General liability insurance is one of the first types of policies you’ll need if you’re starting a new business. At Clinard Insurance we are seeing a lot of new small businesses. Starting your own company is popular these days with the layoffs we are seeing in our economy. Often the best option is to pursue something you love to do, which is why we’re seeing a lot of people starting new businesses around their building skills. But just because you love building stuff doesn’t mean you know the best way to protect yourself and your company from lawsuits.

Here are some tips on the pitfalls to avoid when shopping for general liability insurance.
 
Choose the right agent. The first place people generally go to get their business insurance is the insurance agency that handles their auto and home insurance. In some cases this will work fine. But the risk is that your current agent may have a license to sell you general liability insurance on your new business, while actually having very little experience in assessing the hazards and risks of your specific type of business. I suggest you go and find an agent who specializes in insuring other small businesses like yours. Ask your competitors who they used. At Clinard Insurance we have a niche specialty in small contractors and we speak your language and understand your needs. If your agent doesn’t specialize in your business, I suggest you find one that does.
 
Type of Policy for Claims Made or Incidents: Construction claims policies became popular in the mid-1980s and have been around ever since. The promise of these policies was lower rates, but to what long-term harm? In some cases there is no cost savings. Claims policies made for a contractor are the worst possible policy he can buy. Let me explain: Claims made policies allow you to claim your policy only during the year in which they are in force. Contractors have claims in the future, not always just in the same year the project is built! Also, if you want to leave that company and go to another, you will have to take out additional insurance that covers you for the next 10 years… that’s right, 10 years! Why? Because the law allows clients to file a lawsuit for construction problems up to 10 years after the project was completed.
 
An example:
You build a new addition to the room, everything works out, and you and your client are very happy with the end result… 4 years later, your client calls you and says the roof is leaking and water has entered the house and ruined his new $25,000 grand piano. He expects you to repair the ceiling, drywall, wallpaper, carpets, and of course replace the grand piano…
A made claims policy will not allow you to file a claim 4 years later unless you have stayed with the same company the entire time. If you intend to change companies after having a casualty policy, you have a decision to make. If you want protection for any claims that have not yet occurred, but will occur in the future, you will need to purchase “tail” coverage. This coverage will extend the time in which you can file a claim. And tail coverage doesn’t come cheap.
If you decide not to buy the “tail” you will not be able to report a claim against the policy for claims incurred. And to top it off, some companies do not offer the 10-year extension.
So… When your claims made policy comes up for renewal, you need to decide:

• Do I leave the company and pay the additional coverage insurance for the next 10 years, or am I left without protection?
• Do I stay with the same company? Your prices in the new year can stay the same or go up considerably.
• Should I change to another company that has better rates and coverage?

This limits the market available to you and makes it more difficult to accept a better offer from another insurance company. Made claims policies may work in other industries, but for contractors they are a disaster. Take some time after reading this report to see if your current policy is an incident form or a claims form…
 
Insurance company ratingIt’s up to you to do your due diligence and ask your agent about the financial health of the company you’re buying general liability insurance from. As the previous tip implied, sometimes claims can be long delayed and you need to know that your company can pay a claim for you within 10 years. Use only insurance companies rated A or higher to protect your business.
 
Exclusions, please understand clearlyBe sure to take the time to ask your agent about policy exclusions and what they may mean for you. Here are some exclusions contractors should consider when purchasing a general liability insurance policy:
Pesticide, Herbicide and Fungicide Exclusion, Labor Practices Liability Exclusion, XCU Exclusion, Contractors Warranty Exclusion, Professional Liability Exclusion, Asbestos, Independent Contractors. If you don’t know exactly what this means for you on your policy, contact your agent and get the help you need to clearly understand. This can change the way you run your business.
 
subcontractorsMake sure you understand how your policy treats subcontractors. Are you covered if you don’t have insurance or it’s not enough for the loss? How much coverage should you require from your subcontractors? How often should you obtain certificates of insurance? How can you be sure that the certificate of insurance is legitimate? (I’ve seen fraudulent certificates for sale on eBay before.) If you’re unclear on the answers to these questions regarding your business and general liability policy, you should call your agent right away and get the answers you need to get a good night’s sleep.
 
As you can see, buying general liability insurance isn’t as simple as calling your agent and asking for a quote. You need an experienced professional who understands policy forms and your business. At Clinard Insurance we specialize in helping small contractors navigate the dangerous waters of the insurance world. If we can help you further, or if you would like more information about Clinard Insurance Group, please visit our website.