Insurance Made Easy: Navigate Your Job’s Coverage Needs
Learn how to make sense of insurance requirements in construction projects! This episode of Contractor Success Forum walks you through reading job specs to ensure you’re covered correctly without paying extra.
Discover practical steps to streamline insurance for your bids, avoid costly mistakes, and ensure compliance. This episode is perfect for contractors looking to simplify insurance and focus on what matters—building successful projects!
Topics we cover on this week’s episode:
- 03:23 – Understanding Cash Flow
- 07:55 – Profit First System
- 11:50 – Family Dynamics in Business
- 15:18 – Defining Success
- 18:54 – Working Smarter
- 21:49 – Retirement Concerns
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Wade Carpenter, CPA, CGMA | CarpenterCPAs.com
Stephen Brown, Bonding Expert | SuretyAnswers.com
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TRANSCRIPT
[00:00:00] WADE CARPENTER: Are you feeling overwhelmed by the insurance requirements buried in your job specs? Do you find yourself unsure of what coverage is really necessary or how to meet all those specific demands? In today’s episode, we’ll simplify the process of understanding the insurance requirements from the job specifications.
You’ll learn how to break down those confusing details and ensure compliance and avoid costly mistakes that could derail your project. This is the Contractor Successs Forum, where we discuss financial strategies for running a more profitable construction business. I’m Wade Carpenter with Carpenter Company CPAs, and joining me is my co host, Stephen Brown from McDaniel Whitley Bonding and Insurance.
Stephen, you’ve seen a lot of contractors get tripped up by insurance requirements. Thanks What’s the first thing you advise them to look for when reviewing the job specs?
[00:00:44] STEPHEN BROWN: First thing, Wade, is a lot of my customers will send me the job specs and they’re like, make sure I have all these insurance requirements. So if there’s anything in the specs that’s going to cost you extra that you don’t already have in place, that you’re going to have to work into your bid, then I’ll let you know about that ahead of time.
But quickly, we’ll get this question all the time. Folks ask me to meet with the project managers and estimators just to go over simply what you look for when you’re bidding a job, as far as insurance is concerned. So we talked many times over the years about construction being a risky business, right? Everything that could happen will happen on a job site. Everybody knows that. You try to manage your risk. And one of the ways to managing your risk, of course, is insurance. And when you look on a job, there may be specific safety things in that project that you need to consider that maybe no one else did. So of course you think about that too.
But when you’re looking through a set of specs for a project you want to bid, and you’re quickly looking at the insurance, here’s the things you need to know. That’s what I wanted everybody to know.
[00:01:50] WADE CARPENTER: I wouldn’t even know where to start because I’ve seen some construction contracts that are hundreds of pages . So I know what I might look for as an accountant with the prices and stuff like that, but I have no idea where to start with risk or any of that stuff.
[00:02:03] STEPHEN BROWN: I read them all the time. I read them all day long. And most people that are bidding jobs, they do this too, Wade. And you don’t have to, but when you look at them, they are different. Every set of specs is different to some degree.
What you hope to have is an introductory letter explaining the project when it bids. What the owner wants to accomplish. Then you have a table of contents that spell out everything that’s in a set of specs. When there’s a thousand plus pages of specs, a good chunk of that is boilerplate stuff that most contractors are used to seeing, and they know what they can discount and they can’t discount when they’re bidding the job.
Of course, always look for if there’s any bonding requirements in there. If there is a bonding requirement, do they have their own bid bond form they want us to use? And then what I have to know as a bonding agent is how long will the job take to do and what are the liquidated damages?
And so many contracts I see over and over again, Wade, are from a general contractor to a subcontractor and the language says that subcontractor’s tied into whatever the liquidated damages are that the general contractors agreed to.
And a lot of times the time frame isn’t spelled out in the contract. And it refers to another contract. And you are literally agreeing to something that you have no idea what the timeframe is and the liquidated damages are. So that’s why we have to know what to do a bond on a job. Why would you want a job that had 10, 000 stay liquidated damages and had to be done in 90 days when it was a, six month project?
I just tell you a Wade, that I see that happen all the time over and over again. Off bonds, you look in the index to insurance. What you find in there, and you’ll find a bunch of language describing all the different coverages that are required, and a lot of it is boilerplate language that architects and engineers have used for years. Some architects and engineers call general liability public liability. And that’s really old stuff.
Anyway, you look at the insurance limits that are required. First and foremost, Wade, I would say look at the umbrella coverage. Because a lot of times a project will have an umbrella requirement that’s five times what you’ve purchased. And that costs a lot of money to get your umbrella bumped up.
You’re bidding a job and you’ve got a million dollar umbrella, and it’s a five or ten million dollar umbrella requirement. It’s gonna cost you . You have to get in touch with your insurance agent, get an idea of what number to plug in to increase that umbrella.
And the more time you can give your agent to do that, the better.
[00:04:27] WADE CARPENTER: Can I quickly go back to what you said about the liquidated damages clauses? Basically, you’re going back to the, like a sub would go back to the general contractor and say, do they have the right to get a copy of that contract or?
Well, I mean, you can ask them to tell you in
[00:04:40] STEPHEN BROWN: writing. That would constitute an agreement with you if you got an email from him telling you what it was. But you have every right to know what liquidated damages could be passed on to you. And then the question is, am I responsible or did another sub or another situation or a problem on the general contractor’s part cause these liquidated damages?
So a lot of that has to do with where in the pecking order you are when the job starts. Are you the demolition and the site work prep contractor? Or are you all the way toward the end interior flooring finishing type of subcontractor?
Most of the time you don’t know whether a construction project is on schedule as a sub. You have to trust the general contractor that you’re working with. But every bonding company has to know what the time frame and the liquidated damages are that you’re obligating yourself to.
Sometimes there aren’t any, and that’s okay. There’s no liquidated damages and they will bid a job and give it to the contractor that tells them that they can do it in a certain timeframe.
Sometimes you can say I can bid this job. I can’t do it in the timeframe you want, unless I charge you more. So of course that always depends.
[00:05:52] WADE CARPENTER: I’m sure it’s case by case, but I could see how that could be a major problem. And then you actually pivoted to the Umbrella Insurance, and I didn’t know if you could maybe, for our listeners sake, just explain what umbrella really covers and expand on that a little bit too.
[00:06:08] STEPHEN BROWN: Sure. Umbrella coverage picks up over all your other insurance coverages. Your general liability, your vehicle liability coverage, your workers comp coverage. Think of it as basically an umbrella you’re holding over your head when it rains. The umbrella is added protection over all your limits.
When I started off, Wade, you would never see a claim on an umbrella much over a million dollars. That was a huge settlement. And these days companies can go bankrupt by not having enough umbrella coverage. And it’s expensive. The premium is based on your number of vehicles, type of vehicles. In other words, how much you pay for liability on those vehicles.
And they want you to have higher than statutory underlying limits of workers comp, and they want you to have at least a million, two million general liability limits, which is a million dollars per claim and 2 million aggregate. That’s how that works.
So if you are a demolition contractor and an umbrella requirement is 10 million, that’s really expensive. That’s so expensive that most demolition contractors don’t carry high umbrella limits unless someone else requires them. Because it’s so expensive.
As an estimator, as looks at insurance, if you can check that insurance to your agent and your agent can send you back an email, that’s a good way to check things. But a lot of times you don’t have time to do that. And you, as the owner, are getting ready to turn in a bid and you just want to glance things over and all of a sudden you see something that just kind of, whoa, whoa, whoa, whoa, whoa, wait.
So we need to get into that a little bit, Wade. What if the insurance specs require you to cover the property coverage on the construction site? A new building while it’s in progress?
[00:07:51] WADE CARPENTER: With the umbrella discussion, you’ve hit several different types of insurance. What are those insurance specs? Can you break them down into the different types of insurance?
[00:08:00] STEPHEN BROWN: So where you start with everything when you’re opening up a set of specs and you’re scrolling through it is you look for the insurance requirement. You look if there’s a sample insurance certificate in the contract package. Glance it over and if you aren’t 100 percent sure that you’ve got all those coverages, you just forward it to your agent.
And again, that’s why, of course, it’s self serving to say if you’re not a construction-oriented insurance agent, it’s possible you could miss something. But a good professional insurance agent knows what the wording in that specification, Wade, is obligating you to. And of course you’re obligating yourself to whatever are in those specs when you turn in your bid.
So it’s scary, isn’t it?
[00:08:42] WADE CARPENTER: Yeah, and again, I don’t know if they have this in one spot, or is it like spread all throughout the contract?
[00:08:48] STEPHEN BROWN: A lot of times, Wade, you’ll see some boilerplate language that’s just tied into one of the paragraphs. And then it will refer to a sample contract that you’ll have to sign if they award you the project. So then you have to go into that sample contract and scroll through that till you find the insurance requirements.
A lot of general contractors make it more simple for their subcontractors in that they have a sample insurance certificate that has all the language that they require from the subcontractor and all the limits that they require. We do that for all our clients. We provide them sample insurance certificates to help them spread that risk.
Are you familiar, Wade, with an insurance certificate?
[00:09:28] WADE CARPENTER: Yeah, I mean, well, workers comp and those kind of things, but our listener may not be, so if there’s some things you’d like to talk about there, I’d love to–
[00:09:36] STEPHEN BROWN: Well, sure. It kind of ties. into the specs. There’ll be wording down at the bottom of the certificate where the owner is requiring that if the insurance is canceled within 30 days, you have to let that owner or certificate holder know that insurance is being canceled. That’s your obligation.
A lot of insurance carriers don’t want to obligate themselves to that. But that language is in there. Also, that the owner is asking to be an additional insured on your liability policy. What that means is that if they’re additional insured and there’s a claim, your policy picks up first.
So there’s all kind of language. The more detailed the type of project, and the different type of , contractors have certain language where they will want to see that they are a named insured on your policies. So we have to get an endorsement done to the policy specifically to name you on there.
Other companies will take a wording that says “Additional insured automatically added if required by a written contract”. So we have to put that wording in. So there’s a lot of that stuff and you know, how many times you’ll be awarded a job and they keep kicking the insurance out. They’re not accepting our insurance certificate.
What I get the most of the time, Wade, is they’re not accepting an insurance certificate because the limits and the wording aren’t in there. We didn’t know about it before you bid the job. So we’ve got to get quotes for that. We’ve got to give you a number to plug in.
We can’t just put 10 million umbrella on your certificate of insurance if you don’t have it. And we’re not going to, by the way. A lot of my contractors too will get insurance certificates and bonds from their subcontractors and they want me to review everything to make sure it’s correct. People are out there falsifying insurance certificates and it’s pretty easy to find out whether an insurance certificate is bogus or not.
So again, Wade, we go back into the specs and what that owner is requiring you to have in your bid. It’s tough. You have to come up with the price to bid a project. You’re totally responsible, Wade, for finishing according to their terms and conditions. You agree to that.
And furthermore, you’re totally obligating yourself to do the project for the amount that you contracted for. So you want to throw insurance and other requirements on top of that, why not just make it easier and spend a little time learning about the coverages that you’re required to have and finding a good construction insurance agent.
[00:12:00] WADE CARPENTER: I definitely want to come back to that because I definitely had some situations, where, I know you helped one of my contractors out. And I see it all the time that somebody has a local insurance agent that has done their auto policy and they just take over their business policy, but there is a huge difference in somebody that knows construction, not just bid bonds, but performance bonds and all that stuff, as well as the insurance requirements for construction, are very different from just an auto policy. I don’t want to use any names.
Definitely kudos to you because I know one particular client was singing your praises this week for helping them.
[00:12:35] STEPHEN BROWN: Oh that’s nice, Wade. Thank you. You do get better when you do it over and over and over again. And I’m constantly surprised when I look through specs about some insurance requirements. Things change.
There’s always some risk manager behind the scenes that want to triply make sure that they pass every exposure they can to you. Not only for the hold harmless language that the attorneys put in the contract that you obligate yourself to, and the terms and conditions in the contract when you get paid, so forth. We’ve had many podcasts on that. But from an insurance standpoint if you agree to insurance language that you don’t understand It’s your fault. You’re on the hook for it. You’re obligated to it.
So if that coverage isn’t in place, you have to pay for it. Brings up, one of the key things that you see issues about on insurance specs, is whether you are supposed to insure your work at the job. So if you’re a general contractor, you’ve got to insure the building until it’s punched out and the keys are delivered to the owner.
Who covers the project when a tornado comes through, or a flood or an earthquake? Most people don’t worry about flood and earthquake coverage in a builder’s risk policy, but the builder’s risk means that the risk of the property insurance goes to the builder. That’s the name of the coverage, Builder’s Risk.
And if you’re renovating an existing building, then the owner might say your renovations are so extreme that we want you to insure the building properly and all the work that you do. I see that all the time when folks are completely renovating an older building. The owner says you’re gutting this building and we’re using the shell. But what if you cause the building to burn down?
We’ve had case studies where we’ve talked about it on the podcast, Wade, A welder’s sparks got behind some walls and caught something on fire. That is called an installation floater. So if you are bidding a renovation job on an older building and it requires you to cover the property coverage by calling it a builder’s risk or an installation floater, either one of those two phrases you’re on the hook.
So as an agent, I got to figure out how much that old building’s worth. I gotta figure out how much to insure that shell of a building for. And plus all of the work that you do. So it’s gonna be pretty much a high number that you gotta plug in for your bid because I’ve gotta make sure that you’re insured properly.
That’s all. They make it clear that it’s your responsibility. So anyway does that make sense?
[00:15:08] WADE CARPENTER: Absolutely. I’m sitting here thinking this is going to take days and weeks to figure out, go through all these things. I’m sure you probably do need some lead time to understand the contract and I know people tend to bid things at the last minute and they want the bond and all that stuff, but what would be the ideal situation?
[00:15:27] STEPHEN BROWN: If you are looking at some plans and specs of something you’re considering bidding and you’re 50 percent sure you’re going to bid it. Even if you don’t have the price worked up, just get it to your agent. Let them start working on it. There’s going to be questions.
That way, when you bid it, you have accurate numbers to plug in to your bid for the insurance requirements. A week to 10 days is like Christmas to me. I have some customers that wait literally till the day before and it makes me crazy. So if there’s a $10 million umbrella requirement and you’ve given me 24 hours notice, then I’ve got to ballpark a high number for you to plug in. So it’s not going to be as accurate as it needs to be.
That’s the nature of our business. Sometimes you get notices and sometimes you don’t. Sometimes you have time, sometimes you don’t. But I can tell you this, most of our markets at McDaniel Whitley, we can turn over builder’s risk or installation type quotes the same day. Because every job our contractor is bidding, whether they get it or not, needs an accurate builder’s risk or installation floater number.
When we give you that, we stand by it. So if you’re a low bidder, that’s the price you pay. Now, for some reason, after the bid, we can get it less, we certainly do that for you, but that’s our job. That’s what we do. Yeah.
[00:16:41] WADE CARPENTER: It sounds like definitely getting it in early could save everybody some headache, and I have heard some situations where the local insurance agent that doesn’t really do construction, there’s been some failures.
I know you talk about construction oriented CPA all the time, but people don’t realize that their local agent is probably not going to specialize in construction. And with all the years you’ve had of experience working with contractors, I think that’s huge. And would definitely recommend if you got any questions about any of these things, I think Stephen has been very open to our listeners. Glad to take a phone call or, I’m not sure whether you want to review specs for every single contractor, but, yeah.
[00:17:21] STEPHEN BROWN: If you’re a customer of mine, that’s my job, Wade. But you know, I kind of liken it to, and we always talk about trying to find the best professionals you can find to help you. It’s like on a job site. When you see someone that’s really good at drywall or painting or plumbing or anything, they move so quickly and so efficiently.
And their workmanship is so perfect that it’s a beauty to see. It’s just like a ballet. People love watching time lapse videos of a construction project. And then again, how rewarding is it when you’re finished? I built this shed here. I know how that feels, but I had a lot of help.
But anyway, Wade, it’s important to read in the specs, what the requirements are. And to be able to quickly gauge whether those requirements are something that you comply with, that you already have in place. That being said that’s pretty much all I had on this subject for today.
[00:18:16] WADE CARPENTER: The old adage we talk about, do you want a general practitioner doing brain surgery on you? I mean, no, you want a specialist. Stephen’s a specialist. And I’ve come to really respect his knowledge and I think this has been great today. So I appreciate you bringing it to us.
[00:18:31] STEPHEN BROWN: Thank you, Wade. There’s a lot of good construction insurance bonding specialists out there in the country. If I can help you, I will. If I can steer you in the right direction to someone else, a lot of us are all friends and know each other in this niche of a business we call construction insurance and bonding.
So thanks.
[00:18:48] WADE CARPENTER: Okay. Thank you. And for our listeners, if you’ve got thoughts or questions about today’s episode, we would love to hear from you. Share your ideas, feedback, or topics you want us to cover in the comments below. Thanks for tuning in to the Contractor Success Forum. For more resources, take a look at the show notes.
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