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Effective Risk Management Can Help Builders Weather the General Liability Insurance Crisis
Buying affordable general liability insurance coverage is getting harder all the time, but there is plenty that builders can do to address this problem by managing risk in their business and making themselves a more attractive customer to insurance companies, according to the Sept. 15 issue of We-Connect e-Source, which is distributed to members of the NAHB Women’s Council.
Bruce Harrell, CEO of HBW Insurance Services, which provides warranty insurance to the home building industry, says that effective risk management comes down to a few critical steps:
- Keep good records. Document all aspects of the building and selling process — those records will be crucial if you ever get sued. Retain all plans, materials lists, schedules, change orders, trade contractor agreements, certificates of insurance and sales contracts.
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- Pay attention to site conditions. Most general liability policies don’t cover defects related to soil movement, so it’s up to you to ensure that your lot doesn’t have expansive or collapsible soils. Retain all soil testing records.
- Transfer risks to trade contractors. Your trade contractor agreements should include “hold harmless” indemnity agreements, specify the required insurance coverage ($500,000 minimum for each home on which trades work) and require all disputes to be resolved through binding arbitration. Include a waiver of subrogation, which protects you if trades get sued for work performed on your homes.
- Manage supervisors with care. Site supervisors are the front line of defense in your risk management program, as they oversee construction quality and enforce job-site safety procedures. Make sure you thoroughly train and manage them.
- Make safety a priority. Follow all standard job-site safety procedures to prevent falls and keep workers safe from other hazards. Document your safety and safety training programs. Post “Private Property — Unauthorized Entry Prohibited” signs at all points where someone might access the site, and notify home owners and vendors in writing that they cannot visit the site without an escort. These steps will demonstrate in court that you warned people to stay away.
- Use a comprehensive sales contract. Have an attorney review all your contracts. Make sure they contain strong arbitration provisions. Document all changes and have home owners sign the change orders.
- Implement a solid warranty program. Proactively handle all requests for warranty service after the sale. Make sure your employees and trades understand the importance of customer service and warranty calls. Document all requests for warranty service and keep copies of work orders showing you handled the requests.
The NAHB Research Center announced recently that home builders who are involved in its National Housing Quality certification program can receive discounted general liability insurance. To read that story, which appeared in the Sept. 20. issue of Nation’s Building News Online, click here.
The NAHB University of Housing Offers Risk Management Course
The NAHB University of Housing offers a Risk Management and Insurance for Building Professionals course designed to help builders and developers avoid risks, minimize risks, transfer risks and, were possible, buy insurance and make insurance claims. To find offerings of this course in your area, click here.
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