Commercial Liability Policy

Justin PiercePro Member

Rental Property Investor · Woodbridge, VA · Member since 2008 · 543 posts · 121 votes

12y

J, try an insurance broker. They have many different options for you. I use the Clifton Agency . They're in Virginia but the cover my Maryland projects.

Eric Belgau

Insurance Agent · Olympia, WA · Member since 2014 · 168 posts · 88 votes

12y

One part of selling insurance is explaining insurance products to clients. Another and more involved part of selling insurance is explaining risk to underwriters.

The risk analysis also depends on how you structure the company. Is this entity separate from your real estate investment entity? Is it all one company? If it's all one company, it will be harder to find coverage. If it's a separate company, you'll likely pay a premium because it's a new venture.

Because your situation is complicated, your best bet would be to find the most reputable broker in your area, talk to that office's best agent for the building industry, and figure out how to put the package together. That agent will know how to structure the applications so that the underwriters can understand the risk and rate it appropriately.

You may have to go this route, since contracting risks have taken some hard hits and a lot of preferred carriers have backed off of that business in various areas. But that doesn't mean you can't find coverage, or even good and affordable coverage. I'm not licensed in Maryland, but here in Washington, unless you have a really sketchy claims history, I wouldn't see an obstacle to finding you coverage.

Because I'm not licensed there, take my comments with appropriate skepticism.

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Joel OwensBusiness Member

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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes

12y

I have found with insurance companies they like the vanilla stuff for the best rates. Anything outside the norm or set up differently than what they like to underwrite they do not want it.

I talked to USAA when I owned my apartment buildings. They wouldn't insure them because of the age 30 years old. They said it's just their policy rates are so low that the pool of owners grouped together have newer structures with brick etc. and other features to keep policies premiums low for everyone. They mentioned niche insurance providers who specialize in that type of product would likely underwrite it but policies were more expensive. Also I found some insurance companies hold you hostage and will not do things unless all your business is with them. Eventually I think you will find someone who will do it but you might not get an ultra low vanilla rate you probably want.

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J ScottPro Member

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Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes

12y

Thanks everyone...really appreciate all the great advice!

@Eric Belgau - Two questions if you don't mind:

1. Other than asking around, is there a good way to find a reputable and knowledgeable broker?

2. Perhaps I shouldn't, but it feels a little weird to walk into an insurance office or ask to set up an appointment. It seems like all the insurance brokers just want to take my info over the phone and not really spend any time other than what's necessary to fill out their application. Should I just walk in? Or should I ask to set up an appointment?

Andrew K.

Contractor · Bethesda, MD · Member since 2013 · 22 posts · 9 votes

12y

@JScott

That seems bizarre that they won't underwrite a policy for you. I am no insurance expert but my guess is they're getting too caught up on things being between "two industries". They like it when you are specifically this and do specifically that. I haven't found too many who have been willing to think outside the box. If you just say you're a GC period, they won't blink an eye.

To my knowledge in Maryland if you are considered a developer you do not need to get a GC license since you are not the one performing the work. Now, I am assuming you're getting a MHIC license because you want to hire independent subs for different trades/ would hire someone in house (or yourself) to manage the project instead of just hiring a singular GC? If this is the case, why don't you form a GC company (separate from Lish) and have that insured? Erie provides a very simple contractor policy (as do most other providers). This is essentially where you're heading by getting a contractor's license to begin with.

I am a contractor currently, and my plan as I get into the real estate side of things is to hire my GC company to do work on the properties my development company will be developing or flipping. That way I keep control of costs/work, but am covered both ways.

Don't know if that helps at all, but thought I'd weigh in. Is this different from what you did in Atlanta? How were you able to manage projects there without a GC license?

3 Reply

Donald Stevens

Detroit, MI · Member since 2009 · 114 posts · 40 votes

12y

In insurance a big factor in determining if someone is a GC is by how many reciepts minus contracted labor. If you contract out 70% of labor than the insurance company will call you a GC. GC insurance is relatively expensive because of the risk posed by mutliple contractors working on the job with multiple skill sets and reliability. The insurance company does not underwrite the contractors but they take the risk to some degree when the company insures the GC.

No matter what you call yourself, the work you do and how you pay people will be the main factors in the insurance companies classifying your business. You can say your a builder, or gc, or finished carpenter but your license, reciepts, and 1099's may tell a different story. Insurance companies are in the business of evaluating risk and new businesses are the most risky because the carrier doesnt have any history to evaluate the risk. Also your not the first contractor trying to get insurance so the companies can be pretty savy at determining what your business is and if they want the risk. Truthfully, if the business discription starts to sound "fishy" many agents will tell you they dont write that business when they actually do because they dont want to be "tricked" and then possibly lose a contract with the insurance company.

If it were me I would try Burns and Wilcox or an MGA like that. They dont write directly with the public but they can refer you to an agent that can quote your policy. If an agent works with B&W, they probably work with a few other MGA's so they can shop around for you. I believe USLI or maybe Lloyds or Zurich might be a good fit for you but they have to be purchased through an agent that works with one of the MGA's that offers one of those companies. You need a company willing to write insurance for a new contractor and these companies have a niche in the industry. After 3-5 years you can then get insurance with a traditional admitted company if you dont have any claims.

Investor · Jessup, MD · Member since 2013 · 437 posts · 180 votes

12y

Seems weird to me that Erie gave you the reply "I was told by one agent that Erie Insurance has backed off writing policies for homes being resold"

I just received a policy from an agent with them. Maybe my policy is different but here is what is covered (typing directly from policy) its a 1M and 2M general Aggregate.

"Insured Operations"

Dwellings, One Family, Under Renovation Including Products, Completed Operations.

Contractors-Subcontracted work. In connection with Building Construction, Reconstruction, Repair or Erection. One or Two Family Dwellings Including Products, Completed Operations,

Capentry, Construction of Residential Property Not Exceeding Three Stories in Height.

I am not sure what you need, but I asked for a policy that would cover me when I get my GC license for my company to utilize.

Hope it helps, but if you want to call my contact, let me know, and I will tell them exactly what policy I have if you want something similar.

Eric Belgau

Insurance Agent · Olympia, WA · Member since 2014 · 168 posts · 88 votes

12y

Ditto to what Donald Stevens said.

I checked around in the office, and no one here has experience referring someone to a broker in Ellicott City. You might talk to the office Justin Pierce suggested above or look at the ratings on Angie's List - which, incidentally, claims that 14 brokers in your area are "top rated." Of those, I assume that at least one will be willing to give you guidance.

I would ask for an appointment, and be up front with what you want from the brokerage from the word go. If our receptionist gets a call for someone who's looking for a quote, she'll put them through to one of the agents who will quickly collect the information and generate a quote. If someone calls in saying that they really need guidance, then she'll give them to the agents who take more time.

Chanté Owens

Insurance Agent · AZ · Member since 2013 · 306 posts · 161 votes

12y

@J Scott I agree with @Eric Belgau, and some other posts, that it sounds like the companies you contacted didn't want to be bothered with anything that wasn't "vanilla."

I worked for an E&S carrier for over 8 years, and we had HUGE policies for contractors/builders, etc. Now, with that being said, some of our policies were not ISO based (these are standard policy forms; I won't get too techy with it); we actually wrote and created our own forms based on very non-vanilla risks.

The E&S/Surplus/Non-admitted (the same thing, but they use the names interchangeably) carriers are typically made available via MGA's (managing general agents) that work with carriers who write that business.

Every state is different, but here in Colorado, you need to have 3 admitted carrier denials to write your policy, before you can obtain an E&S policy, and it will be more expensive (generally speaking). I don't know if you will need an E&S policy, but if you have risks that the standard carriers just don't either a. want to touch, or b. understand, then you may continue to get the proverbial brush off.

I'd chat with some GC's and such in your area and see who they have their policies with, understanding that your needs may not match exactly with what they have, but it may be a start, and perhaps they can assist in guiding you in the right direction if you can't find a competent broker to help you out.

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J ScottPro Member

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Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes

12y

@Donald Stevens, @Wade Sikkink, @Tyrus Shivers, @Justin Pierce, @Chanté Owens, @Joel Owens, @Andrew K., @Eric Belgau -

First, thank you all for taking the time to offer advice and guidance, I truly appreciate it!

Andrew K. suggested forming a company separate from the company that buys/owns/sells the houses, using that company as the GC arm of the business, and then just getting me and that company insured under a GC policy. To the others who are familiar with this industry, does that sound like a better way to go?

It's certainly more easy to explain to an insurance broker -- I can basically just say I'm a GC and leave it at that (don't even need to mention that my other business is the only client). Or would it be better to keep my GC activity aligned with my rehabbing business and try to get a policy for a single entity that does both?

I'll certainly make an appointment to sit down with a couple brokers in the area (thanks Eric) and will give B&W and Tyrus' agent a call (thanks guys...I'll shoot you a PM, Tyrus).

One last question to folks who are on the inside of this business: If I call an insurance agent who runs my application through a particular carrier, is there any use in calling other agents who would run through the same carrier? For example, if two agents run my app through Erie, will Erie evaluate them independently? Or will the second app get "flagged" as a duplicate and won't even be considered? I only ask because I don't want to waste time sitting down with a broker who is going to run the application through a carrier that's already turned me down.

Investor · Jessup, MD · Member since 2013 · 437 posts · 180 votes

12y

J,

Just in business in general it is usually a good thing to separate entities. That how the big companies and corporations do it. No matter the industry. So I agree with forming separate entities.

I plan to have one to buy and sell, one for renovation, one for project management, and then another for buy and hold. This is my five year plan. May be extensive, but I am building for my children an organization with many legs to leverage many aspects of real estate not to mention other companies that I am involved with.

I am not sure about running your application twice through the same carrier. I will give my agent a call in the morning and find out, if you do not have the answer tonight.

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J ScottPro Member

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Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes

12y

Originally posted by @Tyrus S.:

Just in business in general it is usually a good thing to separate entities. That how the big companies and corporations do it. No matter the industry. So I agree with forming separate entities.

The biggest benefit (to me) of keeping everything under one entity is that I'd then get the liability protection as both the owner/seller of the property and as the GC, thus reducing my risk. If instead I create a separate company for the GC business, I then will get the liability policy for that business, and (unless I get a separate policy for the rehab business) have no liability insurance for buying/selling business.

But, that's still probably the way to go in this case...

Donald Stevens

Detroit, MI · Member since 2009 · 114 posts · 40 votes

12y

Most commercial companies use a single database so when one agent quotes you it "locks out" all other agents from quoting it. Not sure if its that way with Erie but it is with Travelers and Hartford.

Investor · Jessup, MD · Member since 2013 · 437 posts · 180 votes

12y

Definitely it would be much easier and simpler to have an umbrella for the one entity and it cover all aspects. That should be possible. Because right now I have one entity and my policy allows me to do renovation.

I think and was advised that having separate entities as you grow offers more protection. Of course it is not fail proof, but for instance, if I have just one company with everything underneath it, then it can easily be sued for everything. However, if I have 4 entities, and the project management is having legal woes, then it will have to deal with it. Of course a savvy attorney may go after my other entities if that one cannot resolve the issue, but it will not be simple.

My attorney, cpa, and business mentor all advised this and I see that major corporations do it this way. Even defense contractors hold their "programs or projects" in different LLCs when working for the government.

So all in all it may be the route to go, especially if you are having problems getting insurance, I will still contact my agent and get you more information. I will follow up with you tomorrow.

Goodnight,

Derek T.

Real Estate Investor · Prince Geroge's County, MD · Member since 2012 · 392 posts · 104 votes

12y

J, my previous project manager who had his GC license in Maryland and was an investor himself used All Resource Insurance Inc. Can't tell you much about them other than they are local and he is doing the same thing you are trying to do. It's worth a call......they are located at 8717 Belair Rd.

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J ScottPro Member

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Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes

12y

Thanks Derek!

Shannon Ashby

Insurance Agent · 30043, GA · Member since 2008 · 9 posts · 2 votes

12y

@ J Scott... I'm an Insurance Broker here in Atlanta, GA. The answer your question.

1. Other than asking around, is there a good way to find a reputable and knowledgeable broker? In my state we have an organization called the Independent Agents of Georgia that can advise the consumer on local agents in the area. Because your in Maryland you would go to the site (The Independent Insurance Agents of Maryland) the will be happy to advise on the best independent agents in your area and what they specialize in.

2. Perhaps I shouldn't, but it feels a little weird to walk into an insurance office or ask to set up an appointment. It seems like all the insurance brokers just want to take my info over the phone and not really spend any time other than what's necessary to fill out their application. Should I just walk in? Or should I ask to set up an appointment? Often times the reason we take information over the phone is because a great many times the prospective client doesn't have the time to come in, so email and phone works. But personally I would prefer my clients to come into my office. After you've decided on a broker I would then suggest that you go into to the office that way you can get a feel of their personality. Personally I like to have a connection with someone before I'll do business with them...but that's just me.

One last question to folks who are on the inside of this business: If I call an insurance agent who runs my application through a particular carrier, is there any use in calling other agents who would run through the same carrier? For example, if two agents run my app through Erie, will Erie evaluate them independently? Or will the second app get "flagged" as a duplicate and won't even be considered? I only ask because I don't want to waste time sitting down with a broker who is going to run the application through a carrier that's already turned me down. You need to find a broker who can write through or has access to many different carriers, usually their website will provide a glimpse of that information. Most Brokers will be able to write through most major carriers it just depends on their appointments. At my firm we use all the major carriers such as Zurich, Philadelphia Insurance, Travelers Donegal, Grange etc...then we broker out to other companies such as Orchid, Burns & Wilcox, Hull Company, who can write Lloyds, Lexington etc...the list continues. Because we are appointed with a lot of companies and we a broker out it gives us endless amounts of carriers to write through. If your concerned about being denied call back the agent (s) that turned you down and find out which carriers denied you that way you can provide that list to your broker. Your broker will probably still run your info because it may be human error as to why someone was denied. Also I've never had a carrier flag someone due to placing the same app with other brokers, but I guess anything is possible.

Rick Baggenstoss

Developer · Decatur, GA · Member since 2011 · 1k+ posts · 1k+ votes

12y

I think the breaking the business structure down will help you achieve the 'vanilla' status AND provide you with layers of protection. You also need to compartmentalize the risk (for them and you) so it fits into a specific category of company.

For example.

1. Buying/Selling/Holding Entity (one or many companies with different ownership, JVs, etc.) - This company does marketing for purchases, holds and contracts for rehab on properties. (Property and some liability per entity with limited exposure e.g. <$500k to $1M.

2. GC/Rehab - This company is a service provider for managing the (re)construction of single family residences in your state. Contracting, coordination, payment, code compliance, reporting, and oversight of subs are primary duties. One employee, you. You can get project-based insurance and some over-arching.

3. Property Management - Management of 3rd party properties.

4. Holding Company - Overarching entity which invests in other companies and projects including the above. This is an added layer of protection when something doesn't fit in with the rest, eg. JVs with others, Hard Money, writing, blogging, company car, etc.

5. You/Your Family. Personal assets. Home, personal auto, umbrella.

Rick

5 Reply

Investor · Jessup, MD · Member since 2013 · 437 posts · 180 votes

12y

@Rick Baggenstoss

Rick,

That is the structure I am going for in my business model. It is highly advised in many circles of entrepreneurs. I say that because if you just focus on real estate in one area, then that may not be sensible or needed, but if you intend to build a brand and use it in many areas, then you need the structuring and the ability to scale and expand.

Investor · Jessup, MD · Member since 2013 · 437 posts · 180 votes

12y

I did some calling around to different places and this is what my process was like:

I told them I was going to get my contractor's license and I wanted a policy that would cover me. They then asked, will you be doing the work or will you be hiring it out to subs? I said hiring it all out to subs. Then basically they said that is known as a "paper only" contractor meaning I am not doing the work, and they do not like to write policies for that. Not that they will not, but it is unfavorable.

Also, I found out that if you are turned down in the system it shows up, but only if the agent processed an application.

I will send you a PM with my contact, because I spoke to her, she told me she would help you as much as possible. Erie is who they are under, and I told her you spoke to an Erie rep before.

Now with all that said, I told her that I was going to get my license and she said she would put on my form that I will provide proof of insurance for all subcontractors and manage them that will help it not to see like I am just a "paper" contractor. Since I was already approved for a policy it will just be an added operation.

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J ScottPro Member

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Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes

12y

Originally posted by @Tyrus S.:

I told them I was going to get my contractor's license and I wanted a policy that would cover me. They then asked, will you be doing the work or will you be hiring it out to subs? I said hiring it all out to subs. Then basically they said that is known as a "paper only" contractor meaning I am not doing the work, and they do not like to write policies for that. Not that they will not, but it is unfavorable.

Yes, this is basically a construction manager or paper contractor role, and you'll definitely find it hard to get insurance if that's what they think you're doing. The reason being, it sounds like you'll be sitting behind a desk while your subs are out there managing themselves without accountability. That will scare an underwriter... :-)

When they ask if you'll be subbing all the work out, the better answer is that you'll be subbing out all the construction work and that you'll be on-site as the managing supervisor.

At least that's what I've come to realize over the past week calling lots of agents/brokers.

Btw, thanks for the email with your agent's info...I'll certainly give them a call...

Lucas Pfaff

Realtor/Investor · Philadelphia, PA · Member since 2012 · 114 posts · 38 votes

12y

@J Scott I am in an almost identical situation to you. I have been very happy with the broker I use just outside of Philadelphia. I am not certain what geographies they get involved in (I'm based in Philly), but I would recomend a call to them. The company is Liberty Property Insurance (http://www.trustlibertyinsurance.com/). Ask for Zach Shamberg.

Good luck!

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J ScottPro Member

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Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes

12y

Originally posted by @Rick Baggenstoss:

I think the breaking the business structure down will help you achieve the 'vanilla' status AND provide you with layers of protection. You also need to compartmentalize the risk (for them and you) so it fits into a specific category of company.

Hey Rick,

Thanks for this. I spent a couple hours last night talking through everything last night, and we came to a similar conclusion. Basically, one LLC for building/flipping (with appropriate liability/property insurance), one LLC for rentals (with liability insurance provided as part of the landlord policy for each property), and one LLC for my GC "business" (with a commercial liability policy). And I keep a large personal umbrella family to cover personal assets.

The one benefit of combining the GC and the rehab businesses was that I could get one commercial liability policy that covered both aspects (rehabbing and GC license), but if that were an easy thing to do, I wouldn't have started this thread... :)

Only remaining issue is that the GC business likely won't generate much/any income (I have reasons for not wanting to pay myself from the rehab business to the GC business), so I'll have to try not to have too many expenses associated with the business (so the IRS doesn't deem it a "sham" business to generate unwarranted deductions). But, that's not a huge problem and something I'm sure my accountant can help with.

Christopher Caporale

Real Estate Investor · Philadelphia, PA · Member since 2013 · 3 posts · 1 vote

12y

@J Scott

Hi Scott,

I'm an intern at a commercial liability insurance company in Wayne, PA (15 miles outside of Philadelphia) and they have a ton of real estate investor clients. It's the best company you'll probably ever get insurance from. When I plan on getting started in REI I am 100% using the company I currently work at. Its called United States Liability Insurance Group(USLI) and its owned by Berkshire Hathaway.