Litigation around the country concerning contractors’ liability for construction defects discovered after operations are completed has made coverage very difficult to come by for specialty trade contractors, but it has created an opportunity for insurers and program administrators looking to meet this new need.
A new group of territorial program administrators has introduced a program for specialty trade contractors involved in commercial and residential construction. The group, Construction Insurance Solutions (CIS), is comprised of Dayton, Ohio-based Norman-Spencer, McKernan Agency Inc. (NSM), Dallas-based RISC Inc. and Arthur J. Gallagher of Louisiana, and the program is available in all states.
“An insurance company that all three of us were consultants to or program administrators for came to us with an opportunity to put this together because of their construction defects strategy going forward,” NSM’s Paul Norman told IJ. Norman and A.J. Gallagher of Louisiana’s Bob Bush have known each other for 20 years and thought that the “A++” XV Best-rated surplus line carrier insuring the program was a good fit.
“In the standard market insurers are expanding their construction defects strategy to exclude any contractor who does any work that has occupancy or has habitational,” Norman said. “If it’s got a bed in it, most carriers will call it habitational.” The program, which has been in place since May 1, is “not nearly as broad as what some of the other carriers are doing” in terms of exclusions, according to Bush. “By far the majority of the accounts we’ve written have not had a residential exclusion to them.”
With coverage for contractors ranging from air conditioning to underground utility risks, the three program administrators saw an opportunity.
“We will not have any restrictive endorsement if the contractor is not considered a residential structural contractor,” Norman said. “That’s the key here. If it’s a residential structural contractor with more than 10 percent of its operations involving residential construction, then there will be some restrictive endorsements for prior work.”
The general liability minimum is $2,500 with a property damage deductible and primary limits of $1 million/$2 million for product/completed operations and annual aggregates with a $5,000 minimum policy premium, as well as commercial umbrella limits up to $25 million.
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