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Deadly Wording

Be Alarmed! There are a couple of items regarding your contractor’s liability insurance policy that you absolutely must be aware of. Policies sold to contractors in California have broad differences and can have an extreme impact on your coverage. If you are shopping for the best price, you are really leaving yourself open to huge exposure. There are a couple of popular carriers in California that many successful contractors currently have. Be warned – these are terrible policies!!

First off, the insurance company itself may not have sufficient financial backing. Carriers should be “A rated” and domiciled in the United States. Be sure to avoid Risk Retention Groups and all carriers rated lower than “A.M. Best A rating,” especially if it is a California non-admitted carrier (which is usually the case). Your insurance broker can easily get you a financial report on the carrier.

Two very important things to check your policy for are: 1) a manifestation provision, and 2) a sunset clause. These two limitations restrict coverage on completed operation (jobs you have completed) for future claims of latent or patent defect.

STICK with a carrier that uses an ISO insurance form for the policy. ISO writes the actual policy that most carriers use and this form has a time tested track record in the court system. There are carriers that write their own insurance form and they change language to their favor. This typically benefits the carrier by restricting coverage for the contractor.

If you think that your broker is doing a good job by switching carriers every year or so, you are wrong. Most carriers put “prior or abandoned work exclusions” on their form and/or “ongoing or progressive losses exclusions.” These exclusions can spell disaster.

There are two major errors I see contractors making, especially general contractors. The first is NOT getting certificates with additional insured endorsements from sub-contractors, and the second is NOT using a sub-contractor agreement that includes indemnification and hold harmless wording. EVERY insurance policy has some sort of sub-contractor warranty requiring the insured to get these documents from subs. Failing to do so will really water down your policy, and could possibly even get a claim that could be covered, denied.

You must also review all the endorsements and exclusions in your policy. This is an easy way to learn what to avoid doing (work) in order to stay within your policy language. I commonly see and hear about contractors doing a job that their policy restricts them from doing, such as work on homeowner associations, apartment buildings or work outside their class of license.

Let’s face it. Liability is expensive. But wouldn’t you want to pay a little more for the better policy? If you are buying a policy from a broker that has not asked substantial questions about your operation and you just got a quick quote over the phone, the chances are good that you could be improperly insured. I make it a point to meet with each of my contractor clients.

Please collect your current policy and give me a call at 415.258-9912. We can review what type of work you do and make sure you get the best policy for your line of work.

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