Contractors' liability insurance can be a godsend for small business owners involved in the construction game.
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But a lot of contractors don't have the coverage they need simply because they find it too difficult to sort through the carrier and coverage options. So what do you need to know to protect your business?
For starters, you need to see through the myth of a one-size-fits-all insurance policy. Every business is different and your company requires insurance coverage that is designed for its specific needs and risk profile. Rather than blindly submitting requests from as many insurers as possible and then selecting the lowest quote, you need to research the type of coverage you need to avoid a scenario in which you either have too little or too much coverage.
Further complicating matters is the fact that some insurance providers are more reliable than others. The lowest quote available may mean nothing if the carrier historically fails to respond to claims. In addition to pursuing references from other businesses who have filed claims with the carrier, you should consider researching the carrier through the National Association of Insurance Commissioners (www.naic.org) and other resources.
If the carrier checks out, your next step is to help the carrier develop a risk profile for your policy. Expect the carrier to ask a litany of boilerplate questions about your insurance history, the nature of your business, geographic range, risk management initiatives, and your financial condition. Although your ability to influence your risk profile may seem limited, you can assist the carrier by offering context for the information you provide.
For example, if you have had a large claim filed in the past, you should proactively disclose the reason for the claim as well as any measures you have taken to prevent similar claims from arising in the future. If the carrier sees that you have taken appropriate steps to address your vulnerabilities, it will give them a more accurate picture of your business and minimize the possibility of costly insurance you don't really need.
Before you agree on a policy, make sure you thoroughly understand the scope of coverage. The policy clearly needs to cover your business' normal activities and procedures. However, it may also be necessary to obtain coverage for activities that occur less frequently. If your company typically works in residential construction but occasionally work with commercial customers, then your policy should cover not only residential construction, but commercial construction as well.
You also need to address the subject of additional insured status. It is not uncommon for customer contracts to require naming the owner or general contractor as additionally insured parties. Some policies provide blanket coverage for those who are additionally insured while others require that they be added on a case-by-case basis – for a fee.
Given the endless complexities of contractors' liability insurance, it's imperative to seek the advice of someone with enough knowledge and experience to guide you through the process. When in doubt, keep asking questions until you are satisfied that your business is adequately protected.