Construction Insurance Bulletin

Premium audits are just as important for you as they are for your insurance carrier. That’s because when your policy was originally issued, your carrier calculated your premium based on the estimated payroll or sales figures you provided. Now that there are actual numbers, the audit determines what the correct premium should be based on your actual experience.

Your carrier can audit you using one of the following methods:

• Physical Audit — This is typically conducted on-site or at another appropriate location, such as your accountant’s office.
• Phone Audit — A representative of an independent audit company hired by your insurer contacts you by phone to conduct the audit.
• Mail Audit — An audit form with instructions is mailed to you; the completed form is returned to your carrier.

Your insurer usually chooses the type of premium audit based on the size of your policy and/or the nature of your operations. The audit itself might include an inspection of accounting records including payroll journals, disbursements journals, general ledgers, Social Security reports, state unemployment forms or other tax reports. Since an audit can encompass such a vast array of data, you should follow these tips to help make the experience run smoothly:

Preparing for the Audit:

• Decide which staff member is best able to work with the auditor. This should be someone familiar with the work done by all departments and employees and is knowledgeable about the records needed to complete the audit.
• Review prior years’ audit billing statements and auditor’s work sheets to familiarize yourself with what the auditor will be reviewing.
• Gather all pertinent accounting records.
• Review payroll documents to make sure that they include breakdowns of wages by employee, department, and class code.
• Verify that you have certificates of insurance on file for any subcontractors you might have used. Be sure that the documents show that the contractors have their own Workers Compensation and General Liability insurance.

On the Day of the Audit:

• Request that the audit take place on site so that all pertinent records are easily accessible.
• Ask questions during the audit to clarify anything you do not understand.
• Ask for a hard copy of the auditor’s specific findings.

After the Audit Has Been Completed:

• Review the audit billing statement carefully and compare to the original policy.
• Make a list of all changes and discuss any questionable areas with the auditor before agreeing to pay any additional premiums.

Employers frequently require their workers to drive on company business. For some firms, driving can be the major part of employees’ jobs. Other companies might need salespeople or inspectors to drive as an incidental but necessary part of their jobs. Even companies that perform most of their work in an office will need employees to drive at least occasionally to projects, conferences, or job sites. Employers who require their employees to do driving at all take the risk that their workers will become involved in automobile accidents. These incidents subject employers to medical bills, the costs of repairing or replacing damaged vehicles and property, and potential lawsuits from third parties.

Employers can get a fair picture of how employees drive by obtaining copies of their employees’ motor vehicle records (MVR). Employers who decide to obtain their employees’ MVRs need to be aware of the boundaries set by federal and state laws.

Congress enacted the Driver’s Privacy Protection Act (DPPA) of 1994 to restrict access to personal information that might appear on an individual’s driving record. Personal information is anything that can identify a person, such as a name, photograph, Social Security number, phone number, address, or similar information. The law allows a motor vehicle bureau to release the record, including personal information, to anyone who has a permissible use. There are 14 permissible uses; three are relevant to employers. A bureau may disclose information for use in the normal course of business to verify the accuracy of personal information a person provided to the business and, if the information is inaccurate, to obtain accurate information to prevent fraud. Also, an employer may obtain information relating to the holder of a commercial driver’s license. Any person may obtain another’s MVR if he can show a written consent by the other party for its release.

The federal Fair Credit Reporting Act (FCRA) is more restrictive. This law governs the release of consumer reports, a term that includes driving records, credit reports, credit scores, and others. It provides that a consumer reporting agency (such as Equifax) may not release a consumer record to an employer for employment purposes unless the consumer has given written permission. Therefore, a messenger service that wants to look at prospective employee Bob’s driving record before hiring him must get Bob’s written permission first. The consumer reporting agency must give Bob a Summary of Consumer Rights. If the employer takes an adverse action against Bob (doesn’t hire him, declines to promote him, etc.) at least in part because of the information in his report, it must give him a Notice of Adverse Action, advising him of the information that affected the decision and the name of the reporting agency.

Some employers ask their insurance agents to obtain employees’ driving records. The DPPA permits agents to order these records for insurance purposes and allows a person with a permissible use to share information with another person with a permissible use. The FCRA, however, imposes on the agent the same obligations that a consumer reporting agency would have. In addition, some vendors forbid agents from sharing the records.

Businesses have a legitimate need for some information about how their employees drive. Employees have an equally legitimate concern about who will see their information and how it will be used. These laws attempt to balance business needs and employee privacy rights. All employers should familiarize themselves with these laws and state laws that might restrict their access to personal information.

Construction accidents often result in damaged property. Fires from faulty wiring scorch walls, paint sprays onto cars, and collisions dent earth-moving equipment. When something goes wrong, contractors will look to their Commercial General Liability (CGL) policy to pay the costs of repair or replacement. However, although this policy covers many types of property damage claims, it will not cover every situation.

Before the CGL policy will provide any coverage for claims such as these, three things must be true:

1. The contractor must be “legally obligated” to pay damages. Liability insurance covers the contractor’s tort liability; that is, liability for negligent acts. Is the injured party claiming that the contractor was negligent in performing the work? If the answer is yes, then the CGL policy may provide coverage. If the claim is for failing to complete the work, however, there is no coverage.
2. The damage must arise out of an “occurrence,” as the policy defines that term. The standard CGL form defines occurrence as, “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Therefore, for coverage to apply, the damage must be accidental. If the insurance company determines that there was no accident, it will not provide coverage. For example, the company would not cover a component that simply fails to work after installation.
3. The accident must result in property damage. The policy defines property damage as “physical injury to tangible property, including its loss of use, and the loss of use of tangible property that is not physically injured.” Damage to a third party’s building, for example, is property damage. Loss of that party’s computer data is not, however, because the data is not tangible property.

If property damage arose out of an occurrence and the contractor is legally liable, the policy might still not cover the claim if it falls within the category of faulty workmanship. The policy does not cover a contractor’s liability for property damage to “that particular part” of real property on which the contractor or one of his subcontractors is working if the damage resulted from that work. For example, assume a contractor is repairing the wiring to a chandelier in a banquet hall. During the installation, the chandelier falls and damages the hall’s hardwood floor. The policy will not cover the damage to the chandelier because it was “that particular part” of real property on which the contractor was working. However, it will cover the damage to the floor.

The definition of “that particular part” can be unclear. The insurance company might argue that there is no coverage for a roofing contractor who accidentally starts a fire and burns most of the roof. Is the entire roof “that particular part,” or is it just the one section of the roof where operations were taking place? The policy’s language does not resolve the question.

Another policy provision is much clearer. It states that there is no coverage for damage to “that particular part” of any property that must be restored, repaired, or replaced because the contractor performed his work on it incorrectly. This provision applies to both real and personal property. Therefore, the policy will not cover replacement of the chandelier if it does not work after the contractor repairs it.

Be sure to address questions about your insurance coverage with one of our insurance specialists. An Inland Marine insurance policy can cover some types of property damage losses not covered by Liability insurance. Other types of losses will have to be paid out of the contractor’s pocket. Be sure you know what you can expect from your insurance coverage in all situations on the job site.

Have you ever sent an employee out to pick up needed supplies? Offered to buy lunch for the crew and asked an employee to pick it up? Unless you only send employees who are insured to drive your company vehicles, you may be putting your business at risk. Your business may also incur liability if you travel on company business and have an accident in a rented car while traveling to meet a client or for other business-related purposes.

Why would your business be at risk? Because if there is an accident that causes damage to a third party and the driver’s insurance doesn’t cover the full costs, your company may be sued to recover the excess amount. Employees who use their personal cars are generally required by law to have insurance. But unless you hire them as drivers, you probably have no idea how much insurance coverage employees actually carry ― or even if they have insurance at all.

If you’re traveling on company business in a rental car, you’re probably covered by your personal insurance or by a policy purchased through the rental agency. But if you’re in an accident and cause damage that exceeds the amount of personal coverage you have, an attorney for the injured party would almost certainly seek damages from your company.

The Solution

The good news is that there’s a simple and relatively inexpensive solution: A Non-Owned Auto insurance policy. This type of policy protects your business if an employee gets in an accident and causes damage while running a company errand. It also protects your company if you cause damage in an accident while driving a rental car on company business.

Keep in mind that Non-Owned Auto insurance generally doesn’t cover drivers ― its purpose is to protect the organization. Non-Owned Auto insurance generally does not function as primary insurance; it is designed as excess liability protection. In other words, if your employee causes damage in an accident while driving a personal car on company business, the employee’s insurance would generally pay first. But if the liability exceeds the amount of the employee’s coverage, Non-Owned Auto insurance would protect your business from being responsible for damage costs not covered by the employee’s coverage.

The Bottom Line

Liability claims caused by vehicular damage can run into the millions of dollars. Your business could be at risk if an employee has an accident while traveling on company business. Your company could also be at risk if you or an employee has an accident while driving a rental car on business. Non-Owner Auto insurance can provide peace of mind ― and vital protection.

Employers who don’t take work-related stress seriously might be shocked to learn that, according to the American Institute of Stress, U.S. companies incur $200 billion to $300 billion every year in work-related stress claims. The Bureau of Labor Statistics reveals that claims resulting from work-related stress have an average duration of 23 days, which is four times longer than the average number of days lost from nonfatal occupational injuries and illnesses.

According to the National Institute for Occupational Health and Safety, work-related stress is defined as the “ … harmful and emotional responses that occur when the requirements of a job do not match the capabilities, resources or needs of the worker.” Stress can result in both physical and mental illness and can also be directly responsible for physical injuries. An article in The Journal of Occupational and Environmental Medicine suggests that the costs of administering health care are 50% higher for workers who claim job-related stress. To combat work-related-stress claims, employers must learn to recognize the primary causes of stress. NIOSH has identified 6 main reasons for work-related stress:

1. Design of Tasks and Jobs: Heavy workloads; infrequent rest breaks; long work hours; shift work; and hectic or routine tasks that have little inherent meaning, do not fully use worker skills and provide little sense of control.
2. Interpersonal Relationships: A poor social environment and lack of support or help from co-workers and supervisors.
3. Management Style: Poor communication and not encouraging participation by workers in decision-making.
4. Work Roles: Conflicting or uncertain job expectations and responsibilities that are defined too broadly.
5. Career Concerns: Job insecurity; lack of opportunities for growth, advancement or promotion; and rapid changes for which workers are unprepared.
6. Environmental Conditions: Unpleasant or dangerous physical conditions such as crowding, noise, air pollution, or ergonomics problems.

Proactive steps which employers can take to reduce stress in their work force include:

• Improve Employee Communications – Make your workers feel involved by getting their feedback on management plans or decisions.
• Give Employees a Sense of Control – Give your employees as much independence in the operation of their jobs as is reasonable and responsible.
• Keep Employees in the Loop – Eliminate the stress of uncertainty by telling your employees what changes are going on and how they may be affected.
• Don’t Label Employees – It’s healthy for employees to vent their concerns and frustrations as opposed to bottling up the stress because they fear retaliation, so let them express themselves freely.
• Don’t Overload Your Employees – Do whatever possibly to reduce excessive workloads that exceed an employee’s abilities. Spread the load.
• Create Realistic Work Schedules – Try to be flexible with your work schedules by considering the demands imposed on employees outside the job. Be as creative as possible and show you care. Be approachable.
• Define Their Roles – Ensure employees clearly understand their responsibilities and what roles they play.
• Give Meaning to Your Employees’ Skills – Try to design jobs so they stimulate and give meaning to your employees. Treat each employee as an asset and offer opportunities for advancement and cross-training. Try to incorporate all the skills they have to offer.
• Socialize – Give your employees a venue in which they can interact socially, such as company picnics, sports or other activities.

Work-related stress affects the morale of your company. Stressed employees file more work-related claims resulting from physical injuries, health and mental conditions. You can reduce Workers Compensation claims simply by taking action and implementing positive stress-relieving measures.

When a contractor wins a bid for a job, the contract with the owner or general contractor will often require the contractor to provide Liability insurance coverage for both the contractor and the owner or GC. The contractor usually accomplishes this by having his insurance company add the other party to his policy as an additional insured. An additional insured has certain rights under the policy, the most important of which are the right to insurance company provided defense and payment of losses. However, this approach may not satisfy all of the other party’s requirements. In this situation, the contractor might want to consider an alternative coverage approach.

An owners and contractors, protective Liability insurance policy covers an owner or contractor for liability arising out of the actions of a subcontractor. It is unique in that, while the subcontractor arranges for and purchases it, the sub has no underlying coverage. Rather, the insurance company issues the policy in the name of the owner or GC (the policy information page identifies the contractor doing the work). For example, assume Owner A hires Contractor B to build a small office building. Contractor B purchases an OCP policy insuring Owner A for liability it incurs from Contractor B’s work. If Contractor B erroneously cuts down trees on a neighboring property and the neighbor sues Owner A, the OCP policy pays for A’s defense and the cost of any settlement.

This is a much different arrangement than additional insured coverage. In that arrangement, Owner A has coverage under a policy issued in Contractor B’s name. Owner A may be one of many parties that B’s policy covers.

Beyond that difference, there are advantages and disadvantages to each approach. Assume that B’s policy covers losses up to a total of $2 million during the policy term. If Owner A is an additional insured, he is sharing that $2 million with B and any other parties with coverage under that policy. However, an OCP policy in A’s name will provide a separate amount of insurance just for A. Also, Owner A might want the insurance company to notify him in advance if it decides to cancel B’s insurance. An additional insured under B’s policy usually does not have any rights to advance notification. As the party named on the OCP policy, however, A is entitled to advance notice. This can be important, as the advance notice requirement may be included in the construction contract.

One disadvantage of an OCP policy is that it does not provide completed operations coverage. Coverage ceases when the contractor finishes the job. If the contract requires completed operations coverage, the subcontractor might have to ask his insurance company to add the GC as an additional insured for this coverage on his own Liability policy. Also, because the OCP is a separate policy, the insurance company will charge an additional premium for it, something they might not do for adding an additional insured. The OCP policy covers losses only if the GC is held liable for the subcontractor’s actions. It will not cover the GC’s sole liability for its own actions. However, recent changes to additional insured coverage have had this effect as well. Finally, OCP policies might be more difficult to obtain than additional insured coverage.

Which coverage arrangement to choose is a matter of negotiation between the subcontractor and the GC. Discuss your options with one of our agents and become informed about what each form does and does not cover. Most importantly, whichever coverage is selected should meet the insurance requirements and other provisions of the construction contract. Contact us today!

There is never a good time to be laid off from a job. In addition to the loss of income, many people define themselves by what they do. To these employees, being laid off can be a blow both economically and emotionally.

That’s why it’s so important to relay this news to workers in a way that minimizes the possibility of a violent reaction. The best way to accomplish this is to remain respectful of the individual so that they can maintain their dignity. Here are some tips to help you terminate without destroying the employee’s ego:

• Be explicit about the reason(s) for termination. If economic conditions have required you to let this employee go, you need to explain the justification for your actions. Don’t attempt to spare your employee’s feelings. If this person was chosen for termination instead of a colleague who has similar responsibilities, you must be explicit about what other issues, such as chronic lateness/absenteeism, poor performance, etc. influenced your decision. Be prepared to backup your statements with written documentation that verifies your decisions.
• Choose an appropriate time. You should always terminate an employee early in the day and early in the week. Never terminate on a Friday or on the day before a holiday.
• Have the termination paperwork ready. You should provide the employee with all information about pay, benefits, and unused vacation time during the termination interview. Be ready to answer all questions regarding what they are entitled to, especially if there is a severance package.
• Ask for the assistance of your Human Resources professional. Having an HR person sit in on the termination interview can be helpful because they can answer questions about benefits in greater detail.
• Conduct the interview in privacy. Hold the termination meeting in your office, and close the door so that other employees can’t overhear the proceedings. Assure the employee that no part of your conversation will be repeated to other employees. Also explain the wording that will be used to announce the employee’s departure to the rest of the staff.
• Don’t overstate. Once you have explained the reasons for the termination and what benefits the employee is entitled to and given the employee time to ask questions, bring the meeting to a close. The longer you stay in the room, the more opportunity there is for the employee to try to negotiate to get the job back. This type of situation has the potential for violence.
• Be mindful of your tone throughout the meeting. Be direct, but compassionate. Never try to commiserate with the employee.
• Stay in charge of the meeting. The employee might attempt to deflect blame to save their job. Don’t allow this to continue. Politely interrupt the employee and explain that the decision has been made and is not reversible.
• Offer some words of encouragement. End the meeting by thanking the employee for their service and wishing them well in their future career.

With all the attention garnered in recent years by the California wildfires, it’s a vivid reminder of the constant threat that jobsite fires can pose on construction projects. Contractors need to continually reassess their risk management plans to adequately prepare for a potential fire. The International Marine Underwriters Association offers the following 10 tips for keeping construction sites free from fire:

1. Maintain a written loss control plan that addresses risks of fire exposure comprehensively. Your plan should include general safety measures and specific objectives that are enforced actively by job site management, with a specific person in charge of on-site safety coordination.
2. A no smoking policy should be enforced at all times during the project.
3. Daily on-site inspections by project managers should investigate the work area, material and equipment storage, and any locations with hazards. A log should be maintained of all daily inspections for future reference.
4. During “hot works” operations like cutting, welding or brazing, a designated person should look for sparks that could lead to fires by maintaining a line of sight to the working and adjacent areas. This person should watch actively for sparks, slag, and products of combustion, as well as inspecting the surrounding areas for at least 30 minutes after operations have ceased.
5. All portable heating equipment should be placed on non-combustive flooring or platforms. Adequate clearance, maintenance and fueling should be in accordance with manufacturer’s specifications and/or recognized standards.
6. Build temporary enclosures that contain designated travel paths for materials and emergency personnel. Ideally, these enclosures should be located away from overhead exposures and should be built with approved Underwriters Laboratory or Factory Mutual non-combustible construction materials.
7. During roof construction, place at least one portable fire extinguisher on the roof level that has sufficient capacity for the task at hand.
8. Properly clean roof vents to reduce possible ignition sources, such as lint, prior to roof surfacing operations.
9. Review identification and labeling requirements on flammable liquid and gas containers prior to allowing them on the jobsite. Designate safe storage areas for flammable materials and clearly identify them with signs and stable barriers.
10. Firefighting equipment should be readily available on the jobsite at all times. Project managers should ensure that such equipment is implemented properly, connected to a reliable water supply and easily adaptable to local fire department equipment.

Jobsite theft continues to be a major challenge for all contractors with industry experts estimating annual losses at roughly $1 billion to $2 billion in the residential construction sector alone. Meanwhile, the National Equipment Register estimates annual thefts of heavy equipment, such as bulldozers and skid-steers, at $300 million to $1 billion – with only 10% of all stolen equipment ever being recovered. Contractors, equipment dealers, and insurers all suffer when jobsites are vandalized or equipment and materials are stolen. In what starts a vicious cycle, a stolen piece of equipment or material can shut the jobsite down temporarily adding to indirect costs for the contractor. Rental equipment companies may refuse to rent to contractors who don’t properly safeguard their assets. And finally, insurance premiums are bound to rise for all parties to mitigate losses associated with equipment theft.

The phenomenon of theft and vandalism of construction sites is not new and not limited to any one region. This is a national problem that will most likely only get worse over time. Whether we like it or not, jobsite theft is here to stay and the industry must focus on limiting the incidents as much as possible by making it difficult for the perpetrators to succeed.

Contractors can demonstrate commitment to stopping theft and vandalism on their sites by following these tips:

• Inventory Assets and Property. All assets on a construction site should be identified, inventoried, and tracked as closely as practical.
• Enlist Neighborhood Support. A company representative should contact neighbors around the jobsite to solicit their support in maintaining a safe and secure jobsite.
• Control Keys. Keys should be issued to as few people as possible. A log of issued keys should be maintained which includes the type of key issued, to whom, on what date, and for what purpose.
• Lock Gates after Hours. The number of gates on the jobsite should be kept to a minimum. If possible and practical to do so, uniformed guards should be utilized during working hours to check vehicles entering and leaving the jobsite. Gates should be closed and locked at night and on weekends.
• Secure Tools and Equipment When Not in Use. Storage sheds or fenced areas should be provided on the jobsite for the secure storage of tools and equipment. When vehicular equipment is not in use, ignition keys should be removed and the cabs locked.
• Engrave Construction Equipment in at least two obvious and one hidden location.
• Install Motion Activated Lighting. Lighting can be an effective deterrent to theft and vandalism on the site. Lighting systems triggered by a motion detector are recommended as such lighting gives the impression an intrusion has been detected and might also warn neighbors of potential intruders.
• Fence the Jobsite. Ideally, the entire jobsite should be enclosed in sturdy fencing topped with multiple strands of barbed wire. If it is not practical to enclose the entire site, at a minimum the area around trailers and material storage should be enclosed.
• Hire a Security Company. It might be advisable to employ the services of a bonded and insured security company either to maintain guard staff on-site or to conduct periodic patrols of the construction jobsite.

Although this list might be lengthy, the time spent reading these tips and implementing them could save you a lot of time and money.

The creators of the standard Commercial General Liability Insurance Coverage Form did not intend for it to cover many pollution events. Pollution events can be extremely costly; businesses with such risk require specialty insurance policies written by companies with expertise in that area. The CGL form covers more routine events such as slips, falls, accidental property damage, and construction accidents. However, a contractor that has an accident involving the release of harmful liquids, fumes or irritants might still find some coverage in the CGL form.

The CGL form covers a contractor’s liability for the release of pollutants at premises that he does not own, occupy, rent or borrow. For example, a contractor, working at a convenience store, who cracks a pipeline that supplies gasoline from the tanks to the pumps might have coverage because the accident happened at premises he did not own, occupy, rent or borrow. However, if the same contractor knocked over a drum of motor oil at his own premises, the policy would not provide coverage for the clean up.

The contractor also has coverage for the release of pollutants at a job site if he did not bring them there. In the above example, the gasoline flowing through the pipeline was already at the job site. Since he did not bring it to the site, the contractor has coverage for this accident. However, a painting contractor completing a job outdoors on a windy day will not have coverage if paint gets blown into a nearby stream.

The policy also covers the contractor for harm caused by gases, fumes or vapors from materials he brought into a building in connection with the work being performed. A painting contractor working inside a building has coverage if the paint fumes make other people in the building sick. By contrast, the policy would not cover similar claims if the source of the sickness were fumes from diesel fuel used in the contractor’s trucks.

Finally, the policy covers the contractor for pollution resulting from completed operations. A contractor that installed a complicated piping system for moving finishing solvents around a manufacturing plant would have coverage if the system leaked months after the job was finished.

Most construction contracts require a subcontractor to cover the project owner and general contractor as additional insureds under the sub’s CGL policy. Although the policy excludes coverage for pollution incidents taking place at premises that were ever owned, occupied, rented or borrowed by any insured, it makes an exception for premises belonging to an entity named as additional insured and where the contractor is working. Without this exception, the subcontractor would never have pollution coverage at job sites where he named the owner or GC as additional insureds (that is to say, almost all job sites.)

The pollution coverage in the CGL is not complete. The contractor has no coverage for the release of pollutants that he brought to the job site. There is no coverage if a hydraulic line on a front-end loader breaks and pours fluid all over the ground, since the contractor brought the loader and its fluid to the site. Also, the policy does not cover release of pollutants in connection with environmental remediation work done by the contractor or a hired sub. Contractors involved in this type of work need a special Pollution Liability policy.

A contractor would be wise to have a long discussion with an insurance agent about all of his operations and potential risks. The agent can identify what is and isn’t covered. If there are gaps in the coverage, the agent can recommend products to fill them. Construction is hazardous work; contractors need to know in advance what financial protection they have from pollution incidents.