Construction companies: Building a policy that shelters you from lawsuits
When buying insurance for a construction company, the most essential part of your coverage will be general liability.
Lawsuits are a fact of life in the building industry. General liability protects you from claims that you caused injuries or property damage. Without adequate coverage, you could be forced out of business if you're slapped with a big financial judgment.
Although lawsuits are common in the construction business, not all builders are savvy when it comes to protecting themselves. That's why it's important for construction companies to work with insurance professionals who understand the industry, says David Jaffe, vice president of legal advocacy for the National Association of Home Builders.
And simply having the insurance isn't enough - you have to make sure it's adequate, Jaffe says. "We advocate for our members that they deal with an insurance professional to help them evaluate what their needs are," he says.
It's not enough to make sure your own company's policy is adequate. Builders also should make sure their subcontractors also are covered, says Grey Digilormo, an insurance underwriter with the Pelican General Agency in Louisiana. Sometimes injured workers hired by subcontractors file lawsuits alleging unsafe work conditions. Construction companies may be named in the lawsuits, but they're less likely to pay claims if the subcontractor has proper coverage.
Other types of policies you'll need
There's a variety of coverage you'll need in addition to general liability, including:
- Property insurance. This is important if you own or rent space for offices and equipment storage. Digilormo says property losses can be hard to predict or prevent. He recalls a case when a company lost a bulldozer to vandalism. The equipment was set on fire. "It was a total loss," he says. "It cost the insurance company around $30,000."
- Auto insurance. You'll need a commerical policy that covers you for any injuries or damage you or your employees cause while driving for work. Digilormo recommends at least $1 million in liability coverage. "If you get into a car accident and hurt someone and only have $100,000 in coverage, it will be eaten through quickly with doctor's visits or physical therapy," he says.
- Workers' compensation. This protects you if employees are hurt on the job. States typically require businesses to carry workers' compensation coverage. Contact your state insurance department for local regulations.
- Employment practices. This coverage protects you from claims related to hiring, firing and alleged harassment.
- Employee dishonesty. This covers losses triggered by employee theft. The more employees you have, the more likely you are to need this coverage.
- Errors and omissions E&O). This protects you from claims arising from mistakes in designs or miscalculations that result in monetary losses. Firms that do engineering or architectural work may benefit from such coverage.
- Directors and officers D&O). This liability policy protects company officers who are accused of causing financial losses triggered by poor management decisions. It covers expenses that stem from lawsuits and financial judgments.
How much you spend depends on your risks
There's no set formula for determining how much you should spend on insurance needs, Digilormo says. Each business has its own potential for losses and prices reflect risk. Factors that Digilormo considers when measuring exposure to claims include the size of the business, the number of employees and the location of the business.Location is important because some regions of the country experience more construction-related lawsuits than others. Digilormo says that in several Louisiana parishes, underwriters charge higher premiums than elsewhere in the state to offset claims against builders. Lawsuits are more common in these communities because builders sometimes cut corners to increase profit margins, he says. When workmanship declines, claims may increase - along with insurance costs.
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