Most of you know that you’re required to carry Workers Compensation, if you have employees, general liability insurance to protect you from claims of bodily injury and property damage, auto insurance to cover your fleet, and an umbrella policy to sit on top of it all…but what of the lesser known coverages? Do you have cyber insurance? Are you protected if an employee or client files a claim for harassment against you or your employees? What if the design you created for your client doesn’t work out and they have to hire somebody else, at a higher cost, to redesign everything? Or, perhaps, that house you’re working in happened to have lead or asbestos? As a contractor, your exposure to loss is far greater than you may think.
A good cyber policy will provide protection to your company if a data breach occurs. Remember the 2013 Target data breach? Did you know the hackers accessed the Target system through an HVAC contractor? In 2017, Target settled the data breach claims for $18.5 million, although Target reports it actually cost the company $202 million. Your company may not have direct access to a Fortune 100’s internal network, but according to the Ponemon Institute, the average cost for each lost or stolen record containing sensitive and confidential information is $148. How many employees, vendors, and clients do you have non-public personal information (NPPI) on? NPPI is any data or information considered to be personal in nature and not subject to public availability.
Personal information includes, but is not limited to:
• Individual names
• Social Security numbers
• Credit or debit card numbers
• State identification card numbers
• Driver's license numbers
What would you do if somebody installed “key-stroke” software on your computer, watched you access your bank account on-line, then proceeded to steal $273k from your payroll account? This happened to a client of mine, two days after I suggested they purchase cyber insurance with computer fraud coverage, which they declined to do. Eventually, they recovered the funds, but not without hiring an attorney at their own cost, and spending a lot of time and effort fighting with their bank.
Employment Practices Liability (EPL)
EPL insurance protects your company from claims of sexual harassment, discrimination, failure to hire, failure to promote, wrongful termination and creating a hostile work environment, to name a few. The cost of EPLI insurance depends on several factors, including the size of your business and employee turnover. However, most small businesses can get EPLI coverage for less than $1,500 per year. According to the insurance carrier, Hiscox, the average total cost of an EPL claim, including defense costs, is $125,000. The median cost for claims that go through trial is $200,000, excluding defense costs.
Harassment is possibly the biggest source of EPL claims. As an employer, you are responsible for the workplace environment. If direct acts of harassment from co-workers, vendors or customers are not dealt with immediately, claims could be made that manager negligence led to a hostile work environment. The tricky thing about EPL is that when a claim is made, the harasser’s intent isn’t what the court focuses on, rather, they consider the impact to the victim. That off-color joke that your employee makes may seem funny to many, but if somebody finds it offensive, you could be opening yourself up to an EPL claim. Do your employees have pin-up calendars in their workspace? That too could be used against you in a harassment claim.
Contractor’s Professional Insurance
If you do Design-Build work, you have a professional liability exposure. Would it surprise you to learn that your General Liability policy most likely excludes any claims made against you for improper design work? A general liability policy will protect you against claims of bodily injury and property damage, but what if your client suffers a purely economic loss without property damage? If you have only an unendorsed general liability policy, you will be responsible for the damages.
If you subcontract design work to a professional who doesn’t carry their own Professional insurance, also known as Errors & Omission, you could be held liable. For example, if you subcontract the design of a central air system to a professional without E&O, and they miscalculate the cooling needs of the home, you could be held liable to replace the entire central air system. If you act as a construction manager, and fail to detect faulty workmanship, you could be held liable for a tear down and rebuild.
The cost of a contractor’s professional insurance policy will vary, depending on the design work performed and the total yearly revenue from design projects.
As a contractor, you face environmental risks stemming from your operations on a daily basis. A single pollution incident or loss can seriously damage your reputation, operations and even your balance sheet. Don’t simply assume that environmental claims will be covered under your commercial general liability policy, because most general liability policies contain a “total pollution exclusion”.
A pollution policy provides coverage for bodily injury, property damage, defense, and cleanup as a result of sudden and gradual pollution incidents arising from contracting operations performed by or on behalf of a contractor. Many policies also include Transportation Pollution Liability (TPL) coverage for contractors responsible for hauling away environmental waste.
Most contractors do not realize that even if they are not working with hazardous chemicals, they still face pollution exposures that are typically not covered by a general liability policy. Pollution coverage is not inexpensive. Minimum premiums may range from $1500 - $10,000 for $1M in coverage, depending on the carrier. Often times you can purchase a policy that includes both Professional Coverage and Pollution coverage, in an effort to keep the costs down.