Contractors- Is the level of coverage enough?

Services for Real Estate Pros with Allstate Insurance

Good news, you contact a contractor and the qualifications and skills are sufficient for the project. References check out, Licensing validated, the local BBB gives you the thumbs-up, and the contractor's insurance agent even sends over proof of insurance coverage.   You are ready to now say, go do the work... but wait... Proof of Insurance.... Do you know how to read the policy limits?

Here are a few important issues:

  1. The section 2/3 down on the Acord form is called "Description of Operations".  Make sure the policy description cooresponds to the risk.  Example: The description may say "Plumbing operations to include and not limited to installation, repair, water lines to homes, water heater installation and repair".  BUT, if the contractor is being engaged to drop dead trees in the yard, there may be reason to believe the policy will not provide coverage for the task.
  2. "Each Occurrence" is the next VERY important item to review.  "Each Occurance" means that in the event the insured is found liable, the policy will only pay up to this amount.  In this example, the most the policy will pay is $300,000.00... Sounds GREAT unless the insured is working on a 1.2 million dollar home.  Now, if the insured is a plumber installing pipe with a blow torch and burns the home down, we have a problem.  The policy will pay up to $300,000.00 but the home was worth a lot more.  When checking out insurance coverage make sure the coverage is sufficient for the risk.Acord limits
  3. Effective dates for the policy are traditionally defined as "Policy Effective Date" and "Policy Expiration Date".  Don't assume that the recently faxed document has dates that include today.  We have seen where the customer recieved a document from the AGENT that clearly showed the expiration of the policy.  Lack of reading the document proved very costly to the homeowner.

This is a high level review....  As a professional looking out for your client, take the time to review and bring understanding to the issues at hand.

 Just some interesting insurance issues to ponder.


Matt Locke

Comments (1)

Matt Locke
Allstate Insurance - Alpharetta, GA

The homeowner policy actually is positioned to be the first point of funding for the entire loss.   When the fire investigators define the liability to be the plumber, then the homeowner insurance and the homeowner will sue the contractor.  The contractor's policy would then pay to off-set the loss.   The difference between the value of the home of 1.2 million and the 300,000 leaves the homeowner with a $900,000+ loss on their record... Note: That loss amount only accounts for the structure.  Chances are the loss is much more when accounting for the personal property too.

PS: If the contractor was ordered to do the work by a professional, that professional will also be named as a party in the law suit.  Example: a property management company contacted the contractor.  The property management company could be held liable too.  Property Managers are Realtors.  I would go so far as to say "the realtor is a professional that could also be held liable" for contacting a contractor without proper coverages.

Matt Locke

May 08, 2008 04:19 PM