Workers’ Compensation, Certificates of Insurance, Unique Policy Language Areas of Concern
Although the economy has taken its toll on the construction industry, the majority of insurance agencies probably insure a contractor or two. There is no doubt this class of business has caused its share of errors and omissions (E&O) claims in the past and probably will in the future. Knowing some of the hotspots that can lead to trouble — and taking preventive measures — is a great starting point in addressing instances of E&O claims.
It is critical to tell sole proprietor contractors that to have coverage they must “opt in,” and failure to do so will leave them with no coverage if they are hurt on the job. Getting this in writing is extremely important. Typically, a form must be completed and submitted to the insurance carrier for the sole proprietor to affirm their right of inclusion as an employee on their workers’ comp policy. This must be done annually and prior to the renewal date of the policy. All such written requests must be on company letterhead and signed by the sole proprietor. The sole proprietor may not opt out until the end of the policy term.
Although not all states impose a duty for the insured to read their policy, it is still highly recommended that your office send a cover letter requesting that the customer do so. Plus, if they have questions, they should contact your agency immediately.
Advising contractor insureds of this issue in writing annually will serve to avoid any misunderstandings if circumstances change with the size of their employee force. In addition, the latest ACORD certificate form has a box in the workers’ comp field that needs to be carefully and accurately completed. The question: Any proprietor / partner / executive / officer / member excluded? A “Y” or “N” must be indicated.
Another key hotspot involves the unique language that can be found in some policies. This language is more common with excess and surplus lines (E&S) policies, but there is the possibility of some admitted carriers including coverage modifications to the renewals. Admitted carriers are required to issue a conditional renewal notifying the contractor and your agency of the changes but this is not typically required of E&S companies.
One of the E&S policies I noted had an exclusion titled “Employees of Independent Contractors Endorsement.” The language read as follows:
The coverage under this policy does not apply to “bodily injury,” “property damage,” “personal and advertising injury,” or any injury, loss or damage sustained by any employee of an independent contractors contracted by you or on your behalf.
Another endorsement stated there was no coverage if the Named Insured built more than six homes in a specific development. So… if the contractor was intending to build all of the homes in that development (more than six), what coverage would they technically have? Potentially and probably none.
These are just two examples of unique language carriers may be including on general liability policies for contractors. Be alert to any changes to the renewal compared to the expiring policy. Bring these changes to the contractor’s attention before binding the renewal and get their written sign off. If the review is after the account is bound and the customer does not want the coverage, you could face a minimum earned premium if it is an E&S account. Also, with these unique forms, if you are not sure of the intent, ask the carrier for a written explanation.
Certificates of Insurance
Currently, about one of every 25 E&O claims alleges errors in the preparation of certificates.
ACORD has been busy developing newer forms. It is incumbent to use the latest form in the time period stipulated. When you send out the new certificate, you may receive a request from the certificate holder to use an older form or make changes to the latest edition. Be careful — especially if using an older form would be in violation of your ACORD agreement. If you are requested to use a non-ACORD form, consider the following:
“We are pleased to attach an industry standard ACORD certificate of insurance issued on behalf for your captioned client. The insurance company will not execute, and would not authorize our agency to execute, the special certificate of insurance you requested. Upon your request and if authorized by our insured, we will be happy to provide you with certified copies of all liability policies in force for our insured that are relevant to your contract.”
It is always advisable to generate certificates from your agency management system to avoid any misrepresentations of coverage — but be careful with E&S as you are technically not the agent. Do not include any additional insureds not reflected on the policy. Moreover, some blanket additional insured endorsements require a written contract/agreement to be in place for “additional insured” status to apply.
If using an older version of the ACORD form (the ’09 form), be sure to also send the second page as this has important information.
Designate a point-person at your agency to be responsible for keeping up with the issues of certificates of insurance as these issues can happen “fast and furious.”
Whether you currently write a few of these accounts or are faced with insuring your first one, an industry exposure analysis checklist is a great tool. Effective use of a checklist will provide your staff with a solid handle on this class of business.
Many may think insuring contractors is not that difficult. Because of the marketplace and the multitude of exposures and issues contractors face, nothing could be further from the truth. Yet, by taking time to address some of these latest hotspots, insuring contractors can be extremely rewarding.