Working Across State Lines Increases Coverage Complexity
In a perfect world, all states would handle construction defect claims in a comparable manner. That is far from reality. A tremendous lack of uniformity exists in how each state handles construction defect litigation, even if those states are contiguous. Many larger contractors operate in more than one state or with smaller operations that exist in border areas like Four Corners (Arizona, Utah, Colorado, and New Mexico). Multi-state operations can cause coverage problems with the stroke of a pen on a new construction contract.
Retail agents must contend with a changing maze of state laws and definitions of occurrence. Additionally, they face assorted coverage positions by carriers who may say “yes” to insuring a contractor in Utah while saying “no way” to the same contractor who wants to bid a project in Colorado. Furthering this frustration—an underwriter says “no” to your account, then writes the same risk for another retail agent. Relying on a wholesale broker who knows the coverage and understands carriers’ appetites can help retail agents win accounts and evolve as their contractors grow.
Colorado legislation designed to assist condominium owners in remedying their construction defect claims had unintended consequences to the state’s insurance market. The market challenges in writing contractor general liability extends beyond Colorado, however. Also problematic are Idaho, Nevada, Arizona, Wyoming, Utah, and Four Corners area. Because Colorado currently offers one of the greatest underwriting challenges, one of the ways to solve this problem is to begin with a Colorado approach for contractors who also perform work in other states. It is always easier to add other states to a well-designed Colorado insurance plan than to base your exposure in another state, pick up a project in Colorado, and then try to add that project.
Wrap-Ups an Option in Residential Construction and Condominiums
One solid approach—often a necessity in larger construction projects of any type—is the Owner-Controlled Insurance Program or Contractor Controlled Insurance Program, known as OCIPs or CCIPs or wraps. In a wrap, the owner, general contractor, or developer purchases and controls the insurance program that covers the general contractor as well as all subcontractors. In return, subcontractors reduce the insurance markup they ordinarily charge in their bids. The general contractor, with the help of his or her agent and the wrap administrator, details the coverage in a manual, which then becomes part of the construction contract.
A wrap covers all contractors working on the site, helping to eliminate coverage gaps or coverage lapses by subcontractors. The typical wrap coverage can include general liability, workers compensation, design errors and omission, builder’s risk insurance, and excess coverage. Defined under the wrap program are the responsibility for loss prevention, claims administration, and insurance coverage.
Using a wrap offers both advantages and disadvantages, but unless a condominium project is under 20 to 40 units (depending on the state), a wrap may be the only coverage a carrier will offer on the project. The ability of a retail broker to offer a wrap is highly beneficial given the current construction coverage environment in Colorado. However, given the complexity of this multi-step coverage approach, an experienced broker is the best guide for the retail agent in wrap policies.
We hope these posts have built on your construction knowledge. Today’s robust economy has construction starts growing. Writing construction risks can be a profitable endeavor for today’s retail agents.
Rely on Experience – Rely on Worldwide Facilities
Your current wholesaler partner may lack the expertise needed to guide you in tailoring coverage for more complex construction risks. At Worldwide Facilities, we’ve been placing Colorado construction insurance since 1970. Our expertise in contractors’ general liability and other construction coverages is unparalleled.
For more information, contact Kyle Domire at firstname.lastname@example.org or (801) 979-5081.