Liability Insurance

General liability insurance should be one of the first types of policies you will buy if you are starting a new business, or becoming a self employed contractor. 

Starting your own company is popular these days with the layoffs we are seeing in the New Zealand economy. Most people try to pursue something that they love doing, so a high number of people starting new businesses do so around around their core skills. But just because you have above average knowledge of your secto doesn't mean you know the best way to protect yourself and your company from lawsuits.

Choosing Insurance

Here are some tips for pitfalls that you should avoid when buying general liability insurance. 

Choosing the right agent. The first place people generally go for their business insurance is the insurance agency that handles their home and auto insurance. In some cases this will work out well. But the risk is that your current agent may be licensed to sell you general liability insurance on your new company while really possessing very little experience in evaluating the hazards and risks of your specific type of company.
We would recommend that you look for an agent that specializes in insuring other small businesses like yours. Ask your competitors who they used.  Look for a company that just caters for niche specialty / contractors  that whay they will understand your language and understand the needs.
 
Claims Made or Occurrence Policy Type: Construction claims made policies became popular in the mid 1980's and have been around ever since. The promise of these policies were lower rates, but at what long-term damage?

In some instances there is no cost savings. Claims made polices for a contractor are the worst possible policy you can buy.

Why? Claims made policies allow you to make a claim on your policy only during the year they are in force. However many contractors  issue warranty on thier work completed and then find that yhey have claims down the road, that are not always in the same year as the project is built! Also,  you could find that if you leave one company to to to another company your insurance would be void. leaving you to purchase additional insurance to cover you for the next period of upto 10 years or the amount of guarantee that you offer.
 
An Example:
You build a new room extension for your client, everything goes well and the customer is happy with the final build. 13 months later, your customer calls you and says that the roof has started to leak and water has flooded the room and destroyed his home office! He expects you to repair the roof, the drywall, wallpaper, carpets and, of course, replace the his computers and server.

A claims made policy will not allow you file a claim 13 months later unless you were still sub contracting with that same company the whole time. If you intend to change companies after you have had a claims made policy, you must make a decision. If you want to have protection for any claims that have not occurred yet, but will in the future, you will have to purchase "tail" coverage. This coverage will extend the time in which you can file a claim. And tail coverage is not cheap.

If you decide not to buy the "tail" you will not be able to report a claim against the claims made policy. When your claims made policy comes up for renewal, you must decide:

•   Do I leave the company and pay the additional insurance for coverage for further years, or go without protection.
•   Do I stay with the same company? Their prices on the new year may stay the same or go up sharply.
•   Do I switch to another company who has better rates and coverages?

 
This limits the marketplace available to you, and makes it harder to accept a better bid from another insurance company. Claims made policies may work in other industries, but for Contractors they are a disaster.

Take time after reading this guide to see if your current policy is either an occurrence form or a claims made form!