Sometimes it really pays to have contractor insurance coverage in place. Most days, you may never even think about your insurance. But when an accident happens, you’ll breathe a sigh of relief knowing you won’t have to deal with a major financial loss, even if the accident is (gulp) - totally your fault. But when you’re at fault for an accident which leads to damage while you’re working on a project, you may be surprised at which of your contractor insurance policies you should have in place to cover it.
And it’s probably not what you think.
Let’s say you’ve been contracted for a chimney installation on a project. Unfortunately, you are having an “off” day...which is the only explanation you have to explain the fact that you inadvertently swung a crane into a nearly-complete chimney, destroying your work, and a good portion of the roof, as well.
Since you were at fault for the damage to someone else’s property, your first instinct may be to turn to your contractor general liability policy, since general liability coverage includes third-party property damage claims.
What you may not realize is the standard contractor general liability policy contains some very interesting exclusions. And in this situation, these exclusions may lead to a denial of your claim. Do any of these sound familiar?
- “That particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the "property damage" arises out of those operations;”
- “That particular part of any property that must be restored, repaired or replaced because "your work" was incorrectly performed on it.”
To put it simply: if you cause property damage to the roof and chimney which you have been hired to install, your general liability policy may not cover it.
If your general liability policy does cover the damage, you may face higher premiums in the future since the claim can have a negative impact on your loss ratio. In insurance terms, a loss ratio is the difference between the amount of premiums collected and the amount of claims paid. For example, if you have paid $10,000 in general liability premiums and your insurance carrier has paid out $5,000 in claims, you have a loss ratio of 50%. Generally, a high loss ratio (where your losses approach, equal, or even exceed what you’ve paid in premiums) is considered bad.
Builders Risk to the ‘Workplace Damage’ Rescue
Fortunately, there is another type of contractor insurance that this sort of claim is made for. If you have a builders risk policy, you can avoid claims against your general liability policy. You don’t even need to be the policy owner, either. Most builders risk policies are obtained by project owners or general contractors, and will include subcontractors as named insureds on the policy.
Builders risk protects a project against most types of property damage that occur during the course of construction, no matter who is at fault. (Unless you purposefully caused the damage out of spite. You won’t find coverage for that kind of intentional damage in any contractor insurance policy.) Builders risk is generally considered “all-risk”, meaning it provides broad coverage against most property damage situations, except for a few stated in the policy. Common exclusions may include damage from earthquakes or intentional damage, as mentioned above.
Builders risk policies are typically specific to that project, meaning any claims or losses stay with that project’s policy. This is different than your general liability policy, which will carry that claim with you as part of your claims history and loss ratio as you move forward to your next project and beyond.
Understanding Your Contractor Insurance Policies: a Smart Move
Contractors who have a good understanding of their insurance policies can save themselves from unnecessary claims and higher premium costs. You don’t have to be an insurance specialist (that’s what you have us for), but you should have a good understanding of what your policies cover.
If you or your crew cause property damage to a project you’re working on, the first thing you should do is contact your insurance provider for advice. Your insurance specialist can help you understand what your claim options are.
If the project owner or general contractor insists that you file the claim with your own general liability policy, rather than their builders risk policy, you can confidently state that your insurance provider has given you directions on how to file the claim.
No matter what kind of accident, injury, or simple bad-day mishap that occurs, your insurance provider can help you navigate through it. If you have taken the right steps and covered yourself with the right insurance policies, we will walk you through the process of damage control when that bad day eventually happens. And that includes helping you determine the right policy to cover your claim.