I work with several builders in the Dallas area of differing sizes. Some remodel homes, some build new and custom homes, while others finish out commercial office space. Regardless of the differences in the work they do, they all share several things in common when it comes to their commercial insurance.
These commonalities include general liability coverage, certificates of insurance, and named or additional insureds. In addition, there may be a need for a builders risk policy and possibly even workers compensation coverage.
General Liability: Commercial general liability insurance protects the builder and trades if something goes wrong on a job site such as a fire, an electrical accident, a bad batch of concrete used on a foundation, or even a plumbing failure. In each of these cases, the contractor and their subcontractors could be found potentially liable for a loss and having to correct or repair the situation, or even start over. Having this coverage protects them financially when this happens.
For small to medium sized companies, I recommend at least $1,000,000 per occurrence in general liability coverage. This does not cost much more than a lower limit of $500,000 or less. I also recommend an aggregate limit of $2,000,000. This is important for builders and contractors with multiple projects throughout the policy year. It means they can get sued twice for a maximum of $1,000,000 per occurrence during a 12 month period. I don’t recommend getting sued twice, but if it did happen, the higher aggregate limit will be very helpful.
Certificates of Insurance: All of my commercial contractors, and many of my residential builders are required to provide a certificate of insurance. Insurance certificates may be required by the client and lender on a residential project, or property manager and owner(s) on a commercial project.
Certificates of insurance show, or provide proof, that the builder or contractor has a general liability insurance policy that is current or in force. They also show who the policy is with, when the policy starts and stops, as well as the types of coverage and policy limits. If the job will go beyond the expiration date, it’s important for the builder to provide updated certificates to bankers, investors, and clients, as well as obtain them from their subcontractors and trades.
Named Insured: Certificates also show who the named or additional insured’s are. On residential projects, this is usually the client and the lender. On commercial projects it may be an investment group or lender, as well as the property management company and building owner (see https://wiseinsurancegroup.com/what-additional-insureds-are-and-why-they-matter/).
Builders and contractor should obtain certificates of insurance from their subs and trades where the builder / contractor is listed as a named or additional insured on their subs’ policy. Being listed as a named insured simply means the other party’s insurance policy will be tapped for a loss before their own policy is forced to pay a claim. These should be kept on file for each project and carry limits equal to the builder or contractor.
Builders Risk: Homeowners and commercial property insurance protects a home or commercial building that is already built. Builder’s risk coverage protects a new construction project as it is being built or an existing building that is being remodeled. This coverage may be purchased by the builder, or in some cases, the property owner. Builder’s risk policies may run for 6 months up to a year and be renewed if more time is needed to complete the project (for more information on builder’s risk insurance see https://wiseinsurancegroup.com/fixer-uppers-and-builders-risk-insurance/).
Worker’s Compensation: It’s pretty rare to see anyone require a builder carry workers comp coverage for all but large new home construction projects, but it may be a requirement as part of commercial project. This insurance is designed to provide coverage to an employee if they are injured on the worksite. The premium is higher when the out of network option is selected and less when the in network option is chosen. This coverage only applies to the builder’s employees; subs and trades need to carry their own coverage to protect their own employees. I’ll cover workers comp insurance in greater detail in a future post.
Not every builder or trade needs everything listed here, but until your agent understands the scope of work you perform, they can’t really advise you. That’s why I always schedule a face to face meeting to understand my builder’s needs based on what they do. I then follow that up with a review of the applications required to quote the right coverage. It’s a team effort designed to provide the right level of commercial insurance protection – not too much or too little! Share your questions, comments, and experiences with me on our Google +, Facebook, and LinkedIn pages. I’d love to hear from you and help you in any way I can.