How to (almost) never have an insurance claim in residential construction
Many contractors will proudly exclaim to us that they have never had a claim. Although this is obviously good news to our ears, please understand that it is actually RARE for a contractor to have a General Liability claim in construction. This is because if you build houses for a living – you are therefore probably very good at building houses. Why then would it be “normal” for you to have a claim? Think about that one for a second!
Workers’ Comp and Auto insurance claims are far more common in residential (and most other) types of construction. There are many better pages on this site that explain how to avoid these types of claims. Our purpose here is to briefly explain how you can almost guarantee that you will never have a General liability claim, because if you do, they are VERY, VERY, expensive!
Please note: Many of these “tips” are unrealistic. We realize this. Think of each item as a big red flashing DANGER sign when accepting work. Please remember each items so you can be more cautious in the future. This will protect both you AND your insurance reputation of having “never had a claim”!
- Never perform condo work – Seriously! A large majority of claims are the result of a condominium association suing the contractor for work they have performed. This is usually because in every condominium association, there is at least one attorney who likes to sue people for a hobby. Sad, huh?! Short answer: condo work = bad lawsuits.
- Tract housing – Any time you are building a number of structures that are indenticl to one another, you run the risk of having some defect, or specification repeated dozens – maybe even hundreds of times. A claim of “insufficient nail size”, or “substandard window design” for example can have dissatorous financial repercussions and almost always result in a nasty large claim. Just ask the developments where the Chinese drywall is being removed right now!
- Do not spray anything– Overspray is a source of many nuisance GL claims, but they are common enough to mention. Do not spray anything when possible. Also never spray near vehicles. We can’t tell you how many auto detail companies LOVE insurance companies!
- Never work on “lawyer owned” projects – Many old-time contractors already know this one. Not all lawyers are bad. There are a few we “almost” like. However, there are many lawyers who will decide that it is cheaper and more lucrative to litigate you to death than pay you the balance of your contract or retainage. These guys assume it is easier to send you a demand letter and have you go away than to actually pay you what they owe you. Perhaps they do not like the color tile in the kitchen you just renovated. Since you documented that you had in fact installed the tile they wanted, they simply just try to sue you and hop e you go away. Is this fair? We don’t think so, but it happens enough that we felt it worthwhile ot include on this list.
- Beware of water – Plumbers already know that water damage is as expensive, if not more so, than fire. If you job involves any possible exposure to water, such as a leaky roof, leaky windows or dripping pipes, beware. These are where the really expensive claims appear.
- Do not no any “skin” work – Related to the above item, do not work on the skin of a home. This means no roofs, windows, siding or exterior paint and/or finishes. Yup. Water damage sucks!
- Never hire subcontractors – Your subcontractor shows you an insurance certificate. You are good – right? WRONG! Most of the time, subcontractors do not have the insurance they think they do (see common exclusion). Worse yet, they have no idea at all what they purchased. They simply trusted their agent. Even though you require your subcontractors to have insurance, how closely do you check the certificate they give you? If you want to get better at this, go to our CERTIFICATE MANAGEMENT PAGE and learn what you can do to protect yourself.
- Do not perform any work in california, new york, louisiana, or south florida (miami) area!– Many carriers refuse to write insurance policies in these areas. Why? Because the amount of litigation far outstrips the premium they receive. Why are these areas so bad? There are many reasons. No one single item is to blame. The short version is simply don’t work in these areas if you can help it!
- Stop doing any work– You can put up your tools and surrender your license. That almost guarantees you will not have any claims for work you never actually did…but obviously this is unrealistic. Tempting….but unrealistic.
We realize these items are mostly unrealistic to completely avoid. They do however represent the most likely claim scenarios you will see in residential construction. When possible, heed these suggestions like you would a “danger ahead” sign! Good luck out there!