Insurance expense is one of the largest expenses that contractors incur. Unfortunately, insurance can also be difficult to understand. Some of the more frequently asked insurance questions are answered below.

If you have any questions that haven’t been addressed, please contact Chris Larmore at Parenti & Associates Insurance. He is a Certified Insurance Specialist in Construction and has offered to be a free resource for Builders Exchange members.

Phone – (650)596-9500

Email – Chris@parentiinsurance.com

F.A.Q

Table of Contents


Additional insured endorsements add the certificate holder listed to your insurance policy. This allows them full rights to utilize your insurance policy, other than making changes, payments, or canceling. It is important to realize this opens your policy up for them to utilize when claims come in.

Hold harmless/indemnity agreements remove liability from the party that is receiving the agreement, and instead place that liability on the party who is signing the agreement (indemnitor).

Primary and non- contributory status means that in the event of a claim, the insurance of the party providing this additional insured will pay out claims first, and not in a contributory manner. The limits of that policy have to be exhausted for the certificate holder’s policy to kick in.

Most general liability policy forms in construction are written on a “manuscript basis”, which means that the policies can be written individually to include or exclude certain coverage.

If they are different, look at these factors…you often get what you pay for:

  1. Are the gross receipts/payroll used to formulate pricing the same on each quote?
  2. The limits offered. Is it 1/1/2, or a standard 1/2/2?
  3. Is the quote from an insurance company or a risk retention group?
  4. Does the quote include coverage for past work performed?
  5. Is the company reputable, large insurer and do they carry at least an A rating?

Waivers of subrogation prevent your insurance company from suing another involved party to recoup claim cost or claim settlement money, regardless of their fault/role in the claim.

Although it is pretty complex and recently changed, we can simplify it as the following:

4 Years of Claims ¸ 4 Years of work comp premium paid = Your loss ratio

Then this is compared to other similar companies based on class codes/size. There is also a penalty for claims over the $25K and $50k thresholds.

Although rates are pretty flat, work comp is just starting to rebound. Insurance rates ebb and flow on a 5-7 year cycle. We are currently at a peak low and expect it to start to turn around. It should reach peak high in the 5-8 year time frame.

Battling work comp claims requires a program set up to fit your companies needs. It should involve safety measures, work comp fraud prevention, and incentives to  stay claim free. Contact your broker for help!

Under/Uninsured motorist coverage is for you in the event you are involved in an accident with a vehicle who does not have insurance, or has an inadequate limit. ¼ California drivers don’t have insurance, so this coverage is very important!

Bonding is strictly underwritten based on credit and financials of the company, the personal finances of the owner, the type and size of the project, and projected profit margins. Weakness in any of these areas can disqualify you from getting bonded for a project. Underwriters will tell brokers exactly why they feel uncomfortable bonding certain projects/companies, so make sure your broker is in turn communicating this with you.

The state of California is very strict regarding work comp in the area of independent contractors. If you can control the time of an independent contractor, have direct supervision, or are the sole provider of work for the independent contractor, they are an employee.

It is better to be more thorough than necessary regarding time cards, as many recent audits have yielded huge additional premium payments. Time cards must contain an employees name, in and out punches, and punches for lunch as well. Job number or site number, as well as description of work are also a great idea.

Medical provider networks are used by work comp carriers to help keep costs reasonable and prevent fraudulent or over expanded claims. Upon signing up for the MPN, your broker should have provided you a list of local medical providers that are approved. The doctors on the list have been preapproved and understand that they are expected to provide a thorough and accurate analysis of an employee’s ability to work. Unfortunately, many doctors/chiropractors are happy to keep employees on work comp since they come in for continuous treatment, and in turn the work comp pays these medical bills. MPNs are an effort to mitigate that issue.

Employment practice liability is insurance that covers against sexual harassment, discrimination, unlawful hiring practices, hostile work place, or unlawful termination. Some policies also cover wage and hour claims, which are becoming very common. In present day California, contractors with 20 or more employees are just as likely to have an EPLI claim, as a general liability claim.

Some general liability policies contain provisions that only allow auditing upward. In this situation you are at a huge disadvantage. Projecting revenue twelve months in advance is difficult, especially with the current economic volatility. These provisions  are usually negotiable, and should be discussed with a broker prior to buying a policy.