Hello readers of Studio13’s Journal! This week, we are going to take a step away from our normal client spotlight and talk about the importance of having commercial insurance. Like car, health, and life insurance, commercial insurance protects against an accident or catastrophe causing serious financial or legal consequences. So why is it on our Journal?
Because as a vendor, we have responsibility to safety on the job and liability protection for our clients. Like every responsible company should, we carry this insurance ourselves and take it with us to every construction site, manufacturing plant, and outdoor location we visit.
For this question-and-answer Journal, we welcome guest blogger Holly Gill-Gaither, a veteran in the commercial insurance industry. She has worked for Walker and Associates Insurance for the past 6 years, with an additional decade of experience before that. She specializes in assisting design and construction related firms with their insurance needs and has special interest in working with architects and engineers.
So our first question is: What risk management advice do you find yourself giving to your clients often?
Holly: Outside of coaching my clients on crafting insurable indemnity provisions (think liability coverage), I likely preach to them mostly about having subcontracts that include insurance requirements for any consultants or vendors they may hire. Unfortunately, I often find that when I ask my clients if they have a standard consultant agreement drafted and ready to go, should one need to be hired, the answer is no. Unfortunately, they are also not very diligent about collecting a certificate of insurance for any consultants they hire.
Studio13: Why is this so important for them?
Holly: Well, if my clients are interested in managing their own risk and losses and maintaining good relationships with their owners, they need to protect themselves from losses caused by others they are legally liable for…that includes any entity they hire.
If my insured hires another design professional or vendor and that entity damages the owner’s property while on the project site, do you think the owner will just pay for the damage itself? Nope! The owner will be looking to my client because they hired the entity that is responsible for the damage. If a photographer hired by an architect accidentally damages a load-bearing wall of a residential project, the architect’s insurance can cover the costs to fix it. However, if the architect hired a properly insured photographer who listed the architect as an additional insured, then the architect’s policy would likely not be impacted. The photographer, who caused the damage, would have its insurance policy as a resource to pay the damages instead.
On the flip side, the architect will want assurance against faulty photography work. If the photographer’s hard drive was destroyed or a piece of equipment was stolen on location, then the photographer’s insurance would cover the replacement costs. The architect was not liable for those damages.
To make it simple, if something is at fault with a professional’s work or damage caused by the professional hired, they should have insurance to cover it.
I believe often times, my clients think only about their own professional liability coverage when they are hiring another design professional….as well they should! However, they do have exposures from other types of professionals they use in their business like CPAs, Photographers, and the like. My clients don’t always know that their own professional liability policies will not extend to provide coverage for other types of professional services.
Studio13: Is there a way to extend coverage to consultants or vendors your clients hire?
Holly: Yes and No. When it comes to extending coverage for professional services—like that covered under a professional liability policy, the answer is no. However, the general liability policy does allow for some extensions of coverage. Firms should, however, keep in mind this coverage is not provided automatically, has conditions in their contracts, and may cost an additional premium. I suggest a firm consult its insurance agent before assuming such coverage exists.
Studio13: Any other factors to be aware of when considering using an uninsured consultant or vendor?
Holly: Anytime you extend your policy coverage to an additional insured entity, you are extending your firm’s exposure to possible claims on that policy and get closer to your policy limits. These potential claims could have a longer effect on the firm by impacting its loss ratio, which is a factor in coverage placement and the premium you pay. Further, consider if your policy has an exclusion in place for the type of work being performed. Firms should also consider why the consultant or vendor is not insured. Are they uninsurable for some reason?
Studio13: Any final words of wisdom?
Holly: When it comes down to it, why would you not want to hire an insured consultant?
When you hire a consultant, whether it be an interior designer, architect, or photographer, hiring one without insurance can mean a potential for loss of money or a long legal battle over one small incident. So why put yourself at risk? Whatever company you are working with, like Studio13, make them show you their proof of insurance!