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.

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How to Choose a Roofing Contractor

The greatest challenge for anyone responsible for any physical asset is how to keep it operating properly. The key is finding qualified maintenance providers to solve problems that are beyond our own abilities. With the advent of the Internet, our options are limitless. If we need a doctor, we Google the type of doctor we need and get a list of options. The same can be said for all other types of goods and services. But with more options, are we really getting more quality from these numerous choices?

Unfortunately, people and companies can make any claim on the Internet and, as long as they don’t slander anybody else, it’s perfectly legal. I get emails every day claiming to have a cure for cancer, obesity, hemorrhoids, etc., and all I have to do is log on to the website, enter my credit card number and the “cure” will be sent to my house within 72 hours.

Everyone knows this is a hoax, right? Yet more and more of these websites keep popping up every day. Clearly someone is falling for these frauds or there wouldn’t be any! But I digress. The topic of this article is “how to choose a roofing contractor”, not “how not to get ripped off using the Internet.”

Preliminary Questions

Consequently, if I have a roof leak, the first thing I will do is conduct a web search for roofing contractors in my area. I will probably look for ones located closest to my facility. I will call the company and say something like: “I have a roof leak. Do you fix those?” The contractor will probably say, “Yes, I can fix leaks.” I will then say: “Great! When can you be here?” And the rest is, as they say, history. Hopefully, the contractor I selected is licensed, bonded, insured and competent. As you can see, I didn’t ask any of those questions, so I really don’t know. But he must be good; he was listed on the Internet!

If he’s not licensed, there is probably a pretty good reason why he isn’t—he’s not a real contractor, just kind of a handyman. If he’s not bonded and there is a problem with the work he performs and he refuses to fix his mistakes, I will have no recourse to take legal action because he doesn’t have a bonding company backing his work. If he isn’t insured and he falls off my roof, he can sue me personally for causing him bodily injury.

Before any contractor comes out to your facility, make sure the company is licensed, bonded and insured. Always ask for the license number, bonding company name and number, and personal liability insurance policy number. Once you get this information, verify these numbers and providers. I once had a contractor give me his license number only to find out the number was made up! If the information checks out, set up an appointment for the contractor to evaluate your problem. Don’t set the appointment and then check out the company’s qualifications. If a roofer comes out, climbs on your roof and falls off without liability insurance, you are on the hook paying for “Mr. FastRoofs Inc.’s” medical bills or worse: he sues you for not having fall protection on your roof—not that you should know what that is—and rest assured you will pay his medical and legal bills!

Once you have determined a certain level of legitimacy, you should also check what other types of certifications the contractor has attained. I would determine whether he or she belongs to the Better Business Bureau. This is no guarantee that these companies won’t have problems, but it does show a willingness to be responsible once the work has been completed. Also, determine whether the company belongs to trade associations. A roofing contractor should be “a member in good standing” and belong to the Rosemont, Ill.-based National Roofing Contractors Association or one of its affiliates.

Don’t assume just because a company says it belongs to a trade association it does. I once dealt with a painting contractor that listed on its website belonging to the Painting and Decorating Contractors of America, Maryland Heights, Mo. I called the trade association and learned the contractor did not belong at all! In other words, if a contractor makes a claim, make a call and check it out—no matter what!

The Proposal

Once you have properly vetted your prospective contractor, call him and describe your problem in the most basic terms. Most people want to solve the problem themselves and then just have the contractor effect the change.

Customers often will call and say: “I have a lot of problems on my roof. Can you come out and give me a quote for a new roof?” I am sure many of you are reading this and are completely incredulous this happens but, be honest, it’s human nature to not want to seem ignorant. As a matter of fact, I find those with the most experience are quickest to opine on their problems when they really don’t have a clue as to what’s wrong with their roof.

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