Point-Counterpoint

May/June 2008

Just Keep Your Shirt On: Good GL Policies Haven’t Gone Away

No, you don’t need general liability insurance—if you’re exiting the business or becoming self-insured. Otherwise, it’s a better deal than it’s ever been.

Jon Lindstrom & Stan F. Buerger HRH Insurance Jon Lindstrom (jon.lindstrom@hrh.com) and Stan F. Buerger (stan.buerger@hrh.com) represent clients out of the Denver regional office of HRH Insurance. They can be reached at 303-765-3635 or 303-996-6722.

A decade ago, the construction insurance industry was reeling from a series of big dollar lawsuits for issues ranging from deadly mold to shifting soils. Insurers quickly exited the market, leaving only a very few companies willing to insure builders, but with a stripped-down and over-priced product.

It wasn’t pretty. In one case, a company decided to self-insure (“go naked”) by putting up $1 million in cash instead of paying a $750,000 premium. That company had the resources to do it. Back then, there were so many exclusions in the policies that the chances of an insurer ever paying a claim were remote. So, if you had a million dollars in loose change sitting around that wasn’t being used, plus a high-dollar law firm on a leash, you could self-insure and cross your fingers that accidents and mistakes wouldn’t happen.

Fortunately, times have changed. Builders are building better. Insurers are underwriting better. Where they wouldn’t touch contractor’s liability even five years ago, insurers are crowding the field. Yes contractors, they’re back and they want your business. As a result, lower premium deals are being struck all over the market. Rates have plummeted about 30% during the past two years with no break in trend for this year. Some companies can save so much money by getting a new deal that they don’t mind buying out their old policies.

And best of all, the dreaded exclusions— when insurers won’t protect against shifting soils (subsidence) and bacteria and molds—can now be purchased for an extra fee, which is better than no insurance. Part of that is better risk analysis and familiarity with modern risks.

Contractors can also buy extra protection against environmental risks. If they’re working on a polluted site, they need to understand the issues and so do their insurers. Because most contractors are working on raw ground, the pollutant issue affects a small minority of building projects, such as renovating an old urban site that may have lead paint, silica (dust) or asbestos to deal with. The exterior insulation finishing systems (EIFSs) associated with mold formation is less of a problem as fewer builders use the products any more.

I’ve winnowed the so-called “laundry list” of exclusions down by two policies that can be bought back for a reasonable policy rider. Now let’s talk about the other exclusions that Mr. Wolf says rob general contractor liability policies of their value:

> Construction management errors and omissions. This is a specialized professional liability insurance exposure for architects and engineers and should be purchased separately. As such, it has better coverage, fewer limits and is more competitively priced.

> Acts of war. Name one policy anywhere that insures for war. We can’t. And terrorism can be purchased back separately. In addition, the Terrorism Risk Insurance Program Reauthorization Act of 2007 provides shared public and private compensation for insured losses resulting from acts of terrorism.

Yes, the burden of being a general contractor is a heavy one. When all else fails, if a customer steps into an elevator shaft at the condominium project, the general contractor is the defendant of last resort. A subcontractor could be the culprit, but how do you prove it was the drywaller who really pounded that nail into the copper water line that leaked into that nice wood flooring. Like reforms in other states, the Colorado 2003 Construction Defects Action Reform Act was a positive change for builders. Claims against builders are down significantly. Builders are required to resolve issues of the homeowner before legal action is taken. This has been a win for the homeowner and the builder.

No, you don’t need liability insurance, unless the city or county requires that you have it, and most of them do, as does the bank. Today, if you’re in a policy that has exclusions you can’t live with, you’re with the wrong insurance broker. The right one would guide you through the policy-buying process, help you understand the language and match your needs with the provider.

Go naked? Only if you’re living in the past.