News coverage of the health insurance debate should serve as a reminder for electrical contractors that have not fully evaluated or updated their business insurance plan. At renewal time, it’s important to update coverage and implement a plan to meet out-of-pocket costs.


What does this mean for ECs?


Buying commercial insurance coverage is purchasing risk protection and paying for a product that may never be used. It’s easy to rely on your agent to suggest appropriate policy provisions, but renewal should involve a thorough contract risk review as well as any new areas of potential loss you need to cover.


In a perfect world, you could expect to keep the same coverage every year at a reasonable cost. You would understand what your general liability, worker’s compensation, completed operations and vehicle coverages include. You would create and achieve high safety and performance standards and incur minimal incidental costs and few claims.


The marketplace has changed significantly since the 1970s, when high interest rates allowed insurance companies to make profits without charging premiums that actually covered the payment of claims. Today, insurance companies often rely on cash-flow management that includes delaying payment of claims to extend the investment period at the lower rates of return they expect. Higher premiums are required to cover more of the actual cost of claims, and it is tempting to carry only the most essential types of coverage, while the types of risks have increased.


What you might overlook


In the 1980s, the shifting of design liability to subcontractors gained a foothold in contracts, but subcontractors could not yet purchase insurance for that risk, so the savvy sub could negotiate to remove such provisions from contracts. As design/build extended to subcontractors and suppliers, insurance has become available. Contract risk shifting has also expanded the additional insured requirements, guarantees based on intended performance and use instead of design specifications, and unforeseen site conditions that cannot be confirmed before you bid.


Internally, you face risks related to employee security and behavior that were unheard of a generation ago. Do you carry insurance coverage for violent acts committed by current or former employees against the company or individual employees? Have you reassessed physical and cyber security and purchased coverage for related losses? Are you insured for the costs of defending sexual harassment, discrimination or unlawful termination claims? Even in the most responsible, well-managed companies, there is no guarantee that a disgruntled employee won’t pursue a frivolous claim. Even if you prevail in such a case, the costs of defense can quickly reach the upper five figures.


If your work is seasonal, you may be able to have coverage and premiums adjusted during certain times of the year. However, you should never let a policy lapse. Gaps in coverage can create havoc. So can cash-flow shortfalls after an insurable event. Consider creating a fund to cover deductibles, legal costs and other incidental or operations expenses that occur before you receive a check to cover a claim.


Your personal assets


Don’t assume your personal assets are protected just because your company is incorporated or carries general liability insurance. The authorities may be able to go after the owner’s personal assets if a company is unable to pay a fine or judgment or if you are determined to be responsible for causing damages through negligence. Even declaring bankruptcy and walking away from the business does not erase all liability.


Obtaining the right coverage for your needs at a reasonable price is an ongoing management process that requires vigilance, analysis and a conscious decision about how much risk you can tolerate. Ask your agent the right questions, understand your coverage, and, finally, hope you never have to use it.