Every day, building service contractors face many dangerous tasks. From washing the windows of a 10-story high-rise office building to simply mopping a floor, accidents can happen, and BSCs are not the only ones at risk. Third parties are equally prone to harm because of the cleaning process.

Contractors need to be prepared for the worst and make sure a problem does not lead to greater headaches. Having the proper insurance coverage can help BSCs stay on top of a problem and carry on with business as usual.

Every contractor should at least have worker’s compensation and general liability insurance. Worker’s compensation most often is required by the state and most customers require a BSC to have general liability coverage before they start working on a site.

“Customers won’t let BSCs in the door without it,” says Jeff Rubin, senior vice president and branch manager for Kaye Insurance Associates Inc./Hub International, in Westport, Conn.

However, general liability insurance does not cover all potential losses, especially in a niche market like contract cleaning. Contractors need to understand what exposures are not covered by their general liability insurance and obtain additional, appropriate coverages.

“You need to match the coverage to the exposures of the business,” says Allan Sague, BSC program manager for The Hartford in Hartford, Conn.

Some clients require specific insurance coverage, but when exact requirements are not laid out, BSCs have to decide what kind of coverage is needed for their business.



Covering the business

General liability does not cover all the idiosyncrasies of the cleaning business, so contractors’ insurance needs to reflect their business practices. Safety and theft are common issues for the contract cleaner. Wrongful termination accusations and disasters to a large client can ruin a business if not properly insured.

A common problem in the cleaning business is that a BSC stole something from the client. It does not matter whether the claim is true or not because the accusation can cause problems in the cleaner/customer relationship. Third-party fidelity coverage will reimburse the victim.

One important aspect of fidelity coverage to watch out for is whether it has a convictions clause. If the policy only asks for proof of the theft, then the claim can be filled quickly. If, however, the insurance company won’t reimburse without a conviction, the claim could get stalled in the court system and create a rift in the client relationship.

“If the insurance company picks up the claim quickly, it can definitely help to smooth the relationship between the BSC and client,” says Marc Katz, principal for the Mechanic Group in Pearl River, N.Y.

With a high turnover rate in the cleaning industry, BSCs also might consider getting employment practices liability to protect from accusations of wrongful termination. Employees may believe they were fired because of their race, sex or age; whether it is true or not, the accusation is all it will take to start the lawsuit.

“In most cases BSCs are completely innocent,” says Rubin. “But it will cost them thousands of dollars in legal defense costs if they are not covered.”

If BSCs have a lot of their business invested in one or two major clients, they should look into dependent-property coverage. This is intended to cover losses if the client had to shut down for a lengthy period of time due to a fire, tornado or other disaster. In general, it reimburses contractors for lost income resulting from the shutdown of the large account.

“Having this coverage can be the difference between being in business next year and being out of business,” says Sague.



Protecting the tools of the trade

Items such as keys, chemicals and everything from a mop to an autoscrubber are commonly used by BSCs, but since these tools are not common to standard businesses, they are not covered by general liability. Contractors need to make sure they have the proper insurance to cover the equipment they use.

BSCs need to have access to all the rooms to be cleaned in a building. They usually have a ring of keys or key cards to be able to open all the doors. But if a key is lost or the locks in a building need to be changed because of something the contractor did, the costs can add up quickly.

“There is a cost associated with keys, a cost associated with locks. If the door is left open, there is the cost of potential theft from the building,” says Sague.

Lost-key coverage covers the cost of replacing keys as well as related charges. For example, if a security guard needs to be hired to watch an entryway while the building is being re-keyed, lost-key insurance will cover the expense.

In addition to keys, chemicals are another niche tool frequently used by cleaners. When BSCs bring chemicals to a job site, they are may expose the building and its occupants to fumes and potential spillage. Damage to property or a third party caused by a chemical is usually not covered by general liability because chemicals are typically considered pollutants. BSCs need to purchase environmental liability in order to cover costs resulting from a chemical spill, leak or accident.

General liability will cover some client property damage, but contractors also will need inland-marine coverage for their own equipment. This coverage can protect on-the-job equipment like autoscrubbers and mops as well as the BSC’s office equipment like desks and computers.



Keeping costs down

When buying insurance, everyone wants to make sure they get the best rates. For BSCs, getting a good rate lies in loss history and safety records.

“Insurance premiums reflect your company’s loss experience,” says Chad Thompson, vice president for Patterson//Smith in Falls Church, Va. “Frequent and severe losses can increase your premium and jeopardize your coverage.”

Identifying problem situations can help reduce losses. Be pro-active and fix the problems before they lead to a claim.

“Showing evidence to the insurance company that there is a sound risk-management policy in the business and showing as much proof that safety measures are in place at a site are favorable means to keeping insurance and claim costs down,” says Katz.

Implementing a risk-management program can lead to a better safety record. Encourage supervisors and area managers to offer suggestions on ways to protect against potential accidents.

“An effective risk-management program can help control and contain losses,” says Thompson. “For example, training employees to use appropriate signage when mopping a floor reduces the likelihood of someone slipping and falling on that wet floor.”

Besides safety, another way to lower costs is to reduce umbrella limits. An umbrella policy is a set amount of money that wraps around the existing policies. The coverage kicks in when there is not enough insurance to cover an accident that is insured under an existing policy.

Some BSCs have purchased large umbrella limits when market conditions made them very inexpensive, but today, those same limits may cost much more than the original premium.

“If a BSC is very large, or works in hazardous conditions, they may need to keep a large limit on their umbrella policy,” says Tom McDonough, senior vice president of Marsh Affinity Group in Park Ridge, Ill. “However, an umbrella limit of $5 million to $10 million should be adequate for most BSCs.”

When a problem does come up, be assertive in fixing the situation. Report the claim in a timely manner.

“Insurance carriers are denying claims due to late reporting,” says Thompson. “Make sure all incidents are reported and conveyed through the appropriate channels.”

There’s no magic number for the amount of insurance a contractor should have—that varies by business, risk tolerance and accounts served. BSCs should start with covering the basics—general liability and worker’s compensation; then they can expand into other coverage. Insurance that addresses frequent problems and concerns specific to the business and individual company should be added as the budget and company grows.

By Dan Weltin, Assistant Editor




POSTED ON: 5/1/2003