Answers to the Most Common Oregon Contractor Insurance Questions
Sunset, Manifistation and Occurrence: What Does it All Mean?
Sunset Clause Shortens the Reporting Period
The concept of shortening the reporting period for claims is not new, and is relatively self-explanatory. An insured has a limited period in which to report a claim potentially covered under his or her liability policy. Any claim reported after a certain period of time may not be covered. The amount of time a claim may be reported differs between policies and carriers. The operative language is typically attached to a policy as an endorsement. An average time for a sunset clause is 3 years.
Although manifestation forms differ between insurers, discovery of the injury or damage is intended be the trigger of coverage. Most forms require the injury or damage be known or discovered during the policy term. Occurrence policies may cover injuries that occur during the policy period but are not discovered until years later. An average reporting time is ten years.
According to case law
A "discovery” trigger of coverage effectively transforms an occurrence form into a claims made policy, without the requirement to report the claim within the policy period. For illustration, a pool leak begins in year one, continues during year two, and is discovered during year one. Based on the discussion in Montrose, both an occurrence and manifestation policy effective during year one would provide coverage for, year one because the damage occurred and was discovered during the policy term. An "occurrence" policy effective during year two may also cover the damages during year two. A manifestation policy would not, because the damage was not discovered during the policy term. Some insurers have adopted the manifestation form, or discovery trigger, for two primary reasons. One is to limit their exposure to a single policy period, because injury or damage can manifest at only one point in time. Second, insurers sought to reduce their exposure to an unpredictable and lengthy 'tail" of lawsuits filed years after the risk they agreed to protect against.
Hohlbein, Jeffrey M. "Does Your Construction Client Know What They're Getting?"
Insurance Journal (2007). Insurance Journal - Property Casualty Insurance News.
Surplus Lines Vs. Admitted: What's the Difference?
A surplus lines insurer is a carrier that is not licensed in your state, in this case, Oregon. An admitted carrier is an insurer that is licensed in Oregon. If the surplus lines carrier were to go bankrupt, the Oregon state Guarantor would not fund protection for the insured. It is therefore important when deciding on a carrier, to make sure that the carrier has a healthy financial rating. The producer must inform the insured that the carrier is surplus lines and the producer must attempt to place the insured with an admitted carrier. Does this mean that Oregon contractors should never use surplus lines? Not at all, it should be mentioned that many carriers choose not to get licensed in Oregon as they want the flexibility that comes with being a surplus lines carrier. It is the producer’s job to find the best match for your operation.
To Have or Not to Have Workers Comp?
Employee or Contractor?
I get a lot of questions from small contractors about workers compensation. First of all, it’s expensive for contractors to hire. In fact, general liability insurance is generally less expensive than workers comp. With that being said, are there any alternatives? All commercially endorsed contractors must carry workers compensation. So, if you plan on working on large commercial structures, these options may not pertain to you. One option to keep from having to obtain workers compensation is to hire employees through an employment agency. This is a viable option and should be considered. Employment agencies will generally take care of workers comp and all payroll related taxes and accounting procedures. This option can free you up to take care of what’s important, building. Another option for the small contractor with only one partner, is to make the partner a part of the business. LLC’s with two members and no employees are not mandated to carry worker’s comp. However enticing as this may sound be wary, as you are giving away a portion of your business. The other option is to only hire licensed contractors. We need to be concerned here with the relationship. Is the contractor free from direction and control? If not, the employee/employer relationship may exist, which would mandate that workers comp be carried.