How to Insure Contractors Equipment
Contractor's Equipment Industry Results
Underwriting results are very cyclical and tend to mirror the economic conditions of a given area. When the construction industry is stagnant, profits quickly deteriorate because of reduced premiums and increases in theft and vandalism losses.
Any Company wishing to be a market for construction classes should look for well established, financially sound contractors that exhibit a genuine interest in minimizing losses. In conjunction with proper risk selection, pricing of each account must adequately reflect the inherent loss potential if a Company is to recapture long term profitability for this class of business.
Contractor's Equipment Coverage Form
This Inland Marine coverage is a non-ISO ("uncontrolled" ) class which derives its eligibility from the "Commercial Property Floater Risks" Section of the 1976 Nation Wide Marine Definition.
The general coverage form provides broad coverage on owned equipment, with an option for providing coverage on equipment leased or rented from others. Owned equipment is either UNSCHEDULED (generally small types of equipment, such as tools valued at less than $2,000 per item) or SCHEDULED, which can consist of any other eligible equipment. Coverage for equipment leased or rented, on a short term basis, from others is an option which covers all such equipment subject to a maximum limit per item shown in the declarations. Equipment leased for more than a month at a time should generally be scheduled and covered as a scheduled item.
Certain types of property have been specifically identified as not covered since they are ineligible for coverage under Inland Marine forms (vehicles designed for and principally used on public roads) or are more appropriately covered by other coverage forms (aircraft, watercraft and building materials).
Other limitations address extraordinary situations which must be underwritten on a case by case basis; for instance, waterborne and underground exposures, equipment such as scaffolding and spare parts which are highly susceptible to theft or possibly eligible for coverage by other insurance, and equipment leased, loaned, or rented to others without an operator or an agreement with the other party establishing their responsibility.
Standard Contractor's Equipment Coverage Extensions
The coverage form includes extensions which provide additional amounts of coverage in various circumstances. These extensions of coverage are included automatically.
- Newly Purchased Items: This extension provides coverage on newly purchased equipment for up to 30 days. The limit of insurance Is on a per loss (not per item) basis. The insured must report purchases within 30 days. Premium is due from the date of purchase. Failure to report the purchase within 30 days cancels coverage for the item.
- Borrowed Items: Provides coverage for up to $1000 on items borrowed from others while in the possession of the insured, if the insured is legally liable. This extension covers the more routine exchanges of equipment that may occur among contractors at a job site.
- Debris Removal: Provides up to $5000 for expense to remove property damaged by a covered loss. This is particularly useful in total loss situations where the insured is reimbursed for the physical damage up to the limit of insurance for the item but still must dispose of the debris.
- Replacement Items: This extension pays for the cost to rent equipment to temporarily replace damaged covered property. Coverage is provided if a replacement item is needed to continue work in progress at the time of loss and if the insured does not have similar idle equipment available to continue operations. Coverage is also provided on the rented replacement equipment for up to the amount stated in the declarations. Coverage for the rental expense begins 24 hours after the loss is reported and ends when the damaged equipment is replaced, repaired, or the replacement item Is no longer needed to continue operations. Coverage on the replacement item begins when the loss is reported and ends when rental expenses end unless the insured Is legally responsible for transit.
Other Important Policy Conditions
- Exclusions: The coverage form identifies various losses which are not covered. These include wear and tear, corrosion, freezing, overheating, mechanical or electrical breakdown and loss caused by work being done on the equipment. However, if damage by a covered cause of loss (i.e., fire, explosion, etc.) ensues the resulting loss is covered.
- Coverage Territory: The coverage territory Includes all states, Puerto Rico, and Canada. Transit to or from Hawaii and Puerto Rico is specifically not covered.
- Coinsurance: Based on 80% of actual cash value and is applied to each listed Item individually, while applied to unlisted items in total. For example, to determine whether a coinsurance penalty is to apply in a loss involving unlisted Items the actual cash value of all unlisted items is utilized. In a loss to a listed item the penalty, if any, is determined based on the value of that item only.
A coinsurance penalty is not applied to equipment leased or rented from others unless the item was specifically scheduled.
Maximum Amount of Payment: Limits our liability in any one occurrence and must be entered in the declarations. The Limit should realistically reflect the needs of the individual account and be sufficient to cover any concentration of values. It is not necessarily intended to reflect total values, particularly on larger schedules since retention and reinsurance considerations are frequently based on this limit. It may not be necessary to utilize and incur the expense of reinsurance unless necessary.
Fire is responsible for the largest amount of losses. Generally, fires are started due to improper maintenance practices which can result in leaks from fuel and hydraulic lines that are ignited by hot engines or careless smoking, improper fueling of equipment, and brush or debris accumulation under or near equipment.
Another area of concern is spray painting, repair and welding facilities which do not meet NFPA standards. While it is important to spot and correct these problems it is also important to have public and/or private protection available to put out fires should they occur. In addition to maintaining a liaison with fire departments near job and storage sites, fire extinguishers of the proper size and type should be readily available at all times.
Theft and Vandalism
Losses from theft and vandalism can present a serious problem. lndustry-wide, contractors incur in excess of $300 million in losses annually due to theft and vandalism of equipment.
Preventative measures taken by the insured must be adequate in relation to the values at risk, susceptibility of the equipment to loss, and where the property is being used or stored. Ideally, it is best to bring the equipment back to a secured storage yard or building. The increase in transit exposure to bring equipment back to the yard is usually less than the theft and vandalism exposure if the items are left at an unsecured job site. When this is not feasible other security precautions Include: hidden ignition cut-off switches, alarms, locking fluid caps, immobilizing equipment at night or on weekends by removal of integral engine parts, site lighting and fencing, and watch service.
Regardless of precautions taken, some thefts of contractors equipment will occur. Recovery rates are low. To assist with claims recovery, a current inventory of all equipment should be maintained by the contractor.
In addition to information required on the policy, the following will aid in settlement and recovery efforts: original date of purchase, original cost (including accessories), year of manufacture, serial and/or identification numbers with the location of these numbers on the equipment, complete description including size, weight, model and name, and even a photograph of the equipment. Some contractors paint their equipment in unique ways to help recovery efforts (this also acts as a deterrent to theft in many cases). Anything that distinguishes the equipment
from others should be noted in the inventory.
Insureds should be encouraged to safeguard equipment. Vandalism and stolen equipment causes delays in completion of jobs, payment of deductibles, increases in insurance costs, and even the inability to secure coverage. Additionally, this will adversely impact the insured's business.
Transit is involved with all types of equipment whether on trailers or under the equipment's own power. Consider the experience of the drivers and individuals loading the equipment, whether routes are planned to detect low overpasses and narrow or winding roads, if escort vehicles are used with over-sized loads, equipment is chocked and chains used as tie downs are in satisfactory condition. NOTE: Many construction firms use outside trucking companies to transport equipment.
The truckers credentials and responsibility for loss or damage should be fully investigated. Some contractors will haul equipment for others either as an accommodation or a means to generate additional income. The Contractors Equipment Coverage Form does not cover loss or damage to equipment of others transported by our insured unless the equipment was leased or rented by the insured and the policy so endorsed.
Miscellaneous Equipment such as scaffolding, false work, forms, and spare parts are not covered unless specifically identified in the schedule of listed items. Of particular concern is theft. Security precautions should be taken to prevent unauthorized access to a job site and storage facility. The contractor must make every effort to establish inventory control records which allow them to keep track of these items.