Expanding options: as the insurance market shows some signs of softening, dealers will be able to control inflated costs and obtain better coverage if they address the critical elements that policy writers evaluate

Prosales, Jan, 2005 by Pat Curry

Like many dealers, Hancock also pays for safety. Safety performance measurements account for up to 25 percent of discretionary bonuses for its 19 safety directors. Plus, safety bonuses are paid to employees company-wide because it's recognized that safety directly impacts the company's bottom line. "I consider myself an entrepreneur within the company," says Speed, "Safety and loss control is a profit center. You can have huge swings in costs [related to] safety and loss. When you can start proving that this is the deal, you wonder why everyone isn't doing this."

Under Contract

Today, every dealer also should be reviewing supplier contracts from builder customers and examining the dealer's insurance coverage. Many contracts now ask dealers to take on increasing amounts of liability for possible errors the builder might make through additional insured requirements and broad form indemnification. "It's increasing exponentially with [local builder] acquisitions by national builders," says Ken Kuester, president of Lumber Unlimited, a 150-employee dealer with locations in Jacksonville and Fernandina Beach, Fla., and Ellijay, Ga. "Most are pretty adamant if you don't provide it, they won't do business with you. Our insurance provider balks and squeals, but they end up doing it. It will end up raising our insurance costs."

More and more limits are being put on contractual liability coverage, says Bailey, the Baylor University insurance instructor. Hence, at the time of renewal, dealers should check to make sure that coverage hasn't been dropped. Moreover, a quirk has arisen in the area of additional insured coverage that could also be problematic, Bailey says. In the past, most policies covered the dealer both while employees were on the job performing an operation, such as installing a window, and for completed operations claims that could crop up months later under a single endorsement. Now, it's either two separate endorsements with an extra charge for completed operations, or the insurer simply won't offer completed operations coverage.

Dealers should have both endorsements, Bailey says. When a dealer signs a contract that requires them to provide additional insured status for work and completed operations, "they need to make sure their policies have the right endorsements to do that."

One of the more troubling clauses for dealers is the broad form indemnification. While specific form indemnification requires paying to defend claims against the builder from the dealer's role in the job, broad form indemnification puts the dealer on the hook for claims that arise out of the sole negligence of the builder.

Raven, for one, says he doesn't begrudge builders trying to transfer as much risk as they can to suppliers and trade contractors, but "you can't sign away your future to get the business." Because of its size, Builders FirstSource has been able to negotiate some clauses for an equitable level of shared liability, but "we don't think we should have to sign on to any program that makes us responsible for other people's work.... We'll accept our fair share. Beyond that, it doesn't make good business sense."