Insurance Tips

If you regularly use your truck in the conduct of your business or have purchased vehicles specifically for your business, then personal auto insurance is not the correct coverage. You’ll need to purchase commercial auto insurance (also known as business auto insurance).

Personal auto insurance is meant to cover your every day, non-business driving. When you use your car or truck regularly for business, that requires commercial auto insurance, which is calculated differently than personal auto insurance.

Commercial auto insurance and personal auto insurance have a lot in common. They tend to offer similar types of coverages, though commercial auto insurance policies may provide higher coverage limits. Common commercial auto insurance coverages include:

• Bodily injury
• Property damage
• Combined single limit (both bodily injury and property damage)
• Medical payments
• Uninsured motorist coverage
• Comprehensive physical damage
• Collision coverage
• Hired Auto (very important)
• Non-Owned Auto (very important)
• Symbol 1 liability when needed by contract

So, how do you tell when you need commercial auto insurance vs. personal auto insurance? That can be a tricky question, especially if you use a single vehicle for both personal and commercial use.

If you purchase a vehicle specifically for use at your business – such as a delivery truck, a truck used to travel to job sites, or a vehicle used to transport clients – then this should definitely be covered under a commercial auto insurance policy. Commercial auto insurance is also required when you use your vehicle to regularly transport goods or people for a fee, conduct service (ex. you have a mobile pet cleaning van), or to haul special tools or a trailer that is used to conduct business. You should also purchase commercial auto insurance if employees drive the vehicle as part of the business, OR if they drive their own vehicles as part of your business.  Further, if you rent or lease vehicles for business use, then a commercial auto policy is a necessity.

One instance where you do not need to purchase commercial auto insurance is if you primarily use your vehicle to commute to and from your place of business, such as a single office location.

A good way to figure out if you need commercial auto insurance is to ask yourself this question – aside from commuting to and from work, do I regularly need my vehicle to operate my business? If the answer is yes, you should probably sit down with an insurance agent to discuss commercial auto insurance options.

At Fusco & Orsini Insurance Services, we’d be glad to help you determine if you need commercial auto insurance and what type of policy coverages would be best for your budget and your situation. To learn more about commercial auto insurance (aka business auto insurance) call us at (858) 384-1506 or contact us through our website.

If you are an employer or planning on starting a new business that will employ workers, you are required by the state to purchase workers compensation insurance to protect against the possibility of work-related injuries or illnesses. In return, your company is protected against employee lawsuits.

Employers living in California may have noticed that the cost to carry workers compensation has increased steadily over the last couple of years. As with any government-regulated program, the reason for this increase is multi-faceted and involves many different details and government departments.

Here’s the basic rundown:

Workers compensation insurance rates in California are heavily regulated by the state’s Department of Insurance, which is influenced by advice from the Workers Compensation Insurance Rating Bureau (WCIRB).

The WCIRB makes recommendations in part based on the state’s “loss ratio”.

A loss ratio in its simplest form is the percent of money paid out in claims relative to the money earned from employer premium payments. If the amount of workers compensation claims exceeds the amount of paid in premiums by employers, the state’s Department of Insurance will advise or recommend that carriers raise rates to allow for profitability for the carrier.

This is the same situation that happens when a big hurricane strikes. Suddenly, insurance companies have to pay out big claims for home and car damage and respond by raising their rates for future policies in that area.

There are many details involved, but the main reason we’re seeing increasing workers comp rates in California is simply because claims are rising. That means it’s up to every employer in California to try to keep their employees as safe and healthy as possible in order to lower the number of claims being filed each year. This is a shared responsibility, plus, protecting workers is the right thing to do regardless of the cost of workers comp.

If it pains you to write the check for your monthly worker’s comp premium, ask yourself if you’re doing everything possible to make your work environment as safe as it can be. If not, get to work! If other employers follow your lead, you may just see workers comp rates dropping in the future.

Let’s just get this out into the open – INSURANCE IS CONFUSING.

There are forms. Many forms. Forms filled with fine print, limitations, and clauses you’ve never heard of before.   Typically speaking, most consumers do not enjoy reading their insurance policy and reviewing all of the provisions of the coverage. Even if they did, the language would be too confusing.  Further, since the policyholder rarely has a copy of the policy prior to purchasing the insurance, it is the broker’s job to explain and essentially summarize the key forms that are included.

Those provisions and clauses are important. A perfect example of this is a manifestation clause, which can leave you high and dry if it’s in your insurance policy.

A manifestation clause most often appears in the general liability insurance policy of construction companies, remodelers, builders and the like. To understand what a manifestation clause is, let me first explain what it isn’t.   A general liability policy without a manifestation clause provides defense and indemnity for covered losses regardless of when the bodily injury or property damage first manifests.   Thus, if the policy contains a manifestation clause, the insurance only applies when bodily injury and/or property damage first manifests during the policy period.

It is also important to point out that there is no standard wording for a manifestation clause, which makes figuring out if your policy has a manifestation clause even more confusing.

Here’s an example of a manifestation clause in action:

Let’s say you had a policy which contained a manifestation clause, and it expired 4/1/08.  You then switched to a different carrier, and the new policy became effective on 4/1/08.  In the meantime, a claim ‘occurred’ (unknown to you or anyone else) sometime during or after a job that was completed in February of 2008.

In June of 2008, the owner of the home where you recently completed the project notices a strange smell coming from a seldom used room of his house.  When he enters the room, he notices stains on the ceiling and walls (drywall), damaged flooring and damaged furniture.  Once investigated, it is discovered that a small hole in a pipe has been leaking for months.

Unfortunately, because the claim ‘manifested’ itself, or was first noticed in June of 2008, the policy which expired on 4/1/08 will not cover the damage, because it contained a ‘manifestation clause’.  Thus, the owner of the construction company could be in big trouble, as he /she is facing a possible uncovered loss.

Not all is lost at this point.  Reference back to my blog post on “prior works exclusions”.  If the new policy does not contain a prior works exclusion, the loss may be covered under the new term, and the owner of the business could be saved.

However, it takes a commercial insurance broker with extensive knowledge of the coverage being offered to properly protect the consumer.

Many business owners, including construction company owners, don’t even know that their liability insurance policy carries a manifestation clause. Your company, the jobs of your employees and everything you’ve worked hard to achieve in your life could be at risk if you have a manifestation clause in your insurance policy.

At Fusco & Orsini Insurance Services, we almost always make sure the manifestation clause is taken out of the policies we offer our clients. The only exception is if a client cannot afford a manifestation-free policy (adding a manifestation clause to the policy lowers its price).

To find out if your current general liability insurance includes a manifestation clause, you can always call us at Fusco & Orsini. We’ll carefully review your policy for you and let you know exactly how protected your company is. If you have any additional questions about manifestation clauses, don’t hesitate to contact us.

Prior Works Exclusion Explained

If you own a construction company, you already know how absolutely critical it is to have comprehensive general liability insurance. This insurance will protect your company in the event that any damages or injuries occur as a result of your work.

Not fun stuff to think about, we know. Still, it’s important. Your insurance coverage could save your business, or, a better way to put it – you could lose your business if you’re not properly covered and get served with an expensive lawsuit.

That’s why it’s important to make sure that you’re covered for the work your company is doing today and the work you’ve done in the past. There ’s an exclusion that more and more insurance companies are adding to their general liability insurance policies that restrict their coverage of past works.

 A “prior works exclusion” is an endorsement sometimes attached to a contractors’ general liability policies. The exclusion eliminates coverage for injury or damage resulting from the insured’s work that was completed before a stated date.

For example, let’s say a remodeling company, Pretty Good Remodelers, remodeled a deck in 2010 while they were covered by Acme Insurance. Acme’s policy expired in 2011, and Pretty Good Remodelers bought a new policy through XYZ Insurance. Later in 2011, the deck fails and causes damage to the home it’s attached to.

Due to the prior works exclusion in the general liability insurance policy that Pretty Good Remodelers got from XYZ Insurance, their new insurance company won’t cover the damage. Further, if the policy is written on an occurrence form basis, the prior carrier (ACME Insurance) is not responsible to cover the damage, either. Therefore, Pretty Good Remodelers may find themselves 100% liable for all damages.

In some cases, prior works exclusions are automatically included by an insurance company, especially if the client had gaps in insurance coverage in the past. However, in many cases, prior works exclusion can be removed, especially if the broker requests it.

At Fusco & Orsini Insurance Services, we make certain the prior works exclusion is removed whenever possible. If you want to know if your general liability insurance policy includes a prior works exclusion, we’d be happy to review your policy for you and let you know. Contact us by phone or email.

Sunset Insurance Clauses Explained

If you own a construction company, remodeling company or any other type of business with a higher-than-average risk of liability, it’s extremely important to know how long your general liability insurance policy covers any liability your company may be responsible for.

No one likes to talk about liability or getting sued for damages, but that’s the reality that we live in. It’s important to have a complete grasp of your policy to make sure your company and livelihood are protected.

Most general liability insurance policies in California protect the insurance holder from claims up to ten years after the policy expires. This is because in California there is a ten-year limit for construction lawsuits (liability from a construction company must be discovered within ten years of the project’s completion in order for the victim to sue).

Some commercial liability policies, however, cover businesses for a much shorter period of time due to specific “Sunset Clauses” in the policy. A sunset clause specifies when an insurance company will no longer cover liability claims after the expiration of the policy. The amount of time varies. Some sunset clauses cover a business for five years, while others cover a business for four or even just two years.

Insurance companies like shorter sunset clauses for an obvious reason. The less amount of time they have to cover a business after the expiration of the commercial liability insurance policy, the less likely they’ll have to pay out a liability claim.

Often, general liability insurance policies with shorter sunset clauses will be less expensive than commercial liability policies with the full ten-year coverage. Business owners may jump at that lower price tag, but they may not be so eager if they realized what type of risk they were putting their company (and themselves) in.

If a company’s general liability policy contains a 5-year sunset clause, and a claim is made against the company during the sixth year, they could be on the line for all damages that occurred.

In other words, it’s a really good idea to know if your current policy contains a sunset clause. If you’re not covered for the full ten years after your policy expires, it’s paramount that you take action to make sure your company is protected for that period. There are alternate solutions if you’re already locked into a sunset clause.

Contact us at Fusco & Orsini Insurance Services. We’d be happy to review your general liability insurance policy with you, let you know if we see any gaps in coverage and help you fill them to keep your company full protected from liability.

For many construction industry professionals, surety bonding presents a challenge.  We receive phone calls on a daily basis from clients and prospects alike, many of which have been asked to provide a bond but don’t know where to begin.  Although most have experience with license bonds (required to maintain an active license), there is much confusion surrounding surety products.  Thus, by writing this article, we hope to provide clarification surrounding the topic.  We believe it is extremely important for contractors to understand the basics of surety bonding, and where to turn when help is needed.

First and foremost, it is important to understand the structure of a surety bond, which is a contract among at least three parties, as defined below:

1. The principal – this is the primary party of the contract (in this case the contractor) who will be performing a contractual obligation.

2. The obligee – this is the party who is the recipient of the obligation, and

3. The surety – who ensures that the principal’s obligations will be performed.

If you are a construction professional, there are two categories of bonds that you may come across.  The first is a commercial bond (guarantee per the terms of the bond form), such as license/permit and union bonds.  As many of you are aware, contractor state license boards across the country require a bond be filed in order to keep an active license.  The bond ensures that a construction professional is qualified to do business and will abide by whatever state laws, statutes, ordinances or regulations are required.  Further, in states such as California, license bonds are rated primarily on the credit history of the principal.  Many question why, but the answer is simple:  if the surety pays a claim made against the principal, the principal is required to pay the surety back (think of the bond as collateral).  There is no better measure to assess the probability of payback than credit, thus the reason for heavy credit underwriting.  If the company entity is a corporation, partnership, or LLC, the owner(s) must personally indemnify the surety, thus taking full responsibility to return monies if a payout is granted.

The second category is a contract surety bond (guarantee a specific contract).  These deal with the performance at some or all stages of a construction project.  Any federal government construction project that exceeds $100,000 is required to have a performance bond.  Such requirements differ between state and local municipalities; in my experience, there are local cities that require contract bonds on projects as low as $20,000.

There are several different types of contract bonds that you should familiarize yourself with prior to entering into a contract.  They include:

1. Bid Bonds – A bid bond is due at the time a bid is submitted and provides financial assurance that the bid has been submitted in good faith.  In addition, the bid bond ensures that the contractor intends to enter into the contract at the bid price and provide the required performance and payment bonds if awarded the contract.  Although the surety may only provide a bid bond at 10% of the amount bid, they underwrite on the total value of the contract, since future performance and payment bonds will be issued if the job is awarded.  If the contractor does not proceed at the bid amount, the guarantor (surety) will pay the obligee the difference between the contractor’s bid and the next lowest bidder.  Once paid, the surety will recover the payment amount from the contract.

Similar to license bonds, a bid bond is underwritten based upon the principal’s (and owner(s) if a corporation, partnership or LLC) credit, since payments against the bond are recovered.  Furthermore, underwriting becomes more complex as contract values (or bid contract values) increase.  In many cases, surety companies offer “express”, and “easy” underwriting procedures for contract values equal to or under $300,000.  Most max out around $200,000, and some as low as $100,000.  Once such levels are met, additional information is needed for bond approval.  Such documents include personal and business financial statements (some CPA prepared), complete long length applications, verification of cash on hand, credit line/investment account information, work is progress reports, references, resumes, and even set aside statements / additional collateral.  Most sureties do not charge for a bid bond, but it is becoming more frequent that they do.

2. Performance Bonds – Once a project is awarded (in many cases to the low bidder), a performance bond is issued.  These bonds protect the owner (obligee) from financial loss should the contractor fail to perform the contract in accordance with its terms and conditions.  By issuing a bid bond, a surety is generally guaranteeing that the principal (contractor) can secure a performance bond, as long as the bid amount is close in value as initially underwritten.  At this stage of the process, a premium is due and may range from .5% (higher valued contracts) to 4% (smaller contracts).  In order to issue the performance bond, along with the payment bond (described below), the surety will ask for bid results and a copy of the final contract.

3. Payment Bonds – This bond comes together with the performance bond, and in some cases is referred to as a labor and material bond.   The payment bond guarantees that the contractor will pay certain subcontractors, laborers, and material suppliers associated with the project.  The premium for such bonds is included in the cost of the performance bond; there is not a separate price associated with payment bonds.

4. Maintenance Bonds – Maintenance bonds are not as commonly required but normally guarantee against defective workmanship or materials for a specified period.

5. Subdivision Bonds – A subdivision bond guarantees that a developer, builder and/or individual landowner will complete improvements made to a subdivision property.  This bond, required by cities, counties or states, usually guarantees that improvements will be made at the expense of the developer and principal of the bond.  Such improvements include streets, sidewalks, curbs, gutters, sewers and drainage systems.

Although you may come across other types of bonds, those explained above are most prevalent within the construction industry.  As economic conditions continue to change, I have witnessed many construction companies shift into bidding new types of projects.  For these companies, and many others, surety bonding will impact growth and overall success.  It is important that you look into bonding before you decide to bid projects, as you may spend valuable time and resources before knowing your bonding capacity.

License bonds are, in most cases, a quick and easy underwriting process.  Within a few minutes, we are able to offer multiple options, with various years and payment plans.  You may even find it convenient to price your license bond here. If the premium seems out-of-line, give us a call, as we are happy to seek additional options.

Contract bonds, on the other hand, can be more complicated.  Call us in advance, before you bid projects.  By doing so, we will determine what contract values are realistic targets for your company, and will customize a bonding program to meet your needs.  Depending upon your credit, experience, and levels of assets your bonding capacity could be much different than anticipated.