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As a general contractor, it may feel as if you’re a Jack of all trades, but sometimes you need to call in an expert (or a subcontractor) – an electrician, plumber, carpenter, etc. – on a project. And sometimes, you are the expert hired as a subcontractor.

Whether you are the general contractor or the subcontractor, your business success depends on your understanding of your legal liability and the right Contractor Insurance to protect you from that liability if something goes wrong. Furthermore, having the right liability insurance helps build trust with potential clients and can result in bigger contracts.

General Contractor vs. Subcontractor

Sometimes the line between a contractor and a subcontractor is a little fuzzy. Generally, a contractor is hired by and works for the client on a project. However, a contractor is not an employee of the client. They work for them on a contractual basis, which means the contractor is responsible for fulfilling the contract and is liable for the entire project, even if the problem occurs with something a subcontractor did.

Subcontractors are hired by general contractors to perform a specific task or service. A subcontractor reports to and is liable to the general contractor. If a problem occurs with something a subcontractor did, the client may sue the contractor, who may, in turn, sue the subcontractor.

Most Common Contractor Liability Claims

The best defense against liability claims is first understanding your biggest risks and then either transferring those risks or ensuring those risks are covered by the right insurance. The following are the two most common types of liability claims contractors face:

1. Construction Defects – Construction defects include poor workmanship, improper or defective material, or a failure to follow construction codes. Examples of common construction defects include structural integrity, water intrusion, mechanical problems, electrical issues, etc.
   
   
2. Construction Delays – Delays are frustrating and costly and can happen for many reasons – weather, defective plans, labor shortages, equipment failures, etc. Some delays you have some control over, and others you do not. Either way, clients can sue if there are significant delays in the project.

Contractor Insurance

There are several types of contractor insurance that can protect both contractors and subcontractors. Depending on the scope of the work you do, you probably don’t need all of them, but it’s important to understand what is available to you.

General Liability Insurance – CGL is relevant to any business and helps protect your business from financial loss that results in property damage, bodily injury, libel, slander, lawsuits, and settlements or judgments.

Workers Compensation Insurance – Workers' Compensation (WC) Insurance is mandated by Pennsylvania (and most other states) for all employers. WC was designed to protect employees injured on the job by providing lost wages, medical expenses, disability expenses, and funeral costs. As a no-fault benefit, WC also helps protect your business from direct lawsuits by employees injured on the job. Failure to comply can lead to misdemeanor or felony charges and fines.

Commercial Property Insurance - Commercial Property Insurance helps repair or replace your physical assets, such as the building, furniture, computers, inventory, etc., if they are damaged by fire, hail, lightning, windstorms, vandalism, and explosions.  

Builders Risk Insurance - Builders’ Risk Insurance - also called Course of Construction Insurance or Inland Marine coverage – is a temporary insurance policy that helps protect a renovation or new building while under construction. It typically covers a building, structure, materials, tools, and equipment on a job site, in transit, or stored elsewhere during construction or renovation.

Commercial Auto Insurance - If you use a vehicle to conduct business, such as transporting materials, equipment, or employees, you should have commercial automobile insurance to help protect you in the event of an accident that causes bodily injury, loss of life, or property damage. 

Professional Liability Insurance - Professional Liability Insurance goes by many names, such as Errors and Omissions and E & O insurance. Professional Liability Insurance protects your business if you face a lawsuit claiming you made a mistake in your professional services - whether or not you actually made a mistake.

Umbrella Insurance - Insurance liability policies include a limit (the maximum amount an insurer will pay if a claim is filed). Commercial Umbrella Insurance helps cover the difference if a claim exceeds a policy's limit.

Cyber Insurance - Cyber Insurance helps cover your business' liability for data breaches that involve sensitive information, such as credit card numbers, driver's license numbers, and health records

Pollution Liability Insurance - Pollution Liability Insurance protects your business if you're held liable for a pollution incident on a worksite.

Gap Insurance – Often overlooked, Gap Insurance helps cover the cost difference to pay off a lease balance when a vehicle's value is less than the leasing company's payoff in a total loss accident.

Business Income Coverage/ Business Interruption – If you are forced to shut down your business after experiencing covered property damage (such as fires, storms, etc.), Business Income coverage can help replace lost income.

Get the Right Contractor Insurance!

The right insurance helps protect both contractors and subcontractors from the liabilities they face. The experienced independent agents at American Insuring Group will help you get the right insurance to protect your business at the lowest cost.

Call today at (800) 947-1270 or (610) 775-3848, or connect with us online.

One of the best ways to lower your Contractors Insurance costs is with a risk management plan..

The first two steps in a risk management plan are 1) identify risks and 2) prioritize risks.

The third step is to determine response strategies, which include avoidance, transference, mitigation, and acceptance. Today we'll delve into transference.

Transference is the act of transferring risk to a third party. The most obvious way to transfer risk is with a comprehensive Contractors Insurance policy, which transfers many risks to your insurance company.

Here are three examples of how to transfer risk to your insurance company:

• Injuries - If an employee is injured on the job, Workers' Compensation – which is required by law in PA and most states – provides wage-loss and medical benefits. If a visitor to the worksite is injured, General Liability Insurance will help cover medical expenses and legal costs if a lawsuit is filed against your business.
  
  
• Physical Damage - If your tools are stolen, a piece of equipment is damaged, or someone vandalizes your office, there are insurances – such as Commercial Property Insurance and Builders Risk Insurance - that help pay the cost to repair or replace those items.
  
  
• Faulty Work - If a client sues you for design errors or omissions, Professional Liability Insurance helps cover your legal costs.

It is also possible to transfer risk to yet another third party, such as a supplier or subcontractor, with contractual risk transfer. "When astutely negotiated, a construction contract can become a valuable risk management tool," the International Risk Management Institute (IRMI) states. "Liabilities can be equitably distributed among the contracting parties—general contractor, subcontractors, suppliers, architects, and the owner."

What is Contractual Risk Transfer?

"Contractual risk transfer is the ability to move a risk/loss from one party to another through the language written in a contract," according to Business Credentialing Services. "Contractual risk transfer is when the language in a non-insurance agreement excuses one party from financial or legal responsibility associated with specified actions, inactions, injuries, or damages. In contractual risk transfer, one party agrees to indemnify and hold another party harmless in a contract."

It's important to note that the Indemnitor – the entity that holds another party harmless if injury or damage occurs - is backed by their insurance policy.

Effective Contractual Risk Transfer

"Unfortunately, many construction contracts are drafted (or standard versions modified) by professionals with little knowledge of insurance coverage," IRMI states. "As a result, it is not unusual for contracts to shift liabilities to the contractor that are extremely difficult or costly to insure, or even uninsurable." Therefore, it is best to leave contract writing to the experts – a qualified attorney and one of the insurance agents at American Insuring Group who specialize in Contractors Insurance can help.

However, it's always good to understand the basics when discussing contracts and insurance with these experts. Here are five tips:

1. Often a contract will require a certificate of insurance; therefore, keeping those certificates well-organized helps save time and frustration.
   
   
2. Make sure whoever drafts your contract is aware of current insurance requirements and doesn't just copy from an existing contract.
   
   
3. Ensure that appropriate endorsements are attached to your contract.
   
   
4. Most states limit the risk that can be transferred.
   
   
5. Four endorsements crucial to the contractual risk transfer process include Additional Insured Endorsement, Primary & Non-Contributory Endorsement, Waiver of Subrogation Endorsement, and Alternate Employer Endorsement.

Work With the Right Insurance Agent and Save

The agents at American Insuring Group specialize in Contractors Insurance and can help execute your risk management plan. As independent agents, we check with multiple insurance companies to ensure you pay the lowest price for your insurance coverage.

Call us at (800) 947-1270 or (610) 775-3848, or connect with us online and start managing your risk today!

Contractors' Insurance helps protect your business from risk, and let's face it… as a contractor, you face many risks every day. An employee or client may fall and injure themselves on a job site. A piece of heavy equipment might be stolen. A hacker may steal your data. Any one of these things could put you out of business… IF you aren't prepared.

 Risk Management

The first step in preparing is called risk management. Risk management is identifying and evaluating the risks your business may face and determining procedures to minimize the impact of those risks. Effective risk management helps provide confidence, streamline operations, enhance safety, and protect your business. 

Here are four steps to developing a risk management plan for your construction company (Click here for more details):

1. Identify Risks
2. Prioritize Risks
3. Determine Responsive Strategies
4. Create a Risk Management Plan

 There are many ways you can and absolutely should minimize the risk of something happening. For example, you can create safer workplaces, provide proper training, and ensure PPE is used appropriately. But unfortunately, despite all of your best efforts, accidents happen, equipment gets stolen, and data breaches occur.

 According to the U.S. Bureau of Labor Statistics, in 2019, there were 1,102 fatal injuries in the construction industry (both private industry and government). Furthermore, "These deaths represented 20.7 percent of total workplace fatalities in the United States (5,333)." It is estimated that $300 million to $1 billion of construction equipment is stolen every year. 

Transfer Risk With Contractors' Insurance

In step three above – Determine Responsive Strategies – one strategy is to transfer risks to an insurance company. For example, if a piece of equipment is stolen, insurance will pay to replace that equipment in exchange for premiums and deductibles. This takes much of the financial risk off of our business.

 Types of Contractors Insurance

The best way to determine which types of Contractors Insurance is right for your business is to work with one of the agents at American Insuring Group who specialize in Contractors' Insurance. Here is a brief description of the types of insurance that may be recommended.

General Liability Insurance – If your business is sued, general liability insurance will pay legal fees, settlements, etc.

Workers Compensation Insurance – In most states, including Pennsylvania, most employers are required to provide Workers' Compensation Insurance - which covers medical costs and lost wages if an employee is injured on the job - for their employees.

Commercial Property Insurance - Property insurance helps protect against property loss or damage due to events such as fire, hail storms, civil disobedience, and vandalism.

Builders Risk Insurance - Builders Risk Insurance helps replace materials, tools, and lost, damaged, or stolen equipment.

Commercial Auto Insurance - Commercial Auto Insurance helps cover bodily injury or property damage claims if one of your company's vehicles is involved in an accident.

Inland Marine Insurance - Inland Marine Insurance helps cover damages that occur while a building is under construction.

Professional Liability Insurance ((Aka Errors and Omissions Insurance) - If your business is sued due to a mistake made in your company's professional service, Professional Liability helps cover legal costs.

Umbrella Insurance - Insurance liability policies include a limit (the maximum amount an insurer will pay if a claim is filed). Commercial Umbrella Insurance helps cover the difference if a claim exceeds a policy's limit.

Cyber Insurance - Cyber Insurance helps cover your business' liability for data breaches that involve sensitive information, such as credit card numbers, driver's license numbers, and health records

Pollution Liability Insurance - Pollution Liability Insurance protects your business if you're held liable for a pollution incident on a worksite.

Gap Insurance – Often overlooked, Gap Insurance helps cover the cost difference to pay off a lease balance when the vehicle's value is less than the leasing company's payoff in a total loss accident.

Business Income Coverage/ Business Interruption – If you are forced to shut down your business after experiencing covered property damage (such as fires, storms, etc.), Business Income coverage can help replace lost income.

 How Much Does Contractors Insurance Cost?

Regardless of the specific type of insurance, several factors can significantly impact those insurance costs. Those factors include the following:

• Claims History:
• Nature of Work and Risk:
• Liability Limit:
• Loss Type

Start Saving on Contractors Insurance Today!

t's easy to lower your premiums by working with one of the agents at American Insuring Group. Our agents specialize in Contractors' Insurance and – as independent agents – we compare the quality and cost of your coverage with multiple insurance companies to find the policy that's right for you!

Don't Delay - start saving today by calling us at (800) 947-1270 or (610) 775-3848, or connect with us online.

Managing risk can have a significant impact on your bottom line, including your Contractor Insurance costs. If you’re in the construction industry, you understand that there are plenty of risks to manage – injuries, theft, missed deadlines, etc. Risk management is the process of identifying and evaluating the risks your business may face and determining procedures to minimize the impact of those risks. 

Effective risk management helps provide confidence, streamline operations, enhance safety, and protect your business. In addition, a risk management plan helps ensure that everyone on your team is on the same page, and it helps lower insurance costs. 

Four steps to developing a risk management plan for your construction company:

1. Identify the Risks

Common risks construction companies face include safety, financial (lack of sales, cash flow, etc.), legal, project (delays, poor management, etc.), and environmental (floods, storms, etc.). However, every business and project has its own unique set of risks, and it’s imperative to identify risks relevant to your company and your current project. 

2. Prioritize Risks

As we said earlier, every business has its own unique set of risks. What may be a concern for your business may not be for another construction company. Therefore, once you’ve identified all of your risks, you need to prioritize them. To do so, look at 1) how probable each risk is and 2) what impact each risk would have on your business. Those risks with the highest probability and the greatest impact should be considered a high priority. 

3. Determine Response Strategies

Once you’ve identified your risks and which risks are the most probable and could have the highest impact on your business, it’s time to determine strategies to respond to those risks. There are four potential responses:

• Avoidance – If you determine that a project is too risky or your business is not equipped to handle the risk, you may decide to decline the project or change the scope of the work.
• Transference – Sometimes, you can transfer the risk to a supplier, subcontractor, or insurance carrier (see below for examples).
• Mitigation – Mitigation is defined as the act of reducing the severity, seriousness, or painfulness of something. For example, providing a safer worksite will help mitigate safety risks.
• Acceptance – Sometimes, you may be willing to accept a potential risk and develop a contingency plan as a work-around. 

4. Create a Risk Management Plan

A risk management plan is a written document that provides information to team members. It includes your risk assessment, strategies, monitoring and reporting, contingencies, and responsibilities. 

• Involve Team Members All stakeholders must understand and buy into the risk management plan to work.
• Create Contingencies and Revise For the risks that you have determined are acceptable, you need to create a contingency plan – What will you do if you need to face that risk?
• Communicate & Monitor Ongoing communication, monitoring, and updates are crucial to the success of a risk management plan. 

Insurance and Risks

As we mentioned earlier, the right insurance allows you to transfer certain risks to a third party. However, insurance policies should be looked at as a safety net. 

For example, it’s usually wiser to provide a safer work environment to minimize employee injuries than to deal with lost workdays, lower employee morale, potential lawsuits, and higher insurance premiums - even if you have the proper insurance to cover the financial losses of an employee injury. 

Here are three examples of how Insurance can be used as a safety net:

• Injuries If an employee is injured on the job, Workers’ Compensation – which is required by law in PA – provides wage-loss and medical benefits. If a visitor to the worksite is injured, General Liability Insurance will help cover medical expenses and legal costs if a lawsuit is filed against your business.
• Physical Damage If your tools are stolen, a piece of equipment is damaged, or someone vandalizes your office, there are insurances – such as Commercial Property Insurance and Builders Risk Insurance - that help pay the cost to repair or replace those items.
• Faulty Work If a client sues you for design errors or omissions, Professional Liability Insurance helps cover your legal costs 

The Easiest Way to Save on Construction Insurance

The easiest way to lower your construction insurance costs is to work with one of the experienced agents at American Insuring Group. Not only do we specialize in Contractors Insurance, but we also research insurance plans from multiple companies to find quality protection at the lowest price.

So give us a call today at (800) 947-1270 or (610) 775-3848, or connect with us online.

If you own a construction company, the chances are good that you subcontract some or all of the work to another party. You can (and should) do your due diligence to ensure that any subcontractor you hire has a reputation for doing a good job safely. However, it’s impossible to foresee all of the potential financial and operational risks that may arise with a project, particularly with a third-party. 

General Contractors Held Liable

There is always the possibility of an injury, property damage, a delay, or a construction defect as a direct result of a third-party’s services or products. Normally, it’s the general contractor who is held liable for the actions of the parties that they subcontract.

Shifting Risk Through CRT - Contractual Risk Transfer

Since you can’t stand over, watch, and control every action your subcontractor makes, it’s important to protect your business from liability issues that may be caused by these subcontractors. Contractual risk transfer (CRT) can help mitigate some liability risks as it shifts some or all of the responsibility for claims, losses, and damages to another party.

CRT is not contractor insurance. Instead, it is a non-insurance contract that identifies critical exposures and clearly states the roles, responsibilities, and requirements (including insurance) of everyone involved in a construction project before the project begins. It is designed to place all or part of the financial risk on the party that is closest and most able to control the activity that may cause an injury, damage, delay or defect, and it indemnifies and holds certain parties harmless for specific actions, inactions, injuries, or damages.

Typical components of a CRT include the following:

1. A written contract
2. An indemnification or hold harmless clause
3. Insurance specifications
4. A certificate of insurance
5. An additional insured endorsement
6. Record retention guidelines

Contractual Risk Transfer Best Practices

Here are five best practices the insurance industry website PropertyCasualty360.com offers to build a more effective contractual risk transfer program:

1. Create standard contractual risk terms that are regularly reviewed and updated as needed.
2. Train procurement professionals, so they understand standardized terms and why they’re important to risk management.
3. Require authorization to bend the terms of the contract because occasionally changes may be needed.
4. Establish guidelines for when to involve risk management. For example, when a contract exceeds a certain dollar amount or falls outside the scope of your normal activities.
5. Enforce collection and review of certificates of insurance.

Contractual Risk Pitfalls

Here are three common CTR pitfalls from Construction Executive that you should watch out for:

1. Accepting Certificates of Insurance (COI) at face value. Dishonest contractors have been known to provide fraudulent COIs, cancel the policy after presenting the COI, or purchase highly restrictive policies.
2. An additional insured endorsement will provide you with a written notification if a policy is cancelled; however, the pitfalls associated with an additional insured endorsement include a) if you don’t have a written contract to go along with it, it may not be enforceable, b) if the underlying policy doesn’t cover a claim because of an exclusion, the endorsement is worthless, and c) even with an additional insured endorsement, the subcontractor’s limits may not be adequate to cover the full cost of a loss.
3. A written contract may not be enforced in a court of law especially if there is no COI with an additional insured endorsement.

In Summary 

CRT programs can be quite complicated, but since they help limit your liability, protect your assets and your bottom line, and control your insurance costs, they are well worth the effort. It’s always a good idea to use an attorney and insurance advisor when drafting a contract, and whenever you enter into a new contract, you should review it carefully and make sure you understand the risk that you are accepting.

Contact Our Experts To Protect Your Business

To learn more about protecting your business, contact American Insuring Group online or call us at (800) 947-1270 or (610) 775-3848. Our independent insurance experts will inform you of the risks you may be exposed to, and how to protect yourself with the proper contractor insurance coverage.

Unlike our "single brand" competitors, our independent agents are free to shop and compare rates and coverages among many competing insurance carriers to ensure you get the best price on quality insurance protection. Contact us today!