Subcontractor’s Warranty Endorsement

Those who are contractors, construction companies, maintenance companies, or other companies that use subcontractors may encounter “Subcontractors’ Warranty Endorsement” on their Commercial General Liability policies. This endorsement requires contractors to obtain additional insured status on the CGL policy of their subcontractors and to make their policies secondary to their subcontractor’s. In addition, contractors may face significant consequences if they do not meet the endorsement’s requirements.

The language of the “Subcontractors’ Warranty Endorsement” can differ among insurance providers, but the main terms of an endorsement mostly remain the same. A subcontractor’s policy must list the contractor as an additional insured and as a requirement for coverage for any insured under this policy the insured must ensure that all subcontractors maintain Commercial General Liability insurance from a company with a “A” rating and minimum liability limits of  $1,000,000 per occurrence and $2,000,000 general aggregate and  $2,000,000 products and completed operations aggregate. Additionally, the insured must be listed as an additional insured on all such subcontractors’ commercial general liability policies.

The endorsement may also require the contractor to secure an indemnity agreement from the subcontractor in addition to having additional insured status on the subcontractor’s policy.

Mandatory Workers’ Compensation Insurance for Contractors in California

The California Contractors State License Board (CSLB) has announced that starting January 1, 2023, certain licensed contractors must carry workers’ compensation insurance, regardless of whether they have employees. These contractors include those in the concrete (C-8), HVAC (C-20), asbestos abatement (C-22), and tree service (D-49) sectors. This new requirement is the result of Senate Bill 216, which was signed into law by Governor Gavin Newsom on September 30, 2022. Additionally, the bill mandates that all contractors, including those without employees, must have workers’ compensation insurance by January 1, 2026. This type of insurance is required only for C-39 Roofing contractors, regardless of their employee count. The CSLB works to safeguard consumers and ensure fairness for contractors by requiring more of them to carry workers’ compensation insurance. Consumers can verify a contractor’s license status and insurance information on the CSLB website.

Link: https://www.cslb.ca.gov/Resources/PressReleases/2022/Workers_comp_release_10_11.pdf

Loss Exposure of Contractors

Contractors are subject to some unique loss exposures. When a prospective client needs certain types of construction work done, contractors either bid for the job or negotiate a contract. Due to this, the customer specifies what should be done in the job specification. It is common for contracting businesses to have multiple locations. There are frequent changes to the job site. There may be a contractor who controls one job site while the employees or subcontractors control other job sites simultaneously or sequentially. As a contractor, you are exposed to a unique range of loss exposures. It is imperative for any contractor to evaluate and analyze their risks before obtaining contractors insurance.  

Insurance Loss Runs: How Do They Work?

An insurance loss run is a report that lists all claims made on a particular insurance policy over a specified period of time. Loss runs are typically requested by insurance underwriters when evaluating an insurance application or renewal, and they can also be used by policyholders to help identify trends or potential issues with their insurance coverage. Loss runs typically include information about the date and type of loss, the amount of the claim, and the status of the claim (e.g., open, closed, pending). They may also include details about the policyholder’s insurance coverage.

Depending on the number and type of open claims on your report, there will be a section with a reserve fund. An insurance company sets aside a certain amount to cover claims. Nevertheless, the final cost of a claim can vary from the set aside amount.

Insurance Premium Audit

Your insurer conducts a premium audit to become sure you have paid the proper premiums over the period of the policy for the insurance coverage you need.

By analyzing your company’s financial records, an insurance premium audit determines your actual risk exposure. Every year, your insurance company conducts an audit of your policy.  

Typically, when you start a new insurance policy, you estimate your business costs, payroll, and income.  Audits are performed by insurers or independent auditors at the end of policy periods to determine gross revenue and payroll data for individuals or businesses.

 Auditing an insurance policy should follow several best practices:

To ensure a successful audit, it is crucial to plan ahead and collect all the necessary documentation in advance. Organize your records and documents so the auditor can easily access them. Despite the possibility of higher premiums, be honest about the business’ operations and risk management practices. You should ask the auditor questions if you have any concerns or if something is unclear.

As a general rule, an insurance audit is conducted to ensure that the insurer has the right insurance premiums in place to protect against potential risks. In order to ensure a smooth and efficient audit, businesses should follow these best practices.

Sunset Clause aka Sunset Provision

A sunset clause on a liability policy is an endorsement that limits the coverage provided by the policy to a specific period of time, and can limit the reporting period of a claim. This means that if a policyholder is insured under a policy with a sunset clause and a claim is made for a loss that occurred during the policy period, but the claim is not reported until after the “sunset” date, the policy will not provide coverage for that claim.

For contractors, a sunset clause on a liability policy can be particularly problematic as construction projects can be complex and claims may not be discovered until long after the project is completed. For example, a defect in the construction work may not be discovered until several months or even years after the project is completed.

Therefore, contractors should approach a policy with a sunset clause with caution, and consider the potential risks and liabilities of the project before purchasing a policy. They should also consider purchasing an extended reporting period (ERP) or “tail coverage” option to provide coverage for claims that may arise after the policy period but were not reported during the policy period.

It’s important for contractors to discuss the sunset clause and ERP options with their insurance professional to ensure that they have the right coverage for their business. They should also carefully review the terms, conditions and exclusions of their insurance policy to understand the scope of coverage and any limitations.

The Contractor’s Bond has been increased to $25,000 by the CSLB

According to the press release issued by CSLB on September 30,2022, as of January 1, 2023, the Contractors State License Board (CSLB) will require a $25,000 bond from all contractors.

 

This increase was first announced by CSLB in December 2021. Senate Bill 607, signed into law in 2021, led to the increase. Bonds for contractor licenses (from $15,000 to $25,000) and qualifying individuals (from $12,500 to $25,000).

 

CSLB distributed notices on September 28, 2022, instructing surety companies to automatically increase bonds currently on file with CSLB for licenses and qualifying individuals. You should be contacted soon if your bond premium changes if you are a licensed contractor.

 

If you wish to increase your bond, you can contact your surety company directly to confirm they have returned documentation to CSLB. If you know the name of your surety company,

 

Your bond agreement itself or your broker can provide the name and contact information of your surety.

 

Please contact your broker or surety company if you have questions about your bond premium increase.

 

Sureties will have access to new contractor bonds and bonds of qualifying individuals starting in December 2022.

 

For information about bonds, visit CSLB’s website.

What Is OCP “Owners and Contractors Protective Liability Insurance Coverage” – Explained

Owners and Contractors’ Protective Liability Coverage – offers protection against liability for bodily injury resulting from the work of independent contractors hired by a named insured. The contractor purchases the policy to protect the client (project owner) from vicarious liability in connection with work performed on the project. As part of its oversight of the contractor’s operations, the OCP policy also covers the insured for liability arising from its own acts and omissions.

In the construction industry, what does an “Additional Insured” do and what is the “Additional Insured Endorsement”?

Many construction contracts require contractors to sign pages containing detailed insurance requirements, coverages, and minimum dollar amounts.  Review any contract’s insurance requirements carefully before signing to ensure that your current insurance complies with the contract’s requirements, including coverage types and financial limits.  Your contractor insurance specialist is a great resource for help in this regard, if you are in doubt.

A common request is for owners to be added to a general contractor’s policy covering commercial general liability (CGL).  Subcontractors are often required to name their general contractors as additional insureds on their general liability, business auto, workers compensation and umbrella and or excess policies.

So, what is an “additional insured”?  Additional insureds are anyone who is covered by the primary insured’s insurance policy, but not the primary insured.  If someone wants to be added to someone else’s policy, how does that work?

To obtain additional insured status, the insurance company must issue an endorsement to the primary named insured’s policy.

It is the wording of the endorsement that determines the scope of an additional insured’s coverage.  A certificate of insurance cannot grant additional insured status, although certificates are often presented as proof of additional insured status. As proof of coverage, an additional insured endorsement must be attached to the certificate of liability insurance.

In the event that additional insured status is properly obtained, the additional insured is entitled to a wide range of important rights.  A claim may be filed directly against an insurance company by an additional insured.  This right entitles an individual to either legal defense against third-party claims, or to coverage for damages caused.  Furthermore, by retaining the loss off of their own loss history, the additional insured may be able to prevent price increases in the future.

Please check with your contractor insurance specialist if you receive a request to add someone else as an additional insured on one of your policies. The status of additional insured is important for the construction industry, but care must be taken to ensure that this status is granted correctly.

Liability insurance for contractors is an essential coverage, but what does it cover?

However cautious you may be when carrying out your projects, mishaps and accidents can still occur. This is an indeterminate situation that is beyond your control. You can’t always rely on your people and equipment to perform perfectly. If you are legally obligated to cover accident and machine expenses, it will cause delays and income reduction for you as the contractor. Liability insurance for contractors is undoubtedly the safest way to prevent financial ruin. In a nutshell, an insurance policy for contractors covers all third-party claims. Any damages or accidents that occur on your business site can also lead to lawsuits and complaints from clients and other parties. You and employees under your supervision are covered when claims are made against the insurance. A contractor is a business manager and a  contractor. The construction site requires many employees to work. Some of these individuals are also expected to commute and work across multiple job sites. The possibility of these people being involved in an accident or causing one to a passerby is thus high. Typically, contractors have liability insurance to cover Property damage and bodily injury. A person may sue a contractor if he or she suffers an injury or damage to their property. Completing operations and  products and Advertising injuries and personal injuries: Libel, slander, and false claims may result in damages. In addition to other types of insurance coverage, contractor liability insurance is a must-have for any contractor.

To obtain a contractor liability insurance quote, please contact www.safeproins.com