Chapter 8 Study Notes - Contractors
TYPES OF CONTRACTOR
They fall into two broad categories:
- general contractors who handle a wide diversity of work
- individual trade contractors (artisans) who specialize in one particular class of work (plumbing; electrical work, snow plowing, gardening, painting) Can be employed as sub-contractors.
General Contractors
Two types of general contractor.
First type is a larger business specializing in handling entire projects requiring the expertise of a number of trades. They will have overall control of an entire project and may sub-contract some, or most, of the work to other contractors.
They will handle the planning and permissions; working with the planning departments having jurisdiction; budgeting; work with others; architects and engineers; provide site maintenance; cleanup and may perform some or all of the actual work to complete the project. If work is sub-contracted out, the general contractor will usually be the one who hires all other trades that may be needed.
The second type of contractor is a smaller operation that does several different types of work (contractor who does carpentry; painting; electrical and plumbing work)
Because the range of work and expertise is “general” they may describe themselves as general contractors but are more akin to individual-trade contractors as they usually complete all the work themselves rather than contract out to other trades
Individual-Trade Contractors
Usually specialize in only one type of work (electricians; carpenters; excavators or plumbers) and they may do other types of work on an incidental basis (carpenter moves electrical sockets)
They can be self-employed hiring their own services to the general public or they can work as sub-contractors to other trades or a general contractor
Sub-contractor is someone hired by another contractor because of their experience in a particular trade, to complete a portion of a larger project. The sub-contractor, in turn, may hire additional sub-trades to help complete this portion of the work.
Example - General contractor hires a plumbing contractor to install a water main – plumber hires an excavation contractor and pipe layers to work on the plumbers portion of the project.
QUALIFYING CLIENTS
To determine whether you can assist a specific contactor prospect, ascertain what their exposures are and whether you can arrange the protection they need.
Consider the following:
- establish whether bonding is crucial to placing the prospect’s business. Most often the case for large contractors but smaller contractors may also require bonding.
- If bonding is not required, assess the next greatest exposure – liability
- Ask about the clients equipment and automobile exposures
- Consider whatever other exposures the client may have to complete the review of their risk management and insurance program
RISK ASSESSMENT AND ANALYSIS
Due to the variety of contractor types, obtaining a clear and complete description of their operations, type of work done, the organization and tools and equipment used, is crucial to assessing the risk exposure.
Can present a challenge because of the variety of contracting work and also because your client may not understand what information you need. Be creative in asking questions; explain why you need sensitive information; what you’ll do with it and how you will safeguard the clients privacy.
Property Exposures
Most contractors will have some type of office exposure even if it is just a home office with minimal furniture where the accounting records are kept. Remind them that their homeowners insurance does insure the business property in their home office or stored in the dwelling or outbuildings. Nor does the automobile policy insure the contents of the vehicle
Larger contractors may own their own building(s) with a larger staff and more extensive furnishings and records. Ask the client about this and ask whether any existing structures are currently leased. If so, you’ll need a list of occupants. The contractor may be the landlord. Determine who is responsible for the building insurance – client or tenant.
Some contractors will have a yard where they store, clean and maintain their equipment – (excavation, road building and paving contractors; sign installers, crane operators etc) Others will use the yard to store materials, equipment and parts (home builders) Still others will have a shop where they build cabinets or furnishings, repairmen may take appliances back to their shop for repair.
Your client may have property of others on their premises (appliance repair). Recommend a bailee’s customers form.
For each client ask for:
- location of the office; owned building or storage facility
- construction
- occupancy
- protection of the location(s)
- what is stored
- values at risk to determine loss prevention, risk transfer and insurance strategies to propose
Off Premises and Transit
Since contractors generally work away from their premises, they have exposures for property away from premises and transit. The property away from premises may be equipment either:
- at the job site or in transit to and from there
- property that is being worked on by others at their premises
- property at exhibitions or home shows
obtain full details of
- what the property is
- where it is located
- duration of the off-premises exposure
- mode of transport
- values at risk
- how often the off-premises or transit exposures occur.
Exhibitions and Trade Shows
Obtain a complete list of clients past shows and ones planned for the future, including values at risk at each show; duration; security of the premises and method of transportation.
Review any contracts from show coordinators or convention hall owners for liability requirements and separate the information on exposures into Canadian and foreign exposures (by country).
Transit – Property of others
Whenever a client has any transportation apparatus such as trucks, flatbed trailers or floats, ask whether they ever transport the property of others. If so, find out how often this occurs, values of the property carried, where the property is being transported, type of conveyance is used, and if the client receives a fee. Depending on the answers, extend the contractor’s own transit insurance to include incidental exposures or arrange separate coverage for more extensive transportation exposures.
Mobile Equipment
The kinds of property they may need to insure can vary from small hand tools to large construction equipment. Some contractor’s equipment may be permanently attached to vehicles. Remember to coordinate the client’s property and liability insurance with their automobile insurance to ensure all exposures are addressed.
When reviewing equipment exposures, generally ask for:
- description of equipment, both owned and leased – including serial numbers, model numbers, year manufactured, make, values and if it’s attached to a vehicle
- duration of any leases – is equipment leased with operators
- experience of the equipment operators – both for employees and any operators employed by any leasing company
- where the contractor normally works, whether in urban or urban areas
- type of job site – highway project; sign installer; homebuilder
- number of jobs ongoing at any one time and whether the equipment will move constantly between job sites
- how long the equipment will be at any one job site
- what security measures the client has in place at job sites
Often it’s helpful to have photographs of equipment especially if the client has specialized equipment that may be unfamiliar to the underwriter. Good maintenance practices
Builders’ Risk and Installation Floater
Building contractors may be responsible for the property under construction in addition to their own tools and equipment. Frequently the contractor acquires these items at their expense and is responsible for it until it is accepted by the customer.
Some insurers will have their own application form; however ensure that you provide sufficient information to allow them to clearly understand the nature of the clients operations. In addition to the exact nature of work the client is doing, information required includes:
- what is being installed
- location of clients job sites – if US exposure, separate values/receipts for underwriters as they my rate separately
- number of jobs in progress at any one time
- average and maximum job sizes including values at risk for each job and maximum that may be any one site
- whether the work is in new buildings under construction ; part of addition to existing buildings; renovation work; repairs to existing equipment
- limits needed for the installation floater as well as sub-limits for goods in transit or at temporary locations
- obtain an estimate of gross receipts and maximum receipts for any one job – premium is usually based on clients receipts and policy premium will be adjusted based on annual receipts
Crime
Contractors have crime exposures from internal and external sources similar to any business, money and securities are vulnerable to theft.
Tools, equipment and materials to be installed at job sites are vulnerable to theft by outsiders and by the clients own staff both while on the clients premises, while in transit and while at the job site.
Ask the client about security measures (burglar alarms); locking up or disabling contractors equipment both at the yard and while at the job site; controlled access to storage facilities and loss prevention techniques to avoid employee theft (investigating new hires; checking references; inventory control).
Business Interruption
Contractors exposures can arise out of their work or their premises. If a contractor commits to a large project that will take a year and there is a major loss at the project that stops work, the contractor has a business interruption loss – can be insured as part of the builders risk. Generally this type of loss is considered a business risk and as such is uninsurable – knowledge of the principal is the contractor’s best protection against this type of loss.
Contractors will face extra costs to re-establish a base of operations in the event of an insured loss at their premises (temporary office space, acquire replacement equipment and new supplies) If the contractor works from a home office, advise them that their homeowners insurance doesn’t extend to include any extra expense to resume or continue office operations.
Any contractors who have shops could suffer a loss of income if those premises are damaged by an insured peril. Determine if clients can resume operations once their premises are restored or whether they would suffer a continuing loss of income due to loss of seasonal work.
Liability
Like any other business, contractors can be legally liable for injuries or damage that arise both during their work and after its completion.
Liability can arise from property in their care, custody and control; they can be held responsible for damage or injury occurring on their premises. If they rent premises, they are responsible for physical damage to the premises in their care, custody and control (tenant’s legal liability) When employees use their own vehicles on company business – contractor has a non-owned auto exposure.
A clear and complete description of a contractors’ operations is vital to assessing the liability exposures and for subsequently approaching insurers.
EXAMPLES ON PAGE 11
Investigation
Consider how you ask questions to the client – how they answer can affect the information necessary to the underwriter.
Having the client “walk through” a typical project, describing each action involved, can be a useful interviewing technique. This allows you to discuss the percentage each operation represents to the clients total work and may prompt the client to remember other incidental work.
Examine the clients schedule of tools and equipment asking how they are used on a job. Depending on the type of work done, the client could have exposures arising from construction defects. Review the clients loss history to determine prior experience and thus acceptability to underwriters.
Ask about completed jobs. This will provide you with a starting point to understand their operations. Ask if current jobs are similar or how they differ from jobs already done.
General information required from any client includes:
- contractors experience with their type of work; training; how long in this business
- where they usually work and equipment used to do the job
- safety measures they take on job sites to prevent injury or property damage
- samples of contracts used and copies of any hold harmless agreements
- payroll and/or sales figures – used to calculate premiums
- details of trade shows or exhibitions including their duration and whether they are in Canada or elsewhere
- loss experience for as far back as possible
Hazardous Operations
Construction work can involve high hazard operations such as use of explosives, or operations that could lead to collapse of the structure (excavation, demolition, underpinning work or tunneling)
Where a client does this work, is relevant to the degree of hazard – contractor who installs underground piping; water installation or wiring in urban areas will have a higher risk of damaging property than one who works in rural or unimproved areas.
Insurance markets for these types of contractors is limited and most CGL wordings exclude these exposures. Insurers will have their own applications which are designed to generate specific information on the contractor’s operations, methods of working, prior experience and training and loss history.
If the contractor works in the US, they may need to be licensed by the jurisdiction where the work is being done and most jurisdictions in the US that require contractors to be licensed also have some insurance and/or bonding requirements.
If the Canadian policy is not acceptable, separate insurance will be required in the US and you may need the assistance of a US broker. To ensure proper limits are carried, recommend your client obtain insurance to properly protect them not just enough to meet the minimum requirements.
One additional insurance requirements in the US is worker’s compensation insurance. For contractors in Canada, injury to employees is covered under provincial workers compensation plans, which employers arrange by registering directly with the provincial/territorial workers compensation board. Coverage does extend to working temporarily out of the country but for a limited time period only.
Also extend the client’s CGL to include contingent employers liability (stop gap) coverage to protect them against claims which may not be insured under state, provincial or territorial workers compensation programs.
Contracts
Your client could have contracts for building or equipment leases as well as for their customers.
Leases could require the client to insure the leased property and may also require the lessor be added as an additional insured to the clients policy. Review existing insurance policies to ascertain compliance with contract requirements and advise your client for their obligations
For contracts with their customers, the client could assume liability for, or transfer liability to, others. Review of the contracts to determine the degree of liability. For example - The liability assumed could be limited to claims arising out of the contractor’s negligence in clearing the snow properly or in a timely fashion, or it could be more extensive – the contractor could assume all liability regardless of cause.
If all liability is assumed, advise your underwriters of the additional liability accepted by your client in this contract to ensure coverage under the CGL. As this additional risk is considered greater than some underwriters are willing to accept, a reduced number of insurers are approachable.
If the client’s contracts are transferring liability to a third party (example on page 15) this may not fully protect your client. Confirm your client has enough liability insurance to respond to potential losses as they would probably be named in a claims that may arise.
Monitoring Operations
Maintain regular communication with existing contractor clients to monitor changes in their operations or equipment. Depending on the frequency of possible changes in risk, you may consider contact the client on a monthly or quarterly basis.
Automobile
Most contractors use vehicles to transport people, equipment and materials to job sites and many also operate specialized vehicular equipment that may be road licensed. Exposures arise from the ownership, use or operation of these vehicles.
Your client may use owned, leased or borrowed vehicles and the vehicles may, or may not, have attached equipment that is owned, leased or borrowed.
The legal liability section of the auto policy will, most likely, respond to any claim involving a borrowed unit, but property damage to the unit itself represents a potentially uninsured exposure.
Obtain an automobile application for any vehicle or road-licensed equipment. The application requests the standard information needed for any vehicle including year of manufacture, make model, serial number, use and territory of operation of the vehicle or mobile equipment.
If the client has contractors’ equipment attached to the carrying vehicle, as opposed to being independently mobile, a description of that equipment, values and how and where it is used is also required. Photos are always good!
Surety
The surety is the guarantor – the party who guarantees fulfillment of the obligation, generally an insurance company.
The principal is the part whose obligation is guaranteed – in this case the contractor
The obligee is the beneficiary under the terms of the bond – the party that wants the obligation guaranteed, either the owner of a job, the general contractor in charge, or a regulatory or licensing agency.
The obligee stipulates the amount and form of the bond in the contract for the project. The client and broker have no control over what is required and there is often very little difference in price from one insurer to another.
In general, the most common types of bonds contractors require are bid performance, labour and materials payment, maintenance and license bonds.
A bid bond guarantees that in the event a bid is accepted, a contractor will sign the contract to do the job as per the bid and frequently will be able to furnish a performance bond as well.
The performance bond guarantees that the contractor will complete the job as set out in the contract, that it will be completed on time, within the amount of the bid and some performance bonds also guarantee the job will be free of mechanics liens on completion.
The labour and materials payment bond guarantees that all suppliers of labour and materials furnished for use on the project will be paid.
A maintenance bond guarantees repair of damage due to defective material and defective workmanship, performed during the course of the bonded contract.
Since a performance bond normally incorporates a maintenance period of twelve months, a separate maintenance bond is used when a longer maintenance period is requested.
License bonds are required by some jurisdictions before a contractor is permitted to operate (in Alberta, most contractors who accept deposits must have a bond to ensure the return of the deposit if the work does not commence).
Ensure your client understands that a bond is not insurance. It is a guarantee to protect their customers. Explain to the client that the bonding company is guaranteeing the financial strength of the contractor and their capability to complete the contract.
Because of this, extensive documentation is required when applying for a bond. This may include:
- a work in progress report
- resume
- personal and business financial statements
- bank references
- other documents depending on size of the bond
Establish a relationship with the surety in advance and find out exactly what information and documentation they will require. In order to authorize a bond, a surety underwriter will need enough information to gauge the financial strength of the client in relation to the job to be bonded and the type of bond required.
In addition, the underwriter will ask for details of the bid conditions and the job to ensure that it is in line with the contractor’s expertise.
For larger contractors the surety will set up a bonding facility to pre-approve bonds up to a certain limit, based on the contractor’s experience and financial health. Bonds can then be issued when needed within a 24 hour time frame.
RISK MANAGEMENT
Loss Control
To a large degree loss control measures devolve on security of the premises and property insured; employee selection and training processes; good management practices in conducting projects and driver selection, training and education.
Security can include:
- fencing construction sites and locking the sites during off hours
- indoor storage of high valued items
- equipping mobile equipment with an ignition system disabling devise or transmission immobilizer
- adding identifying marks to equipment
- arranging off hours security patrols
Employee selection processes can affect crime and liability exposures. The likelihood of employee theft is greatly diminished when the contractor exercises care in hiring reputable people. Having competent, well-trained employees will reduce the probability of errors in work performance and reduce the number and size of liability suits.
Care in selecting drivers for both road licensed vehicles and to operate contractors equipment, training and supervision and monitoring programs to assess driving experience will reduce losses arising from operation of vehicles and equipment.
Risk Transfer through insurance
Property
Contractors require building, stock, equipment, office contents, computer, accounts receivable and valuable papers insurance. Because equipment can be mobile, a tool floater or contractor’s equipment form would be recommended.
Tool Floater
Used to insure small, mostly portable tools such as hammers, saws, and small power tools among others on a scheduled or blanket basis
Scheduled basis – all tools are individually described and a limit of insurance is assigned to each item.
Blanket basis – a maximum overall limit applicable to all tools insured, subject to a maximum limit on any one item or set.
Both coverages are available on either a named perils or a broad form basis, subject to exclusions, conditions, limitations and deductibles.
Clients requiring this type of coverage are:
- small contractors (handymen, carpenters, electricians, plumbers)
- sub-contractors who do not own or rent sufficient equipment to warrant a contractor’s equipment floater
- larger contractors who may use both contractor’s equipment floater for large equipment and tool floaters for smaller tools
Coverage is determined by clients appetite and by their choice of deductibles. The premium cost determines what and how much is insured. Some clients might not be prepared to pay the price to insure smaller items considering losses are a part of doing business.
Contractor’s equipment floater
Generally used to insure larger equipment such as that used for road building, excavation, building construction equipment, municipal road maintenance and snow removal equipment – smaller equipment and even hand tools can be insured on this form if the client prefers.
No standard form is used - generally the wording is broad coverage subject to exclusions, limitations, conditions and deductibles.
All wordings insure owned machinery and equipment while in use on the job, in transit between jobs, while undergoing repairs in a shop or while stored either in the open or in buildings.
Some wordings specifically exclude rented or leased equipment – some provide a sub-limit for rented or leased equipment. Others include equipment as part of the description of insured property using the phrase “property of the insured or property which he is obligated to insure”. Some offer coverage automatically for newly acquired equipment that is reported to the insurer within a specified time frame - commonly 30 days of the acquisition date.
Insurers may require one of the following:
- all property be scheduled
- property be insured on a blanket basis up to a specified limit with larger items over the specified limit being scheduled
- where insurance is extended to cover rented property that
o is owned and rented property be insured on separate schedules; or that
o all property owned, acquired, leased ore rented be insured on a blanket basis
Choosing the wording and insurer that best suits your client depends on the clients operations and insurers requirements.
If the client rarely changes equipment, then a scheduled form is good.
If the client is constantly buying, leasing or replacing equipment – arrange blanket basis coverage on all owned or leased property with an automatic acquisition clause.
Constant change in equipment means constant change in values. Regular communication with the client to review values, maintain current equipment lists and amend insurance as required will reduce the potential of uninsured exposures.
When reviewing values with the client, draw to their attention any wording limitations or conditions. Typical limitations include maximum limits per item, sub-limits on rented equipment, limits per location and the coinsurance clause. Exceeding any of these limits will result in your client being underinsured in the event of a claim
When the policy includes a limit at any one location, and the client is operating at several job sites, the values at any one may be low but concentration of values can occur at the end of a job or during a temporary shutdown (strike)
Most contractor’s equipment floaters are subject coinsurance – usually 100%. This means that the property must be insured for 100% of the value at the time of loss. If the client is operating at a number of job sites, add the equipment values together to obtain the total limit insured.
Property can be insured on a replacement cost or actual cash value with some limitations. Make sure the client is not using depreciated values when equipment is insured for replacement cost.
If equipment is over 10 years old, underwriters will only offer actual cash value because statistics show older equipment, near the end of its useful life, is subject to higher loss potential. This could be due to inadequate maintenance or poor security. Poorly maintained equipment is more likely to be involved in accidents.
Poor maintenance may be caused by difficulty in locating parts which, in addition to damage to the equipment could also lead to a liability loss as well.
Two exclusions are unique to the contractors’ equipment floater
Muskeg exclusion – is designed to exclude loss or damage caused by breaking through ice or sinking in muskeg or soft ground. Is of particular interest to clients operating in rural areas or swampy conditions. Draw client attention to this exclusion even if their normal work areas don’t include areas where muskeg is common.
Overloading exclusion – states that loss or damage caused by the weight of a load exceeding the registered lifting capacity of any machine is excluded. The intent is to avoid claims caused by deliberate or accidental misuse of the equipment by over-extending its capacity. Ensure the clients understands the importance of working within the equipment’s rated capacity.
Depending on clients experience and details of the job and locations, you may be able to have insurers amend or delete either or both these exclusions, although underwriters are reluctant to do so because of the severity of these exposures and potential high values at risk.
Installation floater
Any contract who installs fixtures, (cabinetry or equipment like heating, air conditioning, plumbing equipment) that will form part of the building structure at the end of the job has an insurable interest in those fixtures or equipment. Title usually transfers to the owner only upon the completion of the job.
The installation floater insures property to be installed on a named perils or broad form subject to exclusions. It can be written on an individual job basis but is more commonly written on a blanket basis with annual reporting. Reporting form is written for the maximum value that may be at risk and adjusted based on gross sales.
Wordings are highly flexible because insurers recognize the need to customize coverage to fit correspondingly wide ranges of exposures and types of property to be insured.
Some forms will specifically list the materials supplied by the contractor (air conditioner) while others may insure property of any description usual to the business of the insured. Some may include the property of others if the insured has accepted responsibility for it (electricians will insure wiring, switches and sockets that he supplies as well as lights supplied by the general contractor because he is installing/transporting and storing them with his property).
Insurance applies to the materials being installed and becoming part of the structure, while in transit, during loading and unloading and in the course of installation. It includes materials installed but not paid for and the cost of labour up to the time of the loss. As coverage is usually excluded at insured’s own premises, the client requires other wordings to insure any stock and/or equipment they may have in their shop.
Coverage can also include testing of the equipment which for certain types of equipment, can be a major exposure.
If the client elects not to purchase testing coverage – make note that you’ve recommended it and document by letter to client.
Check termination of coverage clause as some wordings state insurance ceases when the installation is complete while others continue until the contractor has been paid for the job or until title transfers to the customer.
Exhibition floater
Provides insurance on a broad form basis subject to exclusions, both while the contents are at and in transit to and from shows. Coverage can be written to insure each show individually or for clients who exhibit at many shows throughout the year it can be written on a blanket basis. Property can be added as an extension to the commercial property floater or the CBE&S form as well.
Review the wordings when insuring exhibits in transit. Some policies may include a warranty that insured property must be packed and unpacked by trained staff.
Transit
The installation, contractors equipment and commercial property floaters do not cover occasions when a client transports equipment or materials for others. If it’s only an occasional courtesy, it may be possible to extend coverage under the forms by including property of other contractors in the definition of “property insured”. If the contractor receives a fee – best to recommend specific transit insurance.
Crime
Largely insured as part of a broad form property wording, although the client may have need for more specific insurance as contractors could have money in their office or shop that is either exposed on the premises or on the way to the bank.
If client is responsible for insurance on the premises they may wish to purchase burglary damage to the building.
A fidelity bond (primary commercial or commercial blanket) would provide protection against employee theft.
Business Interruption
Depends on the clients operations, in most cases, extra expense insurance is sufficient but if your client has a fabricating shop or storage facility consider gross earnings or profits forms.
Liability
Required for premises, operations (on-site and off-site), products and completed operations, tenants legal liability, contingent employers liability and non-owned auto. For US operations – workers compensation insurance.
Underwriters will have their own questionnaires, so they can assess the exposure and the clients experience in this line of work. Where the client is engaged in hazardous operations, the insurer may inspect the clients job sites and interview the client to assess the risk.
Contractors will have liability exposures arising out of their work in progress. Many CGL wordings exclude property damage liability arising out of the named insured work or any part of it and that work included in the products and completed operations hazard – no liability coverage for property damage to any building the client is working on.
Some insurers will provide coverage for this exposure by limiting the exclusion to apply only to property damage to the particular part of the work that was defective.
Contractors can also have other property in their care, custody and control which the CGL policy contains a care, custody and control exclusion – excludes liability for property damage to anything in the contractor’s care. Some insurers will extend liability by adding broad form property damage which will replace the one blanket exclusion with a set of more limited exclusions.
Most CGL wordings exclude liability arising from explosion, collapse and underpinning (XCU) operations so if your client has operations that include these exposures request an amendment or deletion of the XCU exclusion.
Coverage terms for liability insurance arising from hazardous operations tend to be restrictive, characterized by low limits, high premiums and large deductibles. When markets are competitive it is usually easier to extend coverage to more hazardous operations.
Errors and Omissions Insurance
If your client designs the work they do, the CGL wording does not respond to damage resulting from an design error and they should have E&O coverage
Wrap up Liability
The general contractor will frequently arrange one blanket policy covering everyone involved in the project for larger builder’s risks. Sub-contractors will still need their own coverage for jobs outside the specified project and for their own premises exposures. Also, they should report the job insured by the wrap-up to their own insurers to maintain completed operations coverage for that project once that part of the wrap up expires.
Automobile
To comply with the law, all road-licensed vehicles must be insured to at least the minimum requirements. Normally this includes non-automobile road licensed contractor’s equipment, however liability from the use of road-licensed attached equipment is not insured on the owners auto policy. If so, amend the CGL policy to provide coverage, if possible – could involve two insurers.
If the equipment is used independently of the vehicle separate liability insurance is required as it is no longer considered part of the vehicle. Request an amendment to provide insurance and add the equipment to the contractor’s equipment floater to provide physical damage coverage.
If the contractor operates specialized equipment that is not required to be road-licensed, some provinces will provide legal liability for bodily injury or property damage to others caused by this equipment. If insurance is not included, the client may have the option to add the equipment to the auto policy as an insured vehicle and thus extend the auto policy legal liability coverage to the operations of that equipment.
Attached equipment is insured under a CGL by an exception to the auto exclusion, however each insurers wordings differ. Generally, coverage is provided for liability arising out of the ownership, use or operation of machinery or apparatus including its equipment mounted on or attached to an automobile while such machinery or apparatus is in actual use or operation and provided that the use or operation is not insured at the time under an auto liability policy.
The machinery is only covered while it is in use and liability arising out of this use is generally only insured on the job site. If the machine stops on the way to the job site, liability coverage may not be there and a loss could occur when the machine is not in operation. It is best to insure the machinery on both the automobile and liability policies, if possible.
If the client insures vehicles against physical damage, recommend coverage be extended to any vehicles rented, leased or borrowed as well.
Physical damage for many types of attached equipment can be included in the auto policy as part of the vehicle to which they are attached, however the availability depends on:
- jurisdiction – some provinces and most of the US exclude physical damage for certain types of attached equipment
- insurers underwriting rules – exclude damage for high value machinery
- whether the equipment is detached – no coverage if equipment is in storage.
Because auto policies provides settlements on actual cash basis it is best to recommend the client insure the physical damage portion for attached equipment on a contractors equipment floater where they have the option of insuring on a replacement cost basis.
If attached equipment borrowed, and the auto policy insures attached equipment, ask the insurer to endorse the auto policy to insure the non-owned attached equipment, or preferably, in any jurisdiction, add the temporary equipment to the contractors equipment floater and extend the CGL to cover the clients legal liability exposure.
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