Construction Insurance Bulletin

Risk management experts, safety experts, accountants, actuaries, and other professionals make the distinction between direct and indirect costs of accidents, lawsuits, and so forth.

For example, the cost of turnover in the HR That Works Turnover Cost Calculator includes the direct costs (such as paying for a Help Wanted ad) and indirect costs (such not growing the business due to lack of manpower). Two of the most commonly insured employee risks are those for work-related injuries and employment practice claims. This means that the direct costs associated with a Work Comp injury are those related to medical expenses and expense reimbursement, which the Workers Compensation carrier usually pays.

We usually recommend that our clients pay the compensatory portion of the claim because if they don’t, the insurance company will pay it and then get their money back by increasing your experience modifier over the next three years. In a sense, they don’t pay these claims, they finance them. In addition to the increase in the experience modifier (MOD) and cost of future insurance, there are also indirect costs:

• Damage to property (building, tools, machinery, etc.)
• Emergency supplies, cost
• Possible media exposure/brand change
• Investigation time, claim management time
• Affect on employee morale
• Overtime, costs of replacing employee
• Increased experience modifier
• Damage to client relations if accident is “on site”
• Injury to third parties
• Additional legal fees

Of course, these ratios depend on the type of claim or injury, type of business, days lost from work, and so forth. When it comes to an employment practices claim, direct costs are for attorney fees, litigation costs and any settlement or verdict payout. The indirect costs include: Loss of employee morale, damaged customer and client relations, copycat claims, loss of knowledge base, training, and experience.

The risk management literature offers a wide range expert opinion on the range of direct to indirect costs. Only one out of seemingly dozens of surveys identifies indirect costs as lower than a 1:1 ratio to the direct costs. Some go as high as 20 times the direct costs (for example, when an expensive piece of machinery is destroyed in the process).

Based on my personal experience and that of experts I agree with, we can safely assume at least a 1:1 ratio in most circumstances. For example, you might have to pay out $50,000 to settle the lawsuit, plus another $50,000 to replace the employee! Unfortunately, these indirect costs are often uninsurable, and in many cases dwarf the insurable costs in a given risk scenario. Interestingly, the indirect cost ratio has been diminishing as medical and legal expenses continue to soar.

These ratios also depend on such factors as:

• Type of claim/injury
• Type of business
• Claim value
• Days lost from work
• Legal jurisdiction
• Management response

In the construction industry, construction bonds are an important part of the bidding process. As a contractor, here’s what you need to know about construction bonds.

What are Construction Bonds?

Construction bonds are a product that guarantees the contractor will complete the job according to the project contract. Typically, they’re required by governments for public jobs and by general contractors and private entities that bid projects to subcontractors.

Your construction bond, also called a bond line, is a pre-approved dollar amount. You’ll have a bond limit per job and an aggregate limit for all the contracts you have at one time. When you bid on a job, it counts against your bond line even if you don’t win the contract.

Types of Construction Bonds

You’ll need a variety of construction bonds depending on the project.

1. 1. Bid Bond – Guarantees the accuracy of your bid and that you can secure a performance and payment bond from the bonding company if you win the contract

1. 1. Performance Bond – Guarantees you’ll perform the work as outlined in the job contract

1. 1. Payment Bond – Guarantees that the suppliers, subcontractors and laborers you hire will be reimbursed if you go bankrupt before you pay them

1. 1. Maintenance Bond– Guarantees your work for a certain time after the job is completed

1. 1. Supply Bond – Guarantees your suppliers will deliver the promised supplies, materials and equipment outlined in their purchase orders

1. 1. Subdivision Bond – Guarantees you will follow local specifications as you build or renovate public structures in subdivisions

1. 1. Site Improvement Bond – Guarantees you will complete certain improvements such as renovations to older structures or updates to existing properties

1. 1. Contractor License Bond – Guarantees you will follow contractor regulations and licensing laws (this is technically a license and permit bond but is often considered a construction bond because it’s so common)

How to Increase Your Construction Bonds Limit

When you have a high construction bonds limit, you can bid on bigger and more jobs. Use these tips to increase your limit.

1. 1. Bid on small jobs. – Bid on and successfully complete small projects to build your reputation and improve your chances of getting higher construction bonds in the future.

1. 1. Complete your contracts. – Every time you complete a contract successfully, you establish a track record that can influence a bonding company to increase your bond limit.

1. 1. Improve your financial standing. – Hire a construction CPA to prepare financial records that show sufficient working capital, equity, cash flow and profit for your business.

Construction bonds ensure you complete the job properly. They’re an important part of your construction business, so understand what they are as you build your career.

In October 2010, a construction worker in Pennsylvania was crushed to death by a section of a steel plate. The month before, a worker in Houston died when a pallet carrying a one-ton load struck him. In Maryland, two bar joists fell off a stack of joists on a flatbed truck, killing a worker.

The U.S. Occupational Safety and Health Administration reports that material handling accidents account for hundreds of thousands of injuries each year on construction sites. Safe material handling practices can prevent much needless suffering and also save contractors and their insurance companies millions of dollars in medical and disability benefit costs. These practices involve three distinct areas: Safe handling, safe storage and disposal.

Safe handling of construction materials involves several measures, including: 

Properly securing all materials that are stored in tiers. Pipes, steel beams, poles and other heavy materials can slide or tilt if they are not stacked and blocked adequately, allowing them to potentially fall on workers.

Keeping combustible and flammable materials in fire-resistant containers.

Improperly stored material can shift or topple over, causing potentially serious injuries. 

Sound storage practices required by OSHA include:

Stacking bricks in piles no more than seven feet high, with every layer above four feet tapered back two inches for every foot. While masonry blocks can be stacked in taller piles, but contractors should also taper the piles above the six foot mark.

Not storing materials on scaffolds or runways unless the contractor is about to use them. 

In the hurry to get the job done, workers often dispose of construction debris in unsafe ways, such as tossing pieces of lumber off the side of the building. This risks injury to anyone standing below.

Contractors should follow these guidelines for proper waste disposal: 

Remove all scrap, especially combustible materials, as it accumulates instead of letting it pile up. However, do not remove it until workers are certain that the people working over their heads are finished tossing it to the ground.

Use separate containers for materials covered with oil or flammable liquids. 

An insurance company’s loss control department may have resources available to assist contractors with improving material handling. Those who want this help should check with their agents to arrange a meeting. Sound material handling practices help prevent injuries, fines and penalties, and reduce workers’ compensation costs. They will also enhance the employer’s reputation with potential employees. Putting these safeguards into place makes both moral and practical sense.

The construction industry employs millions of people on job sites across the United States. While the fatal injury rate is high for this industry, you can understand construction site dangers and steps that protect yourself, co-workers and pedestrians.

Fall Protection

Most of the construction site fatalities occur from falls. Unstable work surfaces and failure to use protective equipment contribute to this construction site danger.

The right equipment can prevent falls.

• Use guardrails, safety nets, restraint systems and fall arrest systems.
• Stand on an elevated platform or aerial lift.
• Secure all scaffolding.
• Inspect lifts regularly.
• Clean debris, liquid and dirt off all ladders, lifts or scaffolding.
• Observe maximum weight limits on ladders, lifts or scaffolding.

Cranes

The majority of crane accidents happen when the boom or load line connects with an overhead power line. Other dangers include getting struck by the crane or caught in its swing radius.

The crane should always be inspected before use. Only a qualified, experienced operator should run it, taking care to lift the recommended weight and watch for overhead wires. Never stand under the load, either.

Chemicals

Random chemicals around the construction site can cause burns, fires, explosions and respiratory problems.

Secure all chemicals safely. Maintain a Material Safety Data Sheet on all chemicals, and ensure all employees know where the MSDS are stored and how to read them. Train employees on the risks and proper use of those chemicals, too. They should also use protective gear and know how to access and use the spill kit.

Bodily Protection

Injuries to your head and unprotected eyes, face, hands and feet can cause disability or death.

Wear protective gear at all times, including safety glasses, gloves and steel toed, non-slip shoes. Remember to wear a hard hat and watch out for falling or fixed objects. You should also use caution when operating power tools.

Repetitive Motion

Operating the same tools over time or standing in one position all day can cause repetitive motion injuries and strains.

Take frequent breaks to protect yourself. Use proper posture or change positions frequently, too. You can also use less force as you do your job.

Electrical Safety

Any time you work around electrical tools or electricity, you’re in danger of electrocution.

Never bypass any device that protects you from electrical energy or climb near exposed wires. Always shut off the power before working on electrical circuits, too. Properly ground power tools, and inspect the cord for damage. If you use an extension cord, it should be certified for hard service.

Construction is a dangerous but important profession. Take these safety precautions as you prevent six construction site dangers.

As a small tradesman, you perform a variety of tasks on the job site or in a factory. You love your job and have invested time studying in a trade school or an apprenticeship. While you are a skilled professional, you must pay attention to your insurance needs, though, including Small Tradesman’s Workers’ Compensation.

What is Small Tradesman’s Workers’ Compensation?

Small Tradesman’s Workers’ Compensation ensures your medical and other needs are met if you’re injured or become ill because of your job. It can cover injuries or illnesses caused by a specific event or from repetitive motions, overuse or exposure over time.

In general, Small Tradesman’s Workers’ Compensation pays for:

1. 1. Necessary medical treatment – pay for any generally acceptable medical care you need to treat your injury or illness, including doctor visits, lab tests, physical therapy, surgery, medication and medical equipment.

1. 1. Wage replacement – replace a portion of your wages as you recover.

1. 1. Disability – receive payment if your work-related injury or illness causes a total, partial, temporary or permanent disability.

1. 1. Death – survivors receive a death benefit if your work-related injury or illness is fatal.

1. 1. Rehabilitation – pay for therapy you need to regain employment-related skills or train for a new job.

Every state has different Workers’ Compensation requirements, so familiarize yourself with the law before you start a job. Remember to check Small Tradesman’s Workers’ Compensation requirements for out-of-state jobs, too.

Who Qualifies for Small Tradesman’s Workers’ Compensation?

Several factors determine your eligibility for Small Tradesman’s Workers’ Compensation. They can include your state’s requirements, your company’s size and the type of work you do.  Talk to your employer or insurance agent for details about your qualification for this valuable coverage.

How do you File a Small Tradesman’s Workers’ Compensation Claim?

It’s very important that you follow procedure when filing a Small Tradesman’s Workers’ Compensation claim. Otherwise, your expenses may not be covered.

• Immediately report the injury or illness to your employer.
• File necessary paperwork that lists details about the injury or illness, including where and when it happened and what you were doing.
• See the approved medical professionals who accept your Small Tradesman’s Workers’ Compensation insurance.
• Follow all medical advice, including recommended lab testing or rest.

How do you Purchase Small Tradesman’s Workers’ Compensation?

Every employer is responsible for purchasing Small Tradesman’s Workers’ Compensation insurance. Ask your employer today if you’re covered. It’s easy to buy a policy from a licensed insurance agent who understands the insurance industry and the risks you face as a small tradesman. Your agent will help you follow your state laws and protect yourself.

According to the Occupational Safety & Health Administration (OSHA), the second highest cause of death in the construction field is the worker being struck by an object. Most workers in the construction field are very aware of the struck-by hazards they face when doing roadwork. However, many construction workers might be surprised to know that statistics show most struck-by accidents occur on the construction site.

Heavy equipment is involved in around 75% of struck-by fatal injuries. Equipment operators that don’t follow proper safety protocols not only put themselves at risk, they put workers on the ground at risk of being struck by swinging equipment, crushed under overturned vehicles, or getting pinned by equipment.

Struck-by injuries statistics prompted OSHA to establish the following procedures for equipment operators to follow in order to avoid creating hazards:

1. 1. All vehicles should be checked each shift to ensure that all accessories and parts are in a safe operating order.

1. 1. Unless a vehicle has a reverse alarm or the driver has a worker to signal them, vehicles with an obstructed rear view should never be driven in reverse.

1. 1. OSHA standard seat belts should be worn unless the equipment is stand-only or doesn’t have a rollover protective structure.

1. 1. Operators of lifting and dumping devices should ensure that they and all other workers are clear of the area before lifting or dumping.

1. 1. Vehicles and equipment should only be operated on maintained and safely constructed grades and roadways.

1. 1. Parked vehicles and equipment should have the parking brake set. If parked on an incline, the wheels should also be chocked.

1. 1. If not in use, bulldozer and scraper blades, dump bodies, end-loader buckets, and other overhead equipment should be lowered or blocked, with the controls in a neutral position.

1. 1. All vehicles should have adequate safety devices, such as braking.

1. 1. There should be a cab shield/canopy on any vehicle loaded by a power shovel, loader, crane, and such.

1. 1. The load and lift capacity of a vehicle should never be exceeded.

1. 1. Any construction taking place near a public roadway should have traffic signs, flagging system, and barricades.
   2. Workers must wear warning clothing, such as orange or red vests, to ensure they’re clearly visible. Warning clothing must be reflective if working at night.

Workers must also be mindful of overhead falling objects. This is a particular concern when working beneath scaffolding, cranes, or any area that overhead work is being done. There’s also the danger of objects that potentially could be propelled through the air and strike a worker, such as a power tool or an activity involving something being pried, pulled, or pushed. The following list of OSHA guidelines can protect workers from falling and flying hazards:

1. 1. The first line of head protection is having a hardhat on.

1. 1. Workers in areas where tools or machines could produce flying particles should wear shields, safety goggles, or safety glasses.

1. 1. Materials should be stacked so that they don’t collapse, slide, or fall.

1. 1. Scaffolding areas should feature toe boards, guardrails, screens, debris nets, canopies, or platforms to prevent or catch falling objects. Tools and materials should also be secured to prevent them from falling.

1. 1. Hazard areas should have warning signs and be barricaded.

1. 1. Protective guards on tools, such as lathes and saws, should be inspected for good working condition before use.

1. 1. Never use a power-actuated tool unless trained to do so.

1. 1. Try not to work in areas where underneath loads are being moved.

1. 1. The lift capacity of hoists and cranes shouldn’t be exceeded.

1. 1. All components of a hoist and crane, such as wire, hooks, and chains, should be inspected for good working condition before use.

When you work as a general contractor, you may build homes from the ground up, perform repairs on a variety of buildings or renovate homes, buildings or offices. Your job fulfills you and improves the lives of others, but you do face risks. Protect your livelihood and assets with general contractors professional liability.

What Risks do General Contractors Face?

General contractors normally perform the building aspects of a project. Because you’re responsible for construction, any structural failure could become your responsibility. You could potentially be liable for injuries and illnesses that result because of a mistake you or one of your sub-contractors commit.

However, keep in mind that your duties as a general contractor may extend beyond basic building. You may be responsible for:

• Designing a project
• Estimating project cost
• Hiring sub-contractors
• Supervising an entire build site

While rewarding, these additional responsibilities increase your risks and liability. An error in design, underestimated cost or mistake by one of your sub-contractors that causes bodily injury or property damage could result in a lawsuit that exceeds a million dollars. As the general contractor in charge, you would be liable for these costs.

General contractors professional liability protects your livelihood and assets if you are sued. Instead of losing your business, home and financial accounts, your liability insurance policy covers any damages. It allows you to pay for losses and stay in business.

What Does General Contractors Professional Liability Cover?

Purchase general contractors professional liability and receive coverage for several important circumstances.

• Design errors
• Bodily injury
• Property damage
• Negligent acts
• Contractual liability
• Faulty workmanship

Additionally, your may purchase a general contractor professional liability policy with pollution and indemnity coverage. These important products protect you if pollution claims arise on the job site or if an engineer or architect is legally liable for problems with the project.

How Much General Contractors Professional Liability do you Need?

The right professional liability policy provides the protection you need, but you may not know how much coverage to buy for your business or a specific job. Talk to your insurance agent about your job responsibilities, potential risks and assets. These factors help your agent create a customized policy with adequate coverage limits.

You should also discuss the difference between a general contractor professional liability policy and an umbrella policy that’s added to a regular liability policy. In most cases, the professional liability policy provides greater coverage and covers all your bases.

General contractors professional liability protects your livelihood and assets. It’s important coverage, so make an appointment today to talk to your insurance agent, protect your business and gain peace of mind.

Imagine two accident scenarios. In the first, a construction worker falls off a ladder from 12 feet up and breaks his ankle. His employer has a policy requiring drug and alcohol testing for all workers who suffer work-related injuries that are likely to result in Workers Compensation claims. Can the employer legally do that? If it can, is it a good idea?

In the second, the construction worker is on the ground near the ladder. Someone asks him a question and he turns around to answer. At that exact moment, a worker 12 feet up on the ladder is stung by a bee and drops a component of the air conditioning unit he was installing. The component strikes the worker on the ground, fracturing his shoulder. His employer has the same policy about automatic testing after a workplace injury. Again, is this legal? Is it a good idea?

Employers have good reason to be concerned about the effects of drug and alcohol use in the workplace. A 2002-2003 workplace study showed that, in the prior 12 months, 7% of U.S. workers had consumed alcohol during the workday, 1.7% had worked while under the influence of alcohol, 9% had suffered from hangovers while at work, and 3% used illicit drugs on the job. To combat this, many employers have drug- and alcohol-free workplace policies that they enforce through testing workers for these substances.

However, automatically testing all workers following work-related accidents might not be wise. In fact, it could end up hurting the employer. First, automatic testing might be illegal in the employer’s state. A West Virginia court in 2002 found that Walmart violated the privacy rights of an employee when it required him to take drug and alcohol tests after he injured his back on the job.

The jury relied on earlier court decisions holding that employers violated the state’s constitution by requiring testing without having a reasonable suspicion that the employee was using.

A 2001 decision from an Ohio court went even further. It struck down a state law that permitted employers to deny Workers Compensation benefits to employees who refused to submit to post-injury drug and alcohol tests. The court ruled that requiring testing of employees for whom the employers had no reason to suspect substance abuse amounted to a search of the employees. This search, the court said, violated the U.S. Constitution’s prohibition against unreasonable searches and a similar provision in the Ohio constitution.

Even where state law permits automatic testing, it might harm employee morale. Otherwise loyal and productive employees might feel offended if an employer demands that they submit to testing after they’ve been injured on the job. In the long run, this might hurt the employer’s ability to retain employees and recruit new ones.

It might also invite disability discrimination claims. When the employer does not routinely test all employees but tests only those who suffer workplace injuries, the injured employees might view this as discrimination against them due to their disabilities. They might seek redress under the Americans with Disabilities Act and pursue monetary damages from the employer.

As was the case with the West Virginia and Ohio decisions, automatic testing might invite invasion of privacy claims. At the least, this will subject the employer to long, expensive, and distracting litigation. Employers should take sensible steps to ensure that their workplaces are safe.

While post-injury drug and alcohol testing might make sense in many cases, it is not always appropriate or desirable. Employers should consult with human resources professionals to establish sensible testing policies, and seek the advice of our professional insurance agents to verify that you have the necessary insurance coverage in the event of a discrimination or privacy violation claim.

When the project is finished, it belongs to the client, it belongs to whoever owns the land. In the meantime, there’s a lot of shared risk. If a hurricane blows the whole jobsite into the sea, the client is out whatever you’ve spent on construction materials, but the builder could be out of a job if there’s no builder’s risk policy in place to recover the losses.

The builder does the work, the client finances the project, and until it’s finished, you’re in this together, sharing the risks associated with building something. Their project and your job are both on the line.

So who buys the builder’s risk insurance?

Many contractors insist on the client making the purchase. It’s the client that collects the payout on the claim, it’s the client who will own the finished property, and all the material on the site has been purchased with funds allocated by the client. This is the simplest, easiest solution. Anyways, if the builder is expected to buy the policy, then they’re probably going to weigh that into the budgeting process, essentially requiring the client to foot the bill either way.

On the other hand, buying the policy yourself, as a builder, can help to protect you against certain circumstance. Suppose, for instance, that disaster strikes, and it kills the client’s enthusiasm for the project. They recoup their losses, and leave you out of a job. Furthermore, a builder may simply be more familiar with the ins and outs of insuring a construction project. If you’re working with someone who is new to the process or someone who just wants a home built and isn’t interested in becoming a real estate mogul, then it may make more sense to handle all the red tape for them. You’re generally going to have to provide proof of builder’s risk coverage on most major projects, and if you already know how to do that, it’s a lot easier than telling someone where to go to get these papers stamped, who to call for a fair price on the policy, how much coverage to buy and so on.

Ultimately it depends on the project. If the client is trustworthy and experienced in these matters, then you may want to let them handle it. Otherwise, you can streamline the process and get to work much quicker by buying the policy yourself rather than walking an inexperienced client through it.

The bad news: Exposure to indoor mold can trigger serious allergic reactions and even infections among workers and visitors to your building, leading to lost productivity – not to mention the costs and hassles of litigation.

The good news: Taking precautions against this risk can help prevent health problems, limiting your exposure.

The potential for indoor exposure to mold has increased in recent years because of the way we live. To conserve energy, buildings are being built more tightly — and the tighter the structure, the greater the exposure to indoor mold. Using synthetic building materials literally seals buildings and reduces air movement, creating a higher moisture content that nurtures mold growth.

Poorly designed or maintained heating, ventilation, and air-conditioning systems contribute to indoor mold exposure; Air filters and air filtration devices provide a comfortable habitat for mold, especially in high humidity conditions. HVAC systems can re-circulate air that contains mold spores and toxins if there are no effective filter systems to trap them. Failure to maintain and clean systems leads to unchecked mold growth and circulation indoors. Humidity worsens the problem; mold thrives in humid conditions.

Human factors contribute to mold exposure, including the fact that we spend so much time indoors, and many of us have compromised immune systems from diseases and medications. What’s more, new and harmful mold organisms are circulating constantly.

Although there’s no practical way to eliminate all indoor molds and mold spores, to stop indoor mold growth and reduce the presence of mold in the workplace, we’d recommend taking these steps:

1. Clean small-scale molds ASAP, using a 10% solution of chlorine bleach; always wear the proper Personal Protection Equipment (which includes gloves, eye protection, and a mask to protect against airborne spores) and dry surfaces completely after cleaning.
2. Fix leaks quickly; moisture from leaks provides an ideal environment for mold growth.
3. Seal surfaces with a substance such as paint to which fungicide has been added.

Large-scale mold problems require the use of professional cleaning services that employ such treatments as oxidizers, fungicides, bactericides, and shielding compounds, which seal the antimicrobial agents within the treated surface.

Our risk management specialists would be happy to help you deal with mold problems in your workplace. Just give us a call.