Back on January 8th, I was surprised to get a phone call from Cullman City Licensing. I can see who is calling, and remember wondering – what did I forget to sign the form or the check? Nope, they were requesting a copy of my General Liability Policy. Did I miss something in the directions? No, it was explained to me that is a new requirement and they did not have time to update the form. Ok, that is not an issue and quite honestly, I am glad to hear they require it now – one quick call to my insurance agent to fax them the page and I had our license within a week.
Well imagine my surprise when I catch this article in the Cullman Times – City pushes contractor decision.
The council postponed a decision to either keep or rescind a new city ordinance requiring contractors to have general liability insurance if they work a job in the city limits. Some contractors are up in arms over the change due to fears that it will significantly raise costs.
“There’s no way I can do it,” he said. “I’ll just have to move. I’ve done jobs in the city in the past, but I’ll have to stop if they keep this.”
“I will pull out,” he said. “I probably did about 20 jobs in the city last year and I can’t afford this insurance … When good contractors leave, that’s when the customers will be hurt by this.”
“Since they’re looking at it now, I think they’re trying to get out of it,” he said. “They need to rescind it, because everyone I’ve talked to said they can’t afford it.”
And it keeps getting better… A call to action in the Cullman Shoppers Guide (they cannot afford a $600 policy but they can afford to place a $300 ad?)
What is Liability Insurance
Liability insurance is defined as an insurance policy that offers protection against third-party claims of property damage, injury or bodily harm, loss of life or limb, or negligence. General liability insurance offers blanket coverage that includes both “public” and “product” liability, meaning that coverage extends to direct or indirect actions of the insured (and the insured’s employees) which result in loss or damage, as well as products or structures manufactured by the insured that cause loss or damage due to a fault in the product.
The cost
A general price is assigned based on your projected sales, and the amount of subcontractors you use. Your agent at that time will also be able to tell you what your rates will be if you exceed those amounts, so it should come as no surprise if you figure out that you will do 2x the projected amount that your insurance amount will go up accordingly. Down here the base price for a policy is $600 for a year or approx $3 per working day (200 days for roofing due to weather).
Why you should require it
Insurance is rarely a priority during a home repair or remodeling. However, accidents can and do happen, which can occasionally lead to lawsuits. I cannot think of any professional contractor or any other professional business or organization that would argue that having insurance is not necessary (a necessary evil maybe, but still necessary). The reason why is simple, it is a business obligation to protect its assets. One of the first questions the BBB, NARI, NAHB and other industry group’s stress that homeowners need to ask a prospective contractor is; Are you Insured?
Your Liability: Anytime someone gets hurt on your property because of your negligence or carelessness, you can be held legally responsible. Not only that, but you can also be held responsible if someone working on your property injures someone else or causes damage to someone else’s property. While a typical homeowner’s policy includes $100,000 of liability insurance, certain losses may not be covered. You can also jeopardize your coverage if you knowingly hire unlicensed or uninsured workers or start work without pulling the necessary local building permits. Even if a covered loss is covered, you will probably end up with a higher annual property insurance premiums.
Your Property: As a few of us pointed out, in the comment section – what happens if your property gets damaged due to the contractor; accidently breaking something, making a repair that fails resulting in your house being damaged, etc? If they are uninsured, or as some of them alluded to in the article & they cannot afford to pay $3 a day for insurance, do you really expect them to pay for or be able to pay for the repairs? While your homeowners insurance may pay for the damage, do you really want to pay the deductible, or the higher rates that will probably be incurred?
For the “Good Contractors”
I have to agree with you, times are tough but you need to start learning how to run your business like a business. It is one thing to be a good roofer, but quite another thing to run a company. If you wish to subcontract work from someone that carries insurance, you need to have the same limits that they currently have. We personally will not even consider a bid from an uninsured sub. While some GC’s might allow you to work for them, you might want to watch out for a back-charge to cover their costs of insuring you. If you wish to work in Huntsville, Birmingham, or on any federal or state funded job, you need to be insured.
On the other side of the coin, with the mindset shown on not only this issue, but also the way you have operated and continue to operate, you are losing customers and money. Many of the residents simply do not even look locally any more, they start looking for contractors located in Huntsville or Birmingham. I have sold numerous jobs simply because I am not from around here, and I show up on time & do what I say I am going to do.
A few final thoughts
Granted, no one likes to pay for insurance and everyone knows the insurance companies are out to make money. I love hearing how insurance companies should not be out there to make money. Let me ask what happens if an insurance company did not make money? What then happens when it became time to pay out on a claim that exceeded their cash on hand? Along the same lines, can’t the same thing be said for the rest of us? An hourly employee goes to work to make money; a business owner runs a business to make money.
But the costs are so high – Bull, at most for a normal residential jobs it might add $3 to $10 to the cost. If you are only doing 20 jobs a year in the city, you are looking at $30 a job. Do you really think that this small amount is going to cause you to lose the job? I doubt it and besides you have an additional selling point that it appears many of your competitors do not when you are working in the “county.”
While we are at it, let me take a stab at the jab leveled against the Texas & Pennsylvania contractors licensed here. Let me guess, they are probably working on a commercial project that requires insurance that you do not carry and your jab does not fly. If they were storm chasers, than you might have a valid point as that group generally causes some major issues, but we have not had a storm big enough to bring that group in. I guess this will be an interesting meeting tomorrow whe tha City of Cullman decides which way they want to go.
Just as a quick update – the insurance requirement was passed by a vote of 3 to 2 for a whopping $50,000 minimum requirement. Not one of the contractors opposed to it spoke up at all during the meeting.
Out of the 523 “Contractors” – 492 had already met the requirement, 9 Roofers, 5 Home Builders & 1 siding firm opposed it and 16 companies were still trying to get insurance
The question of exactly what gets covered by comprehensive general liability insurance is another really complicated arena. Many owners believe that insurance covers against construction defects, but in many states there is little coverage against defects in the work. That question gets very state and fact specific, but certainly anyone thinking about hiring a contractor needs to hit the pause button if they are unable to produce a certificate of insurance.
You are now my business guru. I’m wondering if I should carry E&O insurance too to guard against what Mr Hughes discusses above.
It is best to consult with your insurance agent, but from what little I know of your company, you shouldn’t need it at this time.
I just stumbled across your article and want to say thank you. It is well worded and easy to understand.
You are right; all Contractors should carry general liability insurance because, even with the good ones, accidents and mistakes can happen.
Here is another thought to ponder, when a subcontractor goes out of business and/or skips town, who pays for their insurable mistakes? Courts frequently assign the damages to the General Contractor who hired them. Because many standard contractor insurance policies exclude this coverage using ISO endorsement CG 22 94 or something similar, Contractors need to make sure that their insurance covers them in case of damage to work performed by subcontractors on their behalf. What if the subcontractor didn't skip town? Contractors still need to take care with this endorsement, as it can remove the obligation of their insurer to pay court costs should they be named in a suit.
Ryan Ketcheson, Risk Management and Insurance Agent
http://www.riskmanagementjournal.blogspot.com
this just continues spiraling out of control. how does a contractors insurance policy not even cover the damages of the other contractors he hires? damages are accidental anyway.. its not like someone is to blame for damages.. unless you prove mens rea an accident is an accident and should be covered under the homeowners policy.. accidental damage no matter who caused it..
This is such a great article, not only is it informative and easy to understand but you add a little humor in there too! I’ve been reading up quite a bit about Contractors Insurance and Contractors Liability and I don’t understand why a contractor would ever want to enter the industry without it. It’s necessary to protect their work, livlihood and better yet their reputation as a legitimate professional. And to say that they can’t afford the policy is a terrrible cop-out; sure times are tough in this economy but there are ways to save and take full advantage of your insurance policy. I was recently reading a great article that shares advice as to how contractors can proactively search for and manitain cost-effective insurance, if you’re interested you can read more about it here:
the attitude you have about contractor insurance that the insurance companies have led you to believe is, oh the contractor can afford it.. he should have it because he should be willing to pay for it.. when in reality, you are paying for it.. the contractor gets his money from you so any costs in his life need to be billed to you as you and other homeowners are the only source of income for a contractor. therefore you are buying homeowners insurance and contractor insurance for your contractors and paying the 18% workmans comp for employed workers. its all in your bill under labor. you could now say, oh well i dont want to pay for it and i shouldnt have to pay for that but think about it.. if a person cant make a living from what they do then how will there be anyone to do that work? thats why the answer is that there shouldnt be contractor insurance and it should be included in a homeowners policy.. its the only thing that really makes sense.. it saves you the homeowner money in the long run because you can either pay for it in your homeowners policy or pay for it in your bill to the contractor. paying for every contractors insurance policy is a lot of extra insurance to be paying for things that might happen.. and as i said.. you eventually pay for it no matter what. but as a homeowner i would think that hiring workers is my responsibility and my homeowners policy should cover damages.. its the same if kids get hurt at your house or even when a robber breaks in and hurts himself.. they can sue you and win.. so i dont get why contractors insurance is necessary. it just seems like an unnecessary expense that you the homeowner are ultimately paying..
I have to say, that as a person looking to start a business, the insurance requirements are a rude awakening. The quotes I am getting are simply unbelievable. For a sole proprietorship, general liability and work comp, gross receipts of 15K, I am getting quotes of $4k per year.
Hmm why workman’s comp for you? As an owner in many states you are exempt & in some cases can’t collect. The other item to be careful on is making sure your broker understands what exactly what you are doing – just one item marked wrong can add hundreds to your quote. The final item to consider is if you wont be able to make money, is it worth doing, is there another route to take
Best of luck
in MO if you work under a general contractor, they get penalized by their insurance for subs that do not carry work comp on themselves, so most generals require subs to carry their own work comp, even if they are exempt.
Got you & just like I figured, Missouri requires the following exemption form be used. Interestingly I like their “please note” which as you said basically make this worthless as compared to other states. Ouch http://labor.mo.gov/sites/default/files/pubs_forms/WC-134-AI.pdf
Remember, your contractors liability policy actually does not cover anything. Read it carefully, read the exclusions. These insurance companies are using government regulation to transfer wealth from small business to huge insurance corporations. Then read up on “subrogation” and you will see that insurance companies charge huge premiums and cover NOTHING.
so basically a homeowners insurance company has become a lawyer that attacks whoever caused the accident rather than paying for the damages that premiums are being paid for.. this is quite a different view of insurance companies than the public has about them..
yes where does the liability really lay? technically a homeowner is an employer even if its not a legal employee employer relationship.. the definition of employ is to give work to and pay for.. so theres that.. also i have to charge the homeowner for my insurance premiums because i get my money from nowhere else except for the homeowner.. how does it make any sense for a homeowner who is my employer to buy me insurance that actually doesnt cover anything and buy homeowners insurance that supposedly doesnt cover anything if they hire me and i dont have insurance? why does everyone have to buy insurance and at the end of the day the insurance company tries to not cover anyone or anything? i think its pretty straight forward.. you own a home.. you hire workers to work on it.. its your house and your insurance.. choose your workers carefully… otherwise YOU as a homeowner are footing the bill for unnecessary insurance that you foolishly are requiring from your contractor.. YOU ARE PAYING FOR IT… not me… what you think im paying for insurance with the money from my grand mother or that i grow on my money tree? i get all my money from you the homeowner so you are buying me insurance… this article actually asks the question, in the event of an accident do you really want to pay your deductible? as if its arguing against the purpose of insurance altogether.. you assume the risks as a homeowner and paying the deductible is a small price to pay for a major accident.. thats why you have insurance.. but if you want to continue paying crazy money for labor (my estimate is 50% of your labor costs are paying for taxes and insurance, workers comp is 18%/ taxes are 35% and probably other hidden costs permits and labor fees) then keep up this charade insurance joke.. YOURE paying for it either way so why not just use your own homeowners insurance in the event of an accident rather than buy everyone an insurance policy in case something happens.. and come on insurance companies.. homeowners insurance doesnt cover people working on your house? thats stupid.. why doesnt homeowners insurance cover anything to do with your house? its just really stupid.. i hire workers, they screw something up.. homeowners insurance… covered… what are people paying for? your bmw?
Just as a quick update – the insurance requirement was passed by a vote of 3 to 2 for a whopping $50,000 minimum requirement. Not one of the contractors opposed to it spoke up at all during the meeting.
Out of the 523 “Contractors” – 492 had already met the requirement, 9 Roofers, 5 Home Builders & 1 siding firm opposed it and 16 companies were still trying to get insurance
The question of exactly what gets covered by comprehensive general liability insurance is another really complicated arena. Many owners believe that insurance covers against construction defects, but in many states there is little coverage against defects in the work. That question gets very state and fact specific, but certainly anyone thinking about hiring a contractor needs to hit the pause button if they are unable to produce a certificate of insurance.
I just stumbled across your article and want to say thank you. It is well worded and easy to understand. You are right; all Contractors should carry general liability insurance because, even with the good ones, accidents and mistakes can happen. Here is another thought to ponder, when a subcontractor goes out of business and/or skips town, who pays for their insurable mistakes? Courts frequently assign the damages to the General Contractor who hired them. Because many standard contractor insurance policies exclude this coverage using ISO endorsement CG 22 94 or something similar, Contractors need to make sure that their insurance covers them in case of damage to work performed by subcontractors on their behalf. What if the subcontractor didn't skip town? Contractors still need to take care with this endorsement, as it can remove the obligation of their insurer to pay court costs should they be named in a suit.Ryan Ketcheson, Risk Management and Insurance Agenthttp://www.riskmanagementjournal.blogspot.com
This is such a great article, not only is it informative and easy to understand but you add a little humor in there too! I’ve been reading up quite a bit about Contractors Insurance and Contractors Liability and I don’t understand why a contractor would ever want to enter the industry without it. It’s necessary to protect their work, livlihood and better yet their reputation as a legitimate professional. And to say that they can’t afford the policy is a terrrible cop-out; sure times are tough in this economy but there are ways to save and take full advantage of your insurance policy. I was recently reading a great article that shares advice as to how contractors can proactively search for and manitain cost-effective insurance, if you’re interested you can read more about it here:
You are now my business guru. I’m wondering if I should carry E&O insurance too to guard against what Mr Hughes discusses above.
It is best to consult with your insurance agent, but from what little I know of your company, you shouldn’t need it at this time.