Insurance Terms Made Easy

Inland marine insurance is one of the most confusing types of commercial insurance available, and many business owners aren’t sure exactly what it is or if they need it.

In a nutshell, inland marine insurance was originally created to protect goods as they traveled overseas; hence its name. Over time, however, the insurance evolved to cover goods that travel over dry land and even valuable items  that don’t travel at all, like computer data and accounts receivable.

So, does your business need inland marine insurance?

If you regularly transport expensive goods or equipment that are not otherwise insured, then inland marine insurance may be a good idea. For example, contractors bring lots of expensive equipment and tools to worksites. In most cases, these items aren’t insured even though they represent assets for the company. If such tools and equipment are stolen, a contractor could lose much hard earned money.

The same goes for companies that regularly transport merchandise from a warehouse to a storefront or who transport equipment to multiple locations or to a worksite. Much can go wrong when you’re on the road or hauling big, bulky items from once place to another.

Businesses that are in the process of building a store, warehouse or other facilities should consider insuring it under marine inland insurance (also known as builders’ risk or course of construction). Again, the chance for an accident or damage during the building process is very real and could result in expensive losses and time delays.

Business owners are often surprised to learn that marine inland insurance can be used to protect their electronic data and accounts receivables as well. While we strongly recommend that businesses use a professional file backup system, marine inland insurance may be a good idea as an extra safety net. I’ve seen many cases of companies that don’t back up properly and then lose all of their crucial electronic files. It’s usually a devastating financial blow.

Most businesses in most industries can benefit from inland marine insurance, especially those that regularly transport expensive equipment and tools.

To learn if inland marine insurance is right for you, contact Fusco & Orsini Insurance Services for a free consultation. Call us at (858) 384-1506 or contact us through our website. 

Everyone appreciates getting paid for the work that they do, but rarely do employers have to take out a special type of bond just to guarantee that they’ll pay their employees, subcontractors, and suppliers.

Unfortunately, construction companies are the exception to the rule, at least if they are looking to win government contract bids or any other projects where a “payment bond” is required.

A payment bond is one of the types of surety bonds that most government projects require of all the contractors who bid on their projects. Surety bonds are also becoming more popular on commercial projects and include bid bonds, performance bonds, and, of course, payment bonds (also referred to as labor & material bonds).

A payment bond is simply a guarantee that a construction company will pay its employees, subcontractors, and suppliers throughout a construction project. The project owner, or person hiring the contractor, will indemnify themselves through this type of surety bond in-case they become liable for unpaid employees, subcontractor or suppliers.

For large-scale projects, a construction company will have to invest a significant amount of money to purchase materials and pay subcontractors for their work. Sometimes, projects can last years, draining a construction company of funds. If they become unable to afford materials or pay their subcontractors in the middle of the project, the supplies could dry up, and the subcontractors could walk away. This would leave the client in a bind.

This is the reason why payments bonds go hand-in-hand with performance bonds, which guarantee that the construction company will perform the work according to their bid. Once a project bid is won, the winning construction company will be expected to post both a payment and a performance bond. This bond is guaranteed by a surety company that specializes in guaranteeing bonds.

A surety bond, including a payment bond, has a lot in common with a loan. A construction company must prove that they have the financial means to cover the bond before being approved by their surety company. If the client makes a claim against the bond, the insurance surety will pay the cost and then turn around and collect the money from the construction company.

In other words, as long as you have a clear means to pay your employees, subcontractors, and suppliers, you should be able to qualify for a payment bond, which will allow you to bid on a much wider range of construction projects.

As Fusco & Orsini Insurance Services, we specialize in helping our clients apply and qualify for surety bonds at the best rates possible. If you’d like to explore the possibility of getting a bond (most construction companies start with smaller bond amounts), we’d be glad to help. We can also answer any questions you have about the process.

When you work in insurance, you quickly learn that every single word counts, especially when that word is inside an insurance policy document. That’s why it’s so important for business owners to understand the language they are likely to see in their insurance policy, whether it’s their general liability, workers compensation, employee practices liability, commercial auto, and many additional types of business policies.

Luckily, that’s why we’re here. Today, we’re going to discuss two really important phrases that will mean a lot to you if you ever have to make a claim on your insurance. The terms are “per occurrence limit” and “aggregate limit”.

For our purposes, let’s look at a typical general liability policy. A small construction company may have a general liability policy with an aggregate limit of $2,000,000. This may lead the company owner to believe that if a house his crew is working on is damaged in a fire, his insurance company will cover the damage up to the amount of $2,000,000.

This common misconception is untrue. Many insurance policies, including general liability policies, have “per occurrence” limits, meaning that they will pay up to a certain amount of money per occurrence. The construction company owner above may have a $2,000,000 aggregate limit with a $1,000,000 per occurrence limit, which means his insurance company will only pay up to $1,000,000 for the damaged home.   If damages were to exceed $1,000,000 for this occurrence, or claim, the construction company owner would be responsible for the difference.

When you are in the market for an insurance policy, please make certain that you understand the difference between an aggregate limit and a per occurrence limit.  Ask your San Diego insurance broker to detail the coverage limits, so there are no surprises in the event of a loss.

It will probably look something like this on your policy:

$2,000,000           General Aggregate

$1,000,000           Per Occurrence Limit

At Fusco & Orsini Insurance Services, we’re always happy to review our clients’ policies with them so they know exactly how much financial support to expect when disaster strikes.

If you find that your construction company is expected to provide a performance bond as part of a project, that’s a good thing. It means that you have won a bid and are preparing to start a job.

When your company starts bidding on projects for cities, states, municipalities, or even general contractors, you’ll be expected to provide assurance that your company can meet the obligations detailed in the contract.  Not only does the performance bond guarantee your ‘performance’ on the job, but also that your company can pay for losses if you deviate from the contract.

This assurance comes in the form of surety bonds. Basically, a surety company steps in and guarantees the contractor’s performance.

(Fun Fact: any federal government construction project that exceeds $100,000 is required to have a performance bond.  Such requirements differ between state and local municipalities. We’ve known local cities that require contract bonds on projects as low as $20,000).

Allow us to get a little technical for a moment (we apologize, but it helps to know the terminology).  In this arrangement, the contractor is known as the “principal”, the “obligee” is the client (the one who receives the obligation), and the “surety” is the organization that ensures the principal’s obligation.

Surety companies have the assets necessary to pay the obligee if the principal can’t fulfill the obligations of the contract. You may have heard of some of the top surety companies, such as Developers Surety and Indemnity Company, Old Republic Surety, Suretec, American Contractors Indemnity Company, etc… Don’t worry if these names are unfamiliar. You won’t be dealing with these guys anyway. Surety companies don’t work directly with contractors. Instead, they partner with brokerages or insurance agencies, like Fusco & Orsini.

There are several different kinds of bonds that obligees typically require of the companies bidding on large-scale projects. These bonds include Bid Bonds, Performance Bonds, Payment Bonds, Maintenance Bonds, and Subdivision Bonds; all of which fall under the category of ‘contract bonding’.  Some bonds are required at different stages of a contract; for example, bid bonds are due at the time of bidding, and performance/payments bonds at the time the project begins.

These bonds go hand-in-hand. If a government agency is looking for one of these bonds from their bidders, they’re probably looking for most of the others too.

Let’s look a little closer at performance bonds.

A performance bond guarantees that the contractor performs the services as described in the contract. If, for instance, the contractor wins a bid to build a new public library, the performance bond would make sure that the library does, in fact, appear on schedule and to the promised specifications.

If the contractor doesn’t complete the performance, or if the work is not up to the promised quality, the client (obligee) can make a claim against the surety company that issued the bond. The surety company will investigate, and if they find that the contractor did fail to perform, they will award damages to the obligee commiserate with the cost of the contractor’s failure.

Of course, the contractor doesn’t get off scot-free. They will then have to pay the surety company back in full.

The cost of a performance bond is based on a variety of factors, including the scope of the contract and the principal’s creditworthiness (the surety company will want to make sure the principal can pay back the bond amount if necessary).

In order to get a performance bond, contractors must usually pay a premium on the bond amount as well as interest on the bond. Again, the price will depend on the cost of the bond and the risk (creditworthiness) the principal presents.

In most cases, you will first need to obtain a bid bond before bidding on a project. Only after winning the project would you need to pick up a performance bond for the project.

Even though all this may sound complicated, surety bonds, including performance bonds, are not too difficult to get. At Fusco & Orsini, we’d be happy to answer any questions you have about surety bonds and walk you through the application process. Contact us by phone or email.

What is a BOP?

If you are a small to medium business owner, you may find that a BOP is right for you. A BOP, or  Business Owners Policy, is an insurance package specifically designed to be an all-encompassing insurance product to suit your needs. Whether you own a restaurant, a nail salon, or a fitness center, your exposure to risk covers a broad spectrum. Rather than finding separate policies to protect you on all fronts, it makes sense to combine your coverages in a Business Owners Policy.

What kind of coverage does a BOP carry?

A Business Owners Policy can cover a multitude of liabilities. Here are a few of the coverages you can find in a BOP:  General Liability, Commercial Vehicle, Business Interruption, Property, Casualty and many more. A BOP will have you covered whether you’re dealing with a break-in, a vehicle accident, or a slip and fall on your property.

A great way to save!

Not only does the Business Owners Policy come with the benefit of having all your coverages in one easy to manage policy, but it is also a great way to save money. Instead of paying multiple premiums each month, the BOP is a cost-effective way to handle your insurances. If you would like more information on the Business Owners Policy, visit the Fusco & Orsini Insurance Services website today.

The manufacturing industry has a unique set of insurance needs beyond those of the typical business, whether it’s investment capital to purchase machinery or lease warehouse space, a transportation fleet to deliver materials or products, or insurance to protect against theft or damage to your property. As a manufacturer, you will also need product liability insurance to protect yourself against claims that your products caused harm to people or property.

The insurance needs of a manufacturer have become even more complex now that we live in a global economy with multi-national supply chains. What happens when you have a complex global supply chain and use products manufactured in another country? When something goes awry, who is to blame?

Now, let’s imagine that you use good ole’ widgets in your manufacturing process and you get them from a factory in Scotland. The widget could have a design defect (i.e., the design of the widget was flawed/unsafe) or there could be a flaw in the manufacturing process or production of widgets in the Scottish factory that makes the widgets unsafe. Or imagine that the Scottish factory purchases a small part from an Irish distribution center and that small part has a design flaw which makes the widget unsafe.

It can be a serious challenge for a manufacturer in America to seek damages from a foreign company as the cost of obtaining a judgment in another country may be prohibitive, or, even if you were to get a judgment, it may not be enforceable. For these reasons, the burden of a product liability claim will likely fall on you because you incorporated the small piece that was part of the widget into your manufactured product and you may have no practical means of being compensated by your supplier.

Such claims can not only be damaging to your reputation but they can put a huge dent in your bottom line. In addition to mitigating risk in your supply chain through quality assurance, you can purchase broad form product liability insurance

Fusco & Orsini can help you sort through all of your manufacturing insurance needs and create a plan that fits your business. You can schedule a call with one of our insurance agents to discuss product liability exposure or any other manufacturing insurance topic.

In a recent post, we talked about dual wage classifications for California workers compensation within the construction industry. Today, we’re continuing our chat about workers comp and what the construction industry needs to know. We’ll delve into waiver of subrogation endorsements and how they’re billed. But first, what do those words mean? Waiver. Subrogation. Endorsements. Did we just stumble into a law office?

Let’s break it down…

As a quick refresher, workers compensation insurance is insurance for an employee who has been injured as a result of their job duties. Medical costs, rehabilitation costs, and lost wages are covered under workers comp insurance, and in most states, workers comp is required by law.

An endorsement is an addendum or add-on to an existing insurance policy. A waiver of subrogation is a type of endorsement that can be added on to your workers comp insurance policy. It can be a blanket waiver for all companies or it can be for a specific company. Sometimes when you’re contracting your employees out to another construction company, they may require a waiver of subrogation for their company.

A waiver is a surrender of a right or a claim. In the context of this article, we’re talking about waiving rights to subrogation. Subrogation is basically getting reimbursed for losses. For example, say you buy your friend a coffee because they forgot their wallet at home. They swing by the house and grab the wallet and now you want to be paid back for the coffee. If you waive subrogation, you’re waiving your right to be paid back.

It’s the same when it comes to workers comp insurance. By getting workers comp insurance, it’s basically a waiver of subrogation that you won’t go and sue your company for losses due to an on-the-job injury. It works the same for insurance companies. If your insurance company pays for your medical expenses when you are injured on another company’s job site, your insurance company may want to subrogate and get back that money from that job site’s insurance company. But, if you’ve waived subrogation, your insurance company can’t get that money back.

What are the implications for you as the owner of a construction company?

Just be sure to keep track of the wages of all employees you send to the jobsites for which you have a waiver of subrogation because you will need to report this to your insurance company. Since laws came into effect in 2008, insurers are now required to perform audits to make it easier to identify which classification(s) employees fall into.

What’s the premium charge for my workers compensation when I have a waiver of subrogation?

Insurance companies are now required to audit all new policies, so you can either proactively report your waiver of subrogation payroll for the affected employees or keep records and wait for the audit. If you choose the former, for each class code that the waiver applies to, here’s the formula you use to figure out the additional premium charge:

Premium x waiver percentage = additional premium charge

In a previous article, we explained how to calculate your premium: (total wages / 100) x billing rate. For example…if your total wages for the employees affected by the waiver of subrogation is $1,000 and the billing rate is $5 for every $100 of payroll, and the waiver rate is 2%, you’d calculate the premium as: Premium = (1,000/100) x 5 = $50.

From there, you can calculate the additional premium charge: 50 x .02 = 1

In this scenario, the additional premium charge would be $1, so the total premium would be $51.

So, when another company asks for a waiver of subrogation, now you know what the term means and what the implications are; i.e. you’ll be paying a higher premium on your workers compensation insurance. If you know the approximate payroll of the employees you’re contracting out, you’ll even be able to estimate out your additional premium payment. If you have any questions about workers compensation insurance and waivers of subrogation, don’t hesitate to call or text us at (858)384-1506.