When you work in one of the most dangerous professions around – as the construction business is – you’re constantly walking a tightrope of risk. A catastrophic accident can easily generate claims that go way beyond anything your standard CGL policy will cover. Without an added layer of protection, litigation and settlements from a catastrophic event can quickly eat up your profits – even put you out of business. You already know that an excess liability or “umbrella” policy can give you that extra protection. But how do you decide how much you need? How do you know how big your umbrella needs to be?
Here are some factors to consider when choosing your coverage limits:
- Project exposure. Every project has its own unique risk profile, and the type of work you perform is a key factor in determining how high your limits should be. For example, interior work mishaps can damage other businesses or harm building patrons.
- Work activities. If you do blasting work, you obviously need higher limits than if you’re doing simple masonry work.
- Project size. Another important gauge for purchasing limits is the construction value of large projects. Project size will provide some relevant input on the overall exposure to the construction firm. Applying a factor of 25 to 50 percent of the largest single project works well as a means of discussing limits.
- Delivery method. Construction management or design- build contracts involve more responsibility, which could impact the limits you need.
- Project location. Several recent court cases have proven that project location and interpretation of coverage in the courts are increasingly crucial factors to consider. New York City building laws and state labor laws are other good reasons for higher limits.
- Percentage of subcontracted work. The risks involved in subcontracting work have grown over the past several years. With additional insured endorsements and anti-indemnity statutes to deal with, it can be a complex risk, so the amount of work you subcontract will impact your decision on limits.
- Vehicles. Automobile liability claims are usually costly, especially if factors such as negligence, drinking, texting, or adverse driving records are involved. Consider the type and number of vehicles you have, as well as garaging locations and distance to and from projects.
- Loss history. If you’ve had several auto or general liability incidents in excess of $100,000 over a 10-year period, for example, you’ll probably need higher limits. It’s also important to consider your mix of losses, such as between auto liability and workers’ comp claims.
This list is hardly exhaustive, but these are some of the most important considerations when deciding on excess liability and umbrella policy limits.
And of course, there’s one way to know for sure what coverage you need for every situation: talk to an expert. At Milbrandt, we have more than 150 years of experience in the New York construction market. That means we can make sure you have the right insurance for the right project, and that your umbrella is big enough to protect your assets from costly surprises.
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