General liability insurance is one of the first types of policies you will need if you are starting a new business. At Clinard Insurance we are seeing many new start-ups. Starting your own business is popular these days with the layoffs we are seeing in our economy. Often the best option is to pursue something you love to do, which is why we see many people starting new businesses around their construction skills. But just because you like to build things doesn’t mean you know the best way to protect yourself and your business from lawsuits.
Here are some tips on pitfalls to avoid when buying general liability insurance.
Choose the right agent. The first place people usually go to get business insurance is the insurance agency that handles their home and auto insurance. In some cases, this will work fine. But the risk is that your current agent may be licensed to sell you general liability insurance on your new business, while actually having very little experience evaluating the hazards and risks of your specific type of business. I suggest you find an agent who specializes in insuring other small businesses like yours. Ask your competitors who they used. At Clinard Insurance we have a specialty niche in small contractors and we speak your language and understand your needs. If your agent doesn’t specialize in your business, I suggest you find one that does.
Claims made or type of occurrence policy: Construction claim policies became popular in the mid-1980s and have been around ever since. The promise of these policies were lower rates, but what harm in the long run? In some cases, there are no cost savings. The sources of claims made for a contractor are the worst possible policy you can buy. Let me explain: The claims policies made allow you to claim your policy only during the year they are in effect. Contractors have future claims, not always just in the same year the project is built! Also, if you want to leave that company and go to another, you will have to buy additional insurance that covers you for the next 10 years … that’s right, 10 years! Why? Because the law allows clients to file a lawsuit for construction problems up to 10 years after the project is completed.
You build a new room, everything is going well and you and your client are very happy with the end result … 4 years later, your client calls you and tells you that the roof is leaking and that water entered the house and ruined your new $ 25,000 grand piano. He expects me to repair the ceiling, drywall, wallpaper, carpets, and of course replace the grand piano …
A made claims policy will not allow you to file a claim 4 years later, unless you stay with the same company the entire time. If you intend to change companies after you have had a claims policy, you must make a decision. If you want protection for any claims that have not yet occurred, but will do so in the future, you will need to purchase “tail” coverage. This coverage will extend the time in which you can file a claim. And tail coverage isn’t cheap.
If you decide not to purchase the “queue”, you will not be able to report a claim against the made claims policy. And to make matters worse, some companies don’t offer the 10-year extension.
So … When your claims policy is renewed, you must decide:
- Do I leave the company and pay the additional insurance for the coverage of the next 10 years, or am I left without protection?
- Do I stay with the same company? Your prices in the new year can stay the same or go up dramatically.
- Shall I change to another company that has better rates and coverage?
This limits the market available to you and makes it more difficult to accept a better offer from another insurance company. Claims policies made may work in other industries, but for contractors they are a disaster. Take some time after reading this report to see if your current policy is an occurrence form or a claims made form …..
Insurance company ratingIt is up to you to do your due diligence and ask your agent about the financial health of the company from which you are purchasing your general liability insurance. As the previous tip implied, sometimes claims can take a long time and you need to know that your company can pay a claim for you within 10 years. Only use insurance companies rated A or higher to protect your business.
Exclusions, understand them clearlyBe sure to take the time to ask your agent about the policy exclusions and what they may mean for you. Here are some exclusions that contractors should consider when purchasing a general liability insurance policy:
Pesticides, Herbicides and Fungicides Exclusion, Labor Practice Liability Exclusion, XCU Exclusion, Contractors Warranty Exclusion, Professional Liability Exclusion, Asbestos, Independent Contractors. If you don’t know exactly what they mean to you on your policy, contact your agent and get the help you need to understand it clearly. This can change the way you run your business.
SubcontractorsMake sure you understand how your policy treats subcontractors. Are you covered if they don’t have insurance or don’t have enough for the loss? How much coverage should you require from your subcontractors? How Often Should You Get Certificates Of Insurance? How can you be sure that the insurance certificate is legitimate? (I’ve seen fraudulent certificates for sale on eBay before.) If you are unclear on the answers to these questions regarding your business and your general liability policy, you should call your agent immediately and get the answers you need to get a good night’s sleep.
As you can see, buying general liability insurance is not as simple as calling your agent and asking for a quote. You need an experienced professional who understands policy forms and your business. At Clinard Insurance we specialize in helping small contractors navigate the dangerous waters of the insurance world. If we can help you further or if you would like more information about Clinard Insurance Group, please visit our website.