So you Perform Residential Construction, Great! Are you Covered?

Most insurance companies hate residential construction firms. There, it’s out there. You know, I know it, and the American people know it.

Commercial insurance premium rates have seen consistent upward pressure on rates – especially in the residential construction sector. One major factor is the increasing frequency and severity of residential construction claims. As an example, a recent video posted on YouTube showed the collapse of a stick-frame apartment construction project due to unexpected high winds from a severe rainstorm in Dallas. As you could imagine, the carriers are looking to reduce their exposure to these types of perils.

So, when a carrier is working with a standard ISO General Liability policy (or even with one of their own “manuscript” policies) they can reduce their exposure by adding EXCLUSIONS to the policy. As the term refers, by adding an exclusion the carrier is telling you (the insured) that these types of claims will be DENIED. On the flip side, if you ask for a carrier to add a specific ENDORSEMENT to your policy, they are telling you (the insured) that these types of claims will be covered. (Note: In this situation, if the carrier is materially increasing its exposure, then you are likely to be charged some additional premium.)

Sometimes You Need to Say "No"

Now let’s say you are a successful electrical HVAC subcontractor working in Shreveport, Louisiana, and things are going well for you and your firm. Then one day one of your top clients, the owner of a local general contractor, says, “I’ve got an issue at my house, can you send someone to take care of it for me?” ?You tell yourself, “My team is experienced and qualified, and I don’t want to upset my top client – sure, why not?” You send your top crew to your client’s house to fix his AC. Turns out it’s a simple matter, so your team takes care of it in no time. Your client has a working AC and is happy, and you’ve gone above and beyond to help a client. All good right?

Not so much.

Five days later, due to the work done by your team, an electrical fire starts and burns down your client’s home. Your client and his family got out unharmed, but their house is a smoking hole in the ground. Your feel awful, but you assure your client you have insurance (as you’ve always demonstrated with your COIs, right?) and so you will make sure his house will be rebuilt.

You contact your carrier and put them on notice an incident has occurred. You explain the details of the incident with the claims representative, and you’re prepared to cooperate with the investigation. No one wants to have a claim, but hey bad things happens and that’s what you have insurance, right?

Then the real bad news comes

Your general liability insurance program has a residential exclusion. In short, your carrier provided you coverage to cover your business operations which is strictly commercial and NOT geared for residential projects. So, what does it mean?

Your claim is denied, and you are on the hook for your client’s destroyed home.

The moral of the story: If you do any residential construction work, before you do anything else, read your insurance policy to make dang sure that it covers your operations. If not, then be prepared to start writing some sizable checks.

The Devil is in the Details

One thing you need to know is what does your insurance carrier consider residential (more on this later), because the insurance policy you bind with your insurance carrier is a legal document. The wording in the policy (which is a written contract between you and the carrier) will determine what is covered and not covered in a claim. Hence, it is imperative that the contracts you sign with your clients and your subcontractors/vendors are aligned with your insurance policies. If they aren’t, that’s when “gaps” in your risk strategies can occur. Or in other words, you find out the hard the way that a claim will be denied.

The more exclusions you have on your policy, the less coverage you have. Hence, it’s imperative that your broker/risk management professional know your operations to ensure that your insurance will respond when needed. With this in mind, here are a couple of exclusions to be on alert for if they pop-up on your policy (especially during renewal):

• Residential Exclusions - This exclusion, as it sounds, will deny coverage for any “residential” work the insured performs. However, what does your carrier consider “residential”? Some consider multi-family apartments “residential” while others will call these “commercial” projects. Same goes for condominiums or built-to-rent single family homes. Hence, it’s important to make sure you and your underwriter are on the same page.
• Tract Home Construction Exclusion - As the name suggests, if you have this exclusion on your policy and you perform any work on tract home (e.g., new residential single-family community) projects, then a claim that could result from your work at these projects is unlikely to be covered.?
• Damage to Work Performed by Subcontractors on Your Behalf Exclusion - If you as the insured utilize subcontractors (or you are a general contractor with this endorsement on your policy), you would be advised to get this exclusion removed to reduce any potential gaps in coverage – like yesterday.
• Prior Work Exclusions - As the wording suggests, coverage will not extend to work completed before the inception date of the policy. Hence, if any sort of occurrence/event happens that stems back from work done before the policy commenced, then the resulting claim is likely to be excluded.

The above are just some of the exclusions you might find on your general liability policy. Your policy is a legal document and was drafted and vetted by a bunch of lawyers with degrees from fancy law schools. Words matter.

Don’t rely on assumptions and wishful thinking in the hopes that your insurance policies line up with your residential construction operations. You need to have a detailed conversation with your insurance broker to make sure you have exclusions removed (or endorsements added) to align with your business model and risk strategies. If your incumbent can’t, or won’t, then let me know.

I might know a guy

Et al...

Viola Davis is a Bad Ass

Recently my wife and I went to our preferred Alamo Drafthouse and caught a showing of the newly released "The Woman King". As described on IMDB, the movie is "the remarkable story of the Agojie, the all-female unit of warriors who protected the African Kingdom of Dahomey in the 1800s with skills and a fierceness unlike anything the world has ever seen. Inspired by true events, The Woman King follows the emotionally epic journey of General Nanisca (Oscar?-winner Viola Davis) as she trains the next generation of recruits and readies them for battle against an enemy determined to destroy their way of life. Some things are worth fighting for."

As someone who takes pride in my knowledge of history, I had no real knowledge of the Agojie or their role on the African continent. Now after seeing this film, I can tell you this - if I ever see the Agojie coming in my general direction, I'm headed in the opposite direction in a highly increased velocity! Also, I have a better appreciation for the all-female king's guard in Marvel's Black Panther since its rooted in history.

Before this movie, I was already a big Viola Davis fan. Now, I have an even greater appreciation for her acting skills. Word is she physically trained for months preparing for the role, and that she and her co-stars performed their own stunts. Like I said - she's a bad ass!

The movie has a PG-13 for strong violence, some disturbing material, thematic content, brief language and partial nudity. Not as graphic as your standard Game of Thrones/House of the Dragon episode, but best leave the kids at home.

The Verdict is....

Pay for the good seats in a movie theater.

If you enjoy what you've read here and you think I might have a clue what I'm talking about, then please reach out to me if you would like me to present to your firm or organization. I have experience talking to professional organizations, trade conferences, as well as universities. I've also appeared in newspaper articles and podcasts. Also, I'm available for birthdays and bar mitzvahs.