A vast majority of restoration contractors have huge coverage gaps in their liability insurance stemming from professional exclusions.
What They Tell You
There will be some misinformed insurance practitioners that will say that restoration contractors are not providers of professional services and therefore do not need professional liability insurance. Only the bright ones will not put this in writing. Do not listen to this rubbish. What those good-willed, but naive commentators do not know is how well what a restoration firm does for a living fits into the professional exclusions most often found in the liability insurance policies sold to almost all types of contractors.
The First Whammy
Restoration companies actually face a double whammy on their liability insurance policies when it comes to claims involving professional situations where rules or agreements are not obeyed in their business liability insurance policies.
The first whammy is almost all General Liability (GL) policies sold to contractors of any type will have one or more professional exclusions set into them. There are over thirty varieties of professional exclusions in common use today on the liability policies sold to contractors.
Professional exclusions in liability insurance policies usually get rid of the insurance coverage for claims stemming from:
- The preparing or approving or failure to approve opinions, reports, work plans, surveys, change orders or specifications
- Supervisory or inspection activities
- The performance of any claim, investigation, adjustment, inspection, appraisal, survey or audit services
- An error, omission, defect or deficiency in any test performed
- Any evaluation, consultation or advice given
- Any reliance upon such test evaluation, consultation or advice
The above listing of excluded “professional” activities was extracted from just one of the GL insurance policies that is often sold to restoration contractors. It is standard for remediators to become involved in many of the described activities in their day-to-day work. If a claim against the restorer insinuates that their customer’s damages were caused by any of these excluded activities, all bets can be off on the contractor’s liability insurance coverage due to these exclusions.
Similar exclusions for “professional” causes of loss appear on virtually all Contractors Pollution Liability (CPL) insurance policies as well.
The Second Whammy
The second whammy is states that restoration contractors are required to be IICRC certified for working on water restorations and/or mold remediation projects. On the front of the IICRC S500 manual it says “Standard and Reference Guide for Professional Water Damage Restoration.” The IICRC S520 is the “Standard and Reference Guide for Professional Mold Remediation.” The term “professional” is laced throughout both of these IICRC documents, appearing over 100 times in the S500.
Because of how often “professional” is referenced in the IICRC standards and guidelines, one can assume there to be a direct link between working under these standards and the professional exclusions in your liability insurance policies.
Here is how that happens: If an injured party wants to convince a court that you owe them money for the damages you allegedly caused them, among other things the injured party needs to show to the court that you, your employee or subcontractor failed to act as a reasonable and prudent person. One convenient method for an irritated customer to succeed in this task is to claim that you failed to follow the universally accepted professional standards and guidelines in the restoration business.
Once the term “professional” appears in an insurance claim, any novice claims adjuster at your insurance company will find the professional exclusion in your GL and/or CPL insurance policy. When these facts line up as I have laid out here, your liability insurance coverage can disappear simply by your insurance company connecting the dots between the accusations in the complaint against you and the professional exclusions in the insurance policies they sold you.
Under these circumstances, your liability insurance coverage can evaporate – not because of what you did and how you did it at the job site. The professional exclusion in your insurance policy can be triggered by how the complaining customer decides to describe your actions while making their claim for damages against you.
This is another whammy insurance companies etched into the policies they sell to restoration companies and did not tell anybody what they were up to. In general people do not buy insurance just to take their chances on coverage based upon how the irritated customer decides to describe what you did in justifying their demand for damages.
Your insurance agent will most likely know about the professional exclusion in your liability insurance policies. What they won’t know without you telling them is that you perform many of the excluded services listed on professional exclusions on a day to day basis. For an agent to figure out the connection between the services you provide and the professional exclusions in the insurance policies they sell to you, the agent needs to know what you do for a living relative to what the professional exclusions say.
It is not wrong to assume that the vast majority of insurance agents do not understand what restoration contractors do for a living. This knowledge gap on the part of insurance agents nationwide explains why so many restoration companies are uninsured for claims related to “professional” services today.
What You Can Do
A little bit of help from your end can cure a lot of insurance coverage defects, so make sure to tell your agent if you are executing the excluded professional services on your insurance policies. If this does happen to be the case, show your insurance agent the IICRC S500 and S520 books pointing to the term “professional” on the cover. Your insurance agent should react to this likely newfound information. Most insurance agents have never even heard of the IICRC nor would they know that your day to day interface with insurance claims may trigger a lot of the operative terms in professional exclusions on your insurance policies. There is no way for your insurance agent to establish the connection between what you do for a living and the effects of professional exclusions in your liability insurance policies unless you tell them. There are no books published for insurance agents on how to insure a restoration contractor.
Some Tips To Close The Gap
Here’s some ways to help solve the coverage gap for professional services:
- Make sure to check and see what is excluded by the professional exclusions in your GL and CPL policy. If you do not have professional exclusions on these policies, you might not have an insurance issue at all. However, even without professional exclusions, if you are performing fee for service consulting services from which you will not perform operations, a Professional Liability (PL) policy is still recommended.
- If you have purchased an GL/CPL/PL integrated insurance package designed specifically for a restoration firm, the PL insurance has been fixed if the policy is of good quality. Only about 1 in 10 restoration companies have this insurance coverage solution in place today.
- If you are a member of the 90% of companies who are going bare on this coverage, you will need to fix the coverage gap somehow. This will more than likely involve buying additional insurance for Professional Liability.