Former remodeler and specialist at insuring remodelers for 23 years, Brian Downs highlights four insurance products many remodelers don’t know about yet are important for their businesses. Downs is president of Downs & Associates in Herndon, Va., and also former president of the Washington, D.C., chapter of the National Association of the Remodeling Industry.
“Very few insurance agents understand construction, and all four of these coverages we’ll discuss are important to remodelers. I’m an ex-contractor and I know which insurance remodelers need,” Downs says.
No more than 10 percent of remodelers carry pollution liability insurance, and it was a much smaller percentage before the LRRP rule, Downs says. “This coverage will only get more important as enforcement continues. It protects the remodeler against any kind of pollutant, including lead, asbestos, fuel spills, radon and mold to name a few. All of these pollutants are excluded from all general liability policies,” he adds.
“We constantly hear remodelers tell us, ‘We’re certified and follow the rules so why do we need coverage?’ Because lawsuits come anyway,” Downs insists. “For example, a remodeler was working on a pre-1978 home, followed the rules by putting partitions up as he should. They left the zipper door open too much and residue escaped into the house. One of the kids came into contact with it and developed respiratory problems. The homeowner filed suit against the remodeler who didn’t have protection and lost tens of thousands of dollars.
“Remodelers shouldn’t limit themselves to a lead-only pollution policy, either. That’s like buying an automobile policy with coverage only if you’re in an accident when turning left in the middle of December on a sunny day,” he explains.
Traditionally, employment practice coverage has been its own policy, but now some insurance carriers are offering it as an endorsement or rider, Downs says. This insurance protects a remodeler against lawsuits from employees for EEOC laws violations. The big three violations include wrongful termination, discrimination and sexual harassment, he notes.
“The most common violation by remodelers is wrongful termination. For example, a remodeler in 2009 had let two employees go at same time. The employees had been written up for performance issues and were buddies. They both decided to get an attorney and sued for $15,000 each. The remodeler said, ‘We documented everything; we’re good.’ But they didn’t have this policy so he went to an attorney who said, ‘You can pay me $30,000 to defend this and you’ll win, or probably negotiate down and pay $15,000 or $20,000 to make it go away.’ In the end he paid $7,500 to each person. That’s $15,000 for doing nothing wrong,” Downs explains.
Some insurance companies will put defense costs inside the limit, and some will put it outside, Downs says. “In other words, you buy $100,000 in coverage, but to defend it is $50,000, which leaves only $50,000 to cover damages because defense is within the $100,000 limit. The better option is defense costs outside the liability limit.”
Care, custody, control
Another endorsement or rider to a general liability policy is care custody and control insurance, which protects remodelers when handling a homeowner’s personal property. For example, a china cabinet must be moved away from a wall so a remodeler’s crew moves it; this insurance covers potential damage from that process. This is not covered by general liability policies.
“A remodeler would end up eating the costs of repairing or replacing any damaged property if not for this insurance,” Downs explains. “You could be hanging a chandelier up on a ladder, drop it and it shatters. However, there’s an important distinction to be made between working on something and moving it. For example, someone is working on drywall for the project, hits a pipe and floods a house. This would be covered because the wall was being worked on for the remodeling process. An electrician working on a chandelier and damaging it would be covered, too. It’s tricky, so consult with an agent for clarification. Varying amounts of coverage can be purchased; the sky’s the limit.”
The fourth major insurance policy after general liability, commercial auto and workers’ compensation is an umbrella policy. This coverage is over the other three policies because they generally are offered with a maximum of $1 million. Umbrellas are sold in million-dollar increments. “If a contractor had only a $1 million policy, it would be maxed out if damages are more than $1 million. After that, a lawsuit would go after the business and potentially personal assets. A client of mine had a $5 million umbrella policy, and an employee caused a fatality while driving a company car. The umbrella policy was worth it in that situation,” Downs says.
Always go with a million-dollar limit on general liability and commercial auto policies; the savings are nominal to go from a quarter-million to a million, Downs insists. Additionally, it’s prudent for a remodeler to have all insurance products through the same agent. “This way an agent can manage the insurance properly, and the right hand always knows what the left hand is doing,” he says.