Choosing The Right Insurance CoverageBy Brendan O'Brien
Building service contractors are looking for every way to save money in these lean times. From transportation and supply to labor and equipment costs, BSCs are cutting expenses to survive.
However, according to industry experts, insurance is not an expense with which a BSC should look to save money. With small profit margins, a small accident or theft could push an uninsured BSC over the financial edge, not to mention what a catastrophic event would do.
“Having adequate insurance coverage is important in tough economic times — if contractors reduce their level of coverage and don’t have adequate protection, they may be faced with paying for the consequences of injury or loss out of their own pocket,” says Deb Denker, industry manager, Travelers Commercial Accounts, Hartford, Conn. “If contractors don’t have the means to pay for a claim or the high defense cost associated with a claim that may result in a civil suit, they could be forced out of business.”
Building a Solid Plan
Although there is no doubt that BSCs need insurance, they do not need to be overinsured, either. The first building block a BSC should consider for insurance coverage is workers’ compensation, since many states require businesses with employees to carry it. Workers’ compensation covers on-the-job injuries and loss of wages due to those injuries.
“If you have an employee that gets hurt on the job and there is no workers’ compensation insurance, the business can be sued for all the medical expenses and the lost time,” says Jeff Rubin, senior vice president at Hub International Northeast LTD, New York.
In addition, since many states mandate this coverage, BSCs who do not carry workers’ compensation face stiff fines. For instance, in New York state, contractors can be fined as much as $500 a day. It is suggested that a BSC who does not know the law in his or her state contact that state’s division or department of insurance and inquire about the requirements.
“In the absence of workers’ compensation insurance, your company will be self-insured in the case of a worker’s injury, meaning you will be liable to that worker for medical bills and lost time claims,” says Gary Beggs, account executive at Valenti, Trobec and Chandler Insurance, Troy, Mich.
The second building block of a strong insurance portfolio is general liability coverage, which protects against liability for injury or damage to property that arises out of normal operation of the business.
Without it, a BSC would be liable for property damage and bodily injury. In today’s highly litigious environment, and with a slowing economy, there seems to be a rise in liability claims, according to Beggs. A serious slip-and-fall injury sustained by a customer or an employee of a client could easily range from $10,000 to $100,000, making it a huge, potentially devastating, gamble to go without the coverage.
The most comprehensive solution is to attach an amended property damage liability endorsement to a basic general liability policy. However, some insurance carriers do not wish to be legally obligated to pay these claims. They instead offer voluntary property damage endorsements. This will pay for a claim, but the decision is solely at the discretion of the claims adjuster assigned to the case.
BSCs need to keep in mind that workers’ compensation and general liability are insurances that do not benefit the carrier but, rather, protect the carrier.
“These are not like property insurance or auto insurance where you make a claim and you get a check,” Rubin says. “In these situations, a claim is made and a lawyer gets the check or if someone ends up winning a lawsuit against you, they are going to get a check. But the nice thing is that it will not come out of the BSC’s coffers.”
BSCs also need to consider an umbrella that simply increases the maximum dollar amount the insurance will cover. Liability insurance typically comes in $1 million increments. Umbrellas can be purchased in $1 million increments to tack on to the original $1 million liability insurance. For example, if a contract requires $6 million of liability, then the BSC would need liability of $1 million and $5 million in umbrella insurance.
To fully protect themselves, it is a smart move for BSCs to go beyond the basic insurance plans and add coverage specific to the industry. One type of insurance that should be considered is third-party fidelity insurance or what is known as crime insurance. This type of crime insurance is to protect a BSC when one of their employees steals from a client. The trigger for coverage is the preponderance of evidence that the BSC’s employee was responsible for the theft.
“Simply stated, if through a police investigation all [of the] customer’s employees can be eliminated as suspects, and your cleaning crew were the only other logical explanation, your customer will be reimbursed for the theft,” Beggs says. “The insurance carrier will not look to you for their reimbursement either. Be careful, these third party policies will not cover your customer’s employee’s personal items.”
Because BSCs typically work in areas where property can be easily stolen, crime insurance is highly recommended.
“This coverage can be important for building service contractors because their employees often work after normal business hours in buildings that contain property that can be easily stolen,” Denker says. “In addition to obtaining coverage against this loss exposure, building service owners can exercise the following risk control techniques to help avoid possible employee theft losses: proper screening of employees including background checks, good supervision of employees and encouraging clients to remove or lock up small valuables.”
Lost key coverage is another type of insurance that a BSC should ask an insurance agent about. It is typically needed by BSCs because they have possession of clients’ master building keys. Coverage is provided for the cost to replace keys that are lost or stolen from the building service contractor, as well as the cost to replace locks at the client’s facility.
Another unique characteristic of a BSC is that much of their cleaning equipment is left at customers’ premises for long periods of time.
“Traditionally, coverage for this equipment was found on inland marine and contractors equipment policies,” Beggs says. “Many times these types of policies can carry higher rates due to insurance companies understanding that you have little control over this equipment when you are not cleaning.”
However, an unnamed locations endorsement attached to a property policy can be much more cost-effective and provide as much coverage as an inland marine policy. This will give BSCs blanket coverage for various locations.
“The only shortcoming is providing coverage for equipment while in transit,” Beggs says. “However, most property policies have extension endorsements today that include some limit for property while in transit at no additional cost. Make sure that if you move your equipment from job site to job site, that the extension endorsement includes this transit coverage before relying on the unnamed location endorsement.”
It is highly recommended that a BSC find an insurance agent willing and able to examine their client contracts to make sure that their policy contains contractual liability, which provides continuity between both their legal obligations and their insurance. In addition, as BSCs create new business and increase their client base, their insurance needs will invariably change.
“Frequently, it’s not the BSC who is creating the contract, it is the client and they have standard wording in their contract and its very onerous. Sometimes we have to point out to our client, that they can sign it, but their insurance is only going to go this far,” Rubin says.
Brendan O’Brien is a freelance writer based in Greenfield, Wis.