Increasing Limits for Projects

By Jamie Lewis, Assistant Vice President

As the economy continues to strengthen, you may find that your insureds are sending more insurance requirements for prospective contracts to review. You skim through your client’s latest agreement, a local HVAC contractor that you have placed policies with for many years. The contract seems pretty standard thus far: $1mil/$2mil GL limit, WC, Auto from an “A” rated company, 30 day notice of cancellation and Contractors Pollution Liability coverage. Fortunately, you presented a CPL option to your insured a few years ago during their renewal. With the help of your broker, you thoroughly explained their pollution exposure and the value in carrying this coverage. Since this coverage is still current, it looks like your client should be in full compliance of this contract. You are about to respond and hope they are awarded to job, when you see that the CPL limit that is required is much higher than what is in place now. For such a small potential job, is the cost of increasing their policy limit worth the prospective revenue?

Your broker quickly comes back with the cost from the carrier to increase the insured’s entire CPL policy limit. While it’s a minimum premium per layer, it is much more than your insured anticipated paying to earn just one contract. It’s also the only contract so far that has required such a limit. Will this even be needed after the job is done? You don’t want your client to turn down the offer, especially since this could lead to additional calls from the same General Contractor. Clearly the GC understands how the operations performed by your insured carries a pollution exposure. There must be a way to control the cost of the policy and still obtain the limits they need to begin the work.

After discussing why the limits are needed, your broker suggests providing “extra” limits on the policy for just this project. The insured can keep their lower limit structure for all other jobs, but additional limits may be provided for just this one contract to satisfy the requirement. Since the carrier is not increasing the occurrence or the aggregate limit for the insured’s annual exposure, simply just for this one smaller job, it may be much more cost effective. In order to provide an accurate additional premium for this endorsement, the company requests the following additional details that were not originally provided: project name, duration, contract number, location, description of services to be performed, and expected revenue for just this job.

The additional premium to add a project specific Excess limit endorsement for this one contract is much more attractive than the original proposal to increase the entire policy limit. Your insured reviews and agrees that this charge will make the project much more profitable for their company. They are pleased that they will be able to accept and comply with the requirements from this particular General Contractor. The insured understands that the additional limits apply to just this project and any other contracts will be subject to the original CPL policy limit. Having a CPL policy in place also helped your insured anticipate their annual insurance costs when planning for the year. Purchasing a project specific excess limit endorsement became one minor unexpected expense.

For more information on project policies or increasing limits for projects, contact us.