Making Sense Of Insurance

When a landscape or lawn care contractor gets started in the landscape industry, the idea of finding and defining the type of insurance coverage needed can be daunting. And, as important as insurance is to the contractors, finding useful “non-commercial” information on basic coverage may not be as easy as you think.

Taking that into consideration, Lawn & Landscape presents this, part one in a three-part series, to sort through the details of insurance.

THE BASICS. Hindsight, as they say, is 20/20, but contractors that can pro-actively prepare for risks their business may face can save themselves from damaging costs and the type of recovery red tape that has an adverse effect on the bottom line.

Once contractors have a good idea of the risks facing their company, they can decide how much of that uncertainty they are willing to take on and how much they will hold a prospective insurance company accountable for. In essence, insurance allows companies to pass the risk of financial uncertainty to someone else for a defined premium. The risk the contractor retains is the deductible, and the risk the insurance company assumes, most often, is the limit of the liability above the deductible. Choose a higher deductible and you retain more risk with a lower premium. Conversely, the lower the deductible, the higher the premium.

A good idea before getting started is to create a list of the following information to take to an agent for an insurance search: any current business insurance policies (if applicable); updated payroll and sales records; current profit and loss sales records; loss information from the current year and three years prior; OSHA log (if applicable); current listing of vehicles, safety programs, procedures and safety meeting records; and general information on the company.

WHY INSURANCE? Why do companies need insurance? This might seem like an obvious query, but it’s a good place to start.

Gregory Botson, president of Botson-Skuggen Insurance, Avon, Ohio, laid the answer out in black and white: “Prevent being sued and not having financial responsibilities. If contractors don’t have insurance and they get sued, it’s coming out of their business.”

Taking an “it won’t happen to me” approach is a dangerous attitude when dealing with insurance.

“There is more litigation going on than ever before. Consumers of all businesses have an entitlement mentality, which basically means – ‘If something goes wrong, it’s not my fault. Who’s going to pay?’” explained Michael Weisburger, president of B. & D.A. Weisburger Insurance, White Plains, N.Y.

INDUSTRY SPECIFIC. There are distinctions to be made between lawn care companies and landscape contractors concerning the questions to ask a potential insurance provider or broker. But, according to Mike Lezynski, vice president of commercial lines with Acordia East, Morristown, N.J., there are some basic considerations that apply to both businesses.

“Both types of businesses require property and equipment coverage, general liability, automobile, workers’ compensation and excess liability or umbrella liability,” Lezynski explained.

Weisburger added that there are potential employer practice exposures applying to both types of business. He said contractors should consider things like sexual harassment and wrongful termination when writing their policy.

Where business specific exposures and risks are concerned, Botson explained some considerations exclusive to landscape contractors.

“The extent of a policy depends on the size of the business,” he said. “The three basic types of coverage are commercial vehicle insurance, general liability insurance and coverage for tools and equipment.”

“If a contractor is putting in trees, plants and shrubs, he or she needs installation coverage,” said Lezynski. “If it’s strictly a maintenance company, its general liability exposure is minimal. But if it is doing a lot of landscape construction work, it is doing work that will impact the terrain, and this could impact the stability of a house that sits close by. So contractors have a little bit more liability there, and I would council that company accordingly.”

Contractors that have architects or engineers on staff doing design work for themselves or other contractors should have professional liability coverage, according to Mike Prokop, vice president of marketing, CNA Commercial Insurance, Chicago, Ill.

Basic Insurance Terms

AGENT – The negotiating representative of the insurer, servicing or effecting insurance contracts. BLANKET COVERAGE – A policy that covers a stated location and any number of other unstated or nonscheduled locations as well. BROKER – A solicitor of insurance who does not represent insurance companies as an agent, but instead places orders for coverage with companies designated by the insured or with companies of his own choosing. CARRIER – The company that provides the insurance. CLAIM – A demand for payment under an insurance contract or bond. Also, the estimated or actual amount of loss. COVERAGE – A guarantee against specific losses provided under the terms of an insurance policy. EXPOSURE – The state of being subject to the possibility of loss or the extent of risk. POLICYHOLDER – The entity in whose name the insurance policy is written. RATE – The cost of insurance per unit used as a means or base for the determination of premiums. RISK – A person or thing insured. – Courtesy of CNA Commercial Insurance, Chicago, Ill. Scroll to continue with content – Bob West

“The exposures lawn care contractors would be most concerned about, other than standard insurance, would be ones protecting the contractor for issues involving pollution, environmental clean up or relating to the equipment,” Weisburger explained.

“Companies that are state certified for fertilization or herbicide and pesticide use should have a specific endorsement or coverage for the use of pesticide,” Botson said.

Weisburger noted there is also a distinction between companies using restricted use pesticides vs. non-restricted pesticides.

“It appears that many of the lawn care operators still are not using restricted use pesticides,” Weisburger remarked. “Therefore, it’s all over-the-counter products they are using, and they feel that there is a significantly lower hazard or risk. I’m not sure that I agree with that in light of consumer awareness today.”

Lezynski believes that companies also need pollution coverage for their chemicals while in transit and during application.

“If a truck was ever involved in an accident and some of the pesticides got on the ground, the company needs to clean them up,” Lezynski said. “If the pesticides get into the stream or water flow, then you have a bigger problem. The policy definitely needs to consider pollution liabilities.”

“There are three types of pollution coverage overall,” added Prokop. “In addition to pollution insurance for transporting pesticides, contractors should have coverage for any storage facilities they have on their property that contain pesticides and for coverage at the job site in case any of the pesticides end up in the water system.”

CONSIDERING SEASONALITY. Of course, not all green industry companies are doing business in the southern portion of the country, and therefore many do not serve customers year round. This might seem to pose a coverage dilemma, but the consensus seems to be that insurance coverage should extend through the year, no matter how many months a business is out of season.

“Companies will not write a policy just for the couple of months that the business is in season,” Botson noted. “A company should have coverage for all 12 months.”

“There is a basic level of coverage required all year long for a business because you never know when you are going to be sued,” Weisburger explained. “You don’t know when the claim is going to arise.”

Lezynski added that even when a company is covered year round, the seasonal specifications of the business could still have an effect on insurance.

How Much is Enough. . . . . . . . .

Once contractors understand exposures and can intelligently deduce what needs to be covered and when to should buy coverage the next logical question is how much insurance should they buy? “Get advice from the broker to determine the amount of coverage,” Lezynski advised. “A contractor just starting in the business is not going to know much about insurance. They are going to need to rely on someone who can properly advise them on how much coverage they need and what coverage they need.” Prokop agreed on the importance of the independent agent who sells the insurance. “The agents get their commissions from the insurance companies, and it is the agent’s job to evaluate the needs of their clients and give them good advice regarding what coverage they need based on their specific operations,” Prokop explained. “Companies should probably be in contact with their agent on a quarterly basis to update their coverage for equipment purchases or losses and any changes in operations. Making sure this communication happens is the agent’s job, but it’s the contractor’s responsibility because they are the ones ultimately responsible if a problem arises.” “In our experience, 95 percent or more of our insured clients are buying at least $500,000 in liability coverage, and the majority are buying $1 million or more,” observed Weisburger. Botson pointed out that the size of the company should, at least partially, dictate the amount of coverage that would work best for it. “If the company is brought into a lawsuit, how much does it have at stake financially? Look at whether or not you are dealing with large jobs from corporations vs. working for individuals. If someone gets hurt or a building burns down, there will be a larger claim with a corporation as a client than with an individual,” Botson said. “The amount of coverage companies need depends on exactly what the company is doing and its revenues,” Lezynski explains. “But no company should go without a minimum of a $1 million umbrella limit, in addition to the other liability limits.” Prokop said a rough rule of thumb is that a company’s insurance generally costs between 3 and 5 percent of its annual gross sales, although he quickly pointed out that a number of variables can influence that. “Companies with higher or lower loss histories than normal would obviously see costs go up or down accordingly,” he noted. – Will Nepper

“The key coverage, such as general liability and workers’ compensation, are rated according to the company’s payroll,” Lezynski said. “The premium is determined by what the payroll is. So, in a sense, those policies quickly respond to the seasonality of the business.”

However, if a company is seasonal in nature, there are things to consider that may lighten the load when money is tight.

“With respect to automobile coverage,” Lezynski commented, “one way that companies can reduce their insurance costs is to specifically take those vehicles off of the road and turn in their license plates for a couple of months. That’s probably not something that a lot of companies will do, but they can delete auto coverage for vehicles if the license plates are turned in during off season. But you can’t just request insurance companies to eliminate those vehicles for a three- or four-month period.”

Lezynski said he doesn’t believe the industry is as seasonal as it once was, pointing to increases in the popularity of services like snow removal and Christmas decoration installation. But he suggested businesses that remain seasonal should consider the times of year they are making payments on their coverage.

“An insurance program starts out the first day a company gets into business. That’s the effective date of coverage. If a company chose a bad day to get into business, it might have a renewal that is at a time of year when it doesn’t have revenue coming in,” Lezynski explained. “It is important to recognize you can move the insurance renewal dates to a time when there is more money coming in so you’re in a better position to pay the premium.

“Companies can also structure payment terms to mirror the seasonality,” Lezynski continued. “You don’t want to pay for insurance when you don’t have money coming in, so why not pay it all in the months that you do have money coming in?”

CHOOSING A PROVIDER. Understandably, insurance companies want your business. But if you know how to shop you can save yourself headaches by selecting a provider best equipped to adhere to your needs.

A good place to begin, according to Weisburger, is trade magazines.

“See who advertises in trade magazines and speak to those companies,” he advised. “If those companies can’t help you because you’re too small or you’re part time, then they should be in a position to refer you to people who can.”

Weisburger also suggested looking for insurance providers who are committed to the industry. He cited trade shows as a good place to find visible industry providers.

“A provider needs to know the exposures and be able to talk the language of a lawn care operator or a landscape contractor,” he explained.

Once you have found someone who works within the industry, Botson advised that you check their credentials.

“Look at how many landscape contractors they insure and how long they have been working with contractors in general,” he said. “A lot of the same contractors have the same exposures. The more professional designations an insurance company has, the better educated it will be.”

According to Lezynski, checking out an insurance broker’s claim service capacity is also a good idea.

“Claim service is critical,” he said. “Find out if that company has a claim department in-house. If it is only relying on the insurance company to administer claims, that is not good. It should have a claim department that will advocate a client’s position.”

“Work with an insurance broker or company that understands your business and your risks,” Weisburger adds. “Choose an insurance company that is financially strong. Don’t choose your insurance company on price alone. There needs to be a combination of quality coverage, competitive price and working with folks that know your business.”

The author is Contributing Editor to Lawn & Landscape magazine.

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