Mind the Gaps
The cleaning and restoration industry is a great business to be in. Few sectors in the economy hold the growth potential as the cleaning and restoration industry.
Our firm assists in insuring more than a thousand cleaning and restoration firms. Over the past three years our clients’ average annual sales, as shown on their insurance applications, are growing over 15 percent each year with some firms posting 200 percent revenue gains.
Fueling the growth in our customer base is an underlying trend in extreme weather events. American Risk Management Resources Network LLC anticipates significant growth throughout the cleaning and restoration industry for many decades into the future due to an increase in extreme storm systems as a direct result of climate change. If you are interested in more information on this overall topic, please attend my presentation at the upcoming Experience Convention and Trade Show in Las Vegas.
Climate change will create more opportunities for larger jobs and more frequent jobs, which in turn increases your overall business risk. For you to be able to help people in need and reap the rewards of extreme weather patterns, your firm has to be in business when the storms come to your area.
Through the cracks
As you take on more risk, it becomes increasingly important to ensure your risk-management strategy is dialed in, and insurance can help with that strategy. Unfortunately, the insurance programs for nine out of 10 restoration firms contain material coverage defects. The statistics on cleaning firms are better, with only one out of three cleaning firms being fundamentally uninsured for things they do every day for a living.
In this series of articles, I will provide you with some advice on the nuts and bolts insurance that would pertain to your firm.
Insurance is used as one of many risk management tools for your business. However, if you were to purchase insurance for every risk your business takes on, you would be left with little to no profits at the end of the fiscal year.
Insurance should be used to protect your business from catastrophic risks that could potentially put your company out of business. In this article I will touch on insurance products available to the cleaning and restoration industry and begin to focus more in depth on the various insurance products you are most likely buying to protect your business.
Types of coverage
Business insurance is split into three categories — property, liability and worker’s compensation. The property coverage forms utilized by insurance companies to write property insurance policies are standard property forms. In general the property policies sold to cleaning and restoration firms do not deviate greatly in coverage.
However, certain liability coverage forms do deviate greatly, resulting in fatal coverage flaws within the policy wording. The insurance company and policies can vary a great deal with no recourse. Ninety percent of general liability and environmental liability policies sold to cleaning and restoration contractors have fatal coverage flaws. Generally it is up to the buyer to find any mistakes made on the policy, which unfortunately is almost impossible to do.
Within the liability category, the lines of coverage available to the cleaning and restoration industry include general liability (GL), auto liability, contractor’s environmental/pollution liability, employee practices liability, professional liability, employee benefits liability and excess liability. Multiple exclusions and coverage defects on certain liability policies can leave a restoration and cleaning firm with no insurance for certain jobs.
It is very easy to buy a liability policy that excludes what you do for a living or has significant coverage gaps. When purchasing liability coverage, focus on your contractor’s environmental liability insurance, especially if you do restoration work. The general liability you purchase will have a pollution exclusion, lead exclusion, asbestos exclusion and fungi and bacteria exclusion, as well as a mold exclusion.
The contractor’s environmental liability (CEL) policy was introduced into the cleaning and restoration industry back in 2003 to provide environmental/pollution coverage that the GL policy excluded. The next article in this series will be dedicated to the traps set by insurance companies in regards to liability insurance for a cleaning and restoration contractor.
At least every month for the past eight and a half years, I have reviewed insurance policies which have exclusions for a service the company provides. Just last month I reviewed a general liability policy that had an asbestos exclusion. When I asked the contractor if he did asbestos work, the answer was: “Yes; I just did an asbestos job a couple months ago.”
I had to inform the contractor that he did not have insurance for that job. His agent sold him a policy which excluded what he did for a living and did not suggest or present a policy to fill the gap in his insurance. The contractor easily could have lost his business, and still can, if the customer were to file suit against him for completed operations on that asbestos job.
The property lines of coverage include business property, bailee’s, contractor’s equipment and an installation floater. Property coverage premium is determined by the value of property in regards to the coverage you are purchasing.
For example, business property is based off the value of your building and the value of your business property. Bailee’s is based off the maximum value of customers’ property you have in your care, custody or control while in transit and at your location. The biggest mistake I see with the purchase of property insurance is being underinsured, resulting in the limits on the policy being lower than the value of property. To avoid being underinsured, give your agent an updated list of property, and keep them informed if you buy or sell property so they can adjust the policy accordingly.
Lastly, worker’s compensation is intended to provide financial responsibility if your employee were to become injured while at work. This line of coverage does not have a limit of insurance as the policy would pay out until the employee is back to work. Often included with worker’s compensation is employer’s liability coverage. This provides coverage if the worker’s family were to file suit for some sort of pain and suffering of the family due to the injury of the employee while he or she was at work.
Worker’s Compensation is an ongoing struggle for this industry. The premium is charged based on the class of business and the premium rates set in your state for that class of business. That premium rate, determined by the state, is commonly called the rate class code. Since there is no rate code for restoration, and there will not be for the foreseeable future, there exist many discrepancies between the insurance carrier and the insured.
Determining the rate class codes that would best apply to your firm is a major struggle. We will be discussing the pitfalls and different classes of business rating codes that would apply to the cleaning and restoration industry in this Cleanfax insurance series.
Get it right
Insurance is used as a risk management technique to ensure your business continues after a catastrophic suit or claim. It should not be used as a financial bank account. Insurance can be a very complex risk-management tool, especially if you are not utilizing the correct insurance professionals who specialize in what you do for a living.
There are no specific training classes for insurance agents on these topics. Through no fault of the insurance agent, she ends up selling policies with fundamental insurance coverage defects due to the absence of training courses. Finding a local agent who has experience insuring various contractors will help. The best agents do not cost more than less informed agents.
Taking extra caution when reviewing the insurance presented to you, as well as having a wholesale insurance broker on your insurance team, who specializes in insuring cleaning and restoration firms, will strengthen your risk management strategy and avoid falling into that 90-percent defect rate on insurance you purchase. No one wants to be caught paying premium for a policy that fundamentally doesn’t cover claims arising from what he does for a living.
The future articles in this series will detail the most significant pitfalls in insurance sold to the cleaning and restoration industry.
Kari Dybdahl has over eight years of experience in the environmental insurance industry. Dybdahl is exceptionally qualified to assist clients in placements for an array of environmental risks. Her daily placements include compliant insurance for Crawford Contractor Connection members, ICRA members, Alacrity members, independent contractors and several more. Kari also works on various pollution risks from manufacturers to site owners. Dybdahl assists in the design of member-specific insurance programs alongside Dave Dybdahl. Her knowledge in policy forms, terms and conditions enables her to assist clients correctly, quickly and efficiently.
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February 21, 2023