One topic that often arises during any discussion of installed sales is insurance coverage: How much does your company need, what types should you have, and how do you control it? Complicating this issue is whether you use in-house installers or subcontract the work, what types of installed services you provide, and whether you cater primarily to the pro contractor/builder market or to the home improvement/remodeling markets. For this column, I am going to look at the “big two”—liability and workers' compensation.
Assuming that you have already taken the steps to make your installed sales program a separate company or division (you have done this, haven't you?), which can preclude the smaller installation business from having an adverse effect on the rates of the primary business, your general liability coverage for your installed sales program should be a minimum of $1 million, preferably with another million as a rider on the original policy. This can be written by your current general liability provider on your installed operation. General liability covers such things as jobsite accidents, damage to your customers'property, and other mishaps that can—and often do—happen on a jobsite. You and your legal advisor can and should determine the structure of the new business (LLC or other corporate structure).
Workers' comp insurance also needs your close attention. Unfortunately, the likelihood of an accident is greater with an installed operation than in most other areas of a lumberyard. Some workers' compensation funds severely limit the amount of installed labor to a small percentage of the dealer's overall payroll. In addition, some insurance companies absolutely will not insure an installed operation at all; some will not cover an operation that is installing windows and doors. Companies that do not provide coverage usually will at least refer a client to another company that will. Construction insurance is not that difficult to obtain, but some general liability companies don't want the business.
You'll need to treat subcontractor labor—if that's the installed labor you use—a little differently. Our general policy is that all subcontractors must carry their own workers' compensation—period. This way, if there is an accident, you don't have an uninsured worker on the jobsite and your insurance, as the general contractor, is not affected. Unfortunately, you will find that a small number of subcontractors actually have no workers'comp insurance; in many states, a sole-proprietorship is not eligible for workers' comp coverage, or the rates are so high that most subs can't afford it. This is your call, but I would not want to put an uninsured or under-insured installer on a jobsite.
As for general liability for subcontractors, the same limits apply: They should have $1 million as an absolute minimum, plus an additional million rider. Many subcontractors try to get by with a $500,000 policy, but in today's world that simply isn't enough.
In addition, you should insist that your company be added as an “additional insured” under the subcontractor's policy (and be held harmless in the contract). Being added as an additional insured gives you protection because it legally exempts your company in a court situation where the sub is negligent (or accused of negligence) and the dealer is dragged in for giving the sub the work. Without the additional insured coverage, you must go through the courts to prove that the sub is responsible for the entire case, which can take a lot of time and money. Adding this clause does nothing to the policy limits of the subcontractor.
As you can see, insurance is a big issue that deserves your time and attention. I am not an insurance expert, and I suspect that most people in the industry are in the same boat. That's why it is critical to consult with your legal and insurance team when planning your installed sales coverage.
Mike Butts is director of installation services for United Building Centers. 507.457.8453. E-mail: mike.butts@unitedbuilding centers.com
