When you hire a residential contractor, there’s a chance that the firm subcontracts with other entities. Insurance companies have traditionally provided competitive plans for small subcontractors who work on residential projects. Changes in the insurance industry, however, make such insurance more complex.
Here’s a look at the factors involved with insurance for residential contractors:
Factors Insuring Residential Contractors
The main two factors that residential contractors face in terms of whether or not a contract is straightforward on insurance deal with degradation: mold and defects. The threat of mold ruining a home can lead to contract disputes that slow down a project, which can result in litigation.
Most homeowners insurance companies began removing mold coverage from their policies in 2002. As a result, contractors have had to deal with mold claims in an awkward way, as these issues were once easily settled by insurance. In other words, the intended loophole for insurance carriers has backfired in the sense that it hurts business relationships between owners and contractors.
Another problem residential contractors must face is dealing with claims about structural defects. A rise in class action claims across the country has created financial challenges for insurers, who are avoiding defects in policies. This trend has forced residential contractors to work more closely with agents who specialize in construction with an emphasis on precise underwriting details.
General Liability Insurance and Options
Residential contractors need to at least carry general liability insurance in order to protect themselves from claims regarding damage or injury. Usually, a contractor must provide proof of insurance to the client before starting a project.
Another type of liability insurance available to a contractor includes contractors liability insurance, which protects a contracting business and its owners. It covers damages, worker injuries, and claims about false advertising. This type of insurance is split into two groups: claims-made liability policies and occurrence liability policies.
The claims-made policies cover damages or injuries that happen while an insurance policy is in effect, as the claim must be made during the term. Occurrence liability policies, on the other hand, cover damages and injuries during the term, regardless of when the claim is filed. The latter type policies usually involve paying higher premiums.
Contractors Covering Costs for Subcontractor Issues
Some contractors avoid the complexities of insurance by using general liability insurance to cover most claims. However, these policies typically don’t cover damage caused by a subcontractor. In that sense, the costs fall back on the main contractor if the installation is done wrong and must be replaced.
Another vulnerability that contractors face with general liability insurance is that the policy doesn’t cover worker injuries. Nor does it likely cover illnesses due to exposure to toxic chemicals, smoke, or other substances that impair health. These factors require contractors to purchase additional insurance.
Each contractor has its own needs for specific types of insurance. In some cases, construction liability insurance is all a contractor needs to operate in Texas. However, the more complex the project involving subcontractors, the more the contractor needs broader insurance to tailor the firm’s needs.
The ideal residential contractor is one that has already worked out specific insurance requirements with its subcontractors. The contractor should also have pollution liability that covers all job sites. In other words, in order for a subcontractor to work with a contractor, the firm itself must have specific insurance requirements, such as employers liability, with a $1,000,000 limit.
Residential contractors who work with various other subcontractors need to understand the complexities of insurance coverage to reduce liabilities. For assistance with all your construction needs, contact the experts at Proforma Construction. We will help you complete your construction projects according to your plans and timeline.