News
IN THIS ISSUE:
Contractor Equipment - Are You Insured for Borrowing, Leasing & Renting?
Crime Coverage
Our Nation's Construction Needs
Unexpected Environmental Risk
Enhancing Your Surety Relationship?
Contractor equipment losses total over half a billion dollars annually. Theft, fire, collision, upset, and overturn all threaten the equipment your industry depends on to deliver projects on time and within budget.
In recent years, contractors have increased the amount of renting and, in some cases, borrowing equipment to satisfy functional or geographic needs. The loss exposure faced by borrowers and renters of contractor’s equipment are very similar.
A contractor who borrows equipment can be held liable for damage to the equipment, even if there is no contractual agreement to that effect. What's worse – a general commercial liability policy contains exclusions for borrowed equipment in the contractors care, custody, and control.
In addition, the owner of the equipment may not have coverage under his or her own contractor’s equipment policy because of the exclusion of equipment rented or loaned to others.
In most cases, contractors’ equipment policies can be endorsed to include coverage for the borrowing, renting, loaning, and leasing of equipment both to and from others. The policy structure, however, must match the contractor’s exposure. Otherwise the possibility of a coverage gap exists.
Given the increase in equipment borrowing, renting, and leasing, it is recommended that you consult your insurance advisor to discuss the proper coverage structure to eliminate the possibility of coverage gaps in the event of a loss.
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Standard commercial insurance policies commonly exclude employee theft, making the purchase of crime coverage a necessity for any business with employees. A crime policy can prevent the crippling outcome of fraud or dishonesty by employees or outsiders.
Common vocabulary in a commercial crime policy is: Employee Dishonesty, Forgery or Alteration, Money and Securities, and Computer Fraud and Funds Transfer Fraud. These specialty coverages are typically purchased separately when:
- A standard commercial property policy with a special peril coverage form does not provide coverage.
- The coverage amounts that are provided are inadequate for your exposures.
In addition to insuring against a crime loss, there are measures you can and should take to prevent or reduce your exposure to crime losses.
- Screen applicants for employment carefully and perform thorough background checks.
- Add accounting procedures that make it difficult for employee theft to go undetected.
- Separate sensitive job duties and perform spot audits.
- Deter crime on your premises with security lighting, alarms, watchmen, and locked facilities.
- Solicit the advice of experts to address complex computer and internet security needs.
According to the Association of General Contractors, the coming years for the construction industry will see the greatest concentration of projects from federal, state, and local governments to meet the country’s growing needs for infrastructure.
As a contractor in northern Indiana/southwest
Many government bidder qualifications require an experience modification rate (EMR) of 1.00 or better. Are you poised to meet that requirement, or do you need to concentrate your attentions on loss prevention to drive your EMR down to a qualifying level? Do you carry the necessary Contractor’s Professional Liability and Pollution Liability insurance that is becoming more and more commonly required by government projects, especially those involving the highly sophisticated standards necessary to meet
A primary component of the coming demands include interstate highways system repairs and expansions, reconfigurations to alleviate congestion, and additional networks to serve urban sprawl. We will see an enormous increase in state and federal dollars spent on bridge repairs and replacements as our existing bridges nationwide exceed their useful life and fall into dangerous decline.
Another component of our transportation infrastructure presenting high demand for expansion and modernization is our nations’ airports, including the need to accommodate a far more mobile society, and a far more dangerous one, with new requirements for redesign to enhance security. Other homeland security infrastructure modifications, as well as new resources, are at the top of our country’s list for prioritizing development dollars.
Also in great decline across the country are our public school buildings, putting tremendous pressures on local, state, and federal dollars to repair, replace, enlarge, and redesign our education facilities. Education is the largest institutional construction category, accounting for about 16.5% of the total non-residential building activity of the current construction market, fueled by growth in enrollment nationwide, particularly at the high school and college levels. Trends in education construction are being greatly influenced by the need for greater security. In addition, the increasing cost of energy has put environmental considerations at the forefront of design, as demonstrated by the rising profile of Leadership in Energy and Environmental Design, the
About half of the nation’s 120,000 private and public school buildings have indoor air quality problems, according to the U.S. Environmental Protection Agency. Indoor air pollution is considered among the greatest health risks, not just for school buildings but also for hospitals, nursing facilities, offices, etc. According to the U.S. Green Building Council, the
A growing number of state and local governments are encouraging green building practices through various financial, zoning and other regulatory incentives. The private sector, as well, is incorporating high-performance green building initiatives into their capital budget portfolios.
Most general liability policies have a pollution exclusion. If your policy has the ISO form CG0001 attached to it, you also have this exclusion. The pollution exclusion states “the actual, alleged or threatened discharge, dispersal, seepage, mitigation, release or escape of pollutants at any time”.
Examples include:
- A contractor is excavating a trench and stockpiles the soil on a nearby lot. A subcontractor then spreads the soil at another location, which becomes a housing development. After a couple months, contamination is found at the trench site. After further investigation, it is revealed the soil of the housing development also contains the contaminant. An extensive clean-up was ordered for both properties. The parties involved - contractor and subcontractor - would both be held liable for damages.
- A contractor is hired to construct a new roadway in a housing development. To finish the road, he must apply an oil-based sealant. Before the sealant could dry, rain washed the sealant into a nearby stream. This sealant was found to be potentially harmful. The property owners along the stream filed suit. The contractor was ordered to clean up the site and make settlement to the owners.
- A service station hires a general contractor to complete renovations. The contractor follows all necessary precautions and hires an environmental contractor to inspect all the underground storage tanks. While performing the inspection, the inspector accidentally ruptures a line on one of these tanks. This leads to contamination of the property and the property next to it. The general contractor is held liable because when he signed the contract he assumed the liability.
Whether a contractor causes a pollution release during excavation or a utility contractor hits an underground pipeline, contractors can be held liable. These examples would not be covered by a standard general liability policy.
You can transfer your risk by asking your agent to explore pollution liability coverage by means of a broadening endorsement to your policy or a specialized contractors’ pollution liability policy.
Contractors Pollution Liability policies are designed for specific pollution risks that contractors face resulting from construction activities. Contractors are covered for construction and remediation operations, whether performed by the contractor or subcontractor, and claims alleging improper supervision of subcontractors. Coverage can include third-party bodily injury and/or third-party property damage and cleanup costs for pollution conditions both on and migrating from the work site. These specialized policies can be purchased for a minimal fee compared to clean up costs.
In 2001 the surety industry experienced a severe hardening of its marketplace after a long run of soft pricing and easily obtained surety credit. Over the last five years most surety companies have raised rates, continue to ask more questions than ever, and require better financial reporting along with interim financial updates. Even well-managed and well-capitalized construction firms experienced some difficulty of increased underwriting questions as well as increases in bond rates.
It is, therefore, critical to have a stable, reliable surety relationship. It is equally important to take a proactive approach to manage your surety relationship. You should familiarize yourself with how your agent is telling your story to the surety and make sure the agent is disclosing all the facts in the best possible manner. It is critical the surety has a clear understanding of your business plan, financial information, risk management practices, and the amount of surety credit you're requesting. If your surety company doesn't find value in meeting with you - insist anyway - so the underwriter has a chance to formally meet you, and you get to know who's making the decisions behind the scenes.
In terms of financial management, you should understand how a surety company analyzes your financial statement. Among other things, the analyzed working capital and equity positions determine how much bonding capacity the surety is willing to provide. Several surety companies have implemented credit scoring systems for use in determining how risky your business is compared to other contractors in a similar construction class. Ask if your firm is being credit scored and if so, how can you improve the score?
It is also important for your agent to establish a "back-up" surety to avoid any interruption in surety support. A "back-up" surety that is kept current with underwriting information should be able to provide immediate bonding support should there be any rift in the current surety relationship for whatever reason.
The most important thing you can do is profitably execute your business plan in order to attract and retain surety support. It‘s in your best interest to utilize the tools and consultation of a professional surety agent who can communicate your story to the surety carrier. If you're dissatisfied with your surety relationship seek out a professional surety agent today.
Gibson Insurance Group is a member of the National Association of Surety Bond Producers (NASBP).