By BreAnn Stephenson
Welcome to our “Is It Covered?” series. For a fuller introduction of the series, read HERE. We hope these quick reads will help you increase your understanding of your insurance coverage, clear up confusion and avoid preventable losses!
So, what’s the confusion?
Though there are a variety of perils your insurance policy may protect you from, a contractor’s faulty workmanship or an injury on the jobsite are two risks that are typically excluded. Though a fire started by your contractor may be covered as Fire is a covered peril in all property policies, your insurer would likely attempt to recover any payout made to you from your contractor’s insurer if they have coverage. If structural work fails, however, there is no coverage available under many property policies. If a worker is injured while on the jobsite, coverage for those injuries are typically excluded as well whether they are “hired”, “leased”, “temporary” or “volunteer” workers.
What type of damage is excluded?
Typically, both damage to the property itself and any bodily injuries caused by faulty workmanship are excluded. For example, a roof collapse or deck support failure could cause both damage to the property and potentially injure workers currently remodeling other parts of the property or future tenants and their guests.
Why is this damage excluded? I thought I had “Builder’s Risk” coverage…
Even if you have the appropriate coverage for a property undergoing renovation, the reason for these exclusions is to avoid an overlap of coverages. Any property damage, injuries to a contractor’s employees or negligence in their workmanship is covered under policies that the contractor procures for himself, such as General Liability and Workman’s Comp. (Subcontractors should get their own liability coverage, too.)
What does the lawyer-y-speak version of this exclusion look like in my policy?
Sample policy language may look similar to this:
“Employees of Independent Contractors Endorsement
The coverage under this Policy does not apply to “bodily injury”, “property damage”, “personal injury”, “advertising injury”, or any other injury, loss or damage sustained by any employee of an independent contractor contracted by You or on your behalf.
The coverage under this Policy also does not apply to “bodily injury”, “property damage”, “personal injury”, “advertising injury”, or medical payments arising out of operations performed for you by independent contractors or your acts or omissions in connection with your general supervision of such operations.”
*As insurance policies may vary, please check your own policy for language specific to your covered property.
What can this type of damage cost me?
Injuries don’t happen on every job, but the use of power tools including nail guns and saws and any work involving a ladder can be quite risky. Improper construction of a deck could severely injure the future tenants and their guests or careless soldering techniques could start a fire that burns the whole building, for example. Unfortunately, when someone is hurt, lawsuits can fly in every direction including you as the owner of the property. Construction risk should be taken seriously as an accident could potentially take someone’s life.
Many investors worry that contractors will cost dramatically more if they’re required to obtain the necessary licensing, permits and all the recommended insurance coverage. But hiring someone who isn’t properly licensed and insured can ultimately hurt your business worse than if you had simply paid more for labor. A “maintenance man” may be appropriate for non-structural… yes, maintenance… on your properties, but if more involved remodeling is going to be occurring such as a room addition, hire the appropriately-qualified workers.
Be sure your contractor has the correct license for his/her type of work. Many states have several different types of licenses that certify a contractor’s qualifications in a given discipline. Plumbers and Electricians usually have specialized training and designations, for example.
Also, be sure your contractor procures any necessary permits. Each city’s ordinances vary, but permits can cover exterior painting, roof repairs and much more. If your contractor is caught without the appropriate permits, any fines could come back on you as the owner. If structural elements fail because they haven’t been reviewed by an engineer, there could be even worse consequences.
Obtain a copy of all liability policies in force. Require your contractor to add you or your business as an additional insured/certificate holder during your project. This can give you some protection if you are named in a lawsuit, and it generally doesn’t cost extra. Being listed on the policy should also ensure that you are notified if coverage lapses or is canceled.
You will also want the contractor to guarantee his or her work for a reasonable period of time after the job is done—12 months is a good rule of thumb.
What sort of insurance coverage should my contractor have?
At the bare minimum, your contractor should have a General Liability policy and, if they have employees, a worker’s comp policy, too. Products and Completed Operations coverage should be included in your contractor’s liability policy. This covers damage that occurs after the work is completed. If an improperly soldered pipe fails three weeks after you pay your contractor, this coverage can take care of the cost of the repairs. If you aren’t sure of the coverages being presented to you, consult your insurance agent.
Is there anything else I need to be concerned about?
If you are working with a smaller outfit that doesn’t have workman’s comp, you might ask for proof of health insurance, too. Most independent contractors have policies that cover their workmanship, damage to your properties and injuries they may cause to others—but not injuries they suffer. Contractors who have health insurance will have a safety net if they get hurt. They’ll be less likely to sue you to pay their medical bills.
For more information on specific coverages available for your contractor, read how to “Keep Your Contractors Out of the Danger Zone”. You may also want to read up on Hold Harmless Agreements… Are they really… Harmless?