Episode 5: Construction Insurance In Depth
with Warren Spiwak
INTRO: This is Karalynn. Welcome to the Quit Getting Screwed Podcast, where we talk about everything related to contractors, instruction, and information to help you run better businesses. The transcript of Episode 5, “Construction Insurance In Depth” follows.
Karalynn: Hey guys, and welcome to the Quit Getting Screwed podcast, where we talk about all things that relate to companies in the construction industry. Today, we have a very hot topic that I know everybody loves to talk about: insurance. Now don’t get me wrong, you need to know about insurance, and you need to have it. And you know, I’m going to learn some things today too, because today we have on the show insurance guru and all-around business expert Warren Spiwak. How are you, Warren?
Warren: Hello, hello. It’s a Monday. It’s Spring Forward, where I don’t know. Does that mean we lost an hour of sleep, Karalynn?
Karalynn: Yes, we lost an hour, and I could definitely feel that when I drove into work this morning, it was still dark.
Warren: Yeah, it’s a great day. Thank you for having me. It means a lot to be here. You’re one of my favorite interviews that we did over at Ahead of the Game, and we got such great feedback. So, it’s an honor and pleasure to be here with you today.
Karalynn: Thank you so much. So, before we jump in, tell us a little bit about yourself, where you started, and how you got where you are now.
Warren: Well, I actually come from a blue-collar family. My dad owned an air conditioning company called Castle Air Conditioning. I was very much taught at a very young age by my father that if you want to make a living and you want to be successful, choose an industry that people need. And in his opinion, being an AC contractor, he always thought, you know what, if it’s $400 to get your AC fixed or $400 for some mini blinds, everyone’s always going to spend the money to be less than 110 degrees in the Texas heat. And so, throughout my childhood and as a teen, I watched my dad succeed in business and got to hear the backend of what goes on with contractors. You know, I got to see his struggles. Ultimately, he also told me that I’m not allowed to become an air conditioning guy. He’s like, you’re not allowed to do this business. And so, I ended up getting into the insurance industry in about 2002. And so I’ve been doing this almost 20 years, and right from the get-go, I started doing business insurance, really specializing in not just one area, but becoming a product specialist in the insurance industry.
Karalynn: So, why do you think your dad told you he didn’t want you to become a member of the AC?
Warren: My dad was someone who didn’t have a high school diploma. He was an entrepreneur. My dad worked six days a week, probably 12 hours a day. He did a great job. He was successful. He had a great reputation. He had a great approach, but I think being in an attic was some of it for him. You know, he did a lot of residential. So, he wasn’t doing the large commercial deals where there’s lots of room to work. It was always a builder putting an AC unit in, and it’s right next to the roof. So, you’re upside down in this 116-to-130 degree, dirty, dusty, roach-filled attic. And I just think he didn’t want that for me. And even though I would help him in the summers, what that really did for me is teach me why he came home feeling sometimes the way he did.
And I remember things like, you know when you’re a contractor, and I know anyone listening to this will be able to relate, but it’s because you are fixing things and building things all workweek long when you come home, and your washing machine doesn’t work, it sucks, right? Because you know how to fix it. You’re not going to call somebody. But I always remember, for my dad, it would always be on a holiday or his birthday. And he would have to say happy birthday to me! The washing machine is broken. It would always just be happy new year! The dishwasher spilled 800 gallons of water all over the kitchen floor. But those are the things that I remember. But I just think that really, my dad felt like that was his skillset. That was how he figured out how to make a buck. And he followed through and just really told my brother and me that we’re not allowed.
Karalynn: He didn’t want you to work that hard. And you know, as a member of like, what I call it, the Get Shit Done Tribe, those guys are going up in the attic and working with their hands and get shit done. That’s a hard living. My grandfather was a farmer for years, and that is a really hard living. Up before the sun, you know? And I was out in the field, and he always wanted his kids not to be farmers, don’t do this, because it is so hard.
Warren: Yeah. I was just going to say, and people don’t realize when someone’s working on your house, whether they’re doing roofing, or plumbing, or AC work, there is such a big difference it makes in being hospitable, thoughtful.
Karalynn: And the thing is that at the end of the day, we’re all just people. Yeah. You know, some people are lawyers, some are AC guys, but we’re all just people, and we’re all here to help each other. Right. You know, I know nothing about fixing ACs, but I can help them write a better contract, and I want to help them run a better business. I’m sure you feel the same, but if we all come together and give them a little piece here and a little piece there, they’ll have the whole thing. So, they can do what they love to do, or you know, what they’re passionate about doing. And so, I kind of wanted to ask you for like our contractors, most of them get into business because they love what they do and they’re great at it. Right. And so, they get into business, and they realize they need insurance, but the only insurance people they know who wrote their car insurance. And so, they go and ask them, what kind of insurance do I need? And, and so is that a good strategy, or what do you recommend?
Warren: When it comes to insurance. And I really want to be diplomatic the way I say this because, as I told you, my career started in commercial and really what I always felt going back to even what my dad taught me was that really, it’s about specializing in something that might not be a commodity. So, when I think of home and personal auto, I feel like 98% of my peers work in that space. Even companies like Farmers Insurance, Allstate, or State Farm, these are retail shops; they’re everywhere. And a majority of the work they do is on the personal line side. Well, with commercial, you have to understand, it’s a much more complex product offering. You have a whole different list of carriers, meaning companies that you would want to be considered by, because how else do you get competitive in your product placement than competing having markets compete.
And so, what you notice a lot on the personal line side is that you have a lot of captives. Captives, meaning people that are just one-stop shops and they only have one carrier, or you have independent agents that, in most cases, could be small and doing a lot of personal lines. So, when it comes to choosing how to insure your business, my philosophy is that you want to go with someone that really knows your business and that knows what the risks are. And what I mean by that is if you’re selling home and auto 99% of the time and consulting people on their personal lines, when you meet a painter, for example, you don’t realize that you need to dive into, are we talking residential or commercial? Are we talking about new construction or remodeling? What are the features that are in this product to protect that client from overspray right? So, the more you get into this world of really being around a certain industry, it allows you to know what to look for.
Karalynn: I agree. It’s kind of like lawyers are the same. Like, the lawyer that drafted your will is not the lawyer you want to draft your construction contract, and I wouldn’t offer that service either. And I’m kind of easy to find. You can Google construction attorney, and that’s pretty easy. How would they find someone like you that specializes in commercial insurance? I mean, I’ll put all your contact information in the show notes, but if they’re looking just generally, what do we search? Where do we find it? What does it look like?
Warren: You know, that’s the thing is, you know. I make this joke all the time. When you think of a plastic surgeon, do you want to go to the guy that’s advertising in every single magazine for clients? Like that would be the guy that I don’t want to go to. I want to go to someone that I hear from, I heard about from someone I respect. I want a real referral. My career, and I mean this in the most down-to-earth way; a lot of the way people uncover my services is from just from word on the street. I mean, if no one’s ever shown you this, I don’t do any like special marketing or anything. I am on LinkedIn. I just, I’m not in the business of soliciting everybody.
I’m really in the business of consulting and what happens a lot in the construction industry. And this is really great for all of my clients because we have thousands and thousands of customers, Texas-based customers. Our agency, just to give you an idea, we have 700,000 clients across the country. When it comes to networking and knowing like a GC is looking for a certain subcontractor, it’s pretty much all the time that people on my team, my partners, and I are always connecting people to jobs. And that goes the other way, too, where you have a general contractor, or you have an AC contractor, or a concrete person, that’s able to refer business back and forth. So, just really, it’s a natural thing that happens.
But if anyone does want to find me, it’s very easy. I’m on all the social media platforms. If you’re looking for me, search Warren “Everyday” Spiwak, and you’ll definitely find me on LinkedIn. But I worked for an agency called IBTX, Insurance Bonds of Texas. So, we do a lot of insurance, and we do a lot of bonds. We have a very unique way that we do business because one of the things about this agency that serves in a way that provides value more so than just finding products is that we truly have a department for everything you need in business. So, whether we’re talking insurance or surety, those are two obvious things, right. But what about HR? What about if you want policies and procedures? What if you need a contract review? Like, look at our relationship, Karalynn, right?
Some clients come to me, and if they want an attorney, we have people in the network who do this day in and day out. And then, in addition to that, any entrepreneur out there running a business, you have to know the insurance world is subjective. At IBTX, the way we do business is very much into safety and risk analysis because it allows us to advocate for you with these carriers. We’re getting them to compete. And what I want them to do is not just look at what the facts are in your numbers and the mathematics and the exposures. But I also want to talk to them subjectively, talk about what you do for safety. What makes you different than the thousand other contractors that are doing what you do. And it’s that story, and it’s the way we at IBTX position you that allows us to get you the best rating, the broadest coverage, high performing products.
Karalynn: So, if I’m coming to you and looking for something specifically for my business, what questions do I need to ask an insurance company to ensure that they’re going to cover what I need?
Warren: So, one of the things that everybody needs to look out for is exclusions. So, when you look at an insurance policy, if it’s excluding residential, and you’re a roofer that does homes, that’s a problem. If you look at the exclusions and see that it’s excluding commercial buildings over four stories, you need to know that. A lot of policies have a breach of contract exclusion and exclusions on faulty work, right? And you’ve got to really know what you have and the questions you want to ask.
In many cases, you need somebody with a team like ours to do it, review what you have, and find out what is not covered and what isn’t going to be there. Because in the insurance world, many people think property and general liability, you know? Those are two different products that everybody can roll off the tip of their tongue, even if they’re just consumers. But there’s professional liability. There are equipment floaters. There are these different items that really matter when it comes to ensuring your business.
Karalynn: So, you want somebody that’s really going to ask questions about your business and then design a policy around that.
Warren: Yes. Because, depending on what you do, whether you warranty your work or whether you’re designing, you have a lot of exposures that may not be covered. Also, I tell people a lot, especially if they have a smaller agent, to look at your policy. Like, one of the things that you need to know is in the insurance world, you have standard companies, and those are companies like what you would automatically think of: Travelers, Chubb, or Liberty Mutual, right? But then you have all these surplus lines, and surplus is kind of like the wild west of the insurance world. And here’s an interesting way to figure out if you have it or not. When you look at your deck page or your invoice, if it has sales tax in there, that means your agent went to the surplus world.
And the reason why I think that could be a problem is that a lot of retail agents don’t just specialize in commercial; they use wholesalers. They like to send it to a mothership where they expect somebody else to kind of market it and show it around and bring you back pricing, and a lot of times, that’s a surplus broker. So, having somebody who writes this stuff all day, every day, and has lots of relationships with all the top carriers and, I mean, virtually every carrier, that allows us to go to these standard markets. So, not only do you get better payment plans, no sales tax, but you’re with really amazing companies. And don’t get me wrong; surplus has a place. I just want to make sure I’m going everywhere you qualify and comparing the performance of the products and kind of looking at it that way.
Karalynn: And I remember when we did our interview, you mentioned something like contractor-specific insurance. Is that available? What does that look like? You know, the painter needs over-spray coverage and all those other things. Do you have that for different contractors? So, for like the masonry guy or for like the pool guys or different stuff there.
Warren: Yeah. So, when it comes to being a subcontractor, what matters is what work you’re doing and how the insurance industry categorizes those in SIC codes, that’s a very technical thing, and in NAI-C codes. And so, what we have to think about for a minute is that when you own a business, and I’m going to use just any type of construction company, you have different people doing different things, right? And so, some risks have a higher rate of higher cost, and some have a lower cost. And so, really, you want to get pretty specific because if your employees are doing things that could actually be considered lower on the rating scale, well, that’s what we want to know. We want to get as specific as we can when it comes to the work. You know, when it comes to insurance for construction and some of the things that you see often excluded, you know, you hear a lot of people talk about, what happens if there’s faulty workmanship, right? And is there coverage for that?
And the answer to that is, there is. There’s not a whole lot of people that do this or that offer this kind of coverage, but we have several that do. And the idea there is, general liability is always paying for damage to a third party, right? So, you always have somebody who’s a victim, if you will. So, a person or a thing. And so, what happens when you own the company and you mess up? It might not even be from incompetence. It could just be something that happens where you’re exposed to a major cost to re-pour some concrete or tear it out. There’s a coverage called rip and tear, which is just for the costs to get the job done right. And so those are just some things that, in some cases, it makes sense to quote those and know what they are. Especially, you know, depending on how big a job is and what you’re looking to do.
Karalynn: Well, that would be extremely helpful. Like, say, if you miss something in the scope and you did it wrong, and now you got to redo it. And so, you’re telling me that we could file a claim on the insurance. Because now I’ve got to redo, and it’s going to cost me, I don’t know, $50,000 or $60,000. And if that would be covered, that would be great. I mean, is that what you’re talking about?
Warren: Yes, so, it, it depends, you know. It’s one of those things where you have to market it. Yeah. You have to market it to the company. But the fact is that there is professional liability, especially if you’re designing the project. There’s a lot of liability exposure there. So, it’s something to consider. It’s something you want to ask about. And, you know, going back to just owning a business: When you think about it, and this is just going back to being around a company where you have employees is, your employees for the most part are doing the best that they can do. They’re making the best decisions they can, but for a business owner, when your employee puts his foot through a ceiling or backs his truck into a building, there’s just a whole slew of nightmares that are attached to that. And you have all these different compartments of insurance. Whether it’s general liability or in the case of an employee having some kind of injury, you’re talking about workers’ compensation.
There are just so many different components to it that the true way to know that you’re getting the right offering is for somebody to offer it all to you, knowing that you might not buy it. You don’t want somebody that makes it feel like a sales consultation, but you just want to know, what does this product do? Where does it perform? And is there a return on investment? Is there something that means if this coverage gets triggered, that it’ll actually save my business? And there are many necessary coverages, and the devil is in the details and knowing what those exclusions are and what you can add in as far as coverage goes.
Karalynn: So, cost-wise, for good insurance that covers you. And I know it varies a lot by business, you know. The higher the risk, obviously, the more insurance is going to cost. But I mean, generally speaking, give me something that I should expect to pay. Just generally, for good coverage that somebody should be able to explain to me if I file a claim, it’s going to be covered.
Warren: Okay. I’m glad you’re asking that. I’m going to make it a two-part answer, okay? The first thing is, is the way insurance is rated is not always the same. And this is something that we practice daily, which is when you look at your business, is the insurance company rating you off your gross revenue or your gross payroll and what you’re paying subcontractors? And like, these are two major things that when I’m working on a submission, I’m always looking to find different carriers because different carriers use different values, right? And so, you can imagine how sometimes a company that’s making a whole lot of revenue and has a lower payroll would actually be kind of strategic to use a company that is going off of payroll and vice versa. So, I like the idea of having an agent look at everything and look at it these different ways. And for you as a customer to ask, was this rated off my payroll, or was this rated off my gross revenue? It’s an important fact.
The second thing is that when it comes to pricing, I often see us solve many problems for like 1% to 2% of revenue. But I do have cases where you have a $10 million revenue electrician that’s doing work all over the state and needs a lot of coverage. And I don’t mean that by what the limits are, but as I was speaking of earlier, it’s not just property and general liability. Are we doing benefits? Are we doing professional liability? When you have employee theft, which you might, you might have heard of this, where you could have employees basically ripping off your wire and recycling it for cash. Is that covered? It’s special coverage that would cover that for you, especially if it’s an employee.
And then you get into even cyber. Like, it’s weird. When I talk to contractors, they usually don’t identify with cyber. Like they’re going like, what is it that we have? What exposure do we have? But you have all this client information, and there are all these regulations on what your company would do to protect your clients if there was a data breach. And it’s not expensive, it’s something very simple, but it’s something important that many agents overlook. And if the stuff I’m talking about is something you’ve never seen, if no one’s ever shown you what these quotes look like, your agent very well could either not know about it, or it could just be they’re asleep at the wheel.
Karalynn: So, they should be able to answer all these questions they want to know about your business. You should be asking questions back and forth. And if not, you need to find somebody that can do this on this level.
Warren: Yes, and, you know, just to kind of toot the horn of IBTX again, we are part of Acrisure. With the insurance journal, we’re ranked second in the country. And the reason why I’m saying that to you is that the way I’m the equalizer for a client is when I make these companies compete. Like, I want my client to walk away every year, knowing we didn’t normally just go for renewal, but we remarketed this like brand new business. We want the client to win.
Karalynn: You’re doing that to try to get the best price.
Warren: Yes. Yes. And then, on top of that, going back to the idea of like safety and risk analysis, there’s a lot of other little things that we do to help mitigate the cost of insurance. And for big companies, we even look into bigger solutions, alternative solutions, like captives. Like, what if you did go self-insured? What does that look like? It could be risky. It could not be, but we’ll do the analysis. And then there are other more conservative ways to go that are in that self-insured world, which is like a collaborative captive, where you’re working with many other companies. And it allows you, if you can imagine, to kind of have ownership in this premium that you’re paying. And so, there are dividends and all kinds of things that make a big difference. It’s if you’re spending, I would say if you’re in the six figures of what you’re investing in insurance, great conversation to have, and we’re happy to have it.
Karalynn: So, I have a question. You’re my insurance agent, and I get sued or have to file a claim. Do you not answer my phone call anymore?
Warren: Oh, wow. So, when you look at anything that I do, my middle name is Everyday. It’s Warren “Everyday” Spiwack. You look me up on Facebook, you’ll see it. We really do work every day. And the thing about IBTX, I failed to mention this, but you just made me think of it, is we have an entire claims department. So, it’s not like the carrier claims. Like what, what does the normal agency do? They give you an 800 number to call. We have a real team of adjusters who will help you and your staff throughout the claim process. And we do it in a great way. Every single person that’s on our claims management team is an incredible person.
Karalynn: So, wait. You, as the insurance agent, helped me get everything together that I need to file a claim with the actual insurance company properly.
Warren: Yes. We hold your hand and walk you through, whether you’re a $5,000 a year client or a $500,000 a year client. Our philosophy has been something that, for me, was a big decision-maker for being with this firm, and that is you want to provide value to your clients that are above or better than what their value is to you in many ways. You want to give your client something that makes them say, you know what, this is not just every other agent on the street that does this. And so, we’ve designed this entire workflow and the way our teams work to be where it’s almost like you’re getting the Jedi Knights. It’s not like you just get Luke Skywalker. You get a team of Jedis that are helping you and working for you. And that’s why in the world where the average agent only keeps relationships for two to three years, we have some clients with us for decades. You know, our agency was established in 1946, and we have long-standing relationships, and to me, that’s the perfect way to kind of check the temperature on if you’re doing it right.
Karalynn: So, let me ask you a specific question. Okay. So, you said you help people get better rates. Let’s say I’m a material supplier. And I have guys on forklifts loading trucks, high risk, and every time I file a claim, it’s really hard for me to get worker’s comp. What can you do to help me get better rates? What can you suggest?
Warren: Outside of just the obvious thing, which is to have as many options as you can, have these competitors compete, make all the obvious adjustments, there is something that I have seen become a significant help to entrepreneurs, especially in the construction industry. That is going back to that manufacturing. I’ll give you an example of a client I helped that I caught in muddy waters, right? Where someone has a big problem. Well, this was a sign company, and this contractor was the person that not only erected the signs but also did manufacturing. Well, they had three fatalities in a year. This is before they were my client. The workers’ compensation was out of this world on the cost, and it almost put them out of business. Right. And then there’s a lot of heartbreak for the client.
So, when I came onto the scene, the one thing that I did is, I began to do my own personal inspection of what’s going on at the site. And what I found is these employees that were all, at the moment, being rated as sign erections. So, you have underwriters thinking that if you’ve got a million-dollar payroll and they think everybody’s 50 stories in the sky, putting up signs. Well, that makes the rate terrible. But what if I go in there and I find out half the time they’re actually manufacturing the signs. And that rate is a third of what sign erection is. And so, just that observation and acknowledgment allow us to go and do what any agent could do. They just didn’t do it. It’s just shabby work.
Another big mistake I see many people make is that the agents don’t explain audits, right? So you can have an auditable policy on general liability, but also every workers comp policy. People are familiar with that. Still, it often happens that you sit down with an agent and you’re making projections, and as a business leader, you’re projecting a great year. But what you really want to know, and this is something I love to do. It’s one of my favorite things. I teach my clients how to calculate the job costs for work comp or general liability. So, if it’s a two-piece math equation that tells you what a true job cost is for your labor, that helps. And when it comes to work comp, instead of having this giant balloon payment at the end of the year that you’re not comfortable with, there are ways to have real-time work comp and just pay every single month for what you’re doing. It’s about reporting and understanding how that works and choosing the right numbers when you go into renewal time.
Karalynn: I just can’t believe that insurance could be so easy that I call you and ask you these questions, and you can explain it to me in non-insurance terms. I don’t know. I’ve been in this business a long time, but I’ve never seen something like this offered where you’re so customer involved, and you want what’s best for the customer, as far as their insurance price, coverage, and helping them file claims. That’s huge.
Warren: You know one of my favorite stories? You know Drew Addison. I know you interviewed him just a week or so ago. Drew is a surety guy. And so, my entire career, I’ve never really been someone who specializes in bonds, right? And when I became a partner in shareholder at IBTX and Acrisure, one of the things that I immediately noticed in these different departments is our surety competency. And I started realizing that there are big mistakes that construction companies make and subcontractors make when it comes to the surety. And some of it is they don’t have it, so they’re not able to take on these big projects that they could potentially bid on. And the other thing that happens too is, maybe they’re not getting dividends that they’re entitled to. The thing about ratings and the way the process works is when you have somebody that specializes in it, and this is me tipping my hat off to Drew; I’ve seen it to where I’ve had a roofing client that always kind of made the same revenue, always kind of did the same stuff. They allow us for a moment to take a look at surety. And suddenly, we have them approved for a $2 million bond, and now they can start bidding on larger public projects. And so, one of our roofing clients this year has been able to take on a million and a half dollars in revenue that otherwise would not be available if I didn’t make them have this conversation. And they’re happy they did, and now their business is about to grow threefold. Yeah.
Karalynn: Yeah, which is better for you and better for them. Have you ever watched the Incredibles?
Warren: A long time ago, Yes.
Karalynn: Okay. Well, the opening scene is Mr. Incredible. One of the opening scenes. You know, incognito job as an insurance agent. I don’t know if you remember this kicks off a movie, right? And so, this little lady comes in, and she’s trying to file a claim on her policy, and they keep denying her. And he tells her under his breath, you need to go file this form, file it here and file it there, and he ends up getting fired for it. But that’s the view that everybody has on insurance, I included. And so, to hear that it doesn’t have to be that way is a relief.
Warren: Yeah. And you know, just notes, because I’m reading my notes as you’re talking, there’s different exclusions that I just want to say really, really put our people out in the danger zone. And one of the biggest ones is where your policy does not insure your subcontractors because if you have, whether you’re a GC or not if you have people coming in and doing different parts, you’ll be exposed somewhere. Like, think of a swimming pool contractor. They might have someone just coming in for the gunite, and if that person doesn’t have the same limits or better than what our client has, our client is exposed. And it’s so easy, it really is easy, to just incorporate this.
Karalynn: How much extra does that cost? Because like I have a client who is a roofing contractor, and he subbed out the work on a subcontract, but the subcontractor didn’t have any insurance. Then somebody fell and died, and his insurance wouldn’t cover it because it was a subcontractor. I mean, how expensive is something like that?
Warren: Interestingly enough, it’s not like a multiplier, right? Like we all know what a multiplier would be, where you’re just going, like, nope, not going to do it. These are very fractional percentages of what the total premium is. And sometimes, these things are negotiated with no premium change. Going back to the subjectiveness, I want you to imagine this for a minute, everybody. When you’re talking to an insurance company, and they see whatever that policy amount is, you know, there is a value to them to bring you on board and be your agent. If you’re someone that has a safety program in place, which we help you with, or if you’re someone that has a good loss history, which is something that most of our clientele have—and the ones that don’t go to the safety opportunity to try to mitigate those claims—you can actually get these companies to change the way the policies are written. It’s just adding what’s called an endorsement. And sometimes, it’s done with absolutely no cost.
And I see this often, where we’re just adding some sizzle to the steak to make it something that the client will go like, wow, this is an obvious decision, but it just depends. Now, just to clarify, I do need to add when you do have coverage for your subcontractors, what you need to know is, is that yes, there’s a rate for that. Remember what I said about payroll? You have to know that those subcontractors that don’t have their own insurance, those job costs will go towards the rating, right? And if you don’t know those things up front, you will find that they’ll be uncovered at the end of the policy, which goes back to that whole audit conversation.
But inside IBTX, we have partners like Tom Quintero or Drew Addison. These are talents that really, their skillset is very locked onto the industry. You know, when I come to the table, I bring a team of experts, and I bring a team that can do a 360-degree review of what you have. Our approach is not from a scarcity mindset where we’re trying to persuade you. There’s nothing salesy or gimmicky about it. It’s very much a consultation; take it or leave it. But, by the time somebody finds out what we’re showing them, it’s usually a no-brainer for them to say, you know what, why aren’t you handling this for us? Yeah.
Karalynn: Yeah, because, you know, I know people that fight every year to get their rates down. I just have a question. Do you cover health insurance as well?
Warren: Yeah, so we have an incredible benefits department. We bring in the top of the top, you know. We’ve got a couple of partners where this is what they do day in, day out for a lot of people and a lot of companies, and they do it all over the country. So yes, you get access to that. And we go, and we make these carriers compete. We have some other alternative options too because insurance agents often think very traditionally, but especially when you get into big business and have the ability to have 700,000 clients, what happens is carriers will make special programs. There are different strategies that they’ll allow you to implement so that you’re more competitive and you drive more business that way. So, we do all of that. It’s all-inclusive.
But I did note that Tom Quintero from my office told me to make sure I bring it up today, and I want to just throw it out there. There is a lot of litigation going on in the construction world right now, where people are talking about the statute of repose. And this is where attorneys are coming in, and they’re claiming construction defect and its triggering insurance. And it causes a lot of people headaches, and it’s a 10-year statute. And so, what you find is that what these attorneys sometimes do is they wait until the nine-year mark or nine-and-a-half-year mark and create this kind of drama, if you will. And this is what Tom was like, man, while you’re talking to Karalynn, will you just bring this up?
And so, it’s just one of those things you want to be thinking about it. You want to consider being proactive and really diving into duty to defend because insurance companies inside those general liability policies want to know what it says about duty to defend. Is the insurance company going to let you hire your own attorney? Are they going to make you use their attorney? Are they going to have a sub-limit where, oh, you know what I told you, you’d have a million dollars’ worth of coverage, but when it comes to the duty to defend, we have just a $50,000 limit? Those are all just things to know about.
Karalynn: You know, again, something like that, the attorney fee bill is so huge at the end of the day if the insurance company doesn’t cover that. Here’s a problem that a lot of my clients have. They go, okay, I did a job nine years ago. I had insurance with one company, and I get sued on it, or I get a notice of claim eight and a half years later with a different company. What insurance company would cover that at the time that the claim is being made or the time the project was being done. Just generally speaking, if they’re claiming I did bad work.
Warren: Okay. So great question. I’m going to get a little bit technical, but I promise I’ll try to use, um, I’ll try to keep it as general an overview as I can. But when I look at an insurance policy, there are two ways that liability is spoken for. One is claims made, and one is per occurrence. Now, when you have a per occurrence policy, let’s just say you’re with company XYZ in the year 2015, and you’re getting a phone call in 2021 saying that what you did in 2015 is a problem. Well, if you’re on a per-occurrence policy, you’re going to know that that policy will perform because the event happened in that time range. If you’re in a claims-made policy, what’s interesting is that that policy won’t pay in that because it’s not going to be retroactive. However, while you’ve had it, and this is the interesting thing about claims make because it gets confusing, but claims made means while I’ve got this policy from 2015 to 16 active, it’s not only covering you for what happens at that moment but anything that happened 10 or even 20 years before, only during that period of time. So, it’s kind of interesting.
Karalynn: So, if I write a policy with you for this year, claims-made, you’re going to cover my work up to whatever the statute of limitation happens to be, five or six years ago, even though you weren’t my insurance company at the time.
Warren: That’s right. It’s going to be because the claims are happening now; it’s going to perform now. But the day that that policy expires, there’s nothing left. Now it brings up one thing. I’m going to add a caveat to that which you hear about in the construction industry and the insurance world: Tail Coverage. Right? So, a tail is where, when you have a claims-made policy at the end of that term, an agent can sell you a two-year tail, a five-year tail, a seven-year tail. And so, you see that a lot on the professional liability. And just going back to like shabby work, it’s not always incompetence on your behalf that causes it. But let’s say you pour a slab, and it’s cracking, or it’s becoming de-laminated. Suppose you have the right coverage, like the rip and tear, or the coverage for faulty workmanship. In that case, you could have coverage, but that’s only usually in the professional liability portion of your portfolio. So general liability and professional liability, I just want everyone to understand this; those are two totally different things.
Karalynn: Yeah. General liability when you hurt somebody else. Right?
Warren: Yes. You’re talking about people and property, bodily injury, and professional liability. And when I do an application, these applications aren’t like flipping a hamburger. There are questions about, does your prospect offer warranties? Does your prospect offer drawings? Does your prospect do X, Y, Z, which includes all things related to design and engineering in some cases? And so, professional liability is what you need in that case. And in my opinion, why not quote it? Why not quote what it’s like to see the numbers for professional liability, which would include these coverages.
Karalynn: And so, if you got sued for bad work, you could just turn it over to the insurance company. And in turn, an attorney would defend you, and you just have to answer the attorney’s questions and that kind of stuff.
Warren: I guess. Yeah. I mean, at the end of the day, when that concrete slab is getting all funky, while your general liability is going to pay for the third party and pretty much not cover you for your work, this professional liability will kick in. You’re going like, man, I got to pull it out. At least it’s paid for. Man, I got to redo it. It’s paid for.
Karalynn: So, for like the general liability is going to cover if somebody trips on a crack and breaks their leg on the concrete. That will be covered, but not the concrete itself.
Karalynn: So, you need professional liability. Because I have concrete disputes all the time, and the PSI is not breaking like it should. And you know, I have guys that just come in and redo it, even when they’re in the variance and the standard. And so that’s just a great thing to have.
Karalynn: Now, let me ask you this particular situation. What if, as the insured, the person making a claim against me never gave me a chance to fix it. They never gave me notice, they fixed it, and now they’re suing me. Would insurance cover that situation?
Warren: So that would get into the duty to defend. So, if something was not covered, or you’re unaware of it, the duty to defend would come to play. But as far as the product performance, it really would just depend. The thing about my industry, which I think everyone should know, is that it’s more difficult to become a dang real estate agent than an insurance agent, honestly. So, it’s very scary when you think of going back to that question of like, who’s your agent and where can you go? I mean, to think that these agents, a lot of them have just spent X amount of hours studying for a test and made a 71, and now they’re protecting your $50 million business, or no matter what your revenue is, even. There are so many subcontractors we work with that are under the million-dollar threshold, but every little penny matters, and everyone’s got their hand in their pockets. In other words, every single vendor they work with is removing their profitability, and insurance has one of those highest line items.
Karalynn: Well, exactly. And if you don’t have anybody on your side, you’re kind of helpless because you don’t know.
Warren: Right. And you know what, there is something, going back to that analogy where we were talking about a plastic surgeon, that’s busy all the time with no advertising. That doctor is the kind of doctor that they’re going to sit down with you, and they’re going to give you the straightaway answer because they’re not doing it for the dollar, right? They’re successful. And so, I use fishing as an example. When you get on a fishing boat, you want to know that the captain knows what the hell he’s going to do. You’re going to have a great day of fishing. You’re going to catch a lot of fish. And if you just have someone that it’s their first day, or they never really prepared, you’re going to pay your $600 to get on the boat, but it isn’t going to do it.
Karalynn: You’re going to have a miserable time!
Warren: Yeah! So, it all matters. And you know, I want to tell anyone listening, if you have questions or if you’re just going like, this sounds like he’s talking from a different planet, you don’t have to figure all this out. We will do it for you. I’m not an attorney. I don’t charge by the hour. I literally only get paid when I find an amazing solution and a reason for you to become a client. So just know that not only do you get me and my team, but you get a whole network of people that we work with that are experts in evaluating and analyzing the risks.
Karalynn: Well, that’s amazing. And I truly appreciate all the information and you answering my questions that I’m sure many people have too because, you know, we’re not insurance experts. And like I said, I feel like when it comes to insurance, so much of the time I’m like out in the cold, right? I’m trying to make a claim even for my clients, and I get a denial letter. Then I get another denial letter, and I’ll have to file like three or four letters or sue them just to get coverage. And to hear that that’s not an issue with you is such a relief. And I highly recommend if you’re in the construction industry, you need to call Warren for your insurance. He covers everything. All his information will be in the show notes. So, I thank you again, Warren, for being on the show. Are there any last thoughts you want to add?
Warren: What you’re doing is fabulous. I think one of my favorite things is watching a contractor go from getting screwed to being in a really good spot or being able to avoid it altogether. And I think that’s what our mission is.
Karalynn: Well, let’s take that as painless as possible. We want them going from getting screwed as little as possible to be successful on all fronts. The better insurance you have, the better lawyer you have; these are all great things you need to have. Yeah.
Warren: Well, thank you for the opportunity. And I’m sure we’ll do more stuff together, Karalynn.
Karalynn: Oh, I’m sure we will. Thank you, Warren. Thanks.
OUTRO: Thank you for listening to this episode of the Quit Getting Screwed podcast. I hope you found it helpful, and if you like what you hear, please like us and follow our podcast. Do you want further information? If so, you can find us at subcontractorinstitute.com. We’re also on Facebook, LinkedIn, and Instagram, and the book is available on Amazon. Tune in two weeks now for a new episode. Thank you.
Connect with Warren Spiwak: https://www.linkedin.com/in/spiwak/