Insurance can be a daunting subject. As an owner of a construction project, how do you protect yourself from all the possible things that could go wrong on your up-coming project? On top of a good prequalification process (see previous blog), making sure your Prime Contractor has adequate insurance is key to protecting your investment. For this blog, I have invited Beckie Lower, an Insurance Broker with AWIN Insurance Airdrie West, to add her professional expertise and advice.
Prior to even starting your prequalification process, you should sit down with your own insurer and share specific details of your project. They will be able to review your current insurance policy and advise if it is adequate. In addition, they will advise what kind of insurance you should request your Prime Contractor to have in place and make it a pre-requisite for prequalification.
Once you have selected your Prime Contractor, it is recommended that the insurance requirements are addressed within the contract. Make sure that you get a copy of their insurance certificate, compare it against what is required (provide it to your insurance broker if you need assistance), ensure they add you as additional insured on their policy, and provide you with advance notice of cancelation/amendment per the contract (usually 15-30 days). Along with the Prime Contractor’s insurance requirements, also include what insurance is required of Subcontractors (as they are required to carry their own policies), as well as who is responsible for deductibles should a claim be made.
For General Contractors, you DO NOT want to mess this one up! Spend the extra time making sure that your policies comply with your contract (because if they don’t, in the event of loss, you will still be on the hook for indemnifying the owner in accordance with the contract, regardless of what you are insured for). Get a good broker, and frequently review your contracts with them to ensure you are adequately covered. Make sure to get copies of insurance certificates from all your Subcontractors, and ensure the policies met your contractual obligations, and that you and the owner have been added as additional insured and will be provided with advance notice of cancellation/amendment, etc.
BASIC Explanation of Insurance Policies:
Commercial General Liability (often called “CGL”): Protects your business in the event it is sued for bodily injury, personal injury (i.e. character or reputation), or property damage.
Auto Liability: CGL will usually exclude claims of bodily injury, personal injury, or property damage when caused by vehicle usage. Companies should have a commercial auto policy if they carry tools, own, lease, or rent vehicles, including if their employees use their personal vehicles for company business.
Course of Construction (also called “COC” or Builder’s Risk”): Policy that covers the materials, equipment, fixtures, and building that are already in place and in use while construction/renovation activities are in progress. This policy is either purchased by the owner or the prime contractor depending on the contract.
Property (Risk Location): Insurance that protects against perils to that property, like fire, or weather damage, theft, etc. It is usually the owner that will obtain/maintain this policy. Different policies cover different perils.
Contractor’s Equipment Insurance: Covers your business’s owned and sometimes leased/rented equipment and provides coverage in event of damage or loss (theft). Pro-tip: Depending on your policy, you may be covered for your short-term equipment rentals so you can waive the rental company’s policies, potentially saving you A LOT of moola.
Professional Liability, (also called Errors and Omissions or “E and O”): This policy protects professionals from bearing the fees associated with defending claims made by clients for things like negligence, misrepresentation, inaccurate advice, etc. These policies are required by regulated Professions like Engineers, Architects, etc.)
FAQs:
What does it mean to “indemnify”? To provide compensation for loss or expenses incurred / to repay in the event of a loss. The principle of Indemnity that aims at ensuring the victim of a loss receives the actual amount of the loss, no MORE and no LESS.
What does it mean to “hold harmless”? A contractual agreement whereby one party agrees not to hold the other party responsible for loss, damage, or liability.
What is a Risk? The chance of financial loss to which the object of insurance may be exposed.
What is a Peril? The cause of loss (i.e. fire, wind, hail).
What is a waiver of subrogation? An endorsement on an insurance policy that prohibits one insurance company to recover the claim paid to an insured party from a negligent third-party. Owner’s of projects and Prime Contractors sometimes request this to avoid being held liable for claims that might occur on their jobsites.
What does “Broad Form” mean? A type of policy package from an insurance company that offers coverage against a wider range of risks that are not typically covered. In commercial policies, not all Broad Forms are created equal.
What does it mean to be added as additional insured? Additional insured is a type of status associated with general liability insurance policies that provides coverage to other individuals that are not the policy’s named insured. The party added as additional insured will then be protected under the named insured’s policy and can file a claim in the event that they are sued.
What does it mean to be added as a loss payee? The loss payee will be the party paid in the event of a loss. Sometimes, if you wave the insurance offered by the leasing company on a piece of equipment being leased, they will request to be added as a loss payee. A loss payee can only be added to a policy if they have a financial interest in the insured item.
Hopefully this provides you with a better understanding of the importance of ensuring your insurance is up to snuff with your business operations, and as always, I’m here help guide and decipher your contractual insurance requirements. In addition, Beckie can be reached at Beckie.l@awinins.ca to answer any questions, and hook you up with competitive prices on any policies you need updated.