Arthur Rubinstein is president of Skyline
Steel of Brooklyn and is a past president of the Subcontractors
Trade Association and the Empire State Subcontractors
Association.
|
Warning: Wrap-ups Can Harm Contractors'
Health
Paying close attention to the fine
print of your wrap-up insurance
policy can save your contracting business untold grief.
by Arthur Rubinstein
As busy as we are, in the midst of a boom cycle in our industry,
few of us are focused on the dangers we face in an area we
seldom think about - our liability insurance programs.
Once a year, as renewal time approaches, we anxiously await
the price quotes, and then breathe a sigh of relief. "Dodged
the bullet," we think. "The cost is a little less,
or a little more. Problem solved for another year."
Our brokers send us a "binder" that, if properly
prepared, provides a list of endorsements - the terms and
conditions of the policy provided by the insurer. We glance
at the binder, write a check, and then turn our attention
elsewhere. Some time later, the full policy arrives, which
we dutifully file away.
So what's the problem? The answer lies in those endorsements.
Their purpose is to qualify, limit, and restrict the actual
coverage provided by the policy.
As an example, my company's policy contained 21 endorsements
last year. This year, the renewal - from the same insurer
- contained more than 40. How many of those endorsements were
to my benefit, as opposed to my insurer's benefit? If you
guessed that the number was above zero, you guessed too high.
These restrictive endorsements limit your coverage in a myriad
of ways and for plenty of reasons: asbestos, mold, welding
fumes, and work on residential projects, to name a few.
Let's focus our attention on an all-too-common and particularly
dangerous endorsement called the "Wrap-Up Exclusion."
Check your company's policy and you'll probably find this:
"Exclusion - Designated operations covered by a consolidated
(Wrap- Up) insurance program."
Read carefully, and you'll see that the endorsement states
that the exclusion applies whether or not the wrap-up program:
provides coverage identical to that provided by your own
insurance
has limits adequate to cover all claims, or
remains in effect.
What does all this mean?
In the case of "identical coverage," I'll offer
an example: A subcontractor whose work involves welding was
successful in obtaining a policy that does not contain an
endorsement deleting coverage for welding-fume related claims.
However, if that subcontractor works on a project under a
wrap-up program that doesn't cover welding-fume claims, it
is out of luck. As long as the subcontractor works under the
wrap-up, its own policy won't cover a welding-fume related
claim on that project.
Turning our attention to "adequate limits," you
might assume this restriction is of little concern because
wrap up programs typically contain high limits. True, but
"stuff happens."
A few years ago, I was a sub on a Times Square office building
where the hoist tower collapsed. This accident caused a death,
and obviously the consequences could have been far worse.
Nevertheless, I received a letter cautioning me that the limits
of the wrap-up might be exceeded, and that I should put my
own carrier on notice.
Unfortunately, based on the "adequate limits" endorsement,
my own insurance program would be of no help if the wrap-up
hit its limit.
Lastly, let's examine the "remains in effect" provision
- a dangerous restriction. Wrap-up programs typically provide
completed operations insurance for a limited time, such as
two or three years. With this restriction, you have no coverage
after the time limit expires.
The result is that, if there is a claim after the wrap-up
expires, you face - at a minimum - a substantial legal bill,
and in the worst case, an uninsured judgment that could put
your otherwise-successful company into bankruptcy!
This restriction is clearly unfair, because your current
liability insurer is otherwise responsible for completed operations
claims for all of your prior projects. For a contractor involved
with a significant number of wrap-ups, this restriction provides
a much reduced risk to the insurer - generally without reduced
premiums - and grave risk to the contractor.
In the face of these unfair provisions, it is difficult for
the individual contractor to protect itself from the increasingly
limited policies offered by insurance companies. We, the contractors,
face an unreasonable risk.
The Subcontractors Trade Association is exploring several
approaches that may hopefully reverse this trend. Meanwhile,
be aware and informed, and "lobby" your broker and
insurer to provide insurance that fairly safeguards the future
of your company.
|
print this page
e-mail this page
