Blame Your Agent: 10 Common Mistakes in Commercial Insurance That Aren’t the Insurance Company’s Fault

In the world of commercial insurance, particularly within the construction industry, misunderstandings and errors can lead to significant financial setbacks. While it’s tempting to point fingers at the insurance company when things go awry, often the real issue lies with your insurance agent or broker. Below are 10 common mistakes agents make that can jeopardize your business and how you can avoid them.

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1. Inadequate Coverage Recommendations

- What happens: You trust your agent to provide tailored guidance, but they often recommend generic policies that don’t account for your specific business risks. For example, they may suggest a basic general liability policy without considering higher limits or essential coverage, such as pollution liability or equipment breakdown.

- Consequences: When a significant incident occurs—like a job site fire or a subcontractor’s error that results in a lawsuit—you may discover your policy limits are inadequate. This could lead to substantial out-of-pocket expenses that negatively impact your business’s cash flow and future operations.

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2. Failure to Update Coverage as Your Business Grows

- What happens: As your business expands and takes on higher-value projects, your agent may neglect to adjust your policy to reflect your increased exposure.

- Consequences: If a fire or theft occurs, your insurance might only cover a fraction of your assets’ actual value, or worse, your liability limits may not cover the larger projects you’re now undertaking. This can expose you to financial loss and lawsuits for uncovered damages.

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3. Incorrect Classification of Your Operations

- What happens: Your agent may incorrectly classify your business—for instance, listing you as a carpenter when you are a general contractor. This can significantly affect your premiums and coverage options.

- Consequences: Incorrect classifications can lead to claim denials. If a claim arises, such as an injury on-site, the insurer may deny coverage based on the incorrect classification, leaving you vulnerable to financial loss.

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4. Failure to Request Waivers of Subrogation

- What happens: Your agent may forget to request waivers of subrogation for your subcontractors or suppliers, which protects them from pursuing your partners after a claim is paid.

- Consequences: If a claim is made, your subcontractor could be sued by your insurance company, damaging your relationships and leading to costly legal battles.

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5. Not Including "Additional Insured" Endorsements

- What happens: You enter contracts with property owners or general contractors requiring an "additional insured" endorsement, but your agent neglects to add them to your policy.

- Consequences: If a claim arises that involves the project owner or general contractor, they won't be covered under your policy, potentially resulting in legal issues or breach of contract claims.

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6. Mismanaging the Workers’ Compensation Audit Process

- What happens: Your agent may not adequately explain the workers' compensation audit process or prepare you for it. This includes underestimating payroll or misclassifying employees.

- Consequences: If the audit reveals your payroll was underestimated or certain employees were misclassified, you could face significant back-bills for unpaid premiums. Furthermore, if subcontractors lack proper coverage documentation, you may become financially responsible for their claims, straining your cash flow.

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7. Missing Endorsements on Completed Operations

- What happens: Your agent might overlook adding “completed operations” coverage on your general liability policy, which protects against claims that arise after work is done.

- Consequences: If a defect or issue emerges months later that leads to property damage, you could be liable for all repair costs and legal defenses, potentially amounting to hundreds of thousands of dollars.

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8. Failure to Add Professional Liability Coverage

- What happens: Your agent might focus solely on general liability, assuming that’s all you need, while ignoring professional risks tied to design, consulting, or planning services.

- Consequences: If a client sues for a design flaw or professional mistake, your general liability won’t cover the claim, exposing you to substantial legal costs and damages.

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9. Insufficient Workers’ Compensation Coverage

- What happens: Your agent may not verify if your subcontractors have their own workers’ compensation coverage, leaving you at risk.

- Consequences: If a subcontractor’s employee is injured and lacks coverage, your business may be held responsible for their medical expenses and potential lawsuits.

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10. Ignoring the Workers' Compensation Experience Mod

- What happens: Your agent neglects to monitor your Workers' Compensation Experience Modification Rate (EMR) and fails to help you manage it. The EMR significantly impacts your workers' compensation premiums based on your claim history.

- Consequences: A high EMR can dramatically increase your premiums, making it harder to win contracts in an industry where many require low EMR ratings. This could damage your competitive edge and lead to lost business opportunities.

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The Takeaway

In the construction industry and other high-risk sectors, insurance is a vital safety net, but its effectiveness hinges on the agent managing it. Many issues arise not from the insurance company but from agent oversights. These mistakes can result in lost contracts, costly lawsuits, or jeopardized operations.

Choosing the right insurance partner is essential for your business's success. By asking the right questions, verifying policy details, and adopting a proactive approach, you can navigate the complexities of insurance and protect your business from costly errors. Choose a partner you can trust—D. Harrison Insurance, Transparent & Trustworthy.

By DeCarlo Harrison

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