Commercial General Liability Insurance?
Commercial General Liability Insurance (CGL) covers bodily injury and property damage to third parties.  It covers losses that occur on your premises, jobsite or as a result of your products and completed operations. 

CGL – Employers Liability Exclusion
Below is a sample of the standard Employers Liability Exclusion in the CG0001 Commercial General Liability Policy.  As you can see, this type of liability is excluded with one key exception: when the Employers Liability is assumed in an “insured contract”.  To read more about Contractual Liability and Insured Contracts, check out this article. 

How Action-Over Claims Work

Here’s the example scenario:   

1. A subcontractor’s employee is injured on the jobsite.  The subcontractor’s workers compensation insurance pays the employee for his injuries and lost time at work. 
2. In addition to filing a claim on the subcontractor’s workers comp policy, the employee also sues the general contractor for failure to provide a safe work environment.
3. As a condition of the construction contract, the general contractor is indemnified by the subcontractor and named as an additional insured on his commercial general liability policy. 
4. The subcontractors general liability policy must respond to the claim because although Employers Liability is excluded in his CGL policy; the exception to the exclusion provides coverage because the subcontractor’s indemnification agreement with the general contractor is considered an “insured contract”.

Action-Over Exclusions
Due to the increase in these types of claims, many general liability insurance carriers have responded by adding an Absolute Employers Liability Exclusion to the policy.  There are many versions of this exclusion but they all serve the same purpose of removing the exception to the standard Employers Liability Exclusion.  The result is that a contractor would not have coverage in the event of a third-party action-over claim. 

What Can You Do?
In addition to providing a safe work place for all of your employees and subcontractors, buy a general liability policy that does not include an Absolute Employers Liability Exclusion.  Additionally, address this type of liability in your construction contracts and indemnification agreements.  Failure to do so could leave you stuck paying for someone else’s legal fees. 

For more information, please contact Tarah Gruber at 619-487-0376 orTarah@redhotinsurance.net.  Or visit www.redhotinsurance.net.

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 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.

The CG 2010 (11/85) - What You Should Know

It’s a common story.  A commercial contractor buys a general liability policy in order to fulfill a contract.  He spends weeks shopping for the best rate and buys a policy that includes additional insured endorsements.  He provides his certificate of insurance to the project manager, only to find out that his insurance is not sufficient.  His contract requires a CG 20 10 (11/85) additional insured endorsement, which his policy does not offer.  In the end, the contractor has to buy a new general liability policy and come up with another down payment. 

So what are differences between the 11/85 and other additional insured endorsements? The 11/85 is the original version of the CG 20 10 additional insured endorsements.  It’s actually a date, November 1985.  The CG 20 10 extends coverage to the contractor’s clients such as property owners, developers and general contractors.  The 11/85 differs from all later versions, because it does not exclude completed operations.  It covers liability arising out of “your work”. 

Here is an example of the CG 20 10 (11/85):

All later versions of the CG 20 10 replace the words “your work” with “your ongoing operations”.  The result is that once the project is completed, there is no longer coverage extended to the additional insured.  This is especially an issue in the construction industry because most construction defect claims arise years after the projects are completed.  

Here is an example of a later version of the CG 20 10:

There are many additional insured endorsements that are equivalent to the 11/85.  The important thing to look for is whether or not they exclude coverage for completed operations.  

Why is this important to me? Contracts for commercial and public works projects typically require the CG 20 10 (11/85).  Failure to supply the correct additional insured endorsement can hold up projects and more often, hold up payment for the work you've already completed.  The experts at Orr & Associates can analyze your commercial general liability policy and the insurance requirements in your contracts to make sure you are carrying the right coverage. 

For more information contact Tarah Gruber at 619-487-0376 or Tarah@redhotinsurance.net.  Also, check out our website, www.redhotinsurance.net.

Floor Waxing Increases Risk For Janitorial Firms

If you’re a janitorial firm working in retail stores or commercial buildings, chances are that floor waxing is a major part of your operations.  And chances are that you assume that your general liability policy covers you for those operations.  A precaution: take a second look.  Many general liability policies written for janitorial contractors exclude or limit coverage for floor waxing operations.

 

Insurance companies do a good job of hiding exclusions in their policies.  Often the contractor finds out the hard way when a claim is not going to be covered.  Floor waxing exclusions can be written into a policy in a couple of ways.  The first of which is a Designated Work Exclusion.  Very simply, this excludes specific operations from coverage.  The second way, a Class Specific Limitation, is a little sneakier.  Class Specific Limitations restrict coverage to operations defined in the Class Code under which the policy was written.  Often these class code definitions are written by the insurance companies and can limit where you work and what kind of work you can do. 

So why is floor waxing so bad?  Wax is slippery.  Slip and fall accidents are one of the most common type of bodily injury claims in the United States.  Losses can range from $500 to $500,000.  If you are a janitorial contractor doing floor waxing, you need to know that your business is protected.  The experts at Orr & Associates can evaluate your general liability policy and check for endorsements that you should know about, including Class Specific Limitations and Designated Work Exclusions.  We offer policies that cover floor waxing, house cleaning, window washing and many other operations that are often excluded in general liability policies.  For more information contact Tarah Gruber at 619-487-0376 or Tarah@redhotinsurance.net.  Or visit www.redhotinsurance.net. 

Special Considerations For Plumbers Insurance

Plumbing contractors have a special set of concerns when it comes to safety and protecting themselves with the right insurance.  Plumbers face increased liability due to fire and water damage hazards and increased risk of loss or theft of copper pipe, tools and equipment.  If you’re a plumber take a few minutes and read about some things you should be aware when reviewing your insurance policies.

General Liability
Water damage claims are one of the most common claims filed on contractors general liability policies.  Naturally, this makes plumbers a prime target for general liability losses. Whether the loss arises from a slow leak or a burst pipe, water damage losses can be costly.  Because of this, plumbers should beware of water damage exclusions in their general liability policies.  These endorsements can limit or exclude coverage for any loss related to water damage. 

Plumbers also face increased fire hazards due to the use of torches.  Plumbers should review their policies for any endorsements that exclude coverage for losses arising out of the use of heating devices.  Many policies carry these endorsements and they can often be removed for little or no additional premium. 

Finally, plumbers should be aware of Class Limitations and Designated Work Exclusions.  Class limitations restrict coverage to the class code description defined by the insurance company.  These class codes often preclude coverage for residential operations.  A Designated Work Exclusion might limit a certain aspect of a plumbers work i.e. Fire Sprinkler Installation. 

Equipment / Inland Marine
Plumbers typically carry around a lot of valuable equipment and inventory.  Because of this, plumbing contractors are often the victims of theft.  With copper pipes, bathroom fixtures and tools a robbery can be financially devastating to a plumbing business.  Many Equipment and Inland Marine policies have a higher deductible for losses resulting from theft.  Plumbers should check before buying their policy if there are any additional theft deductibles. 

The experts at Orr & Associates can evaluate your Equipment and General Liability policies to make sure you are covered properly.  We offer instant online quoting for Plumbers General Liability and policies can be issued within an hour.  In addition, we can help you with your Payroll Services, Workers Compensation, Commercial Auto and Bonds. 

For more information contact Tarah Gruber at 619-487-0376 or Tarah@redhotinsurance.net.  Or visit www.redhotinsurance.net.