Insurance & bonds: Utah Contractor Business & Law Practice Questions

What does a commercial general liability (CGL) policy mainly cover for a contractor?

CGL responds to claims by others for bodily injury and property damage caused by the contractor's operations or completed work. Employee injuries fall under workers' compensation; tools need an equipment (inland marine) policy.

What is the key difference between an occurrence policy and a claims-made policy?

An occurrence policy covers injury or damage that happens during the policy period even if the claim comes years later. A claims-made policy needs to be in force (or have tail coverage) when the claim is made.

Which policy covers a building under construction against fire, wind and theft of installed materials?

Builder's risk is property insurance on the work itself during construction. The contract says whether the owner or contractor buys it.

A contractor wants coverage for its excavator and tools wherever they are, on or off the job. Which coverage fits?

An equipment floater covers mobile equipment and tools against physical loss wherever they are located. CGL covers liability to others, not damage to the contractor's own equipment.

What does an umbrella or excess liability policy do?

Umbrella and excess policies pay after the underlying CGL, auto or employer's liability limits are used up, and owners often require them on larger projects.

What does a certificate of insurance do?

A certificate is evidence of insurance on the date issued. It does not amend the policy or create additional insured status; an endorsement does that.

A general contractor requires subcontractors to name it as an additional insured on their CGL. What is the purpose?

Additional insured status, added by endorsement, lets the GC tender claims caused by the sub's operations to the sub's insurer. Scope depends on the endorsement form.

Workers' compensation insurance generally provides what to an employee hurt on the job?

Workers' compensation is a no-fault system set by state law. Injured employees receive medical benefits and part of lost wages without proving fault.

In exchange for no-fault benefits, what does the workers' compensation system generally give employers?

Under the exclusive remedy rule, workers' compensation is usually the employee's only remedy against the employer for a work injury, with limited exceptions such as intentional harm.

How are workers' compensation premiums usually calculated?

Premium = (payroll / 100) x class rate x experience modification. Roofing and framing classes cost far more than clerical. A year-end audit adjusts the premium to actual payroll.

A contractor's experience modification rate (EMR) is 1.25. What does that mean?

An EMR of 1.00 is average. Above 1.00 raises premium and can disqualify a contractor from some bids; below 1.00 lowers premium.

What is an owner-controlled insurance program (OCIP, or wrap-up)?

In a wrap-up, the owner (OCIP) or general contractor (CCIP) buys liability and often workers' compensation for enrolled contractors on the site. Bidders exclude that insurance cost from their prices.

Who are the three parties to a surety bond?

The principal (contractor) promises to perform; the obligee (owner) is protected; the surety guarantees the principal's obligation.

How does a surety bond differ from an insurance policy?

Insurance spreads expected losses among many insureds. A surety extends credit: the contractor (and often its owners personally) sign an indemnity agreement promising to reimburse the surety.

What does a general indemnity agreement with a surety usually require?

Sureties usually require company and personal indemnity from owners (and sometimes spouses). If the surety pays a claim, it can recover from all indemnitors.