Maximize Risk Transfer to Your Commercial General Liability Insurance

Roofing contractors face potential liability from numerous aspects of their businesses, including employee-operated company vehicles and equipment; work-related injuries; property and equipment damage; “disappearing” materials; defective work and materials; and a multitude of employment issues, such as wrongful termination claims. All reputable contractors protect themselves and others by purchasing Commercial General Liability (CGL) Insurance. The scope of available coverage runs from basic policies to wide-ranging “multi-peril” policies, which bundle multiple coverages to address a number of potential risks. A multi-peril policy for roofing contractors may include coverage for damage arising from defective work, operation of vehicles or equipment, worker’s compensation, employment practices and even employee theft.

Insurance simply represents the transfer of risk from the insured to the insurance company. Taking a proactive approach to understanding the insurance you purchase allows you to maximize that risk transfer or at least know where you bear the majority of risk.

The Basics

A CGL insurance policy generally consists of three primary sections:

  • The insuring agreement.
  • The exclusions.
  • The endorsements.

The insuring agreement defines what the policy covers and is generally written quite broadly. Virtually all CGL insurance policies require that such property damage or personal injury result from an “occurrence,” typically defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions”. Many of the terms within the insuring agreement are specifically defined for purposes of the policy and require analysis, depending on the claim asserted and the particular coverage implicated.

The exclusions are simply that— claims and/or damages the insurance company will not cover. For example, CGL insurance policies commonly contain exclusions for “Contractual Liability”, defined as “bodily injury or property damage the insured is obligated to pay by reason of the assumption of liability in a contract or agreement”. Since many subcontracts include express indemnification clauses, this can be a major area of concern for the contractor.

Endorsements are documents attached to a policy that amend the terms in some way and can expand or restrict coverage or even modify the definitions. One common misperception is the belief that endorsements are synonymous with exclusions. To the contrary, it is not uncommon for an endorsement to narrow the scope of an exclusion or eliminate an exclusion entirely. Endorsements can be used to tailor a policy to a particular industry or trade, and insurance companies use them to modify standard Insurance Services Office (ISO) policies to comport to their particular philosophy, such as cancellation and non-renewal provisions or requiring binding arbitration to settle coverage disputes. Endorsements are usually identified by description and form number as part of the Declarations Page.

There are common Endorsements that result in additional exclusions. One of particular concern to any contractor is the “Independent Contractors and Subcontractors Limitation”, which provides that claims for bodily injury or property damage caused by independent contractors/subcontractors used by the insured are not covered unless that independent contractor/subcontractor maintains its own insurance coverage with limits equal to the insureds and names the insured as an Additional Insured on its policy.

To limit your personal exposure, it is imperative you do not ignore the Endorsements! It is an important part of your policy and you need to understand the terms.

Duty to Defend Versus Duty to Indemnify

An insurance policy creates two separate and distinct obligations for the insurance company: the duty to defend and the duty to indemnify.

The duty to defend consists of the insurance company’s obligation to hire counsel to defend the insured in response to a claim. That obligation is not
dependent upon the insured’s liability but whether the allegations made by the plaintiff states a claim potentially triggering coverage. The duty to defend
exists even if the claim is groundless, false or fraudulent.

The duty to indemnify is the insurance company’s obligation to pay the successful plaintiff when that claim falls within the scope of the insurance policy.
In the insuring agreement, the insurer promises to “pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.”

It’s often said that the duty to defend is broader than the duty to indemnify. The carrier’s duty to defend exists when the claim potentially triggers overage, while the duty to pay exists only when the insured is obligated to pay damages and the claim falls within the coverage provided by the policy.

Pages: 1 2

Commercial Roofs Will Be More Difficult and Expensive to Insure

Early in the evening hours of June 12, 2014, Abilene, Texas, was hit by a hailstorm that covered approximately 40 percent of the town.

Early in the evening hours of June 12, 2014, Abilene, Texas, was hit by a hailstorm that covered approximately 40 percent of the town.

Early in the evening hours of June 12, 2014, Abilene, Texas, was hit by a hailstorm that covered approximately 40 percent of the town. What made the storm unusual was the size of the hailstones combined with the intensity and duration of the storm. Hailstones varied in size from 2 to well over 6 inches and fell for more than 23 minutes. Most of the stones were frozen rock-hard; some pieces formed when two to three mid-size hailstones froze together.

Some residents reported multiple deck and ceiling punctures with several homeowners reporting stones that penetrated deck and ceiling to smash flat-screen TVs. The damage covered most of the downtown business district; Hardin Simmons and Abilene Christian universities; and a large regional hospital complex, including outlying medical and laboratory facilities. Auto damage was severe and widespread, exacerbated by the large number of visitors gathered downtown for a popular monthly event. There were a few injuries, but no deaths, other than some animals at the local zoo. Initial damage estimates topped $400 million, a sizeable amount for a town of 100,000.

Hailstorms are not unknown in our area though not as common as might be assumed. Since I have been in the roofing business, we have had damaging hails in 1967, 1973, 1988, 2011 and 2014. Our company, now in its 124th year, did not keep records of storms prior to 1967. It has been my experience that no two storms are alike, each taking on a life of its own with regard to how the insurance industry reacts. The last several years, Texas has had major storms in a number of areas, including Amarillo, the Dallas-Fort Worth Metroplex, Austin and Rio Grande Valley. In these areas, roof claims litigation has exponentially increased, driven by a cottage industry of public adjusters, roof consultants, restoration contractors and attorneys, all making a business of inserting themselves between the insurance carrier and the building owner/policy holder. While there can be legitimate need for all these people at times, it does appear some may have crossed the ethical line to shake down insurance carriers with inflated claim demands.

The last several years, Texas has had major storms in a number of areas, including Amarillo, the Dallas-Fort Worth Metroplex, Austin and Rio Grande Valley.

The last several years, Texas has had major storms in a number of areas, including Amarillo, the Dallas-Fort Worth Metroplex, Austin and Rio Grande Valley.

We experienced a little of this activity during our 2011 hail, but it was limited because the hail coverage area included few commercial properties. I was personally aware of several claims made in areas where there was no hail and the damages claimed far exceeded the value of the building.

In response to these perceived abuses, the insurance industry in 2014 has become much more aggressive in its claims handling, especially with gravel-surfaced built-up roofs. Gravel-surfaced roofs remain a significant portion of the roof inventory in this market. Adjusters have been paying for modified bitumen and metal roofing without too much argument. But, since the June hail, we have looked at dozens of buildings with gravel-surfaced roofs that, in our opinion, should be total losses, only to have the adjuster, who is often only vaguely familiar with gravel roofing balk at paying and call in consulting engineers to take sample cuts for lab analysis.

So far, it appears that in the absence of multiple punctures, the assumption is that there is no damage—or at least damage short of a total loss.

So far, it appears that in the absence of multiple punctures, the assumption by adjusters is that there is no damage—or at least damage short of a total loss.

My roofing intuition suggests this activity is a prelude to claims denial. So far, it appears that in the absence of multiple punctures, the assumption is that there is no damage—or at least damage short of a total loss. I can understand the adjuster’s desire to have incontrovertible evidence to base his payment or denial decision, but my experience as a contractor suggests that lab analysis is not foolproof. Some of the tests are based on theories that are at least debatable. The public adjusters and restoration industry have their own labs and tests to compete with the carriers. Regardless of tests, my experience as a contractor suggests that a built-up roof, even with gravel surfacing, is no match for a 20-minute pounding of baseball-sized hail. It is my hope that our industry does not devolve into an adversarial system, which pits dueling laboratories and experts into the claims process.

My suspicion is that it will become much more difficult and expensive to insure commercial roofing, with limits on coverage, much higher deductibles and more specific language to define what is damage. The real loser will be the building owner, forced to assume a much larger portion of the risk.

PHOTOS: JERRY SIEWERT