The Design Builder's Blog

Guest Blogger: Thomas Messier, CIC.  Tom is Vice President of Construction Industry Services at Mason and Mason Insurance Agency, Inc. in Whitman MA.  He speaks frequently to construction industry groups about insurance related topics. Tom is a Certified Insurance Counselor, and is a graduate of St. Michael’s College.

Note: To help better understand this article you might want to first read Tom’s previous post titled: Does Your Liability Policy Have the Right ‘Coverage Trigger’?

What’s a “Triple Trigger” — Can You Or Your Insurance Agent Answer That Question?

The Set Up

Let’s say five years ago you completed work on a commercial construction project. Then last month you received notice that part of the structure collapsed and that your client is filing a claim against your firm for the needed repairs, plus loss of use of the structure during the rebuilding. Their complaint is that your original work was done improperly and the stress cracks had been noticed soon after completion. “It was only a matter of time,” alleges the complaint, “before this collapse happened.”

Now What?

Ignoring for the moment the fine points of litigation, which Liability insurance company should you notify? Your current carrier? The one who had your policy at the time of the construction? Or both of those, plus every policy you’ve had during the past five years?

Although the correct answer will depend on the nature of the claim and the exact cause of the collapse, the best response at this point would be “all of the above.”

Policy Details Are Very Important

Because Liability policies usually state specifically that they cover damage occurring during the policy period only, you’ll need to ask when the damage actually “occurred.” At the time of original construction — during the time the cracks allegedly appeared and continued to worsen — or on the day the actual collapse took place?

Many courts, when faced with similar situations, have ruled that all three apply.  This is what’s called the “Triple Trigger”.  The courts held that because the damage had been occurring continuously since the first day of construction, every policy since then should provide a defense.   And, if you’re found liable, you’ll have to pay a part of the claim as well.

The Good News

If you’ve been dealing with reputable and skilled insurance providers and your policy has been continuous and reviewed regularly in a constantly changing marketplace, the coverage will be there for you regardless of the “trigger” applied by the courts.

Bottom Line

If you have an experienced and recognized construction insurance specialist helping you, you’ll sleep better at night knowing an expert is watching out for you, even if you’re not fully sure of what you have to watch out for!

Guest Blogger: Thomas Messier, CIC.  Tom is Vice President of Construction Industry Services at Mason and Mason Insurance Agency, Inc. in Whitman MA.  He speaks frequently to construction industry groups about insurance related topics. Tom is a Certified Insurance Counselor, and is a graduate of St. Michael’s College.

Does Your Construction Liability Insurance Policy Have the Right ‘Coverage Trigger’?

What Is An Insurance "Coverage Trigger"?

A “coverage trigger” is an event that causes your Liability policy to pay a claim. There are two basic types of “triggers”: occurrence and claims made.

What is an Occurrence Trigger?

An “occurrence” trigger means that the policy will cover any injury or damage during the policy period. For example, if a roof that you installed four years ago collapsed last week, injuring five people, the occurrence trigger will apply and the policy will pay. It doesn’t matter when the roof was built or when the claim was filed – only when the actual injury took place.

What is a Claims Made Trigger?

A “claims-made” trigger, as the name suggests, focuses on the date the actual claim is made. Underwriting and rating provisions might limit how far into your past the policy provides coverage. However, the key question is: “did the claim come in during the policy period?” If so, a “claims-made” Liability policy will pay. Using the example of the collapsing roof, it doesn’t matter when the roof was built or when the event took place, the trigger won’t apply until the claim is filed.

If this claim is made during the current policy period, your insurance company will pay it. However, suppose the claim isn’t made for several weeks, and by the time it arrives, your current coverage has expired and you’re into a new policy period? In this case, the “claims-made” policy will pay the claim, since it was made during the new period.

Maintaining Coverage Is Key

One type of trigger isn’t necessarily better than the other. However, it’s almost always wise to keep the current type in order to provide relatively seamless coverage.

Make Sure Your Insurance Agent Is Able To Offer The Right Advice

Questions to ask your insurance provider if your a contractor:

• What is Claims Made Liability Insurance Coverage?
• What is Occurrence Liability Insurance Coverage?
• Which one is right for my business and why?
  

If you’re offered a Liability policy that offers broader coverage or more attractive pricing – but has a different trigger than your current insurance – consult with a construction insurance specialist before you make a decision. The only way to be sure you get the protection you need at a fair price is to consider all possible underwriting considerations and how the change in coverage trigger might affect your liability needs.

Watch for Tom's next guest blog where he'll discuss what a "Triple Trigger" is and why you should care about what it is.

Remodelers: I Bet You Don’t Know Your True Burdened Labor Costs

Labor cost is one of the most difficult costs to predict in an estimate. Basically, this cost is determined by calculating the hours required to complete a task or project and then factoring those estimated hours by what it costs your business per hour to compensate and support your field employees.  The cost per hour to compensate and support your field employees is commonly called burdened labor costs or your burdened hourly rate. 

If you’re not sure which employee you’ll assign to the project you are estimating, it might be wise to use the burdened labor cost of the highest-cost employee and then also estimate the work hours based on his or her abilities and performance. If you are using my Free Excel Estimating Template, this would be the rate you would enter into the top section of the template as shown below.  (Note, depending on your company’s situation, other options for which rate to use might make more sense.)

Don’t use another contractor’s labor rates

Because no other company is exactly like yours, it’s important to know precisely how much it costs your company to do business. The burdened labor cost used inside your estimates must reflect your company’s actual expenses. If you don’t know your true labor costs and or how to determine them, and you fail to account for a couple of dollars per employee per hour, your loss could quickly become significant.   To make matters worse, also consider that the if the costs are missing from your estimate, those missing costs will not be marked up and included in your selling price to help contribute to required overhead and profit.

Burden and benefits

The hard cost of labor includes not only the hourly wage of the employee, but also all employer-paid taxes, Social Security, insurance, vehicle expenses, and any employee benefits. Workmen’s Compensation, liability insurance, auto insurance, paid holidays, vacations, medical benefits, education, employee meetings, cell phones, pagers, and every other labor-related expense must be factored into your hourly rates. 

Keep in mind, if and when the new Obama Health Care Law comes into effect, you will need to add this cost to your burdened labor rates for each employee.

Also, be aware that Workers Compensation rates are expected to increase in many areas around the country.   You might want to budget early for this increase.

The burdened cost of labor will be different for each employee

To calculate the burdened labor cost you should use when job costing employee time cards, you’ll need to collect the expenses specific to each employee. For example, one employee may have a company vehicle; another may get a vehicle allowance. This consideration alone will result in different costs for each, even if the two employees are paid the same basic hourly rate.

Are you paying for non-productive time?

In my next blog I will discuss how missing or improperly accounting for the cost of non-productive time may be eating away at your bottom line.  I will also share how to build the cost of non-productive time into your burdened labor costs and how you can down load a free Excel Labor Burden Calculator.

Workers Comp Rates Likely To Increase; Budget Now For The Increase

Workers compensation insurance rates have already increased in many states and are expected to increase soon in others.   Often, increased medical costs are cited as a main cause.  Be sure to understand how rate increases will affect your overhead costs and estimating assumptions for labor costs.

Rate increases may be out of your control; but you do have some options to control your total cost.

• Proactively control your claims history
• Provide safety raining relevant to the work your employees perform
• Maintain a safe working environment for employees and subs
• Make sure to report and handle claims in a timely manner
• Create return-to-work programs where practical.
• Make sure your subs have their own coverage

The following information was found in an e-newsletter from Tom Messier at Mason and Mason Insurance.  

Many expect Workers Compensation rates to increase significantly this year. The MA Workers Comp Rating and Inspection Bureau has recently applied for an average rate increase of 19.3%. According to the Insurance Journal, Commissioner Joseph Murphy will be holding a public meeting on March 30th on this request.

Whatever rate increase is approved by the insurance commissioner will be effective September 1st, with the negotiations for the final rates continuing through most of the summer. We believe the final rate increase this year will be in excess of 10%. The rate for residential carpentry is currently 8.68. If the commissioner approves the increase of 19.3% the new rate would be $10.30. This is significant. If you have a payroll of $100,000 this will increase your cost by more than $1,500.  

You might wonder, "Is it possible to avoid these rate increases?" The answer is "yes." There are some insurance programs that are available today that will guarantee your maximum rate for three years. This program is not available to all employers in MA. It is available to the best contractors that have had good experience. So long as your losses are under control and you have premium of over $5000, you may qualify. By making the switch today, you can avoid the increased rates, at least for the next few years. You do not need to wait until your policy comes up for renewal, you can start saving now. 

Remember, Workers Comp costs are controllable, and every dollar you save in Workers Comp premium goes straight to your bottom line as profit.

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The full article can be found here

Email Tom to see if he can help you control your Workers Compensation costs.

Read more about the proposed increase here

Need help understanding workers comp costs and how to budget for them?  Contact Shawn to discuss how he can help

Managing Risks With The Right Design/Build Insurance Options For Your Business

Managing Design/Build risks for any entity is something that requires careful consideration. There are many differences between design-bid-build projects and design-build projects. One of the most prominent differences is insurance coverage. In both types of projects, all parties share goals and yet have individual concerns. Since contractual relationships in these two types of projects vary, so do the methods of balancing risks.  If offering true Design/Build, the business owner should identify the risks typical to the project types, work practices and customer types the business pursues.

For insurance issues, we turn to our friend Tom Messier, CIC of Mason & Mason Insurance. He has recently published an article delving into some of the particulars of managing design-build risk. In the full article Tom details things such as understanding liability concerns, solving insurance deficiencies, and the importance of bonding.   Here are a couple of highlights from the article that Design/Builders should be aware of if considering Design/Build Insurance options:

Understanding Liability Concerns

 If a problem arises when the owner has separate contracts with the designer and constructor, it is easier to distinguish whether the problem is a design flaw or a construction mistake.  With Design/Build, that separation no longer exists.  The Design/Builder should consider insurance coverage that protects his/her business and also needs to know what coverage options are available and should be carried by the subcontractors the business partners with.

Identify Insurance Deficiencies

For those who are relying on General Liability coverage alone, it is essential to have modifications made to the policy to cover the responsibilities inherent with Design/Build.  Since laws are different from market to market, and because the individual options available are complicated, Tom suggests discussing the specific needs of your business with an insurance agent knowledgeable in construction and specifically the considerations when offering Design/Build.

Unfortunately for me I had to learn about Design/Build Insurance coverage the hard way.   Had my business added Errors and Omissions coverage before an alleged design problem surfaced on a project, my insurance policy would have covered the legal representation as well as the cost of that representation.   The lesson learned was far more expensive than the insurance coverage that would have protected my business and my profits.