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 Insurance is like a good life jacket—when the waves are crashing around you, you need to have purchased wisely. Disaster awaits those who buy solely based on price. The float designed for the backyard pool is not appropriate on the high seas.

"There are several tiers of risk to cover," says Sage Khara, president of CST, Brea, Calif. CST merged last year with Nuprecon to become the second-largest full-service demolition contractor in the United States. "You need to protect your workers, your client, the site and adjacent neighbors," he says.

"Always buy a good site policy and general liability insurance," Khara continues. "And, make sure your subs have the correct liability insurance."

Recyclers and demolition contractors may question what coverage is necessary and how much coverage is enough.

"Policy size is always the million-dollar question," says Pamm Jardine, senior vice president of insurance broker Kibble & Prentice, Seattle. That figure will be driven by the contractual requirements of the prime contractor and the comfort level of the company owner.

"Another couple of thousand in premiums for another million in coverage is probably worth it," she says. "It all depends on how comfortable you are with the limits of the policy."

Most C&D recycling operations would already have equipment insurance (covering a physical damage loss to their owned or rented equipment), auto insurance (covering physical damage to their own vehicles, the liability caused by any bodily injury or property damage to a third party they may cause by the operation of their vehicles), general liability (GL) insurance (providing liability coverage for property damage or bodily injury that the insured becomes legally liable for, including liability claims arising from the operation of equipment at a job site), workers’ compensation (WC, injury to employees in the scope of their employment) and an umbrella policy (providing extra limits of liability coverage above the underlying auto, GL and WC limits, typically in increments of $1 million).

"Other policies and endorsements could be needed," says Ron Hallmark, senior vice president at Hibbs-Hallmark & Co., Tyler, Texas. Hibbs-Hallmark is an independent insurance agency that insures many C&D operators. "USL&H (United States Longshoreman & Harbor Works) is needed if you perform work next to a waterway." Hallmark adds that stop-gap coverage is required by contractors or recyclers working in certain monopolistic states, while equipment breakdown coverage provides insurance in the case of the breakdown of critical revenue-generating equipment.

Additional coverages to consider are pollution coverage to cover the cost of an environmental cleanup claim, coverage for property of others in case a demolition contractor becomes responsible for the property of others during a job, coverage for motor truck cargo and coverage for subcontractors who are not adequately insured.

"We typically find that most demo contractors do not carry a pollution policy because they don’t think they need it," says Nathan Brainard, vice president of the environmental division for the Insurance Office of America, Longwood, Fla. "This is incorrect," he warns. Even if contractors sub out asbestos, lead and mold abatement, they still have an exposure, particularly if the subcontractor goes out of business.

A second example might be a truck tipping and spilling into a retention pond, killing fish. Most contractors think their auto policies cover such an incident. "That is also incorrect," Brainard says. The definition of pollution in an insurance policy is basically "any solid, liquid or gaseous form not indigenous to an area." He notes that it is very broad in scope, and, technically, anything can be considered pollution. "It doesn’t have to glow in the dark to fit the definition."

Depending on the job, insurance requirements for a contractor or recycler may change. "That depends on the contract and the job," says Paul Zeni, vice president of Apollo General Insurance, Sonoma, Calif. "That is why it’s important to have an experienced insurance broker who specializes in working with C&D or demolition contractors and can review the contracts and advise accurately."

Jardine says that coverage should expand as a contractor or recycler grows in the marketplace. "As you get more clout in the marketplace, you will get better placement," she says. On the other hand, she says, "It can get expensive. If you don’t do a particular service, then why spend the money to cover it?"

CHOOSING AN AGENT

Every recycler should do his or her due diligence before buying any product—but especially insurance. That starts with checking the insurer’s AM Best rating. "Be sure the company has brokers dedicated to the business and knowledgeable in this industry," Jardine says.

"Some lower-end outfits will show a buyer general liability coverage," says Michael Taylor, executive director of the National Demolition Association, Doylestown, Pa. "But, if you read the policy’s fine print, it will specifically forbid demolition work." The same holds true with WC policies. A policy written to cover excavation, landscaping or construction work typically excludes demolition.

In some states, a general policy will run $7 per $100 of coverage, but a demolition contract can run $23 per $100. A company’s safety record also can be a big factor affecting insurance rates.

"It’s important for the buyer not to look at the bottom line but at their coverages first," says Bob Elster, president of Apollo General. He knows everyone looks at costs, though coverage drives payment of claims, he says. A couple of hundred dollars more will buy several millions of insurance—a useful purchase if a company truck hits a school bus.

Hallmark says most customers have a written contract the contractor must sign that details insurance requirements. "Most contracts require the addition of Additional Insured and Waiver of Subrogation and possibly Per Project Aggregate endorsements, which are often an additional cost to the contractor unless they already have blanket endorsements contained in their policies," Hallmark notes.

A call to an insurance agent usually is sufficient for adding new equipment to a policy since equipment policies generally require that each item to be covered must be specifically scheduled on the policy.

Often, recyclers will rent a specialized piece of equipment for a job. The coverage for these rented items may be handled by the equipment policy through "rented and leased" coverage, or the recycler may purchase the coverage through the equipment rental company, though that is normally a more expensive option.

The run-of-the-mill C&D grinder usually is taken into consideration under the GL.

"For the most part, it does not make much of a difference if grinders and screens are used," Brainard says, adding that this is another reason for C&D contractors to have pollution coverage. "Most policies exclude coverage for silica and silica-related claims," he says. As concrete and other rock is ground down it releases silica dust into the air."

Zeni says, "An underwriter looks closely at a firm’s financial condition, management’s experience, safety programs and loss ratios to better price an account."

WHAT TO COVER

Taylor insists it is vital to have demolition-specific policies. He says most C&D recyclers should focus on their vehicles. "That’s where most accidents happen."

Hallmark and Elster agree most demo contractors have fairly standard liability limits of $2 million aggregate and of $1 million per occurrence on GL, $1 million on workers comp and $1 million on auto liability. "This would be the minimum requirements from most of the larger customers or site owners," Hallmark says, but in many cases demolition firms are required to provide higher limits, which the umbrella policy can provide.

Apollo General, for example, provides $5 million coverage.

As a group, CST and its sister companies carry $100 million in insurance. While the base policy is $5 million, Khara says the company has several $25 million tranches that are tiered above the basic policy to cover pollution, accident and general liability. "We’ve created a laddered coverage system," he says.

CST’s auto insurance stops at $50 million, Khara says, because most states cap payouts at that level. "We use our insurance consultants and attorneys to be sure we are insured for the right amounts."

It is more likely for a contractor or recycler to have a truck stolen than it is to have a job site fatality. "Most industry accidents happen over the road," Taylor continues. "That’s why you need good auto comprehensive insurance."

Brainard adds, "The main factors a carrier wants to see are experience in this type of work (resume, years in business, etc.), loss runs (to see how the claim history has been) and strong financials."

Many companies don’t understand why financials are important to an insurance carrier. "The carrier wants to make sure that the company has enough money to maintain their vehicles and equipment," he explains. "If these are in good working order, have been serviced, etc., there is less of a chance that an accident will be caused due to maintenance neglect (an example might be equipment catching on fire). If the company does not have strong financials, the carriers will begin to wonder what areas of upkeep the insured might be omitting to continue operations," he adds.

Zeni notes that underwriters have at their discretion the ability to price an account more favorably based upon the thoroughness of a client’s safety program, but, ultimately, on the frequency of losses. "You can have an excellent safety program, but if you have a frequency problem…frequency leads to severity," he says. Recyclers can curb this problem by working with in-house or independent safety consultants, equipment manufacturers and insurance company loss-control representatives.

LOSS OF TIME

Time is valuable, and the loss of a key piece of equipment will cost time on the job. High-powered equipment such as concrete crushers or high-horsepower wood grinders can be insured just like any other piece of equipment for direct physical damage on an equipment (inland marine) policy.

"What makes these items unique is that there are risks associated with this equipment that would not be covered under an equipment policy or a property policy," Hallmark warns. Consider the result if a concrete crusher has a sudden, accidental breakdown not caused by some direct damage like vandalism, but rather something that failed in the machinery and had a domino effect causing substantial damage throughout the machinery.

"This is not typically covered under traditional property or equipment policies," Hallmark says. "This type of risk would need to be covered under an Equipment Breakdown (Boiler) policy, to which you can add Business Income and Extra Expense endorsements," he says. The underwriter will note the age of the equipment in question, its use, the maintenance program in place, replacement cost, availability of spare parts, a written emergency plan to follow in case of such a breakdown and the like.

Elster notes that something as simple as working height limitations in a policy can leave a demolition contractor high and dry. "If the policy is limited to two or three stories, you are not covered to take down a five-story building," he says.

Elster says it is more efficient to buy unlimited height coverage up front. He says it is cheaper than buying reinsurance or single-site coverage and frees the contractor from having to monitor an additional concern.

Each of these various coverages affect how high or low a company’s insurance premium will be.

The insurance brokers contacted for this feature say the biggest mistake recyclers and demolition contractors make is not paying attention to the insurance requirements of the prime contractor or failing to have a sufficient umbrella policy to meet the contract’s requirements. "That’s why you should run the indemnification past us before you bid the job," Jardine concludes.

The author is a contributing editor to Recycling Today based in Cleveland. He can be contacted at curt@curtharler.com.  This feature first appeared in Recycling Today’s sister publication Construction & Demolition Recycling.