Artisan Contractors

SpecialCoverage Considerations

There are a number of special coverage considerations in dealing with contractors. Some involve endorsements, some involve additional lines of coverage, and some involve good business practices.

Certificates of Insurance: Most General Contractors will require all sub-contractors to provide Certificates of Insurance, or COI’s, verifying GL coverage. They almost always require that they (the GC) be listed as an Additional Insured (AI) on the subs policy. In addition, they may request waiver of subrogation, specific forms of AI endorsements (such as “must include completed operations”), Primary and non-contributory language, and they may require that every possible entity under the sun remotely involved with the construction project be listed as an AI on the policy. Carriers’ vary on what they will and will not allow. The passage of laws within the state of Texas now limit which COI forms can be used, and make it illegal to represent anything on a COI that is not on the policy. See the IIAT’s Best Practices section for an excellent discussion on COI’s and how agents should handle these requests. It’s important to note that a COI is just a piece of paper, and that it has no legal authority. It cannot alter coverage in any way on the policy. However, representing that it does creates a certain E&O exposure for the agent.

Primary and Non-Contributory, or PNC: General contractors often request that the sub’s GL policy be endorsed to reflect PNC language regarding the GC as and AI. This means that if a claim is filed against both the GC and the sub, and the type of claim is subject to the AI endorsement, then the sub’s GL policy will respond as primary (as opposed to excess) in relation to the GC’s GL policy. In other words, the sub’s GL policy limits would have to be exhausted before the GC’s policy would be required to respond. In addition, the Non-Contributory requirement means that, if the GC is found to be responsible by its own actions, in addition to the sub, the sub’s GL policy will not seek to have the GC’s policy contribute to the loss. Basically, by asking for PNC language, the GC is attempting to maximize its risk transfer to the sub. If we assume that most of the work on a project is done by sub-contractors, such a request does not seem so outrageous.

Many carriers now provide this PNC language by enhancement, when the PNC language is required in a written contract entered into by the sub. The ISO CGL policy itself contains language that it will respond with PNC when the additional inured is also insured by an ISO CGL policy. However, due to the abundance of different GL forms available, it is in the GC’s best interest to have it stated separately.

Per Project Aggregate: The CG 25 03 endorsement (or carrier specific equivalent) provides for a separate General Aggregate Limit to be applied at each designated project. In other words, if the endorsement lists 8 projects, then the insured would have a separate General Aggregate limit (assume that the policy General Aggregate limit is $2,000,000) for each listed project. So for example, if the insured has two large claims at project #1 totaling $1.5M in losses, the General Agg would have only $500,000 in remaining coverage limits at project #1. However, all other 7 locations would still have $2M each remaining (assuming they have had no claims). NOTE that this is a per project GENERAL aggregate endorsement, and not a per project PRODUCTS/COMPLETED OPERATIONS aggregate. Only the General Agg is made available for multiple projects. There is no such per project endorsement for the Products/CO aggregate. Some carriers are now including this coverage in their enhancements.

Per Location Aggregate: (CG 25 04) Same as the Per Project endorsement, except locations are listed rather than projects. This is more appropriate for an insured that has multiple business locations. For example, a concrete ready mix business that has a dozen ready mix plants might want to have a per location aggregate endorsement.

Additional Insured including Completed Operations: Most carriers provide AI status for GC’s, but only as respects ongoing operations. Once the project is complete, the GC’s status as AI ends. Since the GC is responsible for overseeing that all work is completed correctly, it seems reasonable that the GC should no longer need AI status. If there is a completed operations loss, and the sub was negligent, then the sub’s GL policy would respond. The GC would only be exposed for claims against it for negligently overseeing the work of the sub. A very real exposure. And a good incentive for the GC to hire qualified subs and verify their work. In reality though, many GC’s will not contract with a sub unless they provide this form of AI endorsement. KEY CONCEPT: Find out what your artisan contractor’s Additional Insured needs are before you submit the account for quoting. If your client needs a coverage form that none of our carriers will provide, it’s better to find that out before you invest a lot of time preparing a submission.

How to List Sub-Contracted Work: If you are insuring an Artisan Contractor and they sub-contract a portion of their work, then this needs to be shown on the GL app and the contractor’s supplemental app. The proper way to report sub-contracted work is by “cost of subs”, meaning what your insured pays the subs for the work. For example, say you have an HVAC contractor who subs out fabrication of AC ducts to a sheet metal shop. Last year, the HVAC contractor paid $300,000 to the sheet metal shop for this work, and expects to do about the same amount of work this year. On the GL app, you would list the HVAC contractor’s payroll on one line, and the cost of subs at $300,000 on a second line.

Contractor’s Equipment: Most artisan contractors will have some form of equipment that moves from job site to job site. For example, plumbers may have video probe units used to isolate leaks in drain systems; carpenters will have various bench saws, nail guns and air compressors; tile and mason contractors may have portable mortar mixers and brick/tile cutters; site prep or “dirt” contractors will have loaders, dozers, bobcats and other heavy machinery and trailers. All such items are typically covered on an Inland Marine Contractor’s Equipment policy form. There are a number of optional coverages that can be added to the form, such as small tools (usually listed in a bulk value rather than separately scheduled, and also subject to a “max per item” limit, and usually subject to a separate deductible). Larger items that will be scheduled need to be listed by make, model, serial number, and value. Coverage is typically on an ACV basis, but may be available at RCV at a substantially higher price.

There is also an option to cover leased and rented equipment. To rate for this, the insured will need to supply their estimated total rent/lease receipts, the estimated largest value of any one item, and the largest total value of all items at any one time. For example, say a site preparation contractor does about 6 jobs a year where he has to lease some special equipment. He usually leases to large loaders valued at $125,000 each, but occasionally will need to lease a large dump truck valued at $275,000 along with the loaders. So typically, the average value of leased equipment is $250,000 (two loaders); the max value at any one time is $775,000 (two loaders and a dump truck); and the max value of any one item is $275,000 (the dump truck).

Installation Floater: This inland marine form covers contractor’s materials, supplies, machinery, equipment, and fixtures that will become a permanent part of a building. Coverage applies for items at a described job site, or can be written on a blanket basis. Coverage may also be extended to temporary storage sites, and to cover items in transit. So, for example, coverage can be structured to cover a shipment of A/C equipment to be installed in a hospital under construction:

  • To cover the equipment while in transit from the distributor to the contractor
  • While the equipment is stored in a warehouse near the hospital location, where the contractor moves it to the job site as needed
  • While at the job site waiting for installation

Surety Bonds: Bonds associated with contractors come in two categories: License and Permit Bonds, and Bid and Performance Bonds. License and Permit bonds are typically required by a municipality in order for the contractor to legally do a specific type of work in the municipality’s jurisdiction. These bonds guarantee that the contractor will comply with all statues and codes regarding the work to be done. License and Permit bonds are typically what Artisan Contractors need. These types of bonds are relatively easy to obtain from our major carriers. The best source is to use our on-line Bond rating program provided by Liberty Surety. Agents can issue, print and pay for these types of bonds online, and many of the individual municipality’s bond requirements are pre-loaded.

Bid and Performance bonds guarantee that the contractor is qualified to do the work; will enter into a contract if awarded the bid; and will complete all of the work in accordance with the contract. These types of bonds are typically needed by general contractors, and are difficult to obtain. There is an extensive amount of underwriting involved which may also include a personal interview with the contractor.