Don't Read This Is You Are Easily Depressed!

Mike Finley

In the April issue of Qualified Remodeler there is an article that will make just about any contractor think twice about getting up everyday and starting his truck. It's called "Coverage Denied" and it is an interview with Bob Lippman of Madden Construction out of Long Island about his current dealings with his insurance company over a claim.

Seems like Bob's been in business for over 30 years, he dot's his i's and crosses his t's and seems to be very contentious toward his clients and his business. He was doing an addition for a customer and the framing sub he has been using for the last 6 years finished work that day and tarped over the work like they always have. That night it rained and the tarp split along it's seem and created a water funnel which flooded the downstairs of the finished home.

Long story short $40,000 -$80,000 in monetary damages to the home. As these things go, the homeowner's insurance investigates and won't cover of course which would be expected, they pass it along to Bob's insurance, Bob passes it along to the framing subs insurance. Everything seems like it is working the way it is supposed to, but then the bad news comes back. The framing sub set up his insurance 6 years ago when he was a drywall installer and was never reclassified. His insurance company won't be paying since he isn't doing the work he is classified to do. So it would fall back on Bob's insurance... - more bad news, Bob's insurance won't be paying because now it turns out Bob has been using an uninsured sub!

Bob is now stuck with a $40,000-$80,000 bill to pay out of his pocket. Bob has done everything he was asked by his insurance company to be protected, he has copies of the subs insurance certificates, he has a subcontractor agreement, but his insurance company says, too bad.

How many of us are doing business everyday like this? I know I am for certain. How can I verify the details of my subs insurance? And why should I have to? My policy reads pretty much the same as Bob's and probably the same as yours. I have to hire subs with proper insurance coverage and we do this by getting a certificate was us named as additionally insured that shows the coverages, but beyond that I'm not privy to much else or the inner goings on of a subs insurance details.

Are we all one incident away from bankruptcy? Very scary stuff to me. Like Bob Lippman says in the article, he pays $35,000 a year for his insurance coverage which is turning out to be nothing more than he is paying a $35,000 licensing fee in order to be in business with no guarantees that the insurance will actually cover anything.

Lippman has been in business for over 30 years and never had a claim, hes been going to bed at night worrying about the job he is doing, the materials showing up, paying the bills, just like all of us, and like all of us for him he has spent the last 30 years paying for insurance that when he needed it wasn't there.

ProWallGuy

All I can say is thank God I don't use subs.
I've had the same nightmare recently, only it involves my family's health insurance. Apparently I've been shelling out around 6k a year for nothing.
I think Mr. Lippman should sue his framing contractor for not having/updating his insurance.

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pwrpapa

Sorry mike,I'm not scared. I don't live in fear every day like some. If you're making money one incident like that won't put you into bankruptcy.
That's why you have an emergency fund.

Let's pass the buck an sue the framer.

Mike Finley

There is no mention of that in the article but that would be my thoughts too. However what if there is nothing to sue? You can get a judgement for the $80,000 but how do you collect it if there is no money? Typically the answer is his insurance company, which of course we know isn't an option.

ProWallGuy

True. And your right, now I'm depressed.

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Bone Saw

ditto, a little cliche', but want something done right, do it yourself.

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Mike Finley

Unfortunately, the state of Colorado won't let me do my own electrical or plumbing. I have to hire them as subs.

I really think Lippman has only 2 choices.

To pay the $80,000 + out of his own pocket, or try to sue the framer's insurance company for either fraud or something along those lines. The framer's insurance company has been collecting preimiums from the framer with full knowledge that the framer was a framer. In the article they say that the framer and the insurance agent are friends and the insurance agent who is a broker is aware of what the framer does.

snapper21

Sounds like time for an additional paragraph to the contracts.
By signing here I am stating that insurance, bonding, and licensing is up to date and current with the type of work being performed, or lack thereof has been explained to the GC in full.

Bone Saw

I won't argue that, or the importance of using licensed/insured electricians and plumbers and roofers, as I trust most of them are not insured as drywallers, But in the case of the that story, even as a gc subbing out the work, I'd be making damn sure stuff like that doesn't happen, Doesnt really take much effort to ensure a zero margin of error or in this case a zero margin of catastrophe, watch the weather channel, throw on some osb or anything to keep water from pooling between framing bays. It's a damn shame for that guy, but that $H!T is easily preventable.

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Bone Saw

so either in six years of tarping in unfinished work it has never rained and/or they got lucky and/or they did it right, or this time they got complacent

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pwrpapa

Right on Bone Saw.

Get off your ass an frame it yourself.
Stop passing the buck onto some framer that's just making it.
If the G.C. would do his job, it wouldn't have happened.
When you can't even push a pencil the right way let alone a hammer, you deserve what you get.

Let's get some more blood from the working class.
Gawd damn yuppie's.....

Craig

I hope this guy has a decent lawyer. If so, his lawyer should be telling him that he can still join the framing sub as a defendant if sued by the homeowner. Also, his lawyer should remind the insurance company that its duty to defend the claim (i.e., pay for the legal defense of any lawsuit) is greater than its duty to indemnify (i.e., pay the amount of any damages). The latter distinction is important because the cost of defending this claim could be as much or more than the amount of the damages. Also, it brings at least some financial burden onto the insurer so it will have a stake in the claim regardless of whether it denies coverage. Needless to say, the contractor can also sue his insurer for a declaratory judgment to compel coverage.

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Mike Finley

Bob has this clause or something like it I'm sure, he said he uses signed sub-contractor agreements, a clause like that is surely in it.

Regardless you're missing the whole point... a signed anything does nothing for you. His insurance company refuses to pay based on his policy states he must use insured sub-contractors, there is no exceptions or addendums to protect you. That's the point, how fair is it for your insurance company to be able to wash their hands of any responsibility once you have done exactly what is required of you? How can you be responisible for information you have no way of being privy to?

Mike Finley

You're also missing the point. Accidents are called accidents for a reason, they aren't called "on purposes". Substitute anything you like for the tarp, substitute any methods you like, but you can't substitute the end result $80,000 worth of damage. You can change the story to an electrician you use as a sub burns down the house or anything else, the end result is the same... if your insurance company can walk away leaving you holding the bag what good is it to be paying them $35,000 a year?

Bone Saw

forget about the details of the accident or trade, Anyway you slice it, it was preventable, Bob, and Bob alone(not the homeowner or homeowners insurance, not the sub or subs insurance or lack thereof, not the township and not bobs insurer) is responsible for knowing he is using properly insured subs or he assumes all risk. Why should anyone but bob be liable for bob's oversight! It wasn't the accident that cost bob, it was the oversight. Which leads to post #2 and subsequently to #6

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TimNJ

Hmmm, how many members are there on this board, besides you, who would pull their checkbook out and write a check for $80,000 and move on.
The big issue here is how insurance companies are classifying your area of work. It used to be the obvious years ago...not a licensed plumber or electrician and you do this work and cause damage that's your problem. Then it was roofing work they started picking on, now god forbid if this guy was a framer and hung a sheet of rock and hit a pipe. Coverage denied because you are a framer not a drywaller. In their eyes you aren't qualified to drive a screw.
My insurance company started asking questions in their yearly audits about the type of work I do about 5 or 6 years ago. Their class system has been pretty basic... GC, roofing & siding, and finish carpenter. I bet this year they will be wanting a lot more details.

TimNJ

So, if a HO hires you and asks if you have insurance, you say sure I have $X limits. How does HO know you are telling the truth. You can have an insurance certificate but you could be delinquent on your payments and that cert could be invalid. Are you going to bring cancelled checks to the HO to prove you have paid you insurance bills and really do have up to date coverage? I'm sure Bob doesn't ask his framing sub to give him a copy of his policy so his lawyer can look it over. If an electrician runs wiring on a deck you are building do you ask him to bring his insurance policy with him when he stars the job?

Bone Saw

moot, but i'll answer anyway. Provide them a copy of my declaration, showing coverage, clasification, carrier, policy#, provide certificate to twp issuing permit, I know what I am insured to do and don't exceed it without assuming risk myself.
moot again, but i'll answer anyway, your agent and or carrier issues certs with holder named on it on a permit by permit basis, so if you are "recycling" a copy and doctoring in holder names, or no holder names at all, they are not holders. and you would be defrauding the customer and the permit issueing twp
doing so would have spared him the kim chee he's in nowif it's in my scope of work and/or Im pulling the permit, I'll need it and verify it before he even has the job

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Mike Finley

What is the difference if it was preventable or not? That's not the issue. The claim is not being denied based upon culpability or blame, it is being denied on the basis of holding a contractor to terms that he cannot control. A contractor follows every procedure his insurance company requires of him and ends up with no coverage when it is needed. What is the purpose of paying $1200, $5,000, $35,000 or $250,000 a year in premiums for insurance when it won't be there? You are paying for air.

Like I said change the incident to anything you want. Change it to a sub is banging on the side of the house to remove an old ledger board and a chandelier falls inside and glass shatters and blinds the homeowners children... change it whatever you want, it changes nothing in the topic.

Mike Finley

Sorry, you're full of it, that's total bs. You would be the first person on earth who could or would do business like that, absolutely ridiculous, you nor noone else is going to request and read a sub-contractors insurance policy word for word. Futher even if you did it proves nothing other than you have a copy of an insurance companies policy and nothing more.