Dallas is booming if you have an affinity for the construction business.  Insurance requirements have a way spoiling the mood for small business owners.  When it comes to construction trade contractors, it’s much worse.  Most construction trades purchase general liability insurance policies expecting that to be enough to complete a job and get paid.  As construction exposures continue to increase in complexity, contractor insurance now require more complex endorsements and policy changes to match.

What does a smart small business person do to combat ever increasing coverage complexities?  Not be trite, but knowledge is power.  So, I’ve come up with a few tips to help you understand what to look for when you’re negotiating a deal.  This article will help you sign up with more contractors and get paid for the work you do.  If you understand the insurance pitfalls, you can get more jobs, and make more money.  If you’re like most small contractors, more money is a good thing.  So read on.

General liability is a good start

Remember the Oldsmobile slogan, “It’s not your father’s Oldsmobile”?  Consider that the slogan for today’s insurance requirements.  “It’s not your father’s general liability”.   In the past, you could simply provide your liability certificate of insurance and move on right?  While obtaining liability might be a good start for most small businesses, for many this policy type is only a starting point.  If you expect to perform recurring services, you can expect your contractor to add them as additional insured by way of policy endorsement.

Aside from the additional insured policy, we’re seeing other endorsements including waivers of subrogation, primary and contributory endorsements, and several others.  Ultimately,  The addition of these endorsements to your liability are important in several key ways including:

• Special endorsements must come from the insurance carrier.
• Contractors can contractually withhold payment for failing to meet requirements.
• These endorsements quite often lead to increased insurance costs.

While General Liability is a good start for you business, always review your contract’s insurance requirements to ensure you have the right additions to your general liability policy.

Consider commercial auto insurance for job site driving exposures.

While most small subcontractors starting out attempt operate business with liability, many businesses now require their trade contractors to carry general liability and commercial auto liability.  We’ve noticed an increased number of construction management, general contractors, and property management companies require either personal auto liability limits or commercial auto liability with combined single limits of $1,000,000 or more.

If you’re like most small trades, you’re probably thinking, “Why do I need commercial auto liability?”  The truth is our society has become complex enough that one could be sued for a slip and fall in a parking lot.  As a result, larger companies want to ensure that all contractors working for them have a standardized minimum amount of coverage; just in case. Aside from increasing contractual requirements, commercial auto policies extend liability to employees and vehicles whether your business owns the vehicles or not.  On a personal policy, if an employee or contractor has an accident your vehicle, it is not covered.  Imagine this happening on a job site.  I’ll let you fill in the blanks.  Besides, all the contracts that pay money require some sort of business auto liability.

Tax status has nothing to do with Workers Compensation

When it comes to workers compensation, the common mistake small businesses make is to not consider 1099 contractors as employees.  In Texas, because the state does not mandate workers compensation, many small businesses ignore this coverage all together.  With many construction trades, this is a recipe for disaster.  So, with workers comp, consider the following before you consider omitting this from your insurance portfolio

You’re still liability for job-related injuries

If a subcontractor has an injury on your job site or under your contract, you are liability.  While they are working for you, a court would consider them to be your employee.  The fact that chose not to pay payroll taxes is a matter of contract and tax law.  It has nothing to do with financial responsibility.

Make sure someone gets it workers comp

If you decide that your business is too small to obtain workers compensation, make sure that all subcontractors obtain workers compensation and provide copies of their insurance certificate.  Not only does this send a strong message, but it also ensures the guys on your job site have the necessary protections in place in case of injury.  If you are the subcontractor, consider getting workers compensation.  An injury could close your business’ doors for good.

Review your contract before pricing your product or service

While it may seem to be a hassle, reading job contracts is one of the most important things you can do as a small business owner.  Signing a contractor prior to reading it could make difference between making and losing money; just because of the insurance requirements.  Also, it could make the difference between getting paid and being placed on vendor hold due to insufficient insurance requirements.

Have your insurance agent review your contract

We suggest our clients send us a copy of any contract that has insurance requirements.  This gives us the opportunity to review the contract for unnecessary insurance coverage endorsements.  We also have the opportunity to discuss any added exposures due to the type of work being completed.  In the end, if the insurance goes awry, at least you can blame your agent and call him to make it right.

Everybody is doing it

For example, a large number of national home builders require subcontractors to add them as additional insured for completed and ongoing operations.  In this case, the subcontractor’s coverage provides coverage for the contractor after the product is completed and job is done.  What about the spray wash guy or the person that fills in a cracked tub?  These types of businesses are service related.  As a result, the completed operations endorsement would be a bit unnecessary since a concrete power washer is simply servicing the finished concrete.

The previous example is one of many examples we witness when dealing with small construction insurance requirements.  The key is to catch them and address them before you start work.  The last thing we want to do is perform work and not get paid; right!

To Sum it all up

There you have it.  4 things tips for trade contractors that will make your insurance life much easier.

1. Start with General Liability and expect more requirements
2. If you drive to a job-site, you and your employees or subcontractors may need commercial auto
3. Consider workers compensation for your employees or subcontractors; tax status does not matter.
4. Review insurance requirements in every contract with your insurance agent

Have questions, contact my office at 214-717-4326 or comment below!  We’re ready to assist you and answer your questions.