Month: August 2018

General contractors (when you’re working as a subcontractor), property managers and homeowners who are clients often request to be added as the additional insured under your liability policy. Additional insured status is given by adding an endorsement to the policy.

Additional insured means that your insurance policy covers another person or business. As the additional insured, your client doesn’t need to pay premiums on your policy, but they still have coverage.

How does it work?

Often, the additional insured will be the the general contractor on a project where you’ve been hired as a subcontractor. If the GC is sued because of something that is a result of your work, your insurance will protect the general contractor.

Let’s look at an example. You’re hired as a drywall installation subcontractor and the general contractor asks that you add him as the additional insured. You finish your work and leave the site to start another job. After the project is completed, the client contacts the GC to tell him that a sheet of drywall is buckling and the screws are popping out.

Basically, if the GC can’t prove you were responsible, he still won’t have to handle the claim on his insurance. The GC can have the claim filed under your insurance, instead of his own.

The additional insured, however, does not receive any notifications if the policy has been changed or it ended. For your client to be notified of any changes in policy, he would need to be added as the certificate holder on your ACORD certificate of liability insurance.

Types of Additional Insured

With traditional policies and additional insured, you will typically be charged a fee for each additional insured that you want or need to add to your policy.

A newer concept is the blanket additional insured endorsement. This automatically grants insured status to a person or organization that the named insured is required by contract to add as an insured or wishes to add. This means that you can add any number of additional insured persons without paying anything extra.

Additional insured status is commonly used in conjunction with an indemnity agreement (“hold harmless” clause, contractual liability) between the named insured (the indemnitor) and the party requesting additional insured status (the indemnitee). Having the rights of an insured under its indemnitor’s general liability policy is viewed as back up for the indemnification.

If the indemnity agreement proves unenforceable for some reason or the claim is limited by a limitation of liability clause, the indemnitee may still be able to obtain coverage for its liability by making a claim directly as an additional insured under the indemnitor’s policy.

How do I add clients to my insurance policy?

It’s pretty simple to add an additional insured. All you need to do is to speak to your insurance agency. They will be able to tell you if the terms of your insurance policy will allow you to add an additional insured. Once your client has been added as the additional insured, his name will appear on your certificate of liability insurance.

For more information and clarification, you may want to read about certificate holders and the difference between these two endorsements.

Some Quick Tips

• Ensure that all names are spelled correctly. Misspelled names can void the coverage.
• GC’s and PM’s require not just their name, but also the owner or leaser. The cost can add up if you don’t have a blanket endorsement.
• Clients typically require the additional insured names to be included in the Description of Operations section of the COI. Often, they also require the Additional Insured endorsements to be attached to the COI.
• Understand the difference between Ongoing and Completed Operations (risks, damage that happens after you step away). Additional insured endorsements sometimes exclude completed operations. Make sure yours covers both.

Almost all liability insurance is either claims made coverage or occurrence based coverage. Most general liability insurance policies for businesses are occurrence based policies, while errors and omissions (E&O) coverage is typically claims made.

There are a few simple but significant differences between these policies that you should understand.

Timing

When looking at claims made versus occurrence policies, the main differentiator is the time period covered.

An occurrence based insurance policy protects you from claims resulting from any incident that occurred during the policy period, regardless of when the claim was filed. It’s permanent coverage for a certain time period, so long as the incident falls within the terms of your policy (we’ll come back to this “little” detail later).

A claims made policy, on the other hand, provides coverage for claims only if both the incident and the claim occur during the policy period. If you renew the same policy year after year, claims are accepted as far back as your retroactive date, also known as a prior acts date or “nose.”

If you started your policy in 2014 and constantly renewed up to the present, your retroactive date means that you are covered against any claims from 2014 to the present. If your policy lapsed at any point, your retroactive date resets to when you reactivated your policy.

When you cancel your policy, you can purchase a “tail” endorsement to provide extra coverage. A tail, or extended reporting period (ERP), is basically an extension of when a claim can be filed, but the incident still had to be while the policy was active.

A tail just gives you a bit more flexibility if someone is slow filing a claim against you. Short-term tails are often provided at no cost to you, as a courtesy. Long-term or perpetual tails are also purchasable for a premium, which varies based on the insurer.

Limits

Claims made vs. occurrence insurance policies are also differentiated by their limits.

Occurrence based policies have a limit that restores each year regardless of claims paid. Each year of an occurrence based policy is a separate set of limits unrelated to the year before or the year after.

For example, your general liability policy aggregate limit is $1M. In 2016, a claim was made against you and your insurance company paid out $200,000. Your 2017 aggregate limit will still be $1M. It doesn’t carry year to year.

Claims made policy limits do not “restore” each year like occurrence policies. You have one policy limit for as long as you keep your policy active, whether that is one year or ten.

For example, you have a claims made professional liability (E&O) policy with a $2M aggregate limit. You’ve been carrying this policy since 2010. In 2011, a claim was filed and $300,000 was paid out. Your limit from 2011 until your terminate this policy will be, maximum, $1.7M.

How does this work with completed ops coverage?

When hearing about occurrence based policies, you may be wondering where your completed operations coverage comes into this. Completed operations coverage is like a mini claims made policy inside an occurrence based insurance policy. The occurrence aspect of the policy only applies to active projects.

Let’s try to make this simple…

• If a project is underway, your occurrence-based general liability policy covers you.
• If the project is over, you have completed ops coverage and your policy is still active, you’re covered.
• If the project is over, you have completed ops coverage but your policy has lapsed, you’re only covered if the incident occurred with the policy was active AND you have a tail.
• If the incident occurs after the policy period, you’re out of luck.

Sometimes called product and completed operations coverage, this coverage is part of a general liability insurance policy and protects your business from liability surrounding your products or business operations off your property once those operations have been completed or abandoned.

Products liability and completed operations insurance have long been included in standard occurrence and claims-made investment policies. For about the same amount of time, they have been misunderstood by everyone from insurance agents to clients to lawyers.

What is covered?

Product liability insurance covers you against claims made associated with a product you manufactured or sold.

Completed operations insurance coverage is more relevant for contractors and service providers. This protects you in the event that someone claims that work that you did caused bodily injury or property damage.

In order for a claim to be covered, it must satisfy a few criteria. Fundamentally, the claim must allege bodily injury or property damage. The property damage must be to property other than your own. Said property damage or injury also must be a result of your product or completed work. Finally, the damage or injury must have taken place away from the property you own or rent for your business. In the case of completed operations that took place on a site that you don’t own, the claim must have occurred after your work was completed, as indicated by the name of the policy.

Among the claims covered are those of negligence and breach of warranty. If your product, in failing to comply with the standards guaranteed in a contracted warranty, causes bodily injury or external property damage, the resultant claim will be covered by your products liability policy.

Also be sure to understand your policy thoroughly, as these claims are subject to the occurrence and aggregate limits of your policy.

What isn’t covered?

The main exclusions to this coverage are damage to your property or your work. If your product or your constructed work fails, but there is no outside damage caused, then the claim will be rejected by your insurance carrier. In the event that the issue causes damage to your product or work, as well as damage to other property, only the damage to the other property will be covered.

In addition, there is an exclusion for “impaired” property. This is property that is defective or unusable because it contains your defective product or work. For example, you lay the foundation of a building and other contractors build the rest of the building. Your foundation cracks and the building is unusable. Your insurance company will not pay the repairs, because the work is part of a larger whole.

Lastly, if you are forced to make a blanket recall of a faulty product, the costs of the recall will not be covered by your insurance carrier. (This could be covered by limited product withdrawal expense coverage.)

The buried lead…

Many people, even those who should know better, are unclear of the reality of completed operations coverage. The general impression of completed operations coverage is that a claim will be paid, so long as your policy was active when the project was completed.

This is NOT the case. A commercial general liability policy will only pay a claim if the injury or damage occurs during the policy period. The claim must also take place while the policy is still active. Once the policy is cancelled, you’re out of luck.

You can buy something called a “tail,” formally called a supplemental extended reporting period (SERP), but this only covers damage or injury that occurred during the policy period. It still doesn’t cover claims for damage after the policy period; it simply extends the time frame for the claim to be made.

What’s truly harsh is that someone who is no longer in business will have a lot of trouble continuing his insurance to protect against such claims. The cost of his policy will most likely go way up, despite his decreased exposure.

As a contractor, you have probably been asked by a potential client to present them with a certificate of liability insurance. Clients request the certificate of liability insurance to ensure that you’re covered in the event of an accident or injury while you are working on a specific job. The certificate is a standard document written on an ACORD form that includes the details of your policy as well as any endorsements or exclusions to the policy.

Is it complicated to get the certificate?

No, it’s relatively easy. If you already have a valid insurance policy, you can contact your insurance agent and request a new certificate of liability insurance. You’ll need to request a new certificate for each new client or job because your clients, whether general contractors, property managers or homers, need to be listed as “certificate holders” on the certificate.

Your agent will fill out a new ACORD certificate of liability form, which details your policy, limits, policy dates and types of policy endorsements included in the policy. The client may also request that you add additional insurance, such as umbrella or excess liability insurance or add him as additional insured as an endorsement to your insurance policy.

How much does it cost?

Certificates of insurance should not cost you anything. If you have a policy in place, your insurance agent should be able to provide a COI without an extra charge. In fact, most states do not allow for agencies to charge a fee for COIs.

How long does it take?

While COIs are affordable, they can take several days to obtain. At times your insurance policy may not match your clients requirements and you may need to add endorsements to the policy. Be sure to send all the new contract requirements to your agent so they can assess the requirements.

If the policy fits the requirements, it should take less than a day, however if the policies do not match then this process can take up to 3-4 days until you receive the new certificate. At times this can take longer if there is a lot of back and forth between you, your insurance agent and the client.

The longer it takes, the more you are delayed in starting your project. You may even lose out on the job if you can’t provide the certificate of insurance fast enough.

It’s all in the details

What happens if you give the wrong expected end date of your project? Or, you forget to inform your agent to add additional insured to your certificate? Your insurance agent will need to fill out a new ACORD certificate of liability form each time you change a detail. And you can get charged for each of these changes.

Therefore, you need to make sure that you have all the details. If there’s a particular point missing on your certificate, or if one of the coverage limits in your policy is inadequate, you will be charged extra for any changes to the policy that need to be made.