By William Burke, Risk Strategies Company

An insurance supplemental application is dreaded by agents and contractors alike. Most people involved with commercial insurance placements have completed a “supp app” as many call them. They are long, confusing, required and therefore synonymous with ‘punishment’. But for contractors wise enough to take a step back, they offer useful advice.

Supp apps offer incredible insight beyond what an underwriter likes or doesn’t like about a business. They can actually give the applicant invaluable clues into what can cause a catastrophic loss to a 3rd party or to the applicant’s business – which typically go hand in hand.

Let’s take a look at some examples of questions found on various supp app and see what we can learn from them. Below are questions taken directly from an Artisan Contractors Supplemental Application:

• Does the applicant have the following contract management controls in place:

• Legal counsel has reviewed contract language within the last three years? Yes No

• Applicant requires certificate of insurance and has suspense system for tracking? Yes No

• Applicant requires a listing of all endorsements on the certificate? Yes No

• Applicant obtains copies of additional insured endorsements? Yes No

• Applicant maintains project files with contracts, certificates, and additional insured endorsements? Yes No

• Applicant requires copies of subcontractors’ insurance policies be available upon request? Yes No

It’s not uncommon for subcontractors to also have their own subcontractors. Many small and emerging contractors lack the resources to hire an attorney to review construction documents. While insurance brokers and insurers can help bridge this gap, a contractor’s broker typically cannot provide legal counsel beyond insurance requirements and indemnity agreements.

Investing in legal guidance upfront can save thousands in the long run. Additionally, tracking Certificates of Insurance (COIs) is essential for coverage and audits. Go a step further by obtaining subcontractors’ additional insured endorsements—policies vary, and gaps in coverage can be costly. Identifying and addressing these gaps before work begins can protect both the contractor’s insurance, balance sheet, and peace of mind.

• Is the applicant involved in any third-party design, consulting, project management, or inspection? Yes No, Explain.

• Does the applicant have a professional liability or contractor’s errors & omissions policy in place? Yes No

The conversation about whether or not a contractor should carry contractor’s E&O insurance is always a tricky one to navigate. Even if the contractor is farming out the design responsibilities, this does not always alleviate it from a professional obligation. Another claim scenario can fall under a contractor’s faulty workmanship, which is rarely covered by the general liability policy. While these policies are not always the cheapest, an E&O policy can be a stand-alone ‘professional’ liability policy or as a ‘faulty workmanship’ policy bought through the general liability carrier. Further, E&O coverage could save a specialty contractor’s performance bond (when required), if the contractor caused damage to the project or its own work. Settling the score with an E&O carrier is easier than trying the same with a surety.

• Are Motor Vehicle Records (MVRs) checked annually on all employees? Yes No

• What constitutes an unacceptable MVR for your company, explain? 

As of late, commercial auto insurance (even personal auto insurance) has been a losing line of business for every carrier out there. Rates are not going down and carriers are taking drastic measures to not only price the risk appropriately but also push insureds to think long and hard about their fleet safety programs. These two questions get to the core of what makes a contractor’s fleet program successful. The contractor, with the help of its insurance broker, needs to create checks and balances of how the business vets its employees. The days of having anybody that can fog a mirror being able to drive a vehicle are gone. Carriers expect the contractor to be proactive in not only running employee MVRs regularly but also having its own criteria of who can drive their most dangerous piece of equipment – the pickup truck. Contractors must ensure these criteria are not only enforceable but also practical for the business to implement and maintain.

Found in a Welding Operations Supplemental Application:

• Are fire extinguishers taken to each job site? Yes No

• Are first aid kits taken to each job site? Yes No

• Describe your site preparation, job monitoring, and post-work fire watch and mitigation procedures.

Like any specialty trade, welders and welding operations pose particular risks of their own. For example, fires caused by welding a pipe-fence in the middle of nowhere can start in an instant and spread at once through the dry vegetation. It would absolutely be a best practice to have a spotter with a fire extinguisher in hand while the welder performs the work. Intentionally thinking through the risk can save hundreds of hours and thousands of dollars.

Found in a Management Liability Supplemental Application (Crime, Cyber):

• Does the applicant allow employees who reconcile the monthly bank statements to also:

• Sign checks? Yes No

• Handle Deposits? Yes No

• Have access to check signing machines or signature plates? Yes No

It’s not often the case that a contractor has extra money lying around to make up for a monetary loss. The majority of white-collar crimes are committed by trusted employees who have the freedom to move money with little to no oversight. Best-in-class contractors ensure there are checks and balances when managing money. The contractor’s CPA and banker can offer invaluable aid in setting up proper procedures.

• Do you have a written disaster recovery plan that includes procedures to be followed if a disruptive computer or network incident occurs? Yes No

Information Technology is not usually a strong suit of many business owners. Best-in-class contractors engage their IT provider regularly to ensure system networks are running with limited deficiencies. The provider can also help create validated procedures if a network breach occurs. Similarly, the contractor’s broker or underwriter can supply valuable resources.

Found in the National Association of Surety Bond Producers Contractor Questionnaire:

• Does the contractor have membership affiliations with:

• AGC

• ASA

• ABC

• CFMA

While being part of a trade association does not equate to being a best-in-class contractor, it can certainly help get owners and key employees connected with other like-minded, driven, and often successful businesses. Plus, these associations provide free training of all types with invaluable networking opportunities. Associating oneself and the business with reputable construction firms very seldom hurts the contractor’s bottom line.

The above examples are a sliver of what a contractor can learn from insurance and surety applications. Although most supp app questions require a “Yes/No” response, the underwriter is actually trying to find out if the applicant/contractor is focused on true “risk management”. No doubt, it takes time to implement certain best-in-class policies and procedures. By consistently taking proactive steps to strengthen and safeguard the business, contractors can become virtually bulletproof—ready to face any unforeseen challenge head-on.

About the author: 

William Burke is a Senior Vice President at Risk Strategies Company, where he specializes in construction insurance and contract surety. He received his BA from the University of Denver and proudly served in the United States Navy for five years. Along with being actively involved in ASA affairs, currently serving as the Vice-President for the ASA-New Mexico Chapter, Will is the President of El Paso’s CFMA chapter, and is a member of the National Association of Surety Bond Producers. William keeps busy with his wife and two young daughters while occasionally finding time to mountain bike and golf.