If you construct commercial or institutional buildings, you know that demand has picked up in several cities. Commercial recovery has been uneven, though, as contractors contend with higher costs for building materials, a skilled labor shortage and project delays. With project owners increasingly looking forspeed, shortcuts and cost savings, don’t be pressured into a liability risk situation.
Liability coverage is a necessity
One major lawsuit could be catastrophic for your company. Unfortunately, many things can go wrong on a large project, from design mistakes and faulty workmanship to accidents and fires. And commercial and institutional construction have added risk exposure from multiple subcontractors.
You can keep your company out of financial jeopardy with good insurance. A broker who specializes in commercial and institutional coverage can help you transfer much of your risk.
The first step is to secure commercial general liability (CGL) insurance, which covers legal claims over property damage, bodily injury and personal injury to non-employees for which you are blamed. CGL insurance helps with medical expenses, property damage, legal fees, judgments and settlements.
The owner of a project will usually require their general contractor to have CGL coverage. Most general contractors also require proof of coverage for their subcontractors. And banks usually mandate that contractors have CGL insurance to get a loan or line of credit.
If you’re a general contractor, you’ll want to make sure the subcontractors you hire, particularly critical-path subs, carry sufficient liability coverage. One way to ensure that everyone who works on a large projectis adequately insured is to use a wrap-up policy, or controlled insurance program.
Wrap-ups cover you and your subs and are purchased either by you or the project owner. These policies usually include CGL, workers’ compensation insurance and other policies you need for a job. The advantage of a wrap-up is that you or the owner controls the coverage, giving you peace of mind while reducing the overall insurance costs for the job based on economies of scale.
Bear in mind that CGL insurance by itself doesn’t cover workers if they’re injured on the job. For those types of claims, you’ll need workers’ compensation insurance. CGL also doesn’t cover professional or employment practices liability, which can be purchased separately.
Surety bonds for large projects
Many commercial and most institutional projects must be bonded. Almost all public projects require bid and performance bonds, which protect the owner (obligee) if the contractor (principal) defaults. Surety companies issue these bonds based on their examination of a contractor’s financials, past job performance, managerial experience and capacity to take on new projects.
Underwriting for bonds is usually quite extensive. You’ll be asked to provide annual financial statements going back several years, tax returns, balance sheets, work-in-progress schedules, references and letters of recommendation.
Bonding is important because it ensures that the contract will be executed as agreed to by all parties. In the event of a default, the surety company will step in and take over the project. An insurance broker who specializes in bonding, known as a surety bond producer, can help you secure a surety bond.
Builders risk insurance for new construction
For new construction projects, you may need builders risk, or course of construction, insurance. Builders risk insurance covers hazards unique to ground-up construction. These policies allow for multiple insureds, and usually the owner, general contractor, subcontractors, architect and lender are named on the policies.
Builders risk covers property losses for building materials, and supplies and equipment while on site or in transit. Like a property insurance policy, builders risk protects against a number of perils, including theft and vandalism, fires, hurricanes, earthquakes, lightning, explosions and sewer backups. The coverage remains in force until the project is completed.
Builders risk policies can also cover soft costs, such as additional interest on a loan if the project is delayed. You can also add loss-of-earnings coverage to protect against lost income if a building doesn’t open on time.
Workers’ compensation insurance
Workers’ compensation insurance is a must for any contractor who has employees. It’s required by law and funded by employer contributions to the provincial worker compensation board.
Workers’ comp provides benefits if one of your employees is hurt or becomes sick on the job. There are many health and safety programs designed to help construction companies minimize their workers’ comp expenses. Adhering to occupational health and safety requirements and provincial regulations is a good first step. By making safety awareness a part of your work culture, you can reduce accidents as well as your workers’ comp premiums.
Commercial auto and property insurance
You’ll need to carry commercial auto insurance on your trucks and vans to protect against the costs of property damage and liability. You may also need insurance for heavy equipment and machinery. Commercial coverage allows you to name your employees on a policy as additional insureds so they are covered whenever they are operating your vehicles.
Commercial property insurance covers your business property, including any buildings, office equipment, computers, furniture, supplies, tools or materials. Be sure to check the types of perils your policy covers and whether your limits are high enough.
Most property insurance policies cover only the items located at your business address. You’ll probably need to purchase a separate inland marine policy to cover tools and equipment you transport to and from job sites.
As you weigh your insurance risks, be aware that premiums have increased considerably. Your broker can negotiate with insurers to get the higher insurance limits required for large projects, as well as the best terms and prices.
With demand picking up for commercial and institutional projects, be sure you are well positioned to take advantage of new opportunities. Risk management should be a key aspect of your planning. Securing the appropriate protection takes time, but it will pay off in the event you have a large claim or loss.
This content is for informational purposes only and not for the purpose of providing, financial, medical or legal advice. You should contact your attorney, doctor, broker or advisor to obtain advice with respect to any particular issue or problem.
