Most restoration contractors will have a General Liability and Pollution policy which provides protection to them from third parties in the event some third party alleges negligence against them. Business Personal Property (Contents) coverage provides first party coverage for the contractor’s contents at his office location. Examples would include computers, desks, phone systems, computers, and cleaning systems that do not go to job sites. It is important to place an accurate value on the items that never leave the office for the business personal property coverage.
Inland Marine coverage includes contractor equipment floaters and bailees coverage. An equipment floater provides coverage for the contractor’s tools and equipment away from their office and taken to job sites. An example of this would be tools, equipment, air movers, dehumidifiers, thermal imaging cameras, etc. Many times I will see a contractor who is way over insured on the business personal property limit and carrying no type of inland marine coverage. Many times I also find them grossly underinsured on their contents as well as inland marine if they even have any inland marine coverage.
The restorer and his agent or broker may have put everything the restorer owns into the business personal property limit. The problem with this is that when the contents are taken away from the premises and placed on a job site they are no longer covered by the business personal property coverage.
If there is a theft or vandalism loss on a job site, there is absolutely no coverage for the owned equipment of the contractor unless he purchased a contractors equipment floater. The contractor should provide their agent or broker an inventory schedule of the equipment that leaves the office which includes the serial numbers, cost new and purchase date. These items can be specifically scheduled on an equipment floater. In the event of a loss, the carrier will adjust the claim based on what was on the schedule provided to the carrier.
There are differences between carriers on how they pay contractor equipment losses. The carriers normally want to know the cost new or current value for determining the premium. However, in the event of a loss most of these policies are not settled on an agreed amount but on their actual cash value at the time of a loss. Actual cash value – ACV is the cost new less depreciation. As a general rule, there are no carriers that offer replacement cost on contractor’s equipment floaters. We only know of one single carrier that will actually pay replacement cost if the piece of scheduled equipment is less than 5 years old.
Another scenario for a contractor equipment claim is flood and quake, which are generally excluded in contractor equipment policies. But what if a restorer is working in an area where a flood occurred and is drying down a structure, and another flood occurs while his property is on the job site? Most policies will not respond to that claim unless you provide specific coverage on it for flood and quake. If a restorer is working in an area where there was a flood or a CAT, he should make sure he has coverage if his equipment is damaged by a re-flood while at a job site. If there is no coverage for flood, the floater claim would normally be denied as most policies exclude flood and quake. Bailees coverage provides for the care, custody, and control of other people’s property in your possession.
The business personal property coverage will only provide coverage in the event of a loss to your contents and inventory, not that of your customers whose goods you may be processing. There are numerous different coverage forms provided by the carriers for this type of inland marine risk. Most policies will pay for goods of others at your shop or while in transit to your shop. The problems arise when your shop is at capacity and you rent space at a local storage place until you get some room at your own place. Many policies will not respond to a claim at a location not specifically scheduled on your policy.
Another problem can arise when you place a POD on a job site for a customer and the customer’s goods are in the POD. If there is a theft or vandalism or any other event, you may be liable as you have created a bailment between you and the insured while the contents are in the POD. You may technically have care, custody, and control whether or not your customer has a key to the POD depending on the local jurisdiction and their case law. If you have the key, you definitely have created a bailment. What happens if there is a loss and the carrier does not cover it as this location was never scheduled on the policy?
Another problem is all bailees policies typically require an inventory to be taken of the items as a condition to providing coverage in the event of a loss. If the customer’s goods are put in a
POD and not inventoried as they would be if being transported back the shop, there may not be coverage since no inventory was taken if a loss occurs. One should also make sure the bailees policies being considered does not include a locked vehicle warranty in it for contents in transit.
The restorers workers may be in the process of taking items to and from the subject property to take to their shop. If the vehicle was unlocked or left open during the loading process and a loss occurred there would be no coverage. Most locked vehicle warranties require signs of forced entry for there to be transit coverage of customer goods in
in a vehicle. Another problem that could occur is the restorer has the contents all processed and sitting in the shop completely done and waiting for the reconstruction activities to conclude so they can deliver the processed contents back to the job site. Most bailees policies provide coverage for the actual property itself that may need re-restoring in the event of a loss at the contractor shop. But what about the lost income from the work that was processed and billed the first time?
We know of only one carrier who will adjust the bailees loss and allow the contractor to recover his lost revenue he would not be collecting on the original loss. It is also important in many areas of the country to ask the inland marine carrier to provide quake and flood on the bailees policy as well as the restorer has care, custody, and control of the customer goods. If the storm occurred in the restorer’s area another storm could occur causing issues at the restorers own location while the customer goods are under his control.
CIR
Ross Driscoll Sr. CIC,CR is the President of National E&S Insurance Brokers, Inc. in Palmdale, CA. Ross is a licensed fire & casualty agent/ broker and surplus lines broker. He is also a licensed general, concrete, and asbestos certified contractor in CA. He can be reached at ross@nationaleands.com
