Understanding Insurance Requirements on Construction Agreements

Understanding Insurance Requirements on Construction Agreements

By Sherry Whaley, Commercial Account Manager

On a daily basis, many contractors are required to create and sign several contracts in addition to submitting several bids to various contractors for work.  Once the job is awarded, the next step is to obtain an insurance certificate from their agent.  Along with obtaining the insurance certificate, the contractor needs to review the contract, submit W-9’s and a multitude of other items that need to be submitted before work can begin.

As an account manager and trusted adviser for my clients, I typically review the insurance requirements and begin analyzing the insurance portion of the contract to see what is required of the general contractor.  Below, is a review of insurance terms that are listed as requirements in most contracts.

Additional Insured Status:  The general contractor is asking to be included as additional insured, along with the project owner and other parties included in the contractual requirements.  The additional insured request may be requested on the general liability and the automobile liability. There are many additional insured endorsements to choose from, however, most contracts will require additional insured including completed operations coverage.

Waiver of Subrogation:  Waiver is a relinquishment of a known right.  The general contractor may request waiver on the general liability, automobile liability and the workers compensation policies.  Waiver of subrogation with respects to your general liability, auto liability and workers compensation, basically is stating that coverage will not be jeopardized if the insured has waived in writing prior to a loss any rights of recovery from a party responsible for the loss. This basically means if you request waiver of subrogation before a loss occurs, your insurance carrier may not subrogate (go back against) the general  contractors’ insurance coverage.

Primary and Non-Contributory: This is when the general contractor is requesting to transfer the financial consequences of legal liability arising out of the business relationship with the named insured. That means that in order to function effectively as a risk transfer technique, coverage that comes by way of additional insured status must respond first to a covered claim –before the additional insured’s own liability policy is called on to pay. The non-contributory wording is stating the general contractor is not wanting their insurance coverage to contribute to the loss.

Per Project Aggregate: The limit of liability would respond per project instead of applying per policy.

Cancellation Provisions:  Often times the general contractor will require 30 days cancellation guaranteeing return receipt, certified mail.  All policies will need to be endorsed to give 30 Days Notice of Cancellation for non-payment of premium if this provision is required.

Umbrella Policy- Normally an umbrella policy will be required by most general contractors.  The umbrella policy is excess coverage that follows form to your underlying policies: General Liability, Auto Liability & Employers Liability.  An umbrella policy would respond when your underlying policy limits have been exhausted.

Other insurance Requirements:

  • Pollution – Normally the contract will state the limit required
  • Mold- Normally the contract will state the limit required
  • Workers Compensation to be endorsed with special endorsements: US Longshore & Harbor(required when working over or near navigable waters), Jones Act, Admiral Act

This is of course not all of the items we see in construction agreements.  There are still other items you may be required to carry. Please feel free to call me on my direct line at 910-478-3316.

MOD Control: Why Hiring And Wellness Pick Up Where Safety Can’t

Brandon MillsBy: Brandon Mills, RHU, Sales Executive

Work-related injuries are an epidemic for companies worldwide.  As a result, “Experience Modification Rates,” often referred to as MODs, are increasing. MODs are used by insurance companies to gauge both the cost of injuries and future chances of risk. The lower your MOD, the lower your workers’ compensation insurance premiums. Depending on your company’s experience, your MOD can either reward or penalize you.

Most companies’ knee-jerk reaction to this problem is to audit current safety measures and implement standard solutions, including safety manuals, loss control assistance, safety training and return-to-work programs with a bank of light duty jobs.  While these are all proactive steps toward reducing the likelihood of a workplace accident, companies are missing the bigger picture. Well chosen, healthy employees are the roots of a safe workplace.

Strategic hiring practices and the implementation of workplace wellness programs are consistently and mistakenly overlooked when it comes to addressing workplace safety.   It is no secret that any company can hire its next workers’ compensation claim, and healthy employees bounce back from injuries faster and better than unhealthy employees. With that in mind, it is time employers take responsibility for hiring great workers and helping them get and stay healthy.

Here are some tips for proactively addressing safety from a human resources perspective:

  • Job Posting and Advertising – Post jobs like a marketer!  Your goal here is to ensure the best, most qualified candidates are able to find and apply for your open positions.  Ensure that your job descriptions include the essential functions of the job so candidates can pre-screen themselves and not apply for a position they cannot physically perform.
  • Pre-Employment Screening – Although the following are more standard pre-employment processes, they are critical parts of the hiring process to remember.  
    • Drug Tests – Each employee should be drug tested prior to employment.  This process must be consistently enforced amongst all employees so as to not discriminate.  A healthy employee is a drug-free employee, and a drug-free workforce will encourage a safe and healthy company culture.
    • Background Checks – Although conducting background checks does not contribute to the wellness of employees, it contributes to the overall mission of a strong safety culture.
    • Post-Offer Physicals – Each new hire should undergo a physical before starting work to ensure that they are capable of performing the job’s essential functions. This will reduce the likelihood of workplace injuries.
  • Standard Interviewing Guidelines – Having a standard set of interviewing guidelines for all managers to follow ensures not only a non-discriminatory hiring practice, but a practice that assesses all candidates for their ability to contribute to your corporate culture of health and safety.
  • Physician Relationships – Establishing a relationship with a physician is beneficial for both new employees and those returning after a workers’ compensation claim. This relationship can ensure consistency and conformity in the evaluation of employees returning to work while simultaneously controlling the cost of physicals and workers’ compensation.
  • Workplace Wellness Programs – A well-implemented wellness program can contribute to the health and longevity of employees.  It can focus on everything from weight loss, to analysis and education of comprehensive health screenings for potential risks.   This program ensures that employees are healthier, less likely to have a workplace accident and able to stay at the company longer.

The bottom line is that it all boils down to culture. When your corporate culture is established as focusing on the health and safety of employees, policies and procedures are developed to further promote that culture.  For it to work, everyone from management to interns needs to participate and contribute.  

Do you have any Human Resources strategies not listed here for lowering your MOD and reducing workers’ compensation costs?

Using Subcontractors: Recent Court Guidance

By: James Kirkpatrick, CIC, Sales Executive

General contractors all know how important it is to obtain certificates of insurance for subcontractors they use.  However, as relationships between general contractors and subcontractors develop and strengthen, it is not uncommon for general contractors to become more lax with obtaining proper certificates for each and every job and making sure that those certificates meet the requirements of their workers’ compensation carrier.  Improper certificate administration can add significant liability onto the general contractor.

In a recent case heard by the North Carolina Court of Appeals, Jose Clemente Hernandez-Gonzales v. Jimmy Worrell d/b/a Worrell Construction, the Court issued guidance regarding the liability a contractor assumes when a subcontractor is used on a project.  This case illustrates the “liberal” interpretations of existing statutes the N.C. Industrial Commission often use.

The crux of this case, when it comes to the general contractor’s liability, results from the fact that the general contractor relied upon a subcontractor’s certificate obtained from a previous job.  This exemplifies the importance of proper certificate administration and obtaining a new certificate for every job, regardless of the relationship you have with the subcontractor.  Because of this mistake, the general contractor was found to be liable to the same extent as the subcontractor and, should the subcontractor default on medical and/or expense payments to the employee, would be responsible for those same payments.

This court case can impact general contractors’ insurance costs as well, even if there is no accident or workers’ compensation claim to be paid.  For example, a contractor’s workers’ compensation policy premium is determined by the estimated payroll for their employees.   Should a general contractor utilize an uninsured subcontractor, they will then be responsible for that subcontractor’s estimated payroll as well.  At the end of the workers’ compensation policy period during the final audit, if the general contractor cannot provide job-specific certificates on all subcontractors utilized during the policy year, they will owe additional premiums to their carrier.  More than likely, these will be costs that the contractor did not originally budget for.

We hope this illuminates the importance of proper certificate administration.  There are many different tools and resources available to assist in the management of this risk.  For more information, please feel free to contact one of our construction experts James Kirkpatrick at jkirkpatrick@siagroup.net or 800-682-7741.

Be Safe!

By: Sue Franck, Commercial Lines Account Manager

How many times have you heard that phrase in your life? I have heard it so many times that I now turn a deaf ear to it.  Why wouldn’t I be safe? It is easy for adults who are completely capable of taking care of themselves to ignore this phrase. But when the tables are turned and you are advising your children, it is easy for this to become the parent mantra. “I love you, honey and BE SAFE!”  Throughout the years I have said this to my children countless times. Fully expecting my children listen.

Even including children, who would intentionally not be safe? What exactly does “be safe” mean? The obvious answer is that it means putting oneself in safe surroundings (including work environments) and situations, but what does this really mean? What does being safe really entail? There are many factors that feed into a person’s safety and the more focus placed on these factors, the better equipped we’ll be to put this famous phrase to use. Here are a few important tips on how to be safe:  

  • Being safe is an attitude – being safe always starts with the individual and is always based on attitude.
  • Complacency can be public enemy #1 – Complacency brings about the feeling that nothing bad will ever happen to you – accidents only happen to other people. If you have the attitude that nothing bad will ever happen, you will close your eyes to the hazards that may surround you, which in turn may close your mind to warning signs. When you close your eyes to safety hazards or stop listening to the warning signs, you won’t know how to protect yourself because you won’t know about any surrounding dangers. Staying informed and alert is the first step in staying safe. With the right information and the right level of awareness, you will know where hazards are so you can avoid them and stay safe.
  • Safety – Don’t leave home without it – Before you leave for work, ask yourself a few questions. Are you well rested? Is your mind on work or are you preoccupied with other issues? Are you leaving for work with enough time to get you where you need to go without having to break some laws?  The answers to these questions can help you determine if you are already putting yourself in harm’s way. Getting to your work area – When youarrive at your work area, be it a machine or cubicle, take a moment to prepare yourself to work safely. Do not only look at your personal work area, but take a look at the surrounding work area, too. Is the area free of hazards? Ask yourself what you have to do to be safe right now and throughout the day. Think about the jobs you will do and what you must do to complete those jobs safely.

Think safe, work safe. Yeah, those are catchy slogans, but more importantly, it is a way to remember that you need to keep your head in the game.  If you are thinking about safety, then you will be working safely.

Construction Industry Podcast Featuring Luann Cole of SIA Group

Make sure to check out the 16th episode of the Construction Industry Podcast titled “Construction Bonds for Dummies” featuring Luann Cole of SIA Group. In this episode, Luann answers questions about and discusses the benefits of construction bonds.

The episode also features Tom Buechel, creator of the iScrap smartphone app. iScrap helps locate nearby scrapyards for easy scrap selling.

Click here to listen to the episode. As always, feel free to let us know what you think by leaving a comment.

 

Things Contractors Should Know Before Bidding A Job

In today’s economy, contractors have been hit hard when it comes to finding enough work. When the contractor does discover a job opportunity, he or she has to enter into a bidding war with more contractors than he has ever had to face previously. Oftentimes the contractor is so happy to be able just to bid that the insurance requirements are overlooked, and this could result in a very costly mistake.

It is always a good decision to let your insurance agent review the insurance requirements before a bid is placed, in order to see if they can be met with your current insurance program or if you will have to incur additional costs to be compliant.  There are several things a contractor can keep in mind when bidding a job and know that this will incur an additional cost, including the following:

1)    Railroad Protective Policy – If the job is near or by a railroad, this policy will be requested in order to indemnify the railroad.  Work within 50 feet of a railroad is excluded from the General Liability policy.  Therefore you will have to purchase this policy in the name of the Railroad, which usually start around $2,500.

2)    Owners Contractors Protective Policy– This protects the interest of the job owner and is purchased for a specific job. These policies start around $250.

3)    Pollution Policy– This covers sudden and accidental discharges of hazardous materials at the job site. Excluded from a standard General Liability policy, these can be purchased for a specific project or blanket projects. They can start at $5,000 or higher.

4)    Professional Liability– This policy covers professional services rendered for certain types of contractors and is excluded from a standard General Liability policy. These policies can start at $2,500 or higher depending on the type of work done.

5)    Additional Insured Endorsements– These are endorsements that may be required on the General Liability & Auto policies that name another party as additionally insured under your policies. Some policies automatically include some types of these endorsements, but depending on what type of additional insured endorsement is requested, there may be a separate charge to add the correct one.

6)    Waiver of Subrogation– These are endorsements that may be required on your General Liability, Automobile Liability and Employers Liability policies. This endorsement waives your insurance carrier’s rights to help reduce the claim amount (which helps reduce your loss history). These endorsements have to be specifically requested by your agent, and the insurance carrier has to approve and may charge for this.

If you need help with insurance terms and definitions – try the following website: http://www.irmi.com/.

These policies can eat up the costs of any job. I had a contractor that won a job with a low bid of $10,000. This job was within 50 feet of a railroad, so a Railroad Protective policy was required, as were special Additional Insured endorsements that were not currently on his policies. He had to pay a total of $6,000 in insurance for this job in order to be compliant and get paid for his work. When all was said and done, he lost quite a bit of money on this job.

This shows the utmost importance for contractors to review the insurance requirements in jobs they intend to bid before placing the actual bid. Your insurance agent can help you review your contracts and advise of any additional costs. It is also a good idea to have your legal representative review any contracts you enter, because more contractors are having to assume more risk on a job than in the past.

If you have any questions about contractor bonding and insurance, call Beverly Mabee, CISR, CRIS at (910) 455-7576 or email b_mabee@siagroup.net.

Photo Credit: Giulio Menna

A Leap Into New Blogging

(From Don Mills)

Happy Leap Day! Since an occasion like this comes around only once every four years, I thought this would be a great time to let you know about some unique changes to our blog!

We will be expanding our blog to include a broader range of topics, as well as give a glimpse of what it is like to be part of the SIA Group family. In future days and weeks, look for blog changes from SIA Group team members that will include the following:

  • A broader range of topics coverage – we will discuss personal lines of insurance as much as our commercial ones and other topics.
  • Entries from team members sharing their own experiences in personal and commercial insurance lines.
  • Insight into our community involvement throughout North Carolina and the other markets that SIA Group serves – we as a company are committed and involved in making these cities a better place for people to live and work.

As always, we plan to give you timely and informative news on personal and commercial insurance. These changes will help you know SIA Group a little better, as well as what we do in and beyond the insurance industry.

Feel free to use the comments section to give your thoughts on our posts, as well as ask any questions you might have. These changes are occurring to serve you better, so we want to know what you think. Thank you!

If you have any questions about personal or commercial insurance, our team at SIA Group is here to meet your needs. Give us a call at (910) 455-7576 and we will be happy to help.

OSHA Offers Employers Information On Responsibilities For Winter Storms

Recently OSHA added to its website a page on employer responsibilities and employees’ rights regarding winter storms. This information is vital to know at this time of year, particularly for employers who own company vehicles.

As the page notes, according to the National Weather Service, about 70 percent of injuries during winter storms result from vehicle accidents, and about 25 percent of injuries result from being caught out in the storm.

These seasonal hazards can include, but are not limited to, the following:

  • Being struck by falling objects such as icicles, tree limbs, and utility poles;
  • Driving accidents due to slippery roadways;
  • Carbon monoxide poisoning;
  • Dehydration, hypothermia and frostbite;
  • Exhaustion from strenuous activity;
  • Back injuries or heart attack while removing snow;
  • Slips and falls due to slippery walkways;
  • Electrocution from downed power lines and downed objects in contact with power lines;
  • Burns from fires caused by energized line contact or equipment failure;
  • Falls from snow removal on roofs or while working in aerial lifts or on ladders;
  • Roof collapse under weight of snow (or melting snow if drains are clogged); and
  • Lacerations or amputations from unguarded or improperly operated chain saws and power tools, and improperly attempting to clear jams in snow blowers.

Employers who want to avoid being held liable for injuries sustained from these circumstances should contact an insurance agency with experience in identifying such exposures to loss and helping clients control these loss exposures. With appropriate coverage and steps taken to avoid risks, complying with OSHA’s rules regarding winter storms for your employees can be accomplished smoothly and effectively without costing your company penalties and fines.

If you have any questions about OSHA regulations, contact Clifton Waters at cwaters@siagroup.net  or call (252) 560-8778.

Photo Credit: Flickr User pingnews.com

Be on the Lookout for Possible NCCI Experience Modification Changes

Happy 2012 to you! As you enjoy the New Year, now is a good time to alert yourself about some of the potential changes starting in 2013 to the Experience Rating Plan used by the National Council on Compensation Insurance, Inc. (NCCI) that will raise a company’s experience modification, if the proposal is accepted by the North Carolina Rate Bureau.

The Experience Rating Plan from NCCI is a method for tailoring the cost of insurance to the characteristics of an employer for risk. An experience rating provides added incentive for employers to develop loss prevention, as well as incentives to have the injured employees return to work as soon as reasonably possible. In this way, an experience rating benefits employers by promoting occupational health and safety. It is mandatory for all employers that meet a state’s premium eligibility requirements to participate in the plan.

NCCI prepares workers’ compensation insurance rate recommendations for states such as North Carolina whose insurance departments have designated NCCI as the licensed rating and statistical organization. While the North Carolina Rate Bureau acts independently in determining the state’s insurance rates, it typically follows the NCCI model fairly closely. With that in mind, here are details on the proposed formula revisions to NCCI’s Experience Rating Plan that may be adopted.

Currently, the split of actual incurred losses used in the experience rating calculation is applied as follows:

  • The amount of the loss up to $5,000 is known as the primary loss, which reflects frequency.
  • The amount of the loss in excess of $5,000 is known as the excess loss, which reflects severity.

The primary loss is included in the formula at 100 percent, while the excess loss is calculated at a reduced amount dependant on a company’s size. However, NCCI notes, since the last split point update occurred two decades ago, the average cost of a claim has tripled. This failure to adjust for this experience rating split point has made the Experience Rating Plan less responsive to actual claim costs.

To correct this trend, under the new NCCI Experience Rating Plan, primary losses will increase as follows:

  • Effective Jan. 1, 2013, the first $10,000 would be primary or counted at 100 percent.
  • For the start of 2014, the first $15,000 would be primary or counted at 100 percent.
  • The primary amount would be indexed for inflation each subsequent year starting in 2015 from the first $15,000.

NCCI reports that the impact of these changes to individual employers will vary according to how many claims they have that exceed $5,000. If no claims exceed $5,000, they will generally see a decrease in their experience rating modification. This is because no additional actual losses will flow into their modification under the higher split point, and they will get the benefit of less expected excess losses in their modification calculation.

If you are concerned about how your company will be affected should the revised Experience Rating Plan be implemented, please contact your SIA Group professional for a full explanation of what will be involved. There are many factors involved in anticipating the experience rating modifications, but we are here to assist and advise you on what adjustments would be prudent to take for your own company’s situation.

Photo Credit: ny156uk

The Importance of the Enterprise Risk Management Model

Traditionally, an insurance agent has provided a comprehensive review of the exposures related to an insured party in order to complete an insurance application, obtain past loss information, recommend loss control strategies, and obtain competitive pricing. Commonly referred to as protecting an insured from hazard risk, this practice is now only one part of a major trend in commercial insurance – the Enterprise Risk Management Model.

The Enterprise Risk Management (ERM) Model has gained attention recently due in part to major, less-predictable events affecting businesses in the last decade, including business management fiascos such as Enron, financial uncertainties and the threat of terrorism. ERM answers such challenges by identifying, prioritizing and proactively addressing the risks and opportunities a business faces.

The use of ERM is becoming mandatory in many areas. Regulators in government and many private organizations including rating agencies have come to insist that senior management in every company take greater responsibility for managing risks on an enterprise-wide scale. This is because with the increased use of technology and emphasis on globalization, along with the issues mentioned previously, ERM is increasingly viewed as essential for any business to address all identifiable risks for its portfolio in the future.

An effective insurance consulting service will identify financial, operational and strategic risks that could affect a company’s bottom line along with hazard risks. The assessment should include proactive recommendations -from the insurance consultants after they survey the entire organization and define appropriate roles and actions to take. If these guidelines are followed through and monitored properly, the organization will find long-term success in addressing its risks and saving itself substantial costs in the process.

Photo Credit: Flickr User twicepix