Beyond General Liability Insurance: Construction

Beyond General Liability: Insurance dilemma’s facing the Construction Industry and Special Trades  

How to use the proper construction class codes to fortify your coverage.  

Most industries are assigned one or more general liability class codes for insurance underwriting purposes under the 4 most commonly used  authoritative  classification guides including: PAAS/ ISO , NAICS, SIC and NCCI. However, some industries have multiple class codes which are broken down by specific sub groups within a general type of industry.

For example, the construction industry contains separate categories for general contractors and for subcontractors who work in this complex field.   The class codes are further refined by whether the contractor works on residential property or commercial developments and are categorized by the type of work they actually do such as Manufacturing & Industrial Bldg. Construction, Heavy Construction, Highway and Streets; with subcategories for Bridges & Tunnels to name just a few.  Identifying and defining all of the class codes relating to construction beyond the scope of this article.

Under the construction industry classification codes many of the sub classifications are assigned to what is considered to be “skilled” or “special” trades.   Some trades in his group generally require licensure by the state or local area they work in, in regard to their own field as an individual worker. Sub-Contractors in the specialty trades usually always require licensure as well,   as determined by the state and local area they work n.  These trades included electricians, painters, plumbers and HVAC installers.  However, the classification codes also have categories of skilled  or special subcontractors who do not necessarily have to be licensed individually including but not limited to flooring, installation, trim installers and handymen  unless they are a contractor.

Virtually all construction contractors, whether residential or commercial need a good comprehensive primary general liability insurance policy which insures them from 3rd party claims by the public, or owner of the property being built or remodeled; brought against the contractor for damages to person or property.  The general liability policy can be tailored and tweaked to meet the needs of each policy holder based on their general liability classification.  General liability policies standing alone do not cover professional liability. Why you might ask?

The general classification codes for construction industries normally do not classify construction companies as rendering professional opinions or advice as they would, say for example architects, who designs buildings.  Architects would normally be advised by their insurance agent that they should have professional liability insurance because of their classification code. This is the crux of a rising issue on the horizon.  Since construction industries   are not usually assigned a class code which triggers the need for professional liability insurance; some construction contractors and subs may not be aware of the rising need for this type of insurance.    It is important that every classification code applicable to the work your company actually performs be determined and included as a class code o your organization fits in.   If your company meets the definition contained in the NCAIS classification code for architects # 541310   gives this description “both design and construction of buildings, highways or other structures; or in managing a construction project, or are classified as Section 23 Construction” you should closely examine your need for professional liability insurance and your options for selecting the appropriate professional liability policy. (Link to Project Professional Liability) as either a separate policy or add onto your general liability.

In the past professional liability was only needed by the architect or the design professional responsible for the project.   In the present general contractors’ who engage in the design aspect of the building project or manage the project need this protection and should explore what is there best option. (Link too. Project Professional Liability Insurance Alternatives, IRMI) That needs has been widened to subcontractors.  (Link State of the Industry Construction Insurance and Risk) The subcontractors who appear to be most vulnerable are concentrated in the special trades who design systems that are an integral part of the building, such as the HVAC system, the electrical system and the plumbing system. It can also include those instances where the system being installed inadvertently compromises another part of the project, .e, the HVAC Contractor gave an opinion or advice on how to modify construction to accommodate the HVAC system and it negatively impacts the foundation.

The emerging trend according to the Institute for Risk Management suggests that professional liability will be a hot topic this year in the construction insurance industry.  They further indicate that Contractors are requiring subcontractors to have professional liability and certify that they have it continuously throughout the job.

It is not inconceivable that professional liability insurance for contractors and subcontractor may be needed in a residential setting as well.  For instance assume an electrical contractor is employed to rewire a house and makes recommendations and offers opinions on all of the products to use, the type of wiring needed to meet the electrical code, where the junction box should be placed, how many outlets are recommended, what type of lighting is necessary and the list could go on and on when you consider all the myriad operating decisions made on an on-going basis during a build or remodel. These appear to be professional recommendations and the rendering of an opinion and litigation could be brought under this theory.

So, it is critical that the insured discuss the tasks that each employee performs with your agent and fill out your application thoroughly.  (Construction Business so you can get the exact coverage needed at the most reasonable cost to you.  General liability is not necessarily the stopping point in your search for the best and most coverage for your construction company.  General liability which is required can be combined with other types of commercial policies to ensure that your company is adequately covered in any situation.  In addition to profession liability. You always want to consider a Business Owners policy and/or an umbrella policy.

One more very important point is to review all exclusions contained in your primary general liability policy you are considering purchasing and discuss with your agents and then determine if there are any alternatives where you can obtain coverage for the matters so excluded.

A common exclusion in a construction company general liability policy is defective construction or faulty workmanship exclusion as insurers did not want to encourage bad workmanship based on public policy concerns.  However the emphasis is shifting to protection of the public with adequate insurance coverage options being made available to the contractor. Citizen’s General (Link) is one insurance company that now offers workmanship insurance as an add on to commercial general liability policy giving you coverage which is normally excluded under the primary general liability policy.

So take heed and make sure your business has all type of coverage that you need.

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