Plus Two More Kinds of Insurance
Many small house builders who are managing their own project think construction liability insurance (the link takes you to an example for the EPA) is too pricey, only for large contracting firms, or only necessary if they have a bank loan. These are the lucky ones — those who have not been sued.
Anyone who has been ever been faced with litigation has learned the value of liability insurance. Legal fees can be racked up very quickly.
Paying a substantial premium may seem pointless. However, a “substantial premium” can quickly be absorbed by defense costs from a single lawsuit, not to mention the financial stress of having to pay out of pocket to the opponent in the litigation.
Like it or not construction liability insurance is something you really don’t want to be without (especially if you’re a professional home builder). Subcontractors should have some liability insurance to cover their own activities on the job. But, the only way to know that for sure is to ask them for a current copy of the “certificate of insurance”. Most of the time you can ask them to send that directly to your homeowners insurance agent for a review (to make sure everything’s “kosher”). Be aware that contractors and subcontractors will need to pass this cost onto you, the consumer. Hey, it’s a business, not a charity.
Although I had ‘course of construction’ insurance, it didn’t cross my mind until late in the project to get liability insurance. (I still shake my head in disbelief that I didn’t think of this!) The only injury we had was to a guy who suffered a nail into the knee from a pneumatic hammer (can you imagine!). Luckily, this worker had great health insurance through his regular employer, and he graciously agreed to keep it “QT” about where the injury happened. Had he not had insurance we could have been in a very precarious situation. I shudder to even think of this now!!
Three Kinds of Insurance to Get
For the small home builder who plans on managing their own project, there are three types of insurance that we recommend you use to build.
The first type of insurance is called “Course of Construction” insurance which covers fire, vandalism, building materials, and equipment intended to become part of the building structure.
Since you are a small house builder managing your own project, you will find some insurers that will underwrite the construction liability insurance policy for Course of Construction. In other words, they will create coverage provisions and rates which can be tailored to your particular situation at hand.
If you are working with a lender, these provisions in construction liability insurance would have to be amenable to the lending institution. Your bank or credit union may want to talk directly with your insurance company.
The second kind of insurance is called “General Liability Insurance.” Under general liability insurance, covered liability claims include bodily injury, property damage, personal injury as well as being a comprehensive general policy. The criteria are based on perceived risk and the state in which you operate.
If you are working with a lending institution, general liability insurance is almost always required and will help your construction loan close faster. It covers not only the small house builder in the case of someone pursuing litigation, but also protects others that are on the premises.
The third kind of insurance is “Workmen’s Compensation Insurance.” This type of insurance provides replacement income and medical expenses to employees who are injured on the job. The requirements for providing this insurance vary from state to state. For example, if you live in New York State and have 2 or more workers on your premises, workmen’s compensation insurance is a requirement. In other states, it is not required at all. Check with your state’s department of commerce, business development, or workforce development.
In today’s litigious society if you are a small house builder managing your own project, construction liability insurance is really a wise decision regardless of whether or not you are using a lending institution. Even if you have a “gentlemen’s agreement” between yourself and your workers to not sue each other for injuries, it will probably be their health insurance or home owner’s carrier that comes back to you for payment. Being sued will be out of their control.
Another concern to consider is workers who do sloppy work, do not finish the job, or worse, they simply disappear. If you are working with a lending institution this could prove to be disastrous. Essentially, they’re holding your land, building materials, and future completed house as collateral against your loan.
That’s why they generally like a licensed General Contractor to manage a house building project — his or her contract will state that the structure must be finished in a timely manner. Ok, that really isn’t an official insurance related issue, but your bank or credit union will usually ask for this kind of “insurance” from you, the owner-builder, that the project will be completed.
As a small house builder managing your own project you should shop around to different insurance providers and find ones that will underwrite the construction liability insurance policy to meet the needs of your project. Although many do not advertise this service, they may be willing to provide it if you inquire about tailoring the policy to your project needs.
This is why it’s to your advantage to maintain a friendly and professional relationship with a regular insurance agent and his/her team. And when they come through with flying colors to write a good policy for you please consider stopping by their office with bagels or donuts as a thank you (thanks Gary, Trish, and Dar!).