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Liability Insurance... Read the Fine Print

THOMAS G. DOLAN | Business Articles

But, hey, you didnt get into this field because you like to pore over complex legal terms. Your general contractor assures you that its all legit, standard stuff. Youre all in this together, right? Youve got to have a little trust.


With liability, as with all insurance, there is a concern over rates. After the terrorist attacks of September 11, 2001, the rates for all types of insurance dramatically increased. A key reason for this is that the stock market plummeted. What many people dont realize is that insurance carriers look for their profits primarily not from their business, but from investing their monies in the stock market.

When the stock market is doing well, insurance companies become competitive in pricing, and venture into riskier markets, satisfied with break-even or even losing margins, for their profits are in the market. This is called a soft market. When the stock market fails, however, that starts a hard market. Without the profits from their investments, carriers raise their rates and pull back coverage to policies they feel will result in fewer and the least expensive claims.

So, while liability rates are still high, the industry is going through a typical cyclical phase that is determined by the cyclic phases of the stock market. Weve seen some minor raises in liability rates over the past few years, but overall theyve been pretty stable, says CEO/President Steven Hartman, of Landscape Contractor Insurance Services, Inc., Fresno, California. Theres not a whole lot going on, and we see a potential for rates coming down.

However, rates are not the main issue in liability insurance. Liability insurance for most landscape contractors is still a fairly desirable coverage, but it gets tricky when we start talking about what type of landscaping product and in what part of the country, says Darwin Lucas, senior vice president, RISC, Inc., Dallas, Texas.

As far as most landscaping businesses go, when they are working on residential-type projects, thats where it gets tricky. This is because there is still a concern on the part of the insurance industry that involves multi-litigants from a single construction project for construction defects.

As a result, many carriers are reluctant to cover landscape contractors; still, some companies do offer coverage. I would recommend CAN for nonresidential landscapers, and Construction Insurance Solutions for residential contractors, says Lucas. Check with your agent about coverage from these companies.

Zeroing in on the issues of liability insurance facing landscaper contractors, Jeff Graham, of LaPorte & Associate, Portland, Oregon, defines the small print phrases that opened this article.

Additional insured means that the landscape contractor, or any of the subcontractors for that matter, is required to provide coverage for the contractor, whether or not the construction defect was caused by the landscaper. Waver of subrogation means that if the general contractor was later found to be the cause of the defect, the landscaper cant sue him.

Completed operation does not mean that the landscapers liability ends when he finishes his work and has it inspected. Rather, he could still be held liable several years later for most anything at all on the jobsite, for the operation is still not completed from the general contractors point of view. These are only a few of the legal spikes the landscaper can fall upon in the contract. There are more such terms.

So how did this grossly unfair situation come about?

A key reason, explains Graham is mold, which is the new asbestos. Its a gold mine for attorneys. Another way of putting it, says Graham, is that the gold mine which has been well-established for attorneys in general construction, has now been extended to include residential work, such as apartments, multi-family housing, condominiums, and assisted living facilities.

For example, when theres a construction accident with a crane, plaintiff lawyers will typically sue just about everybody on site: the construction company, the crane manufacturer, the suppliers of the components that have gone into the cranes, and anyone else on the work site that could be, however minimally, connected with the accident. Many defendants, although completely innocent, will pay a settlement simply to avoid the additional costs of litigation.

When mold is the villain, it stands to reason that contractors who work with plants and irrigation are suspects. However, in practice, it doesnt matter whether the moisture entering the building was from the installer who put on a roof improperly, one who applied a porous insulation system, or one that set up a leaky air conditioner. The landscaper becomes liable.

There has been an explosion of claims as a result of this, says Graham. Therefore, many insurance companies are limiting their exposure by limiting coverage for landscaper contractors, if not eliminating it altogether. This limits the availability of carriers writing this type of coverage, reduces the competition, and makes it harder for landscapers to get insurance.

Many agents add to the problem, Graham says, because they dont know the industry, and allow their clients to sign these toxic contracts. Or, they may be aware, and are negligent in other ways. A policy up for renewal may have the proper coverage at the moment, but the carrier is modifying it. Then the landscaper, not being informed by his agent, signs up and pays $20,000, only to find that two months later he has to pay $30,000.

So whats the solution?

Some agents who know the industry, and care as much about representing their clients as they do their carriers, can get this noxious contract language removed, says Graham. He adds that the additional costs ran anywhere from $100 to $500.And though Oregon recently passed a measure which prohibits general contractors from implementing this unfair procedure, Graham says the practice still exists.

All of this points to the need for having a good, caring agent who knows the industry. But there is even more to it, Graham says. Not surprisingly, landscapers trying to get fair coverage feel they are the subject of multiple demands. But there are also, if demand is too strong a word, at least requests you have a right to make from your agent regarding liability insurance, and expect good answers.

Here are eight things you should ask your agent:

Help Reduce Payroll Rates: The larger your payroll, generally the larger are your payroll rates, says Bob Cason, owner, Insurance Resources & Services, Inc., Bellevue, Washington. But there are some guidelines and industry rules that are applied to payroll that most dont know about. You should check with your agent to make sure you dont overpay. For instance, there are different rates for those in the field and those in the office, for full- and part-time employees, and field workers can have lower rates if they also work part-time in sales, in the office, or come to the office for training.

Reduce Vehicle Rates: A lot of liability will fall on automobiles and trucks, says Cason. The more knowledge you have of how rates are determined, the more money you save. For example, where vehicles are garaged affects the rates. If they are parked overnight in a metropolitan area, the rates will be higher. However, if workers drive these vehicles to their homes in small surrounding towns, the rates can be considerably less.

Have Loss Control Service: Landscapers should ask their agents to implement a safety program for loss control, to control risks, and to reduce premiums, says Hartman. Many landscapers are resistant. They may feel they dont have the time or staff. And I think theres a feeling in some, though not all landscapers, that the agents are out to get them and might find something wrong. But if we do find something wrong, we want to help fix it. Were there to help. And if, as a result, you have less equipment theft and fewer accidents, your premiums will be that much less.

Have Your Contracts Reviewed: Theres no reason you should not have your agent review your contracts, says Graham. He should be able to identify areas of concern, make suggestions, strike harmful language, adding this or that. If a renewal is coming up, the carrier might not have certain coverage, so the agent knows perhaps that its time to find someone else. Youd be surprised at what youll find in contracts. Some installation coverage will state that trees, shrubs and plants will not be covered. How would a landscaper feel about that?

Have Your Agent Visit Job Sites: Your agent is a salesman to you, the landscaper, but also your salesman to the underwriter, Graham says. Ask your agent to visit your jobsites, and if he reports to the underwriter that your workplace is great, awesome, wonderful and safe, the cream will rise and that will impress the underwriter. You want an agent who will do more than just fill out forms.

Have Your Agent Provide a Quarterly, Or At Least an Annual Report: If you see where your losses are, especially if there are patterns, you can make adjustments, says Graham. We do what we rarely see anybody else do, and that is prepare graphs for the past five years for accidents, and track it. One landscaper studying the graph and data saw that he had higher claims at the start of the season. Thats when regular employees have been off for a while and are rusty, and new people are hired. He learned to have a special focus on safety at that time of year.

Have Motor Vehicle Reports Made: Expect your agent to flag the department of motor vehicles, says Graham. A stray ticket here and there may not be important. But you want to be aware if any of your employees are having serious driving problems.

Aggressively Manage Claims: Have your agent review all of your claims before they are turned in, Graham says. A lot of claims may not be your fault; they are so small they will give you more trouble than they are worth, as well as other reasons.

In other words, if you are paying your agent for insurance, you have a right to expect him to work with you to keep your premiums as low as possible.

07/05

 
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