Deadly Wording

Be Alarmed! There are a couple of items regarding your contractor’s liability insurance policy that you absolutely must be aware of. Policies sold to contractors in California have broad differences and can have an extreme impact on your coverage. If you are shopping for the best price, you are really leaving yourself open to huge exposure. There are a couple of popular carriers in California that many successful contractors currently have. Be warned - these are terrible policies!!

First off, the insurance company itself may not have sufficient financial backing. Carriers should be “A rated” and domiciled in the United States. Be sure to avoid Risk Retention Groups and all carriers rated lower than “A.M. Best A rating,” especially if it is a California non-admitted carrier (which is usually the case). Your insurance broker can easily get you a financial report on the carrier.

Two very important things to check your policy for are: 1) a manifestation provision, and 2) a sunset clause. These two limitations restrict coverage on completed operation (jobs you have completed) for future claims of latent or patent defect.

STICK with a carrier that uses an ISO insurance form for the policy. ISO writes the actual policy that most carriers use and this form has a time tested track record in the court system. There are carriers that write their own insurance form and they change language to their favor. This typically benefits the carrier by restricting coverage for the contractor.

If you think that your broker is doing a good job by switching carriers every year or so, you are wrong. Most carriers put “prior or abandoned work exclusions” on their form and/or “ongoing or progressive losses exclusions.” These exclusions can spell disaster.

There are two major errors I see contractors making, especially general contractors. The first is NOT getting certificates with additional insured endorsements from sub-contractors, and the second is NOT using a sub-contractor agreement that includes indemnification and hold harmless wording. EVERY insurance policy has some sort of sub-contractor warranty requiring the insured to get these documents from subs. Failing to do so will really water down your policy, and could possibly even get a claim that could be covered, denied.

You must also review all the endorsements and exclusions in your policy. This is an easy way to learn what to avoid doing (work) in order to stay within your policy language. I commonly see and hear about contractors doing a job that their policy restricts them from doing, such as work on homeowner associations, apartment buildings or work outside their class of license.

Let’s face it. Liability is expensive. But wouldn’t you want to pay a little more for the better policy? If you are buying a policy from a broker that has not asked substantial questions about your operation and you just got a quick quote over the phone, the chances are good that you could be improperly insured. I make it a point to meet with each of my contractor clients.

Please collect your current policy and give me a call at 415.258-9912. We can review what type of work you do and make sure you get the best policy for your line of work.

Claims Happen!

Hey, I know these are tough times and insurance costs associated with being a

contractor are a burden. What never ceases to amaze me is the number and variety claims we see in a year’s time. I thought I’d share some of these losses with you. I want you to see that regardless of the quality of your work and the fact that you’ve never had a claim, you should never skimp on insurance!



The Indemnification Claim: In this situation, a hardwood floor contractor worked for a general. His work was impeccable. The subcontractor was named in a cross complaint from the general contractor’s insurance policy. The home that was built had some water intrusion problems and the homeowner sued the general

contractor who sued the subcontractor. The subcontractor, having indemnified (or taken responsibility for) the general, turned the claim over to his insurance company. Many thousands of dollars later the claim was settled.



The Slip and Fall Claim: This was really bad. A new stairway was being built for a second floor addition. The contractors and their employees were using a makeshift ladder to access work on the second level. Over the weekend the homeowner used the makeshift ladder to inspect the progress and fell while descending the ladder. The homeowner was severely injured, and as result, every contractor on the job was sued.



The Subrogation Claim: I will not mention the brand of faucet, but three years

after the job was completed, a bushing in the kitchen faucet split and water ran under the sink, unnoticed, for hours. The homeowner made a claim on her home insurance policy and the damages (over 250K) were taken care of by the home insurance

carrier. This claim should have ended at this point, but the home insurance carrier saw that there was a permit pulled to remodel the kitchen three years prior. They turned their loss over to a law firm who subrogated the claim to both the general

contractor and the plumbing contractor who did the kitchen remodel.



I hope you never have a claim, but if you do, are you sure you have the best possible policy ?






A message from the desk of Mike Wise:

Sub Contractors Beware

CG 2139 10/93 is called Contractual Liability Limitation. I am starting to see this endorsement in polices of C licensed contractors. It says it is a limitation in coverage and boy is it ever. It is limiting contractual liability to a few conditions. It is excluding CONTRACTUAL liability to the general with whom you have just entered into a CONTRACT.

C licensed contractors you do not want to see this endorsement in you general liability policy.

The six policies you should consider

1)general Liability
2)workers compensation
3)commercial auto
4)pollution
5)employment practice liability
6)excess/umbrella liability

Your work exclusion and property coverage

Your work exclusion and property coverage: Your general liability policy has an exclusion in the common declarations pages that excludes “your work” from property damage and products coverage. Kind of like a homeowners exclusion where you can’t be liable to yourself.

Say you are building an addition and have framed a few walls. That night there is a fire and it destroys your new framing and part of the existing home. The cause of the fire is determined to be your fault. Your liability insurance will provide coverage for the existing portion of the home but not your new walls. Your work/product is excluded. Same is true of the artisan sub contractor. The addition is framed and the plumber and electrician have installed their rough. A fire burns down the addition and the cause is determined to be the plumber’s negligence. The plumbers General Liability will provide coverage for the existing home, the framing on the addition and electrical rough, but not for the plumbers own rough.

Solutions: have an agreement with the homeowner and make sure he has acquired property coverage for the addition. Most homeowner insurance companies require the home owner to contact the carrier when the improvements are starting. On a new home a course of construction policy is the way to go and I like to name all the owners and contractors as named insured’s so everyone has property coverage for their work product.