Avoiding Risk, Lowering Costs

Commercial and residential construction subcontractors may also find themselves paying more for insurance, because general contractors are asking them to assume more risk. “General contractors are very much downloading their risks,” Ahmann says. They are asking subcontractors to take full responsibility for their portions of a construction project, holding the general contractor harmless. “In many cases, we have to negotiate different contract language, or the subcontractor is left self insuring things that are really beyond his or her means to self insure,” Ahmann says. “Someday, subcontractors may get to the point of saying ‘no way,’ but now they’re pretty desperate for work.”

The high insurance prices and downloading of risk by general contractors is in part due to moisture management issues that plagued the homebuilding industry starting about eight years ago. The number of mold claims by homeowners increased quickly and suddenly, probably due to the explosion in homebuilding going on at the time. Lawsuits and publicity surrounding mold claims in Texas and California lead more insurers to offer specific mold coverage, and general contractors required subcontractors to have the coverage, too.

Happily, though, commercial and residential builders are finding it easier to find and afford completed-operations coverage, which pays for damages caused by faulty construction. Minnesota passed a 2007 law requiring insurance companies who write construction liability insurance in the state to also offer completed-operations coverage. Now the coverage is available and at affordable prices for those willing to look, says Pam Perri Weaver, executive vice president of the Builders Association of Minnesota, an organization based in St. Paul that supports homebuilders and remodelers. “You have to be a smart shopper,” she notes. “It’s out there, and to say it isn’t out there means someone isn’t doing their homework.”

The Builders Association is so convinced that its members can afford completed-operations coverage, she adds, that it is closing Quadriga, the insurance cooperative the Builders Association began in 2004 to offer the coverage through expensive surplus-lines carriers. “Our product was developed because we were in such a bind,” she says. “Now you can get a standard product at a reasonable cost.”

Price increases will come eventually to the cyclical insurance industry, of course, but there’s no reason to think that Minnesota companies will see higher rates anytime soon. “There’s nothing to indicate a change,” Schnebele says. “As long as they continue to make money, the insurance companies will want to capture as much market share as they can—especially in the Midwest.”