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Insuring Success

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by Jan K. Allen

SBJ Contributing Writer

by Jan K. Allen

SBJ Contributing Writer

Insurance adds to a builder's cost, which is ultimately passed on to the buyer, but is it necessary? Most builders think so, according to John Doran, of Gerry Doran Homes Inc.

The construction business has traditionally been at high risk for on-the-job injuries.

"It is the builder's responsibility to protect the buyer," Doran said.

If a worker falls off a roof, the burden could ultimately fall on the property owner. With adequate workers' compensation insurance, the insurance company takes on the risk and the worker receives compensation without undue hardship on the property owner or the builder.

HBA requires its members to carry workers' comp and general liability, according to Louise Henson, executive officer for the organization. Members must show proof of coverage or be self-insured, as is the case with a few of the big companies, Henson said.

There are still some residential builders who do not carry insurance, but the risk is great, according to Howard Bailey, owner of Howard Bailey Company.

The issue has long been settled among commercial builders. "You aren't even going to be asked to bid a job unless you are fully insured," Bailey said.

Custom-home buyers are becoming more educated to the fact that they, as property owners, are at risk, Bailey said.

Contractors are required by state law to carry workers' comp, even if they only have one employee, according to Bill White, owner of Bill White Insurance Company.

Rates are based on the type of business such as plumbing, roofing, framing, etc. and the rate is based per $100 of payroll in each field, White said.

General contractors may have a basic policy and usually require the subcontractors to show proof of coverage for liability and workers' comp, as well.

Prudence pays, as Bailey learned when an employee of a subcontractor on one of his projects was injured, and the primary insurance company became insolvent.

The long-term disability claim came back on his workers' comp insurance as the general contractor.

Liability coverage may cover anything from bodily injury to property damage, White said. Minimum coverage is $100,000, but most contractors carry at least $300,000. Some carry $500,000 or $1 million.

Bodily injury may cover anything from workers hurt on the job site to other people on the site, authorized or unauthorized.

Property damage in a liability claim usually hinges on whether the loss is a result of negligence by the builder or his subcontractors resulting in damage to the property.

Theft and casualty insurance is another contingency builders seek to cover with a builder's risk policy. It provides coverage against theft, fire and other disasters from the time materials are delivered until the property is sold.

It is one of the lesser-cost coverages, since claims are usually smaller, according to White.

Builders may carry individual policies on each project, but the preferred method of most builders is to have a master policy covering both builder's risk and liability, White stated.

The program is endorsed by the Home Builders Association across the country, White said. It allows the general con-

tractor to report on a monthly basis and add or delete projects as they start and end.

The program also provides a formula by which the contractor may calculate his own premium and remit based on his estimate.

Another benefit of the master policy is recovery of lost profits, White said. The builder can pay premium on the full sale value and receive compensation.

Though not all builders carry liability, it is generally perceived that the coverage exists.

"The public just expects that you are insured," Doran said, adding that many people don't investigate whether a contractor carries adequate insurance, but since the burden of responsibility may eventually fall on the property owner, they should.

As past president of HBA, Doran adopts the organization's stance that proper coverage is the professional way to do business.

Doran prefers the blanket policy, and said he believes the costs are directly related to who provides the coverage.

White agreed that while rates were once more or less set, it now pays to shop around.

Danny Williams, owner of Danny Williams Construction Company and current president of HBA, indicated that risk and claims are directly related. Low-claims builders can expect lower rates than those with higher incidence of loss.

Williams pointed out what White, Bailey and Doran also said, that a lawsuit for injury can ultimately come back on the property owner.

A workers' comp claim can create a more serious threat than theft or damage. Property stolen or damaged can be replaced a one-time thing. But if a worker falls off a roof, it can go on for years, Williams said.

Williams cautions builders and buyers to make sure subcontractors carry adequate coverage from a reputable insurance company.

Theft is always a possibility on a job site, and although a property-damage claim doesn't usually happen, the risk is there, Williams said.

Doran advises contractors to see to their insurance needs as a necessary part of doing business.

"I've had some claims, and it has come through for me," Doran said.

INSET CAPTION:

Theft and casualty insurance provides coverage against theft, fire and other disasters from the time materials are delivered until the property is sold.[[In-content Ad]]

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