What Does Insurance Coverage Really Include?

In the first Incredibles movie, Mr. Incredible is forced to live undercover to try to maintain a quiet suburban lifestyle. He works for an insurance company, and his sole job is denying claims. He actually gets fired because he told a little old lady the proper way to file her claim to get coverage for her house that burned down. This is not too far from the truth, unfortunately. While many insurance companies know that they should pay the claim that you file, their first answer is a denial of insurance coverage to see if you are going to fight it or not. It is important to remember that insurance companies are in the business of collecting premiums, not paying claims. So, let’s answer the question “what does business insurance coverage really include?”

As a residential contractor growing your business, you must know a few essential pieces of information inside and out to run your business successfully. One of the most important aspects of running, and especially scaling, a construction company is understanding why you need insurance on your projects and knowing what it does to serve you. While construction insurance may have a few key behaviors that replicate how your car or home insurance works, it is vastly different in many ways. The protections it provides are specific. You must understand them if you want to develop your business.

Common Construction Insurance Coverage Misconceptions

The following are two scenarios we’ve encountered in the past.

• “I got their certificate of insurance, but when I filed a claim, it was denied.” We hear this all the time. There is a big misconception that you can file a claim if you have proof of someone’s insurance. This is false. Only the insured can file a claim on their insurance, meaning that even if you were injured, someone else’s insurance company does not have to pay you until they file a claim. In an ideal world, you should be able to give a company or person notice of your claim, after which they turn it over to their insurance, who will handle it from that point. But what happens when the person with the insurance does not or will not file a claim? In that case, you can sue the person that injured you or your company and try to collect financial compensation, but there will not be any insurance money involved in that settlement. To avoid this predicament, you should request to be added as “additionally insured” to any insurance plan of the folks who are working for you. That way, you can file your own claim on their insurance if something happens, and you do not have to wait for the person that injured you to file a claim.
• Another common misconception about business insurance coverage concerns what type of damages it will cover and what it will not. Insurance does not cover bad or defective work. For example, say a homeowner hires you to replace their roof, and you subcontract out the work. The subcontractor does a horrible job—the roof leaks and causes damage to the very valuable artwork the owner has in their attic. The claim you filed with the roofing subcontractor’s insurance would cover the damage to the artwork, but it would not cover the shoddy work done on the roof. They may cover a small patch to stop the leaking, but not the funds needed to replace the whole roof. In this situation, you are on the hook to cover whatever the insurance does not, or the homeowner has the right to come after you for any defective work or damage it caused.

Employee Insurance Coverage Essentials

Another important thing to note is that you should have workers’ compensation insurance coverage if you have employees in your construction company. Some states make this mandatory, and some states make it voluntary, but it is essential for a business owner in the construction industry. Workers’ comp covers the employees that are injured on the job. It covers their medical bills and any money they lost from not being able to work. If you have workers comp, any injured employee cannot sue you for these damages. If you do not have workers comp and an employee gets injured, you are on the hook for medical expenses, money for lost work, penalties, and attorney fees. It can get very expensive very fast if you do not have workers’ comp insurance, which is not even considering the stress of dealing with the situation.

Suppose you have subcontractors doing your work, and you do not have a written subcontract. In that case, it is possible that they could claim that they were actually an employee if they are injured on the job and then claim that you are responsible for their medical expenses and so on. Therefore, you must have a subcontract in place when working with a subcontractor stating their true relationship with you. However, it is important to note that a subcontract will not protect you if they are really an employee. If they only work for you and you are in control, they will be considered an employee regardless of what any subcontract you make them sign says.

In Conclusion

When it comes to building your residential construction business, it is incredibly important to be informed about how to protect your growing company. Business insurance coverage is an absolute necessity in any industry, and because it works so uniquely in construction, you need to be sure you know how it can work for you and what blind spots it may leave exposed. Getting your construction insurance squared away is essential for setting your business up for success. For more must-know information for those looking to grow their residential construction companies, RSVP for this month’s webinar: Protecting Your Construction Business as it Grows on Thursday, July 28 at 12 pm CST. We will walk you through everything you need to know to protect your company and scale it successfully. Growing doesn’t have to be painful. Learn how to prepare on the front end.

This article is intended as a general educational overview of the subject matter and is not intended to be a comprehensive survey of recent jurisprudence, nor a substitute for legal advice for a specific legal matter. If you have a legal issue, consult an attorney.