January 12, 2018 by Greg Meckbach
Brokers advising property owners should bear in mind their clients may not be experts on construction and renovation, a managing general agency warns.
Keeping this mind, brokers can guide clients through three processes when hiring contractors to do construction or renovation work, said Steve Hrab, senior construction underwriter for Burns & Wilcox Canada.
Builders risk insurance
Property owners tend to be “inexperienced” in dealing with builder’s risk policies covering construction contractors, Hrab said.
“The best thing a broker can do is be familiar with a builder’s risk application,” he said. The application includes questions insurers ask contractors — about their experience and claims history for example — when they apply for builder’s risk insurance.
It gives the property owner a better idea of whether or not the contractor is suitable, Hrab.
CGL policies specific to trades
Commercial and residential property owners who are hiring building trades contractors should ask for copies of prospective contractor’s commercial general liability policies, Hrab says. The property owners should also check to ensure the CGL not just a “jack of all trades’ CGL but “is related” to that contractor’s specialty, whether it is structural, electrical or HVAC (heating, ventilation and air conditioning).
Property owners should ensure the trades have CGL coverage specific for the role they are performing, he added. Otherwise, they may not necessarily be as experienced in the role the property owner is hiring them for as they should be.
“The CGL that any specific trade would get would be an annual renewable CGL,” Hrab says, adding that at the time of renewal, a contractor would have to disclose their experience, their revenues, their prior build experience, as well as their claims history.
Warranty for work
Brokers can advise homeowners undertaking construction work to confirm their contractors have wrap-up policies.
A wrap-up covering a construction contractor is “effectively a warranty on the work that’s been done and it’s for a designated amount of time,” Hrab said. Burns and Wilcox places wrap-up policies for construction firms, which use a different form than a GCL. Wrap-ups cover residential risks 24 months after the work is completed. This means that if there is any type of loss related to one of the trades’ work, property owners can be covered for 24 months.