What’s in Your Roofing Contractor General Liability Tool Bag?
Your trusted advisor for business, commercial and general liability insurance.
If you're in business as a residential or commercial roofing contractor, you already know your general liability insurance premiums seem high compared to many other contractors.
What you may not know is why. From an insurance premium point of view, your business is one of the commercial liability classes that tend to have greater insurance claims paid from carriers compared to other seemingly similar contractors, including outdoor painters and siding contractors. Compared to a Plumber's general liability insurance policy, roofer's general liability seems sky high.
Roofing contractors pose the same question about insurance premiums on a regular basis, and especially in the spring when so many are just starting up. They ask, "why is it that I can work on a home worth $300,000 and a siding contractor is updating the same house, and the cost of my general liability coverage is three times as much? It's not like there's three times the chance the house will burn down from me."
It's understandable why a roofing contractor would think the amount of insurance premium paid shouldn't be that much more than a siding or painter contractor when viewed in the light of the home's value.
And the answer is pretty easy for me. It's not the property damage that drives the insurance premium, it's the bodily injury. To wit roofers usually reply with "I'm very safe," and I have no reason to doubt the roofers I work with are very safe. In fact, if I thought they weren't, I wouldn't write the coverage because processing claims aren't good for anyone.
Climbing a ladder all day, carrying heavy materials, working high off the ground on a hot surface or handling high-powered and dangerous tools like a nail gun is just a routine day for you with the chances of someone getting hurt or damage to a customer's property are extremely high. All it takes is one nail to not fall on a tarmac, or fall onto the grass when rolling up, and you have a situation that is inviting a small child's foot without shoes to step in the same spot.
And that's the problem, children. As a roofing contractor trying to keep your insurance premiums as low as possible, you can do everything right, and still, have a kid try to climb your ladder while you're on the roof.
All it takes is two rungs up on the ladder, one slip and boom, a child, breaks their jaw on a rung while falling and a trip to the hospital. You might think it's the parents' fault for not keeping an eye on their child while contractors are working on their home, and I would tend to agree. However, many parents aren't into the "it's my fault for not paying attention." and much more prefer the "it's your fault for not paying attention to my kids" where they're in a position to get some money.
Clearly, it's difficult to get a large settlement when the roofing contractor hasn't done anything negligent, but often, way too often, lawyers will still press for a small claim because they know they're likely to receive a small payment to make them go away. There's a term for these kinds of lawsuits. They're called "nuisance suits."
A nuisance suit is the most frustrating for roofing contractors, or for that matter, any contractor or business person because without insurance defending you, you're stuck paying for legal fees when you and they know you haven't done anything wrong.
One of the most important features of general liability coverage and insurance, in general, is the legal defense part of the coverage. Those without an insurance policy can find they have to pay out a settlement because it's cheaper to settle than to fight a nuisance suit. That's why I tell contractors that being safe and careful isn't enough. Having an LLC isn't enough neither because the owner is likely to get named.
It doesn't happen often, but some roofers believe their homeowner's insurance will cover them personally if they get named in a suit that comes from their LLC. I have to break the news to them that their homeowners will not cover anything related to a business and/or a commercial endeavor without an explicit endorsement providing insurance coverage.
It is imperative as the business owner that you have the proper coverages in places such as General Liability (GL), Workers Compensation (Work Comp), and Employment Practices Liability Insurance (EPLI). Operating without such insurance is a huge gamble that could cost you your business.
First off, almost every company should carry general liability no matter what type of operation they run. General liability covers bodily injury, property damage (others, not your own), medical bills and personal injury that your contracting business is shown to be somehow responsible and negligent.
Let's look at an example, let's say you are tearing and replacing a roof on a job site. During installation, you or an employee accidentally breaks the customer’s living room window. The cost above the deductible for repair is usually covered by the property damage portion of your general liability policy. Alternatively, let's say a roof was installed improperly causing water damage to the interior of the home. The resulting damage in the ceiling must be removed, sheet rocked, textured and painted, not to mention the water damage to the customer's furniture, plus the cost to replace the roof. A mishap like this could be a very costly mistake, especially if the homeowner decided to file a lawsuit over it.
However, your general liability insurance policy would kick in and cover the damage up to the limit under the completed operations portion on your policy. Also, the insurance company will cover the legal defense cost and perform the settlement negotiations, saving you considerable amounts of time that you can spend working and making a living.
The most common commercial general liability (CGL) policy separates the limit of insurance into coverage categories through the use of forms. It's the combination of various insurance forms that comprise an insurance policy.
• Each Occurrence Limit (Per Occurrence)…………………………………$1,000,000
• General Aggregate Limit (other than products-completed ops)…$2,000,000
• Products-Competed Operations Aggregate Limit……………………..$2,000,000
• Personal and Advertising Injury Limit (any one person)……………$1,000,000
• Damages to Premises Rented to You Limit (any one fire)………….$ 100,000
• Medical Expense Limit (any one person)………………………………….$ 5,000
PREMIUM: The minimum insurance policy premium for contractors that I see these days is usually $500. Your liability rate is determined based on each business class that applies to your operations. Depending on the business class the rate will be used to total annual payroll or number of employees (for service businesses), gross annual sales (for retail and manufacturing companies), or premises area or units (for office and rental businesses). The insurance industry collects claim statistics and provides a basic rate for each type of business classification. For a comprehensive list of various contractor and business class codes click HERE.
AUDITS: Your premium is an estimate collected in advance and may be subject to annual audit at the end of the policy term. For example, higher or lower payroll than expected would produce either additional premium or a refund for that policy year. Policy years work on a fiscal year, and not the calendar year. So a normal contractor insurance policy that starts for example on February 1st, will end the following February 1st, and not December 31st.
Now that we have covered the basics of General Liability let’s move onto another important coverage for employers, Employment Practices Liability.
Employee Practices Liability Insurance (EPLI) provides coverage to you as the employer against claims made by employees asserting discrimination (based on sex, race, age or disability, for example), wrongful termination, harassment and other employment-related problems, such as failure to promote.
Large businesses typically have sufficient employment practices insurance in place and are prepared to deal with most lawsuits. However, it is the smaller businesses like contractors and new ventures that are at higher risk and need this insurance the most. New or smaller employers are at a greater risk for employment claims due to they lack the legal department or employee handbook detailing policies and procedures regarding hiring, disciplining or terminating employees.
As soon as you interview that first perspective employee, you are at risk for an employment claim. You may be questioning how that is even possible if they are only a prospect and not employee. Well, let's say that you chose not to hire them because you discovered someone else with better qualifications. That first individual could claim that they weren't hired due to discrimination (age, race, gender) and whether it is valid or not, you would have to fight the case in court. As a new business, you most likely would not have the funds for a legal battle and could risk financial ruin before you even opened your doors.
And the risk isn't only for hiring, firing or not promoting someone can trigger someone to believe the've been discriminated against.
I know this one personally. In the late 1990s, I had a team of salespeople working for me. I had to let the manager go because he wasn't performing at the level required. I offered that he could stay on and remain in sales, but it wasn't working out for him to be a manager. He admitted his heart wasn't in it and said he would rather not have a sales position any longer.
That part was fine and no worries there. However, as is my standard practice, I want first to provide an opportunity for someone on staff to receive a promotion instead of hiring from the outside. Promoting from within makes great sense for everyone, and why some companies will hire from outside first is a mystery to me.
One lady that worked in sales was struggling in just about every metric possible, including her attitude. She had one of those toxic negative attitudes that no sales team wants and spent too much time complaining to others.
Most could see right through her and didn't give much credibility to someone with the lowest performance month after month. To my surprise, she inquired about the sales manager position. Admittedly, I didn't give her much consideration because I wanted her to quit, and there was no way I was going to promote someone with the lowest performance, and a bad attitude to supervise, train, and motivate the sales staff.
When she didn't receive the manager position, almost right on cue, she made sure everyone near her in the sales area know that it was "obvious" she didn't get promoted because she was a woman. Sure enough, even before she quit, I heard she went to the state to complain and tried to find an attorney to take her case.
The state sent us a bunch of forms to fill out, and we had to justify why she didn't get the promotion. It was easy to do, albeit very time consuming and an unwelcomed distraction. Once we provided the documentation, it was the last we heard of it, other than the case was closed when we inquired a few months later. We never did hear from an attorney over it.
We had a LOT going for us though. We had documentation from other women stating she wouldn't make a good leader, and her numbers were the very bottom of the whole team, other than the number of days missed. She was on the upper end for that. She also didn't have experience and stated that she couldn't commit to a 50+ hour workweek during the interview (yes, I did give her an interview, which was another waste of time, but I could see the handwriting on the wall by this point if we didn't).
But what if she wasn't so bad, but still wasn't the best applicant? What if her sales numbers were average, and she didn't miss days. What if the only thing that was actually negative was her toxic attitude that's very hard to quantify? I might have had a problem. You have to keep in mind that her story was far from reality, and it was the overwhelming documentation to prove what she was saying was incorrect that stopped the allegations early on.
The net result is I no longer take for granted people are reasonable and won't lie to get a settlement they don't have coming.
And you shouldn't either, and if you have employees, I believe you can do everything right (I know I did), and it's only a matter of when not if before you have your own "self-loathing victim."
Many insurance companies allow you to add EPLI to your contractor general liability or workers' compensation policy for an additional premium.
1 Reason Insurance has several roofing contractor general liability insurance policies to select from. If you want contractor coverage that will keep you covered as well as you cover your clients, give us a call or fill out our easy form and let's see what the most appropriate coverage for your roofing business is.
Robert Weinstein is a husband, dad, stock market junkie, real estate broker, and of course…Insurance agent. Interests include my family, economics, marketing, technology, real estate, finance/investing, history, and Asia.
Robert’s insurance expertise includes having the designation of Certified in Long-Term Care (CLTC) and assist in asset protection for families with members entering retirement.
Robert is also an accomplished syndicated writer whose work can be found in TheStreet, MainStreet, CNBC, Forbes, Yahoo Finance, Seeking Alpha, MSN Money, The Money Show, Stock Saints, Motley Fool, Fidelity, Minyanville, RealMoney Pro, and many national and international newspapers.