Beyond General Liability: Construction Industry

Insurance Dilemma’s facing the Construction Industry and Special Trades How to use the class codes to fortify your coverage.

Most industries are assigned one or more general liability class codes for insurance underwriting purposes. There are 4 commonly used authoritative classification guides that include: PAAS/ ISO, NAICS, SIC and NCCI. However, some industries have multiple class codes which are broken down by specific sub groups within a general type of industry. The construction industry is one such industry.

The construction industry contains separate categories for general contractors and for subcontractors who work in this complex field. The class codes are further refined by whether the contractor works on residential property or commercial developments and are categorized by the type of construction they actually are building such as manufacturing plant, industrial building, construction, heavy construction, highway and streets; with subcategories for Bridges & Tunnels to name just a few. Identifying and defining all of the class codes relating to the field of construction is beyond the scope of this article. But the same process of listing each class code applies no matter which class code your building project falls under.

Businesses in the construction industry has a specific need for both general and professional liability insurance. Under the construction industry classification codes many of the sub classifications are assigned to what is considered to be “skilled” or “special” trades. Some trades in this group generally require licensure of the employees by the state or local area they work in, in regard to their own field as an individual worker. Sub-Contractors in the specialty trades usually need to be licensed as well, as determined by the state and local area they work in. These trades included electricians, painters, plumbers and HVAC installers to name a few. However, the classification codes also have categories of skilled or special subcontractors who do not necessarily have to be licensed individually in their state including but not limited to flooring, installation, trim installers and handymen. However, if they are functioning as a general contractor they generally need to be licensed.

Virtually all construction contractors, whether residential or commercial need a solid comprehensive general liability insurance policy which insures them from both claims by the public, or owner(s) of the property being built or remodeled; brought against the contractor for damages to person or property. The general liability policy can be tailored and tweaked to meet the needs of each policy holder based on their general liability classification as a standalone policy or designed in a Business Owners or Commercial Package policy. Commercial general liability is not the stopping point in your search for the best coverage for your construction company.

General liability can be combined with other types of standard commercial policies to ensure that your company is adequately covered in any situation. Commercial auto and business property coverage for your equipment and tools should be added. If you have large movable equipment and specialized trucks and heavy machinery you need to make sure that you have coverage for those under your commercial auto or another specific endorsement.

Workers compensation is normally required in all states if you have employees unless you have the financial ability to self-insure.

General liability policies standing alone do not cover professional liability. Why you might ask?

The general classification codes for construction industries historically did not classify construction companies as rendering professional opinions or advice as they would, say for example architects, who designs buildings. Architects would normally be advised by their insurance agent that they should have professional liability insurance because of their classification code. This is the crux of a complex issue on the horizon. Since construction industries are not usually assigned a class code which triggers the need for professional liability insurance; some construction contractors and subs may not be aware of the need for this type of insurance. It is important that every classification code applicable to the work your company actually performs be determined and included as a class code on your insurance policies. If your company meets the definition contained in the NCAIS classification code for architects # 541310 which gives this description “both design and construction of buildings, highways or other structures; or in managing a construction project, or are classified as Section 23 Construction” the agent will see the term “design” and should go on to ask you whether you render any professional advice in the design aspect of your job and ask pertinent questions.

For existing policies you should closely examine your need for professional liability insurance and contact your independent agent or broker to discuss your options for selecting the appropriate professional liability policy as either a separate policy or add onto your general liability with an endorsement, rider or separate stand-alone policy.

In the past, professional liability was only needed by the architect or the design professional responsible for the project. In present day, general contractors’ who engage in the design aspect of a building project or manage the project need this protection and should explore what is there best option. Now that need has been widened to subcontractors.

The subcontractors who appear to be most vulnerable are concentrated in the special trades who design systems that are an integral part of the building, such as the HVAC system, the electrical system and the plumbing system. It can also include those instances where the system being installed inadvertently compromises another part of the project, e.g. the HVAC Contractor gave an opinion or advice on how to modify construction to accommodate the HVAC system and it negatively impacts the foundation.

The emerging trend according to the Institute for Risk Management suggests that professional liability will continue be a hot topic in the construction insurance industry. IRMI further indicate that Contractors are requiring subcontractors to have professional liability and certify that they have it continuously throughout the job.

It is not inconceivable that professional liability insurance for contractors and subcontractor may be needed in a residential setting as well. For instance assume an electrical contractor is employed to rewire a house and makes recommendations and offers opinions on all of the products to use, the type of wiring needed to meet the electrical code, where the junction box should be placed, how many outlets are recommended, what type of lighting is necessary and the list could go on and on when you consider all the myriad operating decisions made on an on-going basis during a build or remodel. These appear to be professional recommendations and the rendering of an opinion and litigation could be brought under this theory. So, it is critical that you discuss the tasks that each employee performs with your agent and fill out your application thoroughly so you can get all the insurance that you need

Another common exclusion in most all general liability policies for a business in the construction industry is defective construction or faulty workmanship exclusion

Insurers did not want to encourage bad workmanship based on public policy concerns. However, the emphasis is shifting to protection of the public with adequate insurance coverage options being made available to the contractor. Citizen’s General is one of the few insurance carriers that now offers workmanship insurance as an add on to commercial general liability giving you coverage which is normally excluded under the primary general liability policy.

One more very important point is to review any and all exclusions contained in your primary general liability policy and discuss with your insurance agent and determine if there are any alternatives or options where you can obtain coverage for the matters that are excluded under the general liability policy, if necessary.

In addition to you may want to consider optional products such as an umbrella policy, contingent business interruption, environmental pollution and employment practices liability. These are all very helpful for a construction company. So be prepared, use the class codes to your advantage and make sure your construction industry business has all the coverage that you need.

Carpet Cleaning

Upholstery and carpet cleaning: Insurance challenges in water remediation and storm damage cleanup

Cleaning carpet and upholstery, while unpleasant at times, is generally a safe business activity for both the owner of the business and the employees of the carpet cleaning business. Some personal safety considerations exist while on a job site, and injuries do occur, but it is not a routinely dangerous or risky type of work. However, this factor can significantly change when companies engage in water related disaster remediation and storm cleanup. This occupational field is fraught with insurance land mines which could leave you little or no coverage.

Upholstry and Carpet Cleaning Businesses need insurance.

The risk for an upholstery and carpet cleaning business engaging in storm cleanup is heightened for several reasons:

Workers are subjected to numerous dangerous conditions while doing cleanup which results in higher workers comp premiums for the business.
The property owner may not be covered under their insurance due to pollution exclusions for Category 3 Water damages related to flooding and storm damage which may make them incapable of paying for the cleanup;
Workers are dealing with the emotional turmoil experienced by their clients who are already suffering horrific losses from flood and water damage which can be compounded by lack of insurance coverage due to exclusions.
Your commercial general liability or business owner’s policy has absolute pollution exclusion which may nullify your general liability coverage.

Storm cleanup can lead to exposure to many toxins and environmental pollutants, including parasites, pesticides, sewage, fungi, bacteria, mud, sludge, toxic chemicals, residue, animal and human bodies, body parts, mold, mildew, rot and, of course; contaminated sea, ground and flood waters from oceans, rivers and lakes. Additionally, workers can be exposed to rodents, reptiles and animals in the water that all carry diseases transmitted by biting or injecting venom, causing injury and sometimes death. Employees can also be traumatized by these experiences. This environment leaves the employees in the direct path to acquire related illnesses and injuries. This factor can influence the rate of workers compensation premium that the business will have to pay in the future and raises the costs for protective equipment that needs to be provided for the health and safety of the employees. See OSHA Fact Sheets for safety measures to protect employees during water remediation work.

Not only the employees’ health may be affected, but the company’s financial health can be impacted when undertaking storm cleanup or remediation even when it pertains to just floors and upholstered furniture if there is or has been exposure to flood waters. Flood or storm water is by definition Category 3 water previously referred to as black water which is automatically defined as a pollutant. The company’s Commercial General Liability policy undoubtedly contains numerous exclusions related to Class 3 water, mold and other pollutants. These are pollution exclusions.

Homeowners have policy exclusions for pollutants as well. They may affect the property owner’s coverage for any water damage especially if mold is present, unless they have purchase additional coverage by endorsements which covers the exclusions. You should verify coverage with the Homeowners insurance carrier if you are depending on them for payment for your services.

As a result of the exclusions for both parties, insurance coverage for this occupation is rife with issues and problems for the business owner. In order to adequately protect the business three areas must be carefully covered.

First, all business insurance is categorized by class codes for general liability, standard industry classification and/or workers compensation. All of these codes for a standard carpet and upholstery cleaning business change when a company performs storm cleanup and water remediation activities and falls under different class codes. So if your business undertakes water remediation as a new business activity you will need to add additional coverage for these activities by class codes or they may otherwise be excluded. If you proceed without changing your class codes you and you employees may not be covered for any water remediation jobs, so this is a critically necessary step. Many insurer do not cover water remediation firms at all and if you have not clear indicated you are doing that type of work, the carrier may not have to cover you.

Next you should determine what type of pollution exclusions are in your general liability policy, e.g. mold, fungus or bacteria that might prevent coverage. You may encounter any number of pollutants while performing storm water remediation.

Third, after examining your policy, you may need to obtain one or several more types of coverage for items that are excluded. In the past it was extremely difficult to obtain comprehensive coverage for remediation contractors. Contractor’s pollution liability was thought to be the answer, but the mold exclusion became a huge issue prior to 2006 which could void your entire CGL policy and any contractor’s pollution policy. See General Liability Insurance & Mold. April, 2008 http://www.restorationindustry.org for an in-depth history.

Refinements were made continuously to contractor’s liability policies and in today’s market CPL’s, together with endorsements are available covering most pollutants but it is up to you and your agent to ensure you purchase coverage for all conceivable risks. Endorsements are generally available on a claims made or completed operations basis. Additionally. In order to perform water remediation your business should comply with the ANSI/IICRC S 500 and S 520. Standards for Water Restoration to protect yourself from Professional Liability and purchase insurance covering that risk.

Water remediation is a very complex field and protection from liability is absolutely vital. Before undertaking this venture be sure you have researched your insurance options carefully. Other material which may be helpful are: 1. Mold Risk Management by Restoration Contractors http://www.armr.net 2. Contractor’s Pollution Liability Update; and 3.. Environmental Insurance: Just the Facts,http://www.irmi.com.

Common Flooring Contractors Business Liability Classification Codes

SIC Business Insurance Codes:

1752: Floor Laying And Other Floor Work
3253: Tile Floor Installers
2273: Carpet Installation
3996: Linoleum and Hard Surface Installation

NAICS Liability Classifications:

238330: Flooring Contractors

Business ISO General Liability:

91341: Interior Carpentry
94569: Floor Covering Installation—Not Ceramic, Tile or Stone

Common Workers Compensation Class Codes:

5478: Carpet, Linoleum, Vinyl Installation
5438: Tile Floor Installation
5437: Hardwood Floor Installation and Refinishing
5645: Residential Construction
5651: Commercial Carpentry
5436: California—Hardwood Floor Installation

Image Credit: Pixabay.com, CCO Creative Commons: No attribution required.

Retails Sales:

Supply chains and logistics failures. How contingent business income interruption insurance coverage can help cover your loss.

The busiest sales season of the year is fast approaching for retail sales. If store based retailers don’t have sought after products to sell, buyers are unhappy and leave; or they just order online and have it delivered. Unfortunately, they are not buying merchandise from you if you don’t have what they want. So here you are depending on your supply chains and their ability to manage logistics successfully which includes timely delivery of merchandise to you. But what if those companies fail to deliver? Well, you can wait for another type of delivery.

Contingent business income interruption insurance

But chance are slim that the goods will arrive in time and you will most likely loose sales.

However, as a realistic alternative, you could purchase a type of little known insurance. You would think it might be called supply chain failure insurance but it isn’t. It is called contingent business interruption insurance, or CBI which is “an extension to other insurance that reimburses lost profits and extra expenses resulting from an interruption of business at the premises of a customer or supplier.” See https://www.irm.com/articles/expert-commentary/contingent-business-interuption-gettingallthefacts

Usually commercial general liability and business property insurance are the basic types of insurance a business needs along with workers compensation if the business has employees and inland marine coverage if they have specialized equipment. There are also various types of additional insurance coverage, usually added by endorsements, which may be appropriate for your business depending on your specific situation. Two of the available endorsements are business income interruption and contingent business interruption.

Business income interruption insurance is a type of insurance which is not covered by CGL or business property. So an ISO endorsement is needed to cover the loss specifically. This type of insurance covers a direct loss of income at your business location and it can be part of a Business Owners Policy or Commercial Package, if designed in that manner. There are conditions which must be meant for this coverage to kick in, which depend on the loss being directly to the insured’s property and actually sustained. Therefore, a loss which does not impact the insured’s owned property is not covered.

But contingent business income interruption insurance can cover your losses due to a supply chain failure.

This is a separate and distinct endorsement which only applies when the insured is not the owner of the property which suffers the actual physical loss. It specifically applies if the business supply chain is disrupted and income is lost by the insured due to the supplier’s failure to deliver for various reasons such as cargo theft, equipment failure, plant shutdown, cyber-attack or weather-related disasters. A direct business income interruption endorsement will not cover you in this instance. These two types are mutually exclusive and only one can actually apply in any given situation.

In older policies and some current policies, insureds had to purchase both primary direct business interruption insurance and a second specific endorsement for contingent business income interruption insurance using the proper ISO form. The insured business had to have the underlying endorsement for direct business loss of income and the amounts specified in the original direct loss endorsement determined what amount your indirect loss limits were. https://marsh.com/insights/research/business-insurance.html.

But in present times, some carriers, including the Hartford, automatically provide standard loss of business income (BI) in their BOP with a host of additional endorsements available, specifically including Business Income for Dependent Properties (or CBI) in available options, as well as many others. See: https://www.thehartford.com/business-income-insurance.

As dependence on supply chains evolve, claims have become more frequent. Documentation to verify the loss of income has become crucial to a successful claim. Algebraic formulas have been developed to calculate loss and are adjusted to take into account seasonality for retail businesses. http://www.air-worldwide.com/Blog/Supply-Chain-101–Breaking-Down-Contingent-Business-Interruption/

Businesses should be proactive before selecting a supply chain provider and be prepared for any loss.

Ask your supplier these questions before entering into a business relationship:

Does your supplier have a contingency plan to deal with natural and man-made disasters which interfere with delivery of goods on time?
Does your supplier have marine inland which will protect goods in transit and if so ask for a Certificate of Insurance and to be named as an additional insured on their policy? ( This will forestall any policy interpretation that CBI coverage is not applicable because it did not occur at the supplier’s place of business. This issue may not arise as arguably a business conducting a supply chain owns the transportation vehicle and it is the supplier’s property. But it never hurts to be doubly insured.)
Ask for a Certificate of Insurance for the supply chains general commercial liability policy.
Does your supplier have logistics management error and omissions liability policy? If so, also obtain a Certificate of Insurance.
Does your supplier have cyber risk insurance which covers third party losses from business interruption if the supplier is shut down due to a cyber-attack? If so, ask for Certificate of Insurance and to be named as an additional insured.

In closing it is always a good practice to establish a good working relationship with your key suppliers and engage in any working supply chain group to solve problems both before and after they occur.

Image Credit: Pixabay CCO Creative Commons free for commercial use.

Shooting for Optimal Commercial Insurance!

Gun Clubs or Shooting Ranges have many similarities, but are really two very different types of facilities. A gun club is usually operated by the membership which pays dues or fees to belong, while a shooting range is operated by the business owner or a group of investors/owners who operate the business. Shooting ranges are usually run for a profit and have business customers, while gun clubs may or may not be for-profit. Gun clubs have members and guests, not clients.

General Liability Class Codes - Find the best info about insurance for Gun Clubs and Shooting Ranges at https://www.generalliabilityclasscodes.com/

Assuming that you operate a shooting range for commercial purposes or you are getting ready to start such a business, you are going to need excellent gun club and shooting range insurance that will protect you and your customers from many perils.

First, shooing ranges have the same insurance needs as most businesses including commercial general liability, and workers compensation if you have employees. Usually these two types of insurance are fundamental for business owners as they are required by law in most states.

Second, you need property insurance to cover damages and repairs to all types of property which the business uses to operate. You should start by making a list of all commercial property that your business owns, similar to an inventory and include all types of property: e.g.

Real estate,
Buildings and their fixtures,
Office furniture and decorative pieces.
Automobiles, trucks, golf carts, tractors and lawn tractors and any other type of moving vehicles you use to care for the premises or in the business operations
Guns and ammo, gun cleaning equipment, and gunsmiths equipment
All other business equipment for instance: gloves, ear protection, protective glasses, archery
Equipment, or any other related items whether you furnish it rent it or sell it.
Signage not attached to the building needs to be specifically included by a supplement or endorsement.
Books of Account, computer hardware and software,

Depending upon how much and what types of equipment your business owns and operates, you may need an additional inland marine policy. Along with property coverage you should consider coverage for loss of the data, should a power or equipment failure damage the data or information stored, and additional protection from a security breach or cyber-attack to cover resulting costs for loss of income during an outage, expenses to make notification to those who privacy has been breached and damages to clients privacy.

Other items owned by the business will depend on what items you offer for sale such as food, drinks, alcoholic beverages, gun supplies, etc. If you sell food you might need lots of other equipment’s such as cooler, coffee pots, stoves, refrigerator etc. You may need a rider or supplement for refrigeration as this is a common exclusion on many property policies.

The key factor when purchasing insurance is to make sure the gun clubs shooting ranges obtain coverage for all property.

Shooting ranges should carry a combination of stand-alone and supplemental policies or a comprehensive business owner’s package with endorsements.

Next you need to consider what liability your business could incur from the operations of a shooting range. First of all you need liability for the use of any type of firearm or other types of sport like archery or clay/skeet. If your business offers instruction or classes in shooting you will need liability coverage and errors and omissions. You will need first and third party liability for these matters. You may also participate in competitive shooting and other events which will require event coverage or firearm related events coverage. If you decide to sell beer or alcohol you will need liquor liability specifically which will usually be an additional endorsement.

You may determine that you want to provide on premises gun repair and, or gunsmith services. In that case you will need products liability and errors and omission or alternately gunsmith insurance which specifically includes these types. You will need Marine Inland or Bailee’s insurance if you store clients’ guns or keep them while you repair the item. You will also want to include Crime Coverage to cover theft of your property or you clients by employees if your property insurance does not specifically cover it.

Shooting ranges may have special insurance needs when nearby residential property or businesses expand until they are closely located to your business. Neighbors and persons who are affected by your activities can sue for nuisance such as noise, pollution, and violation of regulatory and environmental laws and in particular pollution.

Lead pollution is a very serious environmental pollution concern for shooting ranges.

People in close proximity to the lead, which is contained in the bullets and the dust from the bullets when it hits the target, can suffer severe injury especially children. Lead pollution can cause contamination of adjoining properties and waters downstream from you. Lead exposure can lead to injuries to citizens and clients arising from the exposure to the dust and the bullets, as well as employees being injured by exposure. An environmental insurance policy or endorsement is an absolute necessity to battle litigation, fees and fines from regulatory and government agencies. In order to minimize some of your costs you will want to have a safety plan which includes having your ventilation systems monitored, cleaned, maintained and insured as well as your environmental policy. Your employees should take every safety precaution available while cleaning the facility to shield themselves from exposure to the lead dust. Employees are required to have their lead levels monitored by OSHA periodically, which can lead to warnings, fines, medical expenses, remedial action and closure of the business temporarily.

So if you want a bang up insurance policy covering all your needs do some homework, meet with your agent, ask lots of questions and make sure the policy you purchase is right for you.