Michael Spath of Kapnick Insurance discusses construction with practice group leader Jason McLelland of Kapnick Insurance. Here are the highlights of that conversation.
Michael: Welcome to this month’s Ask the Expert podcast, featuring Kapnick Insurance, and today we’re talking to our Practice Lead for Construction, Jason McLelland. Jason. Just as an overview, when someone says construction practice in Kapnick, what does that imply?
Jason: This would essentially involve practical policies for contractors such as excavator, sewer, water, street and road, carpenter, etc. The policies they need to have to do business. As well as program-specific policies, such as builder risk or completions for larger projects. And then also guarantee. The guarantees for the bidding of public works would be a kind of mainstay of the construction practice.
Michael: Let’s start with a wrap policy. Explain what that is to the people who are listening.
Jason: A summary would be a managed insurance program.
So the owner or general contractor implements the coverage policies, say, workers compensation, general liability, excess liability, pollution for the entire operation or for all contractors on site and essentially removes the exposure or liability of the individual contractors and bundles everything into one program.
Economies of scale are an advantage, as is overall security. Everyone is on the same page with the owner joining, the general contractor, even a small subcontractor in the program.
Michael: Is it better for the general building project to have everything wrapped up in one rather than each subcontractor each general contract working on it to have its own policy?
Jason: In most cases it is.
Anything that can come out of construction and has a seven-year tail. Let’s say maybe the contract went from the owner to the general contractor to an HVAC contractor. Then to a pipe insulation contractor, and finally an insulation contractor, and we have all the parties involved and there’s a problem five years from now. Instead of opening a process and putting everyone in that process, everyone defending themselves, pointing the finger, we have a policy in place protecting all of them, working to resolve the issue.
Michael: OK. Jason, builders risk. Just an overview.
Jason:. In its simplest form, builders’ risk provides asset protection similar to a homeowner’s policy. The builder’s risk policy provides coverage during construction until you obtain your certificate of occupancy, and provides coverage for that homeowner, the financial institution, etc., should something happen.
Michael: So ok I’m building a house and it’s going to cost me $300,000. It will take nine months, and we are eight months into the project and a fire knocks everything down. They have to rebuild it from scratch. What part of the insurance is going into here?
Jason: So there will be an assessment of where it is in the course of construction. Your limit is $300,000. However, you go through an agent like Kapnick and we’ll likely provide some ancillary coverage for increased construction cost, which would account for material increases.
So, taking your example, let’s say you’ve been doing this for the last 18 months, when lumber has increased exponentially, wiring has increased, etc. So $300,000 could be $360,000. Through the evaluation process, they see, okay, you know, we’re only 80% done in theory, you know, that would be $260,000.
However, due to the increased cost of construction, possible building code changes, having to have architects, engineers, rebrand the prints, you know, some of these additional costs, your claim could be over $320,000.
Obviously, any claim will have some frustration. You know, claimants are never better off after a claim because you have to live with it and there’s time and energy involved in that. But at the end of the day, we’re looking to make the claimant or owner whole again.
Michael: Is it better for the homeowner or developer doing a commercial project to carry out the builder’s risk policy?
Jason: This is always a push/pull type of conversation. I mean, who do you want the check for? If I was a homeowner and I was hired by a general contractor to build my house, and I was getting the finance and paying, I would want the builder’s risk on my behalf.
However, if the general contractor is getting funding and so on, you can make a case for them to have it. Sometimes homeowners don’t want to get involved and say, okay, well, go ahead and get the builder risk.
Michael: You mentioned earlier that construction is not just a house or a building. It looks like this is comprehensive.
Jason: It’s a pretty broad category. It’s not always four walls or a structure going up. It is very broad by definition.
Michael:. What are the major exposures that the building usually faces? And that follow-up question is, what’s the best way to mitigate that kind of exposure?
Jason: From a construction point of view on worker’s compensation, you’re in a field, in a crawl space, on scaffolding, on a roof, etc.
So it’s a unique set of exposures that contractors have and really the best way to mitigate and control that is safety training. You can see the difference in contractors who invest heavily with a greater focus on jobsite safety, with on-site claims control assessments or even just claims management.
Engaging an agent like Kapnick to say, we know you’ve got Kapnick Risk Services and Amy DeKeyser and the team there. How can you help us better educate our employees about near misses like slipping, tripping and falling, getting off a tractor or operating on roofs with tethers, etc.? And really making it a real importance for the company to understand and train employees in the safest and most effective risk management techniques available.
Michael: The aim here is to avoid claims because if you get hit with claims it will affect your insurance. Great stuff, Jason.
You can contact Jason at (email protected) or just visit kapnick.com for more information.