Audits for contractors can be challenging. One of the most common questions auditors hear is, “Why do I have to pay for my subcontractors if they carry their own insurance?”
When a contractor hires subcontractors, an additional exposure is created on the jobsite that can result in claims against the contractor. These may include subcontractor negligence or inadequate limits of insurance, which would leave the contractor liable.
There are also possible defense costs when the contractor is named along with the subcontractor in a lawsuit. The potential for liability exposure is also real, if the subcontractor lets his policy coverage lapse.
For general liability policies, the exposure basis for a subcontractor is “total cost.” By definition, total cost includes all labor, materials and equipment furnished, used or delivered for use in the execution of the work.
Total cost also includes all fees, bonuses or commissions made, paid or due.
Properly insured subcontractors are assigned to the corresponding subcontractor work class code based on the type of work performed. If uninsured subcontractors are used, they will be classified to the payroll-based classification that best describes the type of work completed, as if they were employees of the contractor.
A best practice if you’re a contractor would be to require certificates of insurance from your subcontractors prior to paying them for the services performed. This allows you to retain some leverage in obtaining the certificate of insurance from your subcontractor.
Please contact our agency if you have questions about your audit. Thank you for your business!
The diversification of the U.S. economy over the past generation has meant that millions of Americans have started theirown businesses. Americans still chase the dream of being their own boss by starting their own business—and the trend may pick up during the economic slump of 2009 because of hiring slowdowns and spikes in corporate layoffs.Small businesses are the biggest driver of job growth, generating 60 to 80 percent of net new jobs annually over the last decade, according to the U.S. Department of Commerce. Small firms employ half of U.S. workers.And the sole proprietor is alive and well: In 2005, there were six million firms with employees but a whopping 20.4 million firms who had no employees other than the owner, according to the Small Business Administration.
Of all small businesses, 52 percent are home-based. That means millions of Americans are earning their business income where they live. But business owner beware: Don’t expect homeowners insurance to cover business risks.
Business insurance offers protection from liability and property risks. Often these coverages are combined into a package policy called a BOP or business owner’s policy. Millions of small and mid-sized business owners purchase or renew their BOP every year.
Typically, a BOP includes the following coverages:
Property insurance for buildings and contents of the business. Home-based business might not need coverage for their property, since it’s already insured against risks of fire, lightning and windstorm. But if there are additional risks to the structure because of the presence of business operations, those won’t necessarily be covered by homeowners insurance. Jon Jepsen at SentryWest Insurance (a Trusted Choice® insurance professional) can help determine if a special endorsement or a separate policy are most appropriate.
Home-based businesses might not have adequate coverage through homeowners insurance because homeowners policies often have “sublimits” restricting coverage for business property. For instance, the homeowners policy may cover business property, but typically only up to $2,500 while it is “on premises” and up to $500 while the property is “off premises.”
One example of inadequate coverage was a home-based retail cosmetics/personal care business that kept $20,000 of inventory in a garage that caught fire. The inventory was covered only up to the sublimits of the homeowners policy. Another instance: Coverage would be limited to the “off premises” limit of $500 if a laptop computer valued at $1,500 that is stolen while the business owner has it away from home.
Property insurance for buildings and contents of the business. Home-based businesses might not need coverage for their property, since it’s already insured against risks of fire, lightning and windstorm.
If there are additional structures on a residential property where the homeowner operates a business, those won’t necessarily be covered by homeowners insurance. For example, a detached garage that serves as a small-engine repair shop would not be covered by homeowners insurance; that business owner would need a policy endorsement to gain coverage.
Business interruption insurance. This protects against loss of income resulting from a fire or other covered event that disrupts the business. This coverage can also include the extra costs a business shoulders while it works from a temporary location. A fire in a home can be double trouble for a home-based business.
Liability insurance. This protects the small business for legal responsibility for the damage it causes to other people or entities. Liability insurance is usually priced according to the risk of the industry in which the business operates. A business that manufactures toys, for example, faces different risks than a consulting firm. Liability insurance shields a business and its employees if they cause bodily injury or property damage.
Not included in a BOP are professional liability coverage, automobile insurance, workers compensation, medical insurance and disability insurance. All can be covered with separate policies.
Check with Jon Jepsen at SentryWest (a Trusted Choice® insurance professional) about what type of insurance protection a small business—especially a home-based business—warrants.
We recently asked our fans to tell us the most common questions about insurance that they have or that they hear from others. Here are some simple answers for those questions.
• Why did my premium go up when I haven’t had any claims?
Premiums may have gone up for all insureds in your class. Insurance involves a lot of people sharing the losses of a few people. When, overall, losses go up, your share (in the form of your insurance premium) goes up.
• Why did the amount of coverage on my house go up when the value has gone down?
That depends on how you define “value.” If you’re talking about market values which have declined in the current real estate market in the past couple of years, the resale value of your home may be depressed. However, insurance covers the cost to rebuild or replace your home or property. The real estate market has little to do with that. If construction costs rise, your policy limits should increase accordingly.
• Do I need to buy the coverage when I rent a car?
We suggest that you purchase the loss damage waiver in case the vehicle is damaged. While most auto insurance extends to rental cars, your policy probably has exclusions that aren’t in the loss damage waiver. Likewise, there are things the loss damage waiver doesn’t cover that your insurance does. Having both makes it less likely that you will have an uncovered loss.
• Why did my business liability insurance after 18 years and never had a claim go from $17,000 a year to almost $30,000 a year?
Premiums may have gone up for all insureds in your class. Insurance involves a lot of people sharing the losses of a few people. When, overall, losses go up, your share (in the form of your insurance premium) goes up. In addition, your premium may be based on payroll, sales, or some other factor that has increased substantially. If your business is growing rapidly, your exposure to loss probably is too. Your insurance premium may be reflecting that growth.
• Is it true a red sports car costs more to insure than a black sports car (same year, make & model)?
Nope. The color of your car has absolutely nothing to do with the cost of insurance. This myth may be based on the premise that a red sports car is flashier than a black one and might attract the attention of local law enforcement if you’re driving a bit too fast. Getting speeding tickets almost certainly will increase your insurance costs.
• Why does my car insurance go up when my car keeps getting older?
The component of your premium that pays for physical damage claims to your car usually goes down with age. However, other coverages like liability might go up. In addition, experience for that model car or for all insured cars in general may be going up so your increase is similar to that being experienced by others insured by your insurance company.
• What’s my credit got to do with my insurance?
Statistical studies have demonstrated that loss experience is directly proportional to an insured’s credit score. For that reason, some insurance companies use that as a factor in establishing rates if permitted by law in your state.
Courtesy: The Trusted Choice
Jon Jepsen, CIC