Restoration Insurance Tips: Disaster Planning Mistakes

As a restoration contractor you specialize in repairing disasters that occur to others.   What happens, though, if a disaster finds your company ill-equipped and unprepared for a calamity that happens to your own company?

We’ve put together a list of the most common disaster planning mistakes restoration contractors make and tips on what your company can do to avoid them.

Mistake #1: Failing to Properly Inform Employees

In our experience of working with restoration contractors on developing risk management and disaster plans, we have found that many companies have at least started on a plan or even have a basic one in place.   However, many of those same companies fail to inform their employees of their disaster plan or share what they should do in an emergency.
Tip: Be sure to inform all current employees of your disaster plans and integrate your plan into your new hire training so all employees will understand.

Mistake #2: Failing to Prepare Employees

While many companies will address what their employees should do when they’re at the office and a disaster strikes, very few companies address what to do if their employees are at home.   For example, does your company have a way for employees to work from home if necessary?
Or, if you have critical employees, like executives, do you know if they have a plan to meet with the other executives in an emergency?   Key employees, including executives, should have a way to access company files if stranded at home.   Additionally, you may want to consider have those employees store extra gasoline at their home to ensure they can make it to any meeting where you need them.

Mistake #3: Failing to Adequately Address IT Needs

Most companies will have some sort of data backup to prepare for a disaster, but how many have addressed how they’re going to use that backup to get their systems up and running again?  Do you know if you have the IT staff in place to get you back up and running quickly?  Or, if you use a 3rd party systems administrator do you know how they will respond to your company in an emergency.
Tip: Communicate openly and regularly with your IT Department to ensure all parties are of the same understanding prior to any claim.  If you use a 3rd party company for your IT needs, make sure you know how they will get you back up and running.

Mistake #4: Over-Reliance on 3rd Party Information

When disasters strikes most people have a tendency to rely too much on external information to make decisions on getting back up and running.  For example, do you know when the power and utilities will return? Or when will you gain access back to your property?
Tip: Your disaster plan should include information on how your business can sustain itself for at least 72 hours without power or access to your office.



Why does my restoration company need a waiver of subrogation?

Suppose an air conditioning contractor, while installing a system for a new industrial building, has an accident. Another contractor’s employee on the job site suffers injuries when the AC contractor’s scaffolding collapses and falls on top of him. The injured worker sues the AC contractor and the project owner. The project’s contract included a requirement that the contractor assume the owner’s liability for any accidents arising out of the contractor’s work. Consequently, the contractor’s general liability insurance company pays the injured worker for both the contractor and owner’s shares of the damages. The insurance company, however, has determined that the owner was twenty percent responsible for the accident. It files a claim with the owner demanding some of its money back.
The insurance company’s action is entirely legal. Many project owners and general contractors, wanting to avoid this situation, insist that their subcontractors agree to a waiver of subrogation. Subrogation is a legal principle in which a person who has paid another’s expenses or debt assumes the other’s rights to recover from the person responsible for the expenses or debt.
For example, if someone hits your car in a parking lot and causes significant damage, your insurance company will pay you for the damage (assuming you bought collision insurance,) then recover the amount of its payment (subrogate) from the other driver (or, more commonly, from the driver’s insurance company.) Subrogation holds ultimately responsible the person who should pay for the damage.
Owners and general contractors want to transfer their liability to subcontractors, to the extent that they can. Therefore, contracts often include a waiver of subrogation agreement. In such an agreement, the subcontractor promises not to pursue recovery from the other party. That agreement might bind the subcontractor’s insurance company, depending on the type of policy and its terms.
A standard commercial general liability policy forbids the policyholder from doing anything to impair the insurance company’s rights after the loss occurs. This implies that a waiver of subrogation agreed to before a loss binds the company. Also, the sub’s policy may protect the other party if it names him as an additional insured. Under common law, an insurance company may not subrogate against its own insured. To remove any doubt, the sub should ask the company to add an endorsement applying a waiver of subrogation to the person or organization named in it. Insurance companies vary on the amount of premium they charge for this; some make no charge at all.

Restoration Insurance: Rekeying New Locks

We just came across a strange claim that involved a restoration contractor we felt was worth sharing: a restoration contractor was working at an apartment building and one the employees had a master key set that went to several apartments at the complex.   One afternoon when he left for lunch and accidentally left the keys on his ladder; when he returned the keys had been stolen.   When he reported the loss, the apartment complex had to replace all of the locks that could be accessed by the stolen keys.

So the question is whether or not a general liability policy will provide coverage for a claim like the scenario above.   Part of the issue is because there is not actual physical damage to the locks.  However, what most people don’t realize is that the definition of property damage within a general liability policy includes loss of use of tangible property that is not physically injured.  So a standard general liability policy would actually pay to have all of the doors locks replaced.

The next part in question would be for the payment for replacement keys for all of the new locks.   In the scenario above, a general liability would most likely not provide payment for the new keys.  A general liability policy has an exclusion for personal property in the care, custody, and control of the insured.   Since the keys were in the possession of the restoration employee, the policy would not provide the coverage.

Please keep in mind that every insurance policy is different.  You should talk to your agent about your specific policy, its endorsements, and exclusions to ensure your company would be covered by the scenario above.

Restoration Insurance: What is Business Income Insurance?

Business Income (or business interruption insurance) protects restoration contractors from the loss of income when their facility suffers a disaster that forces it to close.  While a property insurance policy covers the physical damage or loss to a restoration contractor’s property, a business income insurance policy will cover the business for lost profits and expense payments.

This type of policy is usually purchased in conjunction with a property insurance policy.   An important note is that a business income policy will only pay if the claim is one that is covered by the property policy.

A business income policy can include coverage for the following:

  • Profits- Profits that would have been earned.
  • Fixed Costs- Operating expenses and other ongoing costs.
  • Temporary Location- Some policies provide extra expense coverage to help with moving to and operating from a temporary storage location.
  • Extra Expenses- Reimbursement for additional expenses (beyond normal costs) a business incurs to continue operations.

All business income policies will include a specified time period for which the insurance company will provide coverage.  Policies may provide coverage for as little as 3 months while some include coverage for up to 2 years.

If you have questions of whether your restoration company should purchase a business income policy, we recommend you speak with one of our experts agents.   We can evaluate your company’s operations to determine if a business income policy is right for your company.

Restoration Insurance Tips: Is it Covered by Auto or General Liability?

If one of your restoration company’s employees were to hit somebody while driving a bobcat or bulldozer do you know if the claim would be covered by general liability or your commercial auto policy?

We have found that many of our clients are unsure of where to find the liability coverage for large pieces of equipment that are typically designed to be driven on the road.  So we want to use this post to shed some light on what insurance companies feel is commercial auto and what is covered by the general liability policy.

The general liability policy provides for “mobile equipment.” Mobile equipment as defined in a standard general liability policy consists of the following:

First let’s look at what is not mobile equipment. This will belong on your BAP. The first category is classified as autos. This includes:

  • bulldozers, forklifts and other equipment designed primarily for use off public roads, including vehicles on crawler treads.
  • vehicles used primarily to give mobility to loaders, diggers, air compressors, and similar equipment.
  • vehicles that are self-propelled or not self-propelled. Not self-propelled could be a trailer.

For any of the items described above, an accident where your company is liable will be covered by the general liability policy.

Any “auto” claim will not be covered by the general liability policy, but rather a commercial auto policy.  An “auto” as defined by a standard policy as the following:

  • self-propelled vehicles with permanently attached equipment, if designed primarily for snow removal, street cleaning, or road maintenance other than construction or resurfacing.
  • cherry pickers and similar devices mounted on an auto or a truck chassis.
  • air compressors, pumps, generators, welding units, building cleaning units and other similar items.

If you have any additional questions in regards to what is covered by your auto policy and your general liability policy, please feel free to give our office a call.