How Plumbers Can Shut The Financial Leak Of Their Businesses
The onset of winter generally signals a boon for Ontario’s 7,000 or so licensed plumbers as winter takes its toll on building and house piping and fixtures. On the surface, plumbing seems to be a relatively safe livelihood, however, a closer look at the potential physical and financial risks plumbers face paints a different picture.
The most obvious risk exposure for plumbers is liability resulting from damage caused to a premise during a work contract. But, the reality is that liability is just the tip of the iceberg as part of a myriad mix of risk exposures, the more typical being lost/stolen tools and inventory, damage to vehicles, and injuries incurred by workers on the job site.
The good news is that there is contractors insurance coverage available for nearly every conceivable risk. What really matters, however, is “knowing your insurance” in terms of what is covered and what policy limits are in place. This article highlights the perils and types of insurance coverages plumbers should consider.
What you need to know about insurance and your risk exposures
Most risks plumbers are exposed to are likely included in a general commercial policy which consists of both property and liability coverage. These policies are known as plumbers’ contractors insurance as the wording is specific to the plumbing industry.
Other than liability exposure, the biggest loss for plumbers (whether the contractor or most likely subcontractor) is lost or stolen tools and/or inventory (such as piping) from the worksite, says Alex Gemmiti, a senior broker at Mitchell & Whale Insurance. “Liability and loss of tools and equipment are critical components that should be included in an insurance policy.”
Just as importantly, plumbers should pay close attention to policy “sublimits”, according to Gemmiti. A policy may have an aggregate coverage limit of $50,000 but typically it would include sublimits specific to certain losses. For instance, the same $50,000 policy may have a sublimit of $5,000 for loss of tools or inventory.
Types of Different Insurance Coverages to Consider
- Commercial liability – The most costly risk exposure plumbers face is potential damage to property at the worksite (specifically this refers to instances where a third-party such as the property owner takes action to sue the plumber for property damages). The financial cost of a single property damage incident could exceed $50,000, the typical limit of a plumbers’ policy. As such, plumbers should pay close attention to their business liability policy limits, conditions as well as the deductible in place (the upfront cost of the insured in the event of a claim). Plumbers should note that general commercial insurance only covers damage to property and not the work completed prior to the incident. The cost of reinstalling would be incurred by the plumber.
- Loss of tools, equipment and inventory – Due to the high incidence of loss resulting from stolen tools and materials at worksites, plumbers cannot afford not to purchase coverage for tools and equipment. The coverage not only applies to a worksite loss, but also a plumber’s work premises as well as items stolen from a vehicle used for work (a commercial auto policy only covers the vehicle and not the contents) as well as a storage trailer. An installation clause within the policy would cover any loss of inventory (such as piping) stored at a worksite until installation is completed. It is important to note that the coverage limit for stolen tools is usually significantly lower than that of “equipment”, which would typically be specific item(s) (whether mechanically or electric powered) of high value.
- Combine commercial liability with commercial auto – A vehicle used to get to various worksites would have to be insured under a commercial policy. Plumbers can simplify their insurance needs and also save money by combining their liability policy with commercial auto insurance. This will result in only one deductible applying to the combined coverage with the added benefit of a premium discount.
- Errors and omissions (E&O) coverage for independent contractors – This insurance provides a contractor, or sub-contractor, with protection from alleged professional negligence. Such circumstance could arise if you provided advice to a client which resulted in a loss or property damage. E&O would kick in should the client take legal action against you.
- Business interruption insurance – would come into effect should the plumber experience a loss related to his/her work premises as a result of named perils typically being flooding, wind, fire or vandalism. The extent of the loss would have to be significant enough for the business to cease functioning. Business interruption insurance would enable the plumber to recover from a financial loss and get the business back on its feet.
Most of the above insurance coverage can be applied as “add-ons”, a.k.a. endorsements, to a general commercial policy. In many instances (depending on past claims experience) these additional coverages can be purchased for only a few dollars more than the premium of the main commercial policy. However, due to the intricacies involved with coverage limits, deductibles, conditions and terms of constructing a complex insurance package, plumbers should consult a broker before committing to their decisions.