Three Key Elements in A Fleet Safety Program for Plumbers and HVAC Contractors

Author, Matt Gorham, Account Executive, Rancho Mesa Insurance Services, Inc.

Commercial auto insurance continues to be problematic for plumbers and HVAC contractors as skyrocketing premiums are eroding profitability.

Unfortunately, indicators show that this trend will continue for the foreseeable future. For the 14th consecutive year, commercial auto has posted an underwriting loss, while just the last two years have developed more than $10 billion combined in net underwriting losses.

The primary driver behind these poor results is auto liability. Fueled by third-party litigation funding, social engineering, and shifting views of corporate responsibility, nuclear verdicts have upended the auto insurance marketplace, causing many carriers to re-evaluate their willingness to even offer commercial policies.

For those carriers that are still writing commercial auto, higher premiums and tighter underwriting guidelines are now standard. Along with closer scrutiny of claims history, the quality of a written fleet safety program has become critical to carriers who typically compete in the plumbing and HVAC insurance space.

While there are many components to a strong fleet safety program, there are three key elements that should be included:

1. Personal Use Policy

A company’s personal use policy specifies whether company vehicles may be used outside of work duties, under which circumstances, whether non-employee passengers are allowed, who may drive the vehicle, and whether trailers or recreational equipment may be attached.

A personal use policy may also address whether a company’s employees’ vehicles or non-company vehicles may be used in the course of work, minimum standards for vehicle condition, maintenance regularity and documentation, and personal insurance limits that must be met.

2. Alcohol and Substance Abuse Policy

Alcohol and substance abuse policies outline expectations and consequences for drivers regarding the consumption, possession, or distribution of alcohol, recreational drugs, or illegal substances. These policies will often include drug testing requirements, such as prior to being selected as a driver, random, post-accident, or reasonable suspicion testing.

3. Distracted Driving Policy

Distracted driving policies emphasize the importance of attentive driving and prohibit or limit the use of cell phones, tablets, or other electronic devices. They may also address other activities that divert attention away from driving, such as eating, putting on makeup, getting dressed, or reading while driving.

Specific policies may also be developed in more detail to address hands free cell phone use, practices for looking up directions, or the use of technology that screens cell phone usage.

For these policies to be most effective, it is important for drivers to not only be aware of the policies but to clearly understand them. Discussing these policies with new drivers and periodically throughout the year with all drivers will keep them relevant.

In support of plumbing and HVAC contractors, Rancho Mesa has developed a library of weekly driver-specific safety toolbox talks, providing key topics to further conversations about safe driving practices. The extensive safety library is accessible within the SafetyOne™ platform and by subscribing to the weekly Driver-Specific Toolbox Talk emails.. SafetyOne also provides the tools necessary to implement a company’s Fleet Safety Program.

Another crucial factor that determines the effectiveness of these policies is consistent enforcement. When drivers understand that there are consequences for breaking company rules, they are more likely to adhere to them, especially if their livelihood is at stake.

While cameras, GPS tracking, and telematics have gotten a lot of attention in recent years, these tools, while powerful, simply provide information. Cameras do not make drivers better; they just show what drivers are doing behind the wheel. Similarly, GPS and telematics do not make a driver safer; they just show where vehicles are and how fast they are being driven. The company must review the data and take action, when needed, to ensure these tools are effective.

Defining, discussing, and enforcing clear policies that govern the safe use of company vehicles reinforces safe driving habits and decision making by individual drivers. It can also help to create a company culture that elevates the status of drivers, celebrating the fact that driving is a privilege that comes with responsibility.

While auto insurance premiums are expected to continue rising, there are actionable steps that can minimize increases and avoid costly accidents that impact your profitability, your productivity, and your people.

If you have questions about your fleet safety program or want to learn more about the strategies that we are leveraging to help our mechanical contractor clients navigate this challenging market, reach out to me at (619) 486-6554 or mgorham@ranchomesa.com.

Mitigating Risk on the Move: The Case for Third-Party Subhauler Agreements

Author, Sam Clayton, Vice President, Construction Group, Rancho Mesa Insurance Services, Inc.

Street and road, general engineering and trade contractors understand the importance of having a written and executed subcontract agreement in place when using different subcontractors to complete a project. This agreement serves to protect both parties by clarifying responsibilities, managing risk and providing legal protections in the event of a dispute. 

However, many of these same contractors will overlook having a subcontract agreement in place for third-party subhaulers or what is called a subhauler agreement. If you hire a third-party to move a piece of heavy equipment or use someone to import/export material from a project, we recommend implementing a subhauler agreement. While this type of exposure will not affect the project once it reaches its final intended use (i.e., completed operations), it may have an impact during the construction phase. 

For example, if a street and road contractor needs to import or export material, they contact a subhauler to let them know that they will need two dump trucks running eight hours a day for one week. On the first day, they enter the jobsite and accidently hit a pedestrian because they are unfamiliar with project site. That individual will more than likely obtain legal representation and file suit against the subhauler who caused the bodily injury and will more than likely name the street and road contractor as well.

In order to protect and transfer the risk in the scenario above, we recommend working in conjunction with your legal counsel to establish a written subhauler agreement to include:

1. Scope of work

2. Indemnification – subhauler agrees to protect and indemnify contractor

3. Insurance requirements – general liability, workers’ compensation, commercial auto, excess/umbrella and pollution

4. Equipment and maintenance – subhauler must maintain its own equipment, pay for all related charges/expenses and ensure compliance with all regulatory requirements and licenses.

5. Safety – subhaulers are responsible for hiring qualified and safe drivers and show that they have protocols in place to monitor drivers.

In today’s legal environment, it is imperative that companies understand their potential exposure to risk. Those that can successfully implement and manage both their subcontract and subhauler agreements will not only protect the assets of their companies but also receive more favorable insurance pricing and improve their risk profile.

If you have questions about your subhauler risk, contact me at (619) 937-0167 or sclayton@ranchomesa.com. 

Beyond Blood Sugar: How Diabetes Impacts Workers’ Compensation Claims

Author, Kevin Howard, Partner, Rancho Mesa Insurance Services, Inc.

November is National Diabetes month and a chance to pause and think about prevention, early detection, and long-term care. For companies, it is also a reminder that chronic health conditions can quietly influence safety, mental health, work performance and even workers’ compensation exposures.

A Closer Look at Diabetes

Diabetes is a long-term condition that affects how the body turns food into energy. When insulin is not produced or used properly, blood sugar stays too high and starts to damage blood vessels and nerves.

Roughly 38 million Americans live with diabetes, and another 97 million are in the pre-diabetic range. This is equal to one out of every three adults in the country. I am sure many readers including myself, are close to someone who is battling this condition. I am glad to shine some light on important details regarding diabetes and how this condition can create a worker’s compensation scenario/claim.

Crossing Into Workers’ Compensation

Most of the time, diabetes is considered a personal health issue. However, under California law, it can become compensable when credible medical evidence shows that job duties or an industrial injury worsened, triggered, or complicated the condition. A few examples of this include:

• A cut or puncture wound that heals slowly because of diabetes, delaying the employee’s return to work.

• A steroid prescribed for an accepted industrial injury that causes a diabetic episode.

• Rotating shifts or high-stress work that demonstrably throw off blood-sugar control.

• Foot or toe injury that has a heighted pain level if the worker is diabetic.

The standard test remains whether the condition arose out of and in the course of employment which is a decision that depends on medical documentation and timely reporting. Similar to any other claim scenario, the more information gathered, the better chance your carrier will have to determine if the condition worsened or arose from the course of employment.

What Supervisors Can Notice Without Diagnosing

For all business owners, supervisors and or safety directors are in a good position to spot potential trouble. Watch for employees who appear unusually tired, shaky, or disoriented, who take frequent breaks for water, or who suddenly have blurred vision. If you notice something is off, pause the task, call first-aid or 911 if necessary, and then notify HR or your claims contact. Do not try to label the condition; just keep the scene and your employee(s) safe.

Rancho Mesa’s Approach

Rancho Mesa  works with carefully selected workers’ compensation carriers and medical provider networks that understand complex health conditions like diabetes. Our in-house Claim Advocate, Jim Malone, brings deep field experience and a calm hand when claims become complicated. He assists clients and coordinates with adjusters and medical providers so cases move forward in full compliance with California regulations.

Four Practical Next Steps for your Team

1. Refresh supervisor training on health-related safety responses.

2. Make sure every manager knows how and when to deliver the DWC-1 form.

3. Double check that medical and personnel files are stored separately.

4. Reinforce wellness initiatives that make blood sugar management easier during work hours.

Diabetes is a complex pre-existing condition that can create complications with workers’ compensation claims. Like many other comorbidities, it can affect an employee’s recovery and overall productivity.

Reach out to me via email at khoward@ranchomesa.com to learn more about how Rancho Mesa’s approach can mitigate these challenges at your organization.

About the Author
Kevin Howard is a Commercial Insurance Broker at Rancho Mesa Insurance Services, Inc., specializing in risk management and insurance solutions for artisan contractors including solar, roofing, and other skilled trades. Based in San Diego, California, Kevin serves contractors throughout the Southern California region, helping them protect their businesses with tailored coverage and proactive support. His clients benefit from access to exclusive tools like the SafetyOne™ Platform, RM365 HRAdvantage™ Portal, and workers’ compensation claims advocacy services, designed to improve safety, streamline HR processes, and support better claims outcomes.

Preparing the Next Generation of Construction Leaders

Author, Casey Craig, Account Executive, Rancho Mesa Insurance Services, Inc.

This year has brought significant challenges for many of our clients. Amid economic shifts, project delays, and labor uncertainty, one concern has become increasingly common in conversations with construction leaders: the difficulty of attracting qualified younger employees and the growing struggle to replace retiring leadership.

The aging workforce in the construction industry is part of a broader trend that has been developing for decades. According to the U.S. Bureau of Labor Statistics (BLS), the median age of construction workers has steadily increased from 38 in 2000, to 41 in 2010, and now 42 in 2024. As experienced professionals near retirement, many companies are facing a critical leadership gap, without a strong pipeline of younger talent to step into those roles.

Not only are there fewer young workers entering the construction industry who can grow into leadership roles over time, but the current aging workforce typically brings increased claim frequency and severity, elevating both operational and insurance costs.

How can construction companies proactively address this issue and build strong, future-ready leadership teams?

• Support a local construction-focused outreach organization
  There are many organizations across the U.S. that are actively working to promote the industry to younger generations. In San Diego, for example, the Future Construction Leaders Foundation (FCLF) provides opportunities for young people to investigate the construction industry as a potential career. Listen to our podcast episode #510 where FCLF talks about their mission to inspire the next generation through hands-on programs, impactful camps and mentorship.

• Educate young people on real earning potential
  Offer to speak at a local high school or community college about the strong wages available in the skilled trades, especially compared to many entry-level roles.

• Promote the advantage of debt-free career paths
  With local students, emphasize the ability to earn while learning, with little or no student loan burden.

• In job posts, position construction as a stable alternative to shrinking remote work opportunities
  As remote work availability declines across many sectors, construction offers reliable, location-based work with long-term security.

• Define clear growth paths within the company
  Young employees need to see what their future looks like if they were to stay with your company, long-term. Invest in mentorship, leadership development, and transparent career progression plans.

Some potential young employees may not see construction as a viable career path. To attract the best of the youth, they need to see construction as a career opportunity. While this is not an easy issue to fix, it is becoming more and more relevant. Staying ahead of this issue is paramount to the strength and viability of your company’s futures.

If you have any questions related to this topic or any other insurance issue, please feel free to reach out to me directly at (619) 438-6900 or email me at ccraig@ranchomesa.com.

Navigating Risk A Holistic Approach to Mechanical Trades Safety with UFG

Account Executive Matt Gorham sits down with Gary Clevenger, VP of Risk Control at UFG Insurance, to discuss a consultative approach to risk management in the mechanical trades. They cover how a holistic risk assessment, strong partnerships, and modern tools like the DOS framework can elevate your safety and insurance strategies.

Matt Gorham: You're listening to Rancho Mesa's StudioOne™ podcast, where each week we break down complex insurance and safety topics to help your business thrive. I'm your host, Matt Gorham, and I'm joined by Gary Clevenger, Vice President of Risk Control with UFG. Gary, welcome to the show.

Gary Clevenger: Thanks, Matt. Glad I'm here. Appreciate it.

MG: Yep. Happy to have you here. So, you know, Gary, I wanted to start a little bit more about your background to give listeners a chance to understand where you're coming from. Tell us about your history in the mechanical trades and how you made your way to being VP of Risk Control for UFG.

GC: Well like everyone, I didn't start out to be the Vice President of Risk Control, but life will take you down many paths. Way back 25 years ago, I had the opportunity to be the risk manager for a Sheet Metal Contractor Association, SMACNA. So inside of that role, I got to be exposed to the mechanical trades, the roofing trades, they all, all the artisan contractors, and they all seemed to intertwine, and I would see them on projects. So I went to work for an international carrier, and in that space, I was able to work on programs related to the mechanical trades and the sheet metal trades. So Mechanical Contractors Association, state and local chapters, also got to work with some of the largest mechanical contractors in the U.S. and world, quite frankly. So just had a lot of exposure to the mechanicals and the sheet metals and took that experience and knowledge over the years and just expanded it as I went and really just find it as an area that I have a lot of interest in, a lot of experience with and something I'm passionate about is making sure that they continue to improve and that continues that improvement mantra within that group.

MG: It's fantastic. I mean, exhaustive, if not, you know, extensive certainly, which seems like it would give you a really unique perspective to approach the mechanical trades in particular and artisan trades more broadly, but mechanical trades, which would just give you some really valuable insights to how the mechanical trades operate and where you can provide more value to them in strengthening their safety program.

GC: Yeah, no, you're exactly right. We got to see so many different contractors' different ways of doing business, the good, bad, and the ugly, if you will. But with that, you know, you also had a chance to really learn and take what's good from many different contractors and bring it together to say, "What would the perfect mechanical contractor look like if you could put one together, like the 6-million-dollar man back in the day. What's that contractor look like?”

And there's a lot of commonalities. And so take the best out of those and bring that to the table for them to review and see where they can plug it into their operations.

MG: Yeah, that's fantastic. And now you've told me that UFG's approach to risk assessment, it's not traditional, but more of a service designed to support contractors. What do you mean by that?

GC: So I'm glad you asked you know, the old term transactional versus conversational or consultative. So, the old way of doing risk control seemed to be transactional. You would go out, have a conversation, do the quasi-inspection checklist, and, you know, get your information and go. We're really striving to be consultative, have the conversation, get to know the customer, find out their pain points, you know, look at the threat landscape, a holistic risk management type approach. So really trying to dig deeper into everything from their workforce resiliency to their processes, their process flow, what exposure they have in a given market or within the artisan trades, they are specialty. So if they're doing data centers, how can we help versus maybe service or a new install? So a lot of different components to it, but really trying to be consultative is a nice term in doing a total risk assessment with a holistic approach.

MG: Yeah, you just mentioned a phrase that, you know, when we first spoke really stuck out to me and you use it here again, just so fluently: risk landscape. Where do you first encounter that concept and how does that guide your team's work?

GC: Well, it wasn't a—when I say the concept, you know we coined the phrase the threat landscape or the risk landscape because it is holistic. You know, you can focus on safety or you can focus on compliance or the insurance side, but really they all dovetail together. So making sure that the contractor is aware that, you know, what they do on a job site that may cause a work comp claim can also impact them on the general liability side or that, hey, what penetrates the umbrella the most are auto accidents. So are you taking care of your drivers? That contractors in place, their job is to, is to build a constructor or install something, not manage risk or not manage that driver or do that driver training. So we're really trying to help them with those pain points and those threat landscapes out there, whether it be workforce resiliency or, you know, process flow, just the various ways you can engage with them to help them make their businesses better that continuous improvement mantra.

MG: Yeah, and I appreciate that you recognize that, right? their responsibility is building, constructing. That's their primary focus is running their business so they can deliver on the projects and the commitments that they've taken on. And you've also mentioned a couple of times a holistic, consultative process to risk management and the way that you guys are able to work alongside policyholders. How important is it to get collaboration from policyholders and from agency partners to deliver on your objectives and why should policyholders want risk control involved?

GC: Those are great questions. A risk assessment is essentially that opportunity to have an outside individual come in and just give you an assessment of your operations. You have threats to your business, you have safety, you have compliance, you have payroll, you have your workforce, you've got a procurement, you have so many things going on. So having a risk consultant come in or a risk assessment completed by risk control representative, along with the agent, you know, really is valuable or should be a value. That's that value add opportunity to say, Hey, we see hundreds of mechanical contractors or artisan contractors in a given year, let us help you with some of the intelligence we've learned from others and help you plug that into your business where it makes sense. Again, it's not a one-size-fits-all. It's really a, we call it a white glove service or boutique type service. It's like really trying to find, “Hey, where can we make the biggest impact and help you get better and then how does it build upon a stuff? How does it stair step or how can you ladder that into the next success?”

MG: Yeah, you shared with me that there are different areas that you guys will focus on. You just mentioned, of course, that auto being the area that's most likely to lead to an excess loss or an umbrella loss, and there are, again, these different areas that you have the ability to look at risk control and controls from different mechanical contractors and bring them together to support other policy holders. Can you speak a little bit about just some of the different areas that you're looking at, whether that be auto or whether that be work comp when you are doing a risk control survey?

GC: No, that's a great question as well. We broke it down into what I would call minimum standards. So it's really three categories. They focus on fleet and your equipment. They focus on general liability and they focus on workers' compensation. Then inside of those, there's just a number of items that really, if you have those in place, you will be successful. And this is from years of looking at Mechanicals and finding those who are successful and in most cases, what did they have in place that allowed them to protect their company, protect their assets? Everything from driver training, employee training, you know, how did they maintain their vehicles? Did they have subcontractor pre-qualification in place? Do they have the right contracts? Did they have a construction defect or product liability concern? What does their completed operations look like, you know, wellness programs, PPE, is it appropriate for the job? You know, safety training, safety programs, the whole gamut, all broken down together. And it's something that works well. It allows the contractor really more-or-less to do a quick gauge of how they stack up to peer companies across the country, quite frankly.

MG: That's awesome. And one of the things that comes to mind for me is you're talking about the different controls in the different areas here. You've also shared with me a DOS assessment. Walk me through that?

GC: So a DOS is a dangers and opportunities and strengths. It's very similar to a SWOT analysis or a 3P or a Lean Construction or a Kaizen. You think of all those different terms, but DOS, I've landed on that. It's very simple. It's dangers, opportunities and strengths. So just ask an owner or a risk manager what, in your organization, what do you see as your number one danger, your biggest opportunity and strengths? Sometimes they can all be the same.

A good example is that UFG, my risk control group, they're outstanding professionals and that's our greatest strength. They're also very tenured. That could also be a danger because they're, because of their tenure and their level of expertise, technical knowledge, others are trying to poach them or they may be getting close to retirement. It is an opportunity as well because we can lean into that high level of expertise and bring that to the customer and bring it a different level than just the basic risk control compliance type services really going deep in that white glove approach that we talked about earlier.

So, dangers, opportunities, and strengths, an easy one. You can do it in a lot of different scenarios. You can do it by line of coverage. You can do it by job. You can just do it by a company holistically. Think of that threat landscape that all these companies have in front of them and what does that you know reputational risk look like? So what's the threat to your reputation if you've got a great workforce that's healthy and is you know getting the hours they need and not getting hurt, you know, you're going to look a lot different than a company that's pulling up with trucks with dents on them and employees with bandages on their hand or beat up PPE, you know, that's that reputation risk we talk about so a lot of different pieces there inside of the DOS that you can go a lot of paths you can use it for.

MG: Yeah I like the fact that you point out that you could have one factor be both a danger and a strength

GC: Yes.

MG: It really depends on how you want to apply it and approach it and in protecting yourself, but also being able to provide what that benefit is to your policyholders or for you know our listeners for their businesses; how do to leverage the assets that they have and retain them effectively.

GC: Yeah, I would challenge anybody just to do the exercise yourself just in your head. You know, get or sit down with your team and you know, “Let's go through our dangers, opportunities and strength as an organization and what are they in it?”

And it'll be interesting, your frontline supervisor may have something different than your field leadership versus your, you know, the back room support. So it, everybody's going to have a different danger, opportunity and strength, but holistically bring them all together you'll make you a stronger organization

MG: Yeah, you brought something up that I think is really interesting is who do you would involve in that conversation and it seems like as risk managers it's a conversation that we should be having with our policy holders.

GC: Yes. No, that's a great point. It's really the risk manager the owner of the principles obviously all should be engaged. But the risk manager that's their job inherently the title of you know and just because you're called the risk manager, you may have 16 other hats you wear, but at some point your responsibility is managing the risk of the company. That could be the owner. That could be a designated individual. It could be a committee, but they would be a great exercise. Whoever's in charge of the risk mitigation to try the DOS.

MG: Really good point. I'm curious then, and there may not be a universal answer to this, but curious to hear your thoughts. How often should policyholders be in contact with a risk control consultant?

GC: Oh, that's a great question. So it's interesting, there's some customers that, you know, really two or three visits just really close together where you try to drive home a process or you need some help immediately. And then from there, it's as needed. Whereas others, it's like, I'm more of the approach of, let's make this a two or three-year service strategy. We're not going to get it all done in nine months or six months. Let's string this out. It must be realistic with it. What can we fix or work on? What can we bring to the table that is digestible? And then where can we go throughout the process? Where do you want to be is as a step, we want to go from A to B to C; how do we get there?

So really having a plan and understanding that you have that resource available. If you have an immediate question, “We're going on a job site, we've got crane setup, we don't know if their cribbing is right,” you know, we'll get you on FaceTime, let's use a virtual platform, let's look at it together. We can solve it. Versus, Hey I really need a new fleet safety program that incorporates telematics and, you know, external facing cameras. And I also need to, I'm concerned about negligent trust so I need to work on that type of a policy.”

So it varies depending on the customer and where they're at in their maturity level.

MG: Yeah, there's a lot of really good points in there. You know, one of them is the prioritization element, you know, and breaking things down into a digestible amount and a process that can be implemented on what's most important, what's most pressing, and also meeting policy holders where they are, with what they can practically implement.

And so, Gary, what are some less commonly known areas that risk control can provide support on?

GC: Most risk control professionals and in UFG, they're very broad in their experience and their technical expertise. And so what we've done is we've laid out a very diverse group of professionals, but we also have a diverse group of service offerings. So it may be initially we need compliance training to get us on a job. And then from there, “Hey, how do we bring our accident rates down so we can continue to get these jobs?”

And so to the point of a company may have contracts issues or they've got bad risk transfer in place. Not say bad, but it's lacking a component that could be stronger. Or, hey, really to button down the risk, they should really look at, you know, what kind of site controls do they have in place for subcontractors or what kind of, you know, pre-qualification you have for subcontractors. So the subcontractor pre-qual is a big piece of it, making sure they understand their insurance exclusions and personal use policies, whatever the case may be.

So there's that component of it, but then you also get into we can do training, training can be virtual, it can be on site. There's other resources. We have an ecosystem of vendors called United Vendor Network. These are vendors that do things, everything from telematics to confined space training to safety type training to industrial hygiene, to drug and alcohol testing and helping you write those programs, you know, so you can take in that force multiplier track approach in an ecosystem where maybe they need to tap into one of those to add value to their company or they're lacking that expertise. So it is very diverse in what most risk control can bring to the table.

And I think, I think the fallacy is that it's just an inspection. It should never be just an inspection that risk assessment term is what you should be hearing from most professionals and that's what it is it's an assessment of your risk. What's your threat landscape look like and then what maybe solutions or suggestions can we provide.

MG: Yeah which is fantastic because it—again it's less about bringing somebody out to tell on you right or having them tell on themselves.

GC: That's not the intent, yeah. That's a great, that's not, it's not a “gotcha” moment by any means no it's like, “Hey, tell us what you're doing, show us what you're doing.”

And then we may ask you more questions because we want to learn more because, “Hey, this is the best we've seen,” or it may be, “This is good, but if you want to go to the next step, this is what another company did that would help you tweak it a bit. And, you know, that process improvement could be implemented.”

MG: You also mentioned technology and the ways that we can connect now virtually or the library of resources that's available, where it's not simply a matter of having a schedule time face-to-face or walking around with a clipboard and a checklist, where you can get a lot more out of working with your risk control advisor, with your carrier partner than you could in years past.

I know where ergonomics training is an area that's getting a lot of attention, being able to use predictive modeling to see where injuries are going to take place or where damage is likely to be caused. So it seems like there's a different focus, there's a different approach, but technology is really helping your team develop a philosophy that's working more with policyholders in a consultative approach, rather then, again, a “gotcha” type moment.

GC: Yes, no, then I think the term we like to use is how can we be present? We want to be present with our customer. And you can't always be present in person just because of a variety of logistics that make them into place. So we've stood up a virtual platform and our virtual platform is FaceTime type technology. It's agnostic to any device. So we could talk to an owner in Ohio looking at a job site in Florida and a second job site in Arizona, all in the same in the same afternoon, and really have some great interactions.

If you think about the construction industry, you can go on a job site and see what you need to see via a FaceTime-type video and really be able to provide some valuable insights. As well as training, you can do training virtually. You can do training on-site. You can do training via the various platforms that are out there, the learning management systems that are out there. We have all those as well. Companies should take advantage of that of every one of those if they can. On-site’s great, virtual is good, learning management-type system training, it hits the mark it keeps the training documentation for you they're really well done nowadays so it's just an ever-evolving industry.

You know as well as I do everyone has a cell phone they have a smartphone we look at reels we look at clips we're on FaceTime we're on the various sites often so the more we can incorporate that in along with the technology in the vehicles from the telematics to the cameras to the, you know, cell blocking technology. There are so many ways technologies can be integrated. Now you can overwhelm yourself with that too and you have to be a little bit choosy so you don't just spend money to spend money. But in a lot of cases it's becoming table stakes.

MG: Absolutely. And like you mentioned, everybody has everybody has a cell phone. We've been able to leverage proprietary software here, SafetyOne, that has things like your tailgate topics to be able to make it accessible for people regardless of where they are in the field, but also digital record keeping, have it centralized.

So just helping to bring our clients into the 21st century and making sure that not only is the training being done, but there's continuous record of it to make things easier. And I imagine it's the same philosophy that you guys have followed of accessibility one, but also the follow-up that comes with it to ensure that people are getting something out of it and there's documentation that supports it.

GC: Yeah, I know to your point that the collateral and the resources that Rancho Mesa has are outstanding. They're, they're cutting edge top, you know, state-of-the-art, having that available to customers just brings more opportunities to be successful. Same with your carrier. So if you take your UFG and you marry that up with a Rancho Mesa, all the various technologies available, you can really have a robust platform, maybe more than you need, but you pick and choose what fits and then work with your producer, your agent, and your risk control consultant on building out a plan to implement and engage over time and be present with your customers, be present with your employees and really allows you to have a robust risk management platform that mitigates risks and really is thoughtful also in that process.

MG: Yeah, I appreciate that. And yeah, I really like the way that you've introduced presence within it, you know, especially in relation to the, you know, the DOS analysis of being able to introduce everybody to it, have presence, an ongoing presence and prioritization. When you bring these elements together, it can really impact the risk control of the business to allow them to focus on, again, what, like you said, their job is, it's building, it's construction, rather than having to worry about losing guys in the field or really dealing with the damage, the fallout of when things go wrong. You've continued to amaze with what you have to share, and I know that I'm going to continue to learn from you, just giving your vast experience and everything. Any other wisdom that you want to share with us before we wrap up?

GC: Partner with your insurance partners, partner with your carrier, partner with your producer and your agent at Rancho Mesa because you've got a lot of collaboration and a lot of expertise available to you. Don't be afraid to use it, that's what we're here for and it will really make the industry better as a whole, but also will improve your business, is a good way to look at it.

MG: Fantastic. I'm going to call it wisdom because the reality is insurance is, it's a difficult product for a lot of people to really wrap their head around because it's not tangible. It's not something you can touch and feel and it's feels like it's the same for a lot until you need it. But the reality is with carriers that are looking to invest in businesses, there's a lot more that they can bring to the table. And you don't have to wait till something goes wrong to find out what that value is.

GC: No, you're really looking for that partner that partnership and it and it grows across the whole spectrum that partnership so that's what you're looking for. Someone told me years ago, and I think it's appropriate for when we talk about mechanical contractors and such said, you know, “You can have a house and you can have a home you know so your insurance is a little bit like the HVAC system in your house; you don't have to have it, but it will make you a lot more comfortable with it.”

MG: Yeah, that's a good point. So, Gary, thanks for joining me in StudioOne. I really enjoyed getting to hear what you had to say, and just looking forward to continuing the conversation.

GC: Oh, thank you, it was great. I appreciate it, and I look forward to the next time.

MG: Thanks for tuning in to our latest episode produced by StudioOne. If you enjoyed what you heard, please share this episode and subscribe. For more insights like this, visit us at RanchoMesa.com and subscribe to our weekly newsletter.

Six Ways Contractors Can Prepare for Higher Workers’ Compensation Rates

Author, Sam Clayton, Vice President, Construction Group, Rancho Mesa Insurance Services, Inc.

Over the last couple of months, we have published multiple articles and podcasts on the Workers’ Compensation Insurance Rating Bureau’s proposed rate increase and now the approved 8.7% increase to the pure premium rates effective 9/1/25. But, what we have not touched on are the specific steps our best-in-class contractors are doing to position their companies to offset these increases. They are:

1. Engaging with their advisor early in the renewal process. Contractors need to know exactly how this rate change will impact their specific class code. For 5506 Street/Road Contractors, the pure premium increase is 5%, but contractors performing dry utility work in class code 6325 Conduit Construction, it is increasing 26%.

2. Continuing to evaluate and update their companies’ risk control program.

3. Understand and managing their historical and future experience modification rate (EMR) . If their EMR is a debit mod (i.e., over 100), determine what is driving it upward?

4. Using KPIs to benchmark their frequency and severity against their peers’.

5. Analyzing both open and closed claims. They are looking for any lag times in claim reporting, and reviewing open claims on a consistent basis to manage open reserves. They identify the root causes of the incident and what they can do to prevent these types of claims from reoccurring in the future.

6. Evaluating alternative risk financing strategies like captives, retros or deductible workers’ compensation plans. 

So the question becomes, why do these best-in-class contractors take these proactive steps? One, they understand that losses unfortunately are inevitable but if there are processes and procedures that they can put in place to minimize the impact, they are willing to do it. The second reason is that they are bidding projects that potentially do not start for another 8-12 months and they want to factor in any increase in operating costs and protect their profitability.

To get started on these six steps to prepare for higher workers’ compensation rates, contact me at sclayton@ranchomesa.com or (619) 937-0167.   

Signs of Future Increased Costs in Workers’ Compensation Continue

Author, Kevin Howard, Partner, Rancho Mesa Insurance Services, Inc.

Senator Anna M. Caballero recently introduced Senate Bill 555 (SB 555), also known as the Workers’ Disability Adjustment Act. While the bill is currently stalled in the Senate Appropriations Committee, SB 555 could, if signed into law, increase weekly Permanent Disability (PD) benefits for injured workers in the California workers’ compensation system, adjusting these annually to reflect economic inflation through a cost-of-living adjustment (COLA).

According to the official Senate Committee analysis, the projected cost of SB 555 is estimated at $570 million to $907 million over eight years. This potential increase in long-term claim cost could catch workers’ compensation underwriters and actuaries off guard. Exploring things further, we have provided an example below of an injured worker’s permanent disability benefits should SB 555 generate enough interest back in Sacramento.

Meet Joe the Roofer

If Joe is deemed 25% permanently disabled, here is how his PD benefits would look before and after SB 555. I am using a 5-year period in this claim scenario:

Before SB 555 (Current System)

• Weekly Benefit: $290/week

• Duration: 5 years

• Total: $75,400

(Note: These rates have remained unchanged since 2014.)

After SB 555 (COLA)

• Benefits increase annually with inflation (assume 3% COLA/year)

• Estimated Total: $80,051

Bottom line: Over five years, Joe would receive 6–8% more in PD benefits under SB 555. These payments would reflect modern cost-of-living realities for injured workers.

Projecting these new claim costs could dramatically impact underwriting within the worker’s compensation marketplace. It would most certainly elevate premiums to levels not been seen in years.  While it is clear this bill may continue to be stalled, we expect the push for higher permanent disability benefits to be a regular theme in this and other potential new legislation.

How to Prepare For the Hardening Workers’ Compensation Market

Work closely with your broker at your pre-renewal meeting to understand your company’s key performance indicators and how those can be leveraged for the best possible pricing outcome at renewal. Re-visit your safety program and protocol, focusing on lowering claim frequency and severity.  And finally, understand how your broker is developing your risk profile to the underwriters. To learn more about how Rancho Mesa can help in these areas, contact me at khoward@ranchomesa.com or call me at (619) 438-6874.

About the Author
Kevin Howard is a Commercial Insurance Broker at Rancho Mesa Insurance Services, Inc., specializing in risk management and insurance solutions for artisan contractors including solar, roofing, and other skilled trades. Based in San Diego, California, Kevin serves contractors throughout the Southern California region, helping them protect their businesses with tailored coverage and proactive support. His clients benefit from access to exclusive tools like the SafetyOne™ Platform, RM365 HRAdvantage™ Portal, and workers’ compensation claims advocacy services, designed to improve safety, streamline HR processes, and support better claims outcomes.

Mid-Year Insurance Outlook for Contractors: Rising Costs, Tighter Margins

Author, Casey Craig, Account Executive, Rancho Mesa Insurance Services, Inc.

As a contractor in California, you are likely feeling the squeeze, right now. Material costs are up, labor is more expensive, and insurance, typically a predictable line item, is becoming a growing burden on your bottom line. 2025 is proving to be one of the most challenging years yet for construction business owners. Even companies with best practice risk management controls in place are getting hit with premium increases that are hard to absorb.

Auto Insurance

Auto premiums continue to climb, making fleet coverage one of the fastest growing expenses for contractors.

Replacement parts and labor costs have skyrocketed. Even a basic bumper repair now involves expensive sensors, which take longer to replace and recalibrate.

Distracted driving is at an all-time high. Today’s younger drivers have never known life without a smartphone, and it shows—claim frequency is rising, especially in high traffic areas like Southern California.

These and other factors are pushing rates higher, regardless of your claims history and shrinking margins even for the most careful contractors.

Workers’ Compensation Rate Increases Expected Soon

Even as jobsite safety improves and injury rates fall, workers’ compensation costs are trending upward—driven largely by the costs associated with litigation and cumulative trauma claims.

Each claim costs more, especially when attorneys get involved.

Once a claim becomes litigated, it can escalate into a cumulative trauma (CT) claim. This drastically increases costs while also impacting your experience modification (Ex-MOD). Even when carriers believe the injury did not occur on the job, the burden of proving it often forces them to settle anyway.

Fraudulent or exaggerated claims are becoming more common, particularly after layoffs or when employees feel disgruntled.

Contractors with tight margins and lean crews are at higher risk as a single claim can now have twice (or more) the financial impact compared to just a few years ago.

Shrinking Margins: More Pressure, Less Room for Error

Between rising insurance costs, wage inflation, and higher overhead, contractors are operating with less margin for error than ever before. Jobs that were profitable five years ago may now just get you to breaking even—or worse. Compound this with fewer jobs to bid leading to more competitors bidding on each job, all while trying to remain profitable.

This puts even more importance on risk management and proactive insurance planning. It is not just about reducing the frequency of accidents—it is about protecting your margins and keeping your business viable in a high-cost environment.

What You Can Do Right Now

Do a thorough review of your insurance policies to ensure you have the broadest coverage in place and understand clearly where the market is headed in advance of bidding projects. Revisit your stretch and mobility program, heat illness prevention protocol, and ladder safety training—especially with the rise in fraudulent claims. Avoidable injuries will only add to the pressure and compromise margins.

Ensure your fleet safety program is updated and consider using cameras or apps in vehicles that restrict phone use while driving.

Make sure foremen and all staff are treating employee’s well. Disgruntled employees are typically the ones who can and will file claims if layoffs are required.

Track and manage claims closely to prevent small issues from becoming a larger impact to your Ex-MOD and your future workers’ compensation costs. This includes building out a formal, written return-to-work program.

Partner with a broker who understands your trade and can advocate for the most competitive rates and broadest coverage for your exposures.

If you have any questions relating to this article, I am more than happy to provide a detailed audit of your insurance portfolio and safety programs. Contact me at ccraig@ranchomesa.com or call me at (619) 438-6900.

New Auto Insurance Minimums Could Expose Coverage Gaps for HVAC and Plumbing Contractors

Author, Matt Gorham, Account Executive, Rancho Mesa Insurance Services, Inc.

The State of California has raised its minimum auto insurance limits effective January 1st of this year, and it could be problematic for some HVAC and Plumbing contractors.

Although the intention of the limits increase was to expand coverage for victims of accidents, there is concern that it will marginalize many drivers.

According to a 2023 study from the Insurance Research Council, California was already among the nation’s leading states for share of uninsured drivers at 17%, with many anticipating that number to be increasing.

Drivers that had carried the previous minimum limits due to financial constraints may not be able to afford policies with the higher limits and may choose to forego insurance altogether. For those that qualify for the California Assigned Risk Plan, their policy limits ($10k/$20k/$3k) will actually be lower than the previously imposed minimums ($15k/$30k/$5k).

Other drivers that had previously carried higher limits may now choose to reduce their limits to the state minimum due to the rising cost of auto insurance statewide.

With the commercial auto insurance marketplace already facing challenges, many carriers have chosen to reduce coverages they are willing to provide.

One key area of concern for HVAC and Plumbing contractors is Uninsured/Underinsured Motorists coverage, which provides coverage when an accident is caused by a driver who either does not have insurance or whose policy limits are inadequate to cover the costs of medical care and property damage arising from the accident.

Without appropriate coverage, an HVAC or Plumbing contractor could be found responsible for significant financial costs caused by medical expenses, lost wages, and pain and suffering due to injury to drivers and passengers of their vehicles – even if they are not at fault for the accident.

Here are 3 steps to help insulate your business from such a loss:

1. Review the personal use policies in your company’s fleet safety program.

   Do employees drive company vehicles home and/or are allowed to use company vehicles outside of the course of work? Who else can drive or be in the vehicle as a passenger? Establish clear answers to these questions and enforce your policies, reminding employees of them, as well as the risk of neglecting them.

2. Review your current insurance coverages for limits and symbols.

   Uninsured/Underinsured Motorist coverage limits can vary greatly from one carrier to another, while California allows policyholders to waive the coverage completely. Also, verify that the limits apply to the appropriate vehicles for your company with the relevant auto symbols.

3. Meet with your broker early in the renewal cycle.

   Discuss auto coverages, review vehicle and driver schedules, and develop a strategy to approach the market to secure the appropriate coverage for your business.

If you have questions on auto insurance coverages or would like to complete a policy review, you can reach me at (619) 486-6554 or mgorham@ranchomesa.com.

How Changes to the Expected Loss Rates Will Impact Concrete Companies

Author, Sam Clayton, Vice President, Construction Group, Rancho Mesa Insurance Services, Inc.

In addition to the Workers’ Compensation Insurance Rating Bureau’s (WCIRB) proposed 11.2% workers’ compensation pure premium rate increase, the WCIRB will also be updating the 2025 Expected Loss Rate (ELR) effective 9/1/25.

Each workers’ compensation class code has its own ELR and it is used in the Experience Modification Rate (EMR) calculation. ELRs are the average rate at which losses for a classification are estimated to occur during an experience rating period. They are expressed as a ratio per $100 of payroll and can have a significant impact on the EMR.

For example, the ELRs for 5201/5205 concrete class code will be dropping 19% and 10%, which we believe is not getting the attention it deserves. These decreases will have an adverse effect on concrete contractors’ EMRs effective 9/1/25 and beyond. 

In addition to your EMR, the lowered expected rates also impact your primary threshold. Your primary threshold is the maximum primary loss value for each individuals’ workers’ compensation claim. If the primary threshold goes down, a small lost-time claim will have a bigger impact on your EMR. As all contractors know, any increase to your EMR can not only increase your overall workers’ compensation premium but also impact opportunities to bid certain projects in the municipal/commercial market.

So, how can concrete contractors get out in front of this? 

1. Conduct open claim review meetings on a quarterly or semi-annual basis.

2. Audit any open reserves on claims that are impacting your current and future EMR.

3. Determine the timing of your next unit stat filing date.

4. Ensure that your accident investigations program addresses the root cause of claim frequency and severity.

5. Use trade-specific Key Performance Indicators (KPI) that benchmark you to other concrete contractors.

6. Work with your broker to project your EMR up to 7 months prior to your renewal date.

7. Conduct industry- specific trainings that are OSHA compliant.

We recommend taking a proactive approach. Here at Rancho Mesa, we can provide you with your industry specific KPI’s, a dedicated workers compensation claim advocate, a proprietary safety app, monthly safety workshops and more.  Start now to insure you understand the financial impact to your company and the steps necessary to minimize the disruption.

If you would like to learn more or have us assist you   I can be reached at sclayton@ranchomesa.com or (619) 937-0167.

Key Dates that Will Define California’s Workers’ Compensation 2025 Rates

Author, Kevin Howard, Partner, Rancho Mesa Insurance Services, Inc.

In California, September 2025 will be a pivotal month for the state’s workers’ compensation marketplace. With inflated post-Covid-19 payrolls still affecting premiums, both the Workers’ Compensation Insurance Rating Bureau (WCIRB) and California’s Insurance Commissioner Ricardo Lara have been working to establish appropriate pure premium rates that are reasonable for both insurance carriers and employers.

Many California worker’s compensation carriers have shared that their combined ratios continue to rise. This means the cost of claims and expenses are increasing disproportionately to the collected premiums. And, at some point, a middle ground needs to be met based on the data analytics to ensure the carriers can continue to operate in the state.

Over the last few years, the WCIRB has provided Lara with recommendations to increase pure premium rates which should help to lower the carriers’ combined ratios, though the approved rates have trended lower than the recommendations. Now that the data shows carriers’ combined ratios are too high to sustain long-term, all eyes are on Lara over the next 5 months to see how this will unfold.

Pure premium rates are the WCIRB’s advisory rates, which change annually for each California class code. Pure premium rates do not include factors like commissions, carrier overhead expenses, or profit margins that are later added to the equation. The pure premium rates can be viewed as the starting point for independent carrier actuaries when they are deciding on annual increases or decreases based on the WCIRB’s posted pure premium rates.

A deep dive into the timeline of events that will shape the future of pure premium rates, dual wage thresholds, and carriers’ base rates per class code is important in order to understand the current workers’ compensation changes to come.  

January

Up until 2023, January 1 was the official date when carriers would file new base rates with the California Department of Insurance (CDI). However, moving the carrier rate filings away from the beginning of the calendar year helps carriers avoid the year-end crunch, analyze data more efficiently (including the prior Q4), and better synchronize their timelines with the WCIRB and CDI recommendations.

April

Around mid to late April, the WCIRB will make a recommendation for pure premium rates that would go into effect on September 1. This recommendation is based on actual data that has been analyzed by actuaries. This analysis offers tangible insights that the insurance commissioner, the Department of Insurance’s chief actuary, and independent carriers can use to make informed decisions.

May–June

At the San Francisco headquarters, the CDI hosts public hearings where stakeholders, unions, and insurers can comment on the WCIRB’s proposed changes that include, but are not limited to, pure premium rate recommendations.

July

Dual wage recommendations are issued by the WCIRB in July. Based on data collected since the prior 4th quarter, the WCIRB will make a split class code recommendation that takes into account wage inflation and economic shifts throughout each industry that utilizes dual wage thresholds.

September

Advisory rates approved by the insurance commissioner go into effect in September. For example, in the current year of 2025, the WCIRB has recommended a 11.2% increase in pure premium rates. The Insurance Commissioner and the chief actuary will make the advisory pure premium rates official, which could be the same, less, or more than the WCIRB’s recommendation.

In September, carriers also lock in their base rates according to their own predictions, needs, and actuarial results.

October

The WCIRB prepares for the next year by gathering actuarial data.

California has some really important dates to pay attention to this summer and into the fall. The current WCIRB-recommended 11.2% increase is the largest recommended increase in the past 5 years.  Communicating with your insurance broker and developing plans to prepare for this most certain increase will be critical to managing this line item on your profit and loss statement.

For questions about the pure premium rates and how they will affect your workers’ compensation premiums, contact me at khoward@ranchomesa.com or (619) 438-6874.

Workers’ Comp Rate Increases are Here — Are You Prepared?

Authors, Sam Clayton, Vice President, Construction Group, Rancho Mesa Insurance Services, Inc.; Matt Gorham, Account Executive, Rancho Mesa Insurance Services, Inc.

The workers’ compensation market in California is hardening. After many years of rate decreases, it appears that the market has started to bottom out.

The Governing Committee of the Workers’ Compensation Insurance Rating Bureau (WCIRB) voted in favor of pursuing an 11.2% rate increase. If the California Department of Insurance approves the WCIRB’s request, it would make the first rate increase in more than a decade.

In recent years, wage inflation has helped to offset rising medical care and claims handling costs within the workers’ compensation system, while carriers’ reserve redundancy releases have also contributed to the soft market.

With reserve redundancies declining and wage inflation stalling, the effect of rising costs in the workers’ compensation system are becoming more noticeable. Added to that, the diminishing investment returns for carriers and the need for rate increases and stronger underwriting performance becomes even more pronounced.

Below are four ways that your insurance broker should be helping to prepare you for the coming change:

Understanding Your Workers’ Comp Claims

Meeting with your insurance broker throughout the year can help you identify trends and underlying root causes for your claims. This can help you to implement practices and procedures that reduce the likelihood of the same type of claim recurring.

As an example, we identified that lower back strains are among the most common work injuries in one of the industries that Rancho Mesa specializes in, which led our team to develop the Mobility & Stretch Program and A.B.L.E. Lift Protocol.

Providing Effective Safety Resources

A strong safety culture depends on individuals consistently making safe choices and having access to the tools they need. Among other resources, Rancho Mesa provides clients with the SafetyOne™ platform, a website and mobile app that offers a suite of tools to implement safe practices, such as a library of topics for toolbox talks, online safety trainings, and safety observations.

Utilizing Workers’ Comp Claims Advocate

The workers’ compensation process can be complex and costly. Rancho Mesa offers an in-house workers’ compensation claims advocate to help navigate the claims process, manage claims, and provide accountability to adjustors. Leveraging your broker’s claims advocate can help manage the overall impact of claims on your insurance costs.

Exploring Loss Sensitive Plans

Rancho Mesa can help you evaluate a variety of loss sensitive options, such as captives; self-insured groups; large, intermediate and small deductible options; or retro plans to see how they compare against guaranteed cost. Having access to more product options allows for more relevant, effective advice on which program best meets your risk tolerance.

That final decision and recommendation will be done and take effect September 1st 2025.

While these increases will not directly impact you until your next renewal, taking action to prepare for the coming change is critical. Rancho Mesa is informed, has the resources available and most importantly the proactive commitment to help you navigate the approaching storm.

If you would like to learn more about our resources and approach to this process, please reach out to Sam Clayton at sclayton@ranchomesa.com, or Matt Gorham at mgorham@ranchomesa.com.

Evolution of Exterior Insulation and Finish Systems in California

Author, Casey Craig, Account Executive, Rancho Mesa Insurance Services, Inc.

Exterior Insulation and Finish Systems (EIFS) has been around since 1969 and has grown in demand for new construction in California with a constant push to get closer to “net-zero” buildings. With our strong niche in plastering, drywall and painting contractors in California, one of the most frequently asked questions by insurance carrier underwriters pertains to whether a contractor self-performs or subcontracts out EIFS work. This has become a significant concern for insurers, particularly when it comes to the proper installation of drainage systems over wood-framed buildings and/or the use of inferior materials. Over the past decade, there have been significant strides to insulate contractors from claims arising from EIFS.

The major turning point for EIFS occurred during the 1995 hurricane season in North Carolina, when an increase in insurance claims highlighted the risks associated with improper drainage systems in EIFS installations (i.e. walls and ceilings). These claims prompted a dramatic shift in the way EIFS systems were installed and regulated moving forward. In response to these challenges, the industry made considerable strides to enhance moisture control, seismic resilience, and the use of materials that are better suited to California’s diverse climates—ranging from dry desert conditions to coastal, humid areas.

California’s building energy efficiency standards continue to evolve. As these standards become more rigorous, it is expected that EIFS will play an even larger role in meeting the energy demands of new buildings. The insulation provided by EIFS systems makes them a critical component of energy-efficient design, helping buildings achieve net-zero energy performance while still having curb appeal.

It is likely that EIFS will become a requirement for most, if not all, new construction projects in California in the near future. However, despite the system’s growing importance, many insurance carriers still view EIFS installations with caution, due to the historical challenges and claims associated with improper installation techniques. As a result, some insurers continue to treat EIFS as a “high-risk” exposure and require stand-alone policies to cover the potential risks.

Currently, there are approximately 7,660 plastering professionals employed in California, according to the most recent data from the Bureau of Labor Statistics (BLS.gov). However, only a small fraction of these employees are actively involved with EIFS installations. This limited exposure has contributed to a gap in the insurance market, with many carriers potentially lacking a deep understanding of the evolving EIFS industry and its improvements.

For plastering contractors in California, working with a knowledgeable broker is crucial to navigating the complexities of insuring EIFS work. Each company’s exposure to EIFS risk is unique, and it is essential to have a broker who understands these nuances. A specialized broker can help secure the most competitive pricing available and ensure that they are paired with insurance carriers that are not only familiar with the latest industry advancements but are also willing to offer comprehensive coverage for EIFS-related risks.

While industry change can take time, it is vital to have a broker who actively advocates on your behalf, challenging insurers’ outdated guidelines and promoting an accurate understanding of the current EIFS landscape. By building strong relationships with insurers who understand the evolving nature of EIFS, contractors can improve their risk management profiles and position themselves for long-term success.

If you have any questions relating to EIFS or any other insurance needs you may have, do not hesitate to reach out to me directly at ccraig@ranchomesa.com or you can call (619) 251-8278.

Controlling Auto Insurance Costs for Plumbers and HVAC Contractors

Author, Matt Gorham, Account Executive, Rancho Mesa Insurance Services, Inc.

Like most businesses, vehicles are an essential part of a plumbing or HVAC contractor’s operations. Whether the focus of their business is service and repair, tenant improvements, installation, or new construction, company leaders depend on trucks, vans, and cars to get their people, equipment, and materials safely to the jobsite.

Unfortunately, the cost to insure those vehicles has increased dramatically over recent years and there appears to be no imminent sign that trend will change.

According to AM Best, the U.S. commercial auto insurance segment sustained a $5 billion net loss in 2023. While it is still too early to know how the auto segment performed in 2024, early indications from the first half of the year showed further deterioration, marking the 12th straight year of net underwriting losses for auto insurers.

There are multiple reasons for the increase in auto losses. Distracted driving is contributing to an increase in the frequency of automobile accidents, while social inflation and third party litigation funding are amplifying the severity of associated losses. As all of these causes will continue to negatively affect the auto insurance marketplace broadly, avoiding auto accidents becomes increasingly more important for individual companies in controlling auto insurance costs.

While there are many factors that can lead to an auto accident, businesses can benefit from focusing on those within their control. Implementing or enhancing a fleet safety program with clear, actionable policies will better equip drivers to avoid accidents. Consider how your fleet safety program handles the following:

• Driver selection, qualification, and performance management. Establish clear written guidelines on who is eligible to drive and how their driving performance is evaluated. This may include policies such as requiring an applicant to provide their motor vehicle record as part of the interview or hiring process, participation in the Employer DMV Pull Notice program, incentives for safe driving, and responses to unsafe driving practices, near misses, tickets, or at fault accidents.

• Safety rules, vehicle use, and operating procedures. Define how and when drivers are allowed to operate vehicles. This should include policies that address use of cell phones and hands-free devices, impaired driving, personal use of company vehicles, company use of personal vehicles, passengers, seatbelt use, and speeding, among others.

• Driver training. Provide ongoing training for employees to understand their responsibilities as drivers and the risks that are present on the road. This could include in-person or video trainings that discuss topics like defensive driving, distracted driving, safe following distance, and driving in inclement weather. Having potential drivers successfully complete an in-person driving test in a controlled environment before getting on the road, as well as annual driving tests can also help reduce the likelihood of an accident.

  Learning management systems like Rancho Mesa’s proprietary SafetyOne™ platform can offer effective and convenient online trainings to ensure your drivers are knowledgeable and well equipped to drive for your company.

• Vehicle maintenance and inspection. Schedule and document routine maintenance tasks like oil changes, tire rotations, and brake inspections to help keep vehicles running smoothly. Implementing a daily vehicle inspection for items like active turn signals, working headlights and brake lights, and tire pressure reinforces the importance of safety to your drivers, while also proactively minimizing the risk of a dangerous maintenance issue that could lead to an accident.

Providing an easy way for your drivers to document and report their daily vehicle inspections and maintenance issues can increase the likelihood of compliance. Try one of our QR code-enabled Driver Vehicle Inspection Report (DVIR) to see just how simple it can be to document and report mechanical or safety issues with your fleet.

In addition to a robust fleet safety program, there are other tools and strategies that can be leveraged to provide savings in a challenging insurance marketplace, without sacrificing coverage.

To discuss these tools and strategies or for a complimentary review of your current fleet safety program and insurance program, contact me at (619) 486-6554 or mgorham@ranchomesa.com.

Group Captives May Be Contractors’ Solution to Rising Insurance Premiums

Author, Sam Clayton, Vice President, Construction Group, Rancho Mesa Insurance Services, Inc.

Over the last few years, contractors have started to see rate increases on multiple lines of coverage within their insurance program. And, the difficulty insurance companies are having in the property market, especially here in California with the wildfire risk, has been pretty well publicized. We have seen both homeowners and commercial landlords forced away from the standard property market and into surplus lines, or, worst case scenario, the California Fair Plan. We are also seeing commercial auto policies come under pressure due to increases in litigation, costs to repair vehicles and social inflation. 

Believe it or not, workers’ compensation has been the lone outlier from these increases, until now.  In the last 6 months, we have started to see a shift in the market. Carriers’ combined ratios have been steadily creeping up and underwriters are cutting back on the amount of schedule credits they can apply.

As a result of the premium increases felt across the board, one alternative risk financing strategy contractors may want to consider is a member-owned group captive.

A member-owned group captive is an insurance company owned and operated by the captive members, strictly for the benefit of those members. This structure enables middle market companies the ability to increase their underwriting credibility through the collective purchasing power of the group. These groups can be related (what we call homogeneous like a trade group or association), or unrelated (which would be a heterogeneous group which could be companies similar in size).

There are real advantages of a group captive, like:

• Lower insurance costs over time

• Financial incentives for strong loss control

• Increased control over claims management

• Investment income

Who should consider a group captive?

• Companies that have shown long term financial strength

• Owners who are committed to safety and have strong safety programs in place

• Loss histories or experience modification rates that are significantly better than average in their respective trade

• Annual premiums of $150K or more for workers’ compensation and commercial auto

As we see the workers’ compensation market continue to harden, best-in-class contractors who are looking to control their costs and protect their bottom line may want to consider this alternative risk financing strategy. 

If you would like to learn more about captives, contact me at sclatyon@ranchomesa.com or (619) 937-0167.

Exploring the Self-Insured Group Alternative

Author, Kevin Howard, Partner, Rancho Mesa Insurance Services, Inc.

The fabric of the California’s workers’ compensation landscape is ever changing. Most California-based subcontractors utilize what are called guaranteed cost options for their workers’ compensation needs. This is a safe option that allows for business owners to budget for their overhead costs, however, they have minimal control based on the ebbs and flows of the market. Additionally, with medical inflation and litigated claims on the rise, CA is now experiencing a hardening market as rate increases threaten 2025 and beyond.  This has caused many contractors to seek more control over their workers’ compensation program, especially those who have displayed best-in-class safety habits and lower loss ratios to prove it. While guaranteed cost options are widely known, Self-Insured Groups (SIG) are quickly gaining traction as a compelling alternative. By pooling resources, subcontractors can access benefits that are better suited to their specific operational needs.

Predictable Expenses with Added Benefits

A key strength of SIGs is the financial predictability they provide. Unlike traditional insurance with fixed premiums, SIGs have the flexibility to reward participants who maintain excellent safety practices with reduced contributions and the possibility of surplus return premiums that are traditionally nontaxable. This structure not only encourages proactive risk management but also helps members potentially reduce workers’ compensation costs through the hard market.

Comprehensive Risk Management Support

SIGs can often go beyond the typical insurance offering by providing members with access to advanced risk management resources. Because SIGs utilize group communication for safety needs, members can lean on each other and pool data to utilize the hive-type safety support systems. These systems can include safety training programs, compliance audits, and in-depth data analysis. These tools help subcontractors pinpoint and address potential risks, leading to safer worksites and fewer insurance claims.

Collaborative and Transparent Decision-Making

A distinctive feature of SIGs is the active role that members play in the governance of the program. Subcontractors participate in selecting providers, setting policies, and shaping the group's strategies. This cooperative approach ensures that the program aligns with the interests of the members, fostering trust and transparency.

Strength in Numbers

Joining a SIG connects subcontractors to a broader network of industry peers. This collaborative environment encourages knowledge exchange, problem-solving, and collective negotiation, ultimately contributing to mutual growth and resilience. Many SIGs also hold quarterly and/or annual meetings, offering opportunities for additional sharing and recognition when warranted.

When is a good time to consider a SIG?

When annual estimated premiums reach between $150,000 and $1,000,000, and your firm can show competitive loss ratios over a 5 to 7-year window, SIGs can become a viable alternative.  More than anything, educating yourself and your management team on this loss sensitive option allows for a more proactive approach to your upcoming renewal.

If you would like to learn more about SIGs and have an interest in this type of program, reach out to me directly at khoward@ranchomesa.com or call me at (619) 438-6874.

Mitigating Inland Marine Losses

Author, Casey Craig, Account Executive, Rancho Mesa Insurance Services, Inc.

Inland marine insurance can sometimes be a forgotten line item in some construction companies’ insurance portfolio. This insurance covers your materials, equipment and tools once they are in the field or in transit. Sometimes insured’s feel they have coverage through their property insurance but once the equipment, materials or tools leave your premises, inland marine is the line of insurance that covers you.

Historically, inland marine coverage had fewer losses than other lines of coverage and this type of insurance had not seen a change in premium. However, this has changed in recent years with bolder criminals stealing larger equipment and materials from jobsites, breaking into work trucks to take higher valued tools and vandalism. What are some ways you can cut down on cost and help insulate yourself from losses?

By utilizing new technology to track where you are storing your materials and equipment overnight and investing in security measures, you can help prevent claims and reduce premiums. With theft on the rise, it is a good time to make sure you are storing your materials and equipment in the best way possible. Placing air tags or similar GPS tools on larger equipment is extremely helpful in recovering stolen items and tracking where they are being stored. If leaving equipment at jobsites, removing batteries is also helpful but if possible, try to not leave equipment at the jobsite. Train your employees to properly secure and store equipment if they are taking it home in their work truck. Most theft or vandalism are crimes that are a result of convenience or opportunistic. The harder it is to commit crime because of preventative measures, the less likely the crime will happen.

Ensure you have proper limits for your equipment and materials with your carrier. In reviewing and insuring your tools and equipment, it is important to understanding what is considered miscellaneous tools. Typically, this might be tools with a value less than $2,500, thus necessitating the need to “schedule” equipment above that value. Often times, we see insureds who have aggregate miscellaneous tools limits much higher than needed and then also including those tools or equipment on the scheduled equipment list.

When insuring the materials that will be used on a job, it is important to distinguish between a transit, jobsite and temporary location limits. These limits should be specific to your actual needs and not necessarily always the same values, that is another common mistake we see in auditing insurance portfolios. These vital discussions can help you save on premiums and ensure you are properly insulated from exposures.

While inland marine insurance isn’t typically one of your largest expenses in your insurance portfolio, it is something you need to monitor so costs do not creep up over time from frequency of losses. With rising costs in both auto and property insurance, it is becoming more important to make sure you are insulating your company from risk as much as possible to keep your controllable exposures down.

Discussing your inland marine coverage with your insurance broker regularly can help keep premiums and losses down. If you have questions relating to inland marine or any other of your insurance coverage, please reach out to me at ccraig@ranchomesa.com or (619)438-6900.

Putting Your Best Foot Forward: Slip and Fall Preparedness

Author, Jadyn Brandt, Client Communications Coordinator, Rancho Mesa Insurance Services, Inc.

With winter fast approaching, it’s important that employees are prepared to handle potential hazards caused by the change in weather. Slip and fall prevention is essential for any businesses operating in areas where employees will encounter rain, ice, and snow during the workday.

Wet or icy surfaces and snow build-up can increase the likelihood of slip and fall accidents. Unfortunately, it is not always easy to spot ice that has formed on walkways, stairs and building entrances. Workers may unknowingly step on dangerously slick spots, and snow build-up on pathways can obscure tripping hazards like curbs or cracks in the sidewalk.

One way to raise employee awareness all winter long is through a safety campaign. Regular safety reminders and updates can help keep slip and fall prevention on an employee’s radar, until temperatures warm up again.

Employers can communicate potential hazards to their team through physical signage, email alerts, and proper safety training. Signage can be posted in employee common areas, as well as in places where snow or ice may accumulate, alerting workers to the potential hazards around them. Safety trainings should be assigned to team members who will be working in these winter conditions. Regular email reminders should also be sent to team members to caution against dangerous behaviors.

There are a number of safety tips that employers can provide to their staff members either in a training or through email reminders. Here are a few examples:

Proper Footwear: Boots with enough tread or ice cleats should be worn when working outside in winter conditions.

Walk Carefully: Adjust your gate when walking on a slippery area. Take slow, small steps and pay attention to the ground in front of you.

Precipitation: Stay informed about current weather expectations. Be aware of the potential for rain or snow before heading to work each day.

Choose a Safe Route: Follow marked routes to building entrances. Obey signage and don’t take short cuts because they could be dangerous.

Keep Your Hands Free: Make sure your hands and arms are free to help keep you stable while walking. Use bags or backpacks to free up your arms and avoid carrying heavy loads long distances.

Know How to Fall: Knowing how to brace yourself after a fall can reduce the risk of injury. Stay informed on how to protect your body in case things go wrong.

Employers should always make sure their staff are educated about the specific risks of winter weather. Proper training should be provided on adequate footwear, how to walk safely on icy surfaces, and how to lessen or avoid injury if a fall does occur.

Preventing slips and falls requires a proactive approach from both employers and employees. Building awareness in the workplace can reduce the risk of serious injuries and foster a culture of safety in the workplace.

Rancho Mesa has a variety of toolbox talks available through the SafetyOne™ platform that can be utilized in order to prepare them for winter-related hazards. If you have questions about the available safety trainings, contact your Client Technology Coordinator.

Five Tips to Protect Your HVAC and Plumbing Vehicles from Break-Ins

Author, Matt Gorham, Account Executive, Rancho Mesa Insurance Services, Inc.

Contractors’ vehicles have long been a preferred target for thieves. Due to their distinct shapes and often eye catching branding, contractors’ vehicles are generally easy to identify, and they often contain thousands of dollars’ worth of tools, equipment, and materials.

Heating, ventilation, air conditioning (HVAC) and plumbing business owners that allow their employees to drive their work vehicles home face an especially difficult challenge to keep their tools and equipment safe. And, the cost of a vehicle break in goes far beyond the financial cost of replacing what has been stolen.

Being the victim of a vehicle break-in will lead to delays in your operations, it can cause frustrated customers, and the affected employees can suffer psychologically, especially if they have had their own personal tools stolen.

Here are the top 5 tips to help navigate the risk of vehicle break-in’s at an employee’s home:

1. Have clearly defined policies and discuss them with your employees.
Before allowing employees to drive their vehicle home, ensure that they understand what is expected of them. Having policies to avoid or minimize losses are only effective if the driver is held responsible for actually following them.

And drivers are more likely to follow the policies if they:

• Are aware of them

• Clearly understand them

• Are accountable for implementing them

2. Leave expensive equipment, tools, and materials at the shop.
While it may be inconvenient for your techs to unload their trucks at the end of the day, creating and reinforcing a habit of securely storing expensive equipment at the shop is much more likely to prevent theft of that equipment.

If taking the equipment home is unavoidable or impractical, discuss with them if it is preferred to bring the equipment inside their home overnight.

Capreece Serna, Senior Safety Services Consultant with Sentry Insurance, offers an important reminder: Anything that is kept in the truck should be placed out of sight from the outside, and do not leave the keys in the ignition, on the seat, or tucked in the visor. Leaving electronics, keys, garage door openers, security badges, wallets, purses, or expensive tools in plain sight to potential criminals can encourage them to break into the vehicle.

It is also important that your techs know what is on their trucks. Having them conduct a quick inventory check at the start and end of their shift can help increase security of your tools and equipment, as well as theirs.

In the event that you ultimately experience a vehicle break-in, having an inventory of what was on the truck will help expedite the process of getting tools and equipment replaced.

3. Lock your vehicles and set your alarms.
This may sound basic, but locks are one of the most effective ways of securing your vehicle. Keep in mind that many technicians are getting in and out of their trucks repeatedly throughout the day, often times without locking their vehicles. This can lead to a false sense of security and unconscious habit of leaving a vehicle unlocked overnight. Having security bars or grates on the interior of the windows or doors will provide little security if the doors themselves are unlocked.

It is also important to recognize that there are different types of locks available. While not fail safe, aftermarket locks can provide an added layer of security on either the exterior or interior of a vehicle. As an example, puck locks are commonly found on the exterior, while cable locks or chain locks can be used in the interior to secure tools, tool cases, or equipment to mounted shelving.

Having an alarm system installed on each vehicle that gets driven home can be another effective deterrent. Would-be thieves are much less likely to target a vehicle with an alarm. However, if they are undeterred, the attention that an alarm system attracts in the event of a break-in can substantially reduce the amount of time they have to find and take anything.

4. Be aware of and monitor surroundings.
There are a number of environmental factors that employees can leverage or put in place to increase the security of the company vehicle. Serna offers the following suggestions whenever possible:

• Parking inside the employee’s garage or behind a security gate,

• If in the driveway, backing up to the garage door to prevent the vehicle doors from opening fully,

• If in the street, parking in a well-lit area or using a physical obstacle to limit door access,

• Making use of motion activated lights or cameras pointed at the vehicle,

• Placing a camera inside the vehicle facing tools and equipment.

5. Review coverage for tools, equipment, materials, and employees’ tools with your insurance broker.
Each of the above tips will help reduce the risk and severity of break-ins. However, eliminating the risk of a break-in altogether is impossible.

Serna points out, “When thieves decide to commit their crime, they are looking for the biggest payoff with the lowest potential for getting caught. The focus of your practices should be to minimize the appeal of your vehicles to thieves, which will also minimize the loss to your business.”

Talk with your insurance broker to develop a coverage strategy that aligns with your appetite for risk and have the carrier take on the remaining risk.

A unique advantage for Rancho Mesa clients is their access to the SafetyOne™ mobile app. Within it, business owners are able to make their vehicle policies available to their employees digitally, as well as provide security checklists through a QR code, while also being able to take pictures of their parked vehicle at the end of the work day, helping to reinforce safe practices, accountability, and employee implementation.

For a complimentary review of your current tool and equipment coverages, as well as your safety practices, you can contact me at (619) 486-6554 or mgorham@ranchomesa.com.

Advising Indemnification Agreements with Charles Stec, J.D.

In the second episode of a special two-part series, Executive Vice President Daniel Frazee interviews Charles Stec, J.D., accomplished attorney at Lanak & Hanna, to advise construction companies on what to include in indemnification agreements.

Daniel Frazee: Welcome back to StudioOne™ everybody. We're happy to be joined again by Charles Stec from Lanak and Hanna. We're going to change the conversation a little bit. Charles was nice enough to talk with Drew Garcia, our landscape leader about sub-contract agreements. We're going to shift into indemnification So, welcome back to the studio, Charles, and thanks again for joining us.

Charles Stec: Thanks for having me back. It's my pleasure.

DF: Okay, well, let's talk about indemnification agreements. More specifically, tell our listeners what should go through their minds when they hear that word indemnification and how it may impact them in construction?

CS: So indemnification is a big legal word that simply means a promise to pay for damages or defects that arise from your work.  The bigger concern lately because of the cost of litigation is that there is a duty to defend also included with a duty to indemnify. What that really means is that if there's a claim, you end up being responsible to pay for the legal fees and costs of the person that's making that claim against you. And those costs, especially in smaller claims, can sometimes exceed the value of the actual damages at issue.

So an indemnification provision in a contract can be used to really define who is going to be responsible and to tell a subcontractor that they're responsible for damages that arise from their work. But how we write that provision can very much impact how it will be interpreted and what your actual allocation of responsibility will be.

DF: Okay. So, furthering that part of what you're talking about, can you provide us with an example how indemnification, when worded a specific way, can negatively impact, let's say, a lower tier trade that we might represent?

CS: Sure Daniel. Let’s take a drywall subcontractor as our example. If our drywall subcontractor has an indemnification provision as contract, that ultimately says that he is responsible to defend and indemnify for claims arising from or any way related to his work, then if we had a scenario where there was a water leak from the roof, from plumbing, whatever it is, and it ultimately results in the wall that's dry walled having buckling or mold, then in the event of a claim, that drywall subcontractor could arguably be responsible to indemnify and defend because our provision says in any way relating to his work.

But if we rewrite that position to just say he's only responsible for claims that arise from the negligent performance of his work. Now, in our scenario of the water leak, his duty to indemnify and to defend won't be triggered because the claim ultimately comes from a water leak, not from something wrong with how the drywall work was installed

DF: Okay, that makes sense. And I'm going to go a little off cuff with you, but I want to better understand because I think we have a lot of clients that have concern with redlining contracts, right? They're working with a preferred contractor, a really solid relationship. They don't want to disrupt that. So in your experience, when there is pushback, when there is redlining of contracts, how do most general contractors respond to that when you insert that type of wording. Does it depend on the general or is there some reasonable compromise that you've seen?

CS: So I've actually seen mostly reasonable compromise. I think everybody knows that a contract is ultimately supposed to be negotiated at arm's length. It's supposed to be the two parties are negotiating their position. What people are afraid of as a subcontractor is, "Oh, I'm not going to get the work because I'm not just accepting the contract as it is." But in that scenario, that contractor is running the risk that you're going to argue later that this was a contract of adhesion. Take it or leave it and therefore it's not enforceable. So they're typically open-minded and I have many, many a times in my recent past found myself on the phone with the general contractor's lawyer and we negotiate the few positions that are disputed in a contract. They expect it and for the most part if your requests for revisions are reasonable, they're going to get accepted.

DF: Very helpful. That's very helpful. So let's continue looking at indemnification clauses from a subcontractor's perspective. Walk us through what they may see in a typical contract and some specific examples, again, back to redlining or changing language that can minimize their exposure.

CS: So all contracts are a little different, and every one of these indemnity provisions has been written by different lawyers, so they're all a little different, but I'll give you kind of a general idea of what one normally sounds like. So my example is, “subcontractor agrees to indemnify and hold harmless the owner, contractor, and their agents, and any entity or person for which the contractor is responsible per the contract documents, from and against any claims, damages, or losses, including attorney's fees and costs arising from or in any way related to the subcontractor's work.”

So using my example, there's a few things that you would want to consider redlining with that provision. The first is the vague description of who you're promising to either defend or to indemnify. So in our example it said any entity or person for which the contractor is responsible. Well that's not defined and that creates a very real possibility that you could find yourself either having to provide defense fees for--or indemnity--to parties you've never even met and having to pay potentially multiple defenses. So in that case, I would strike that language in its entirety and instead make sure that each of the people that you were agreeing to identify are clearly defined. Normally that's going to be the prime contractor and the owner only. There may be some scenarios on certain jobs where you would agree to someone else, but it should be defined so you know who and what responsibility you're taking on.

DF: Okay.

CS: In our same example, another consideration is you could add language excluding liability for the owner or the general contractor's negligence. So let's talk about what that would be. For example, if the owner knows there's an unsafe condition there, there's a hole in the ground, a bad step, whatever the case may be, he doesn't tell anybody about it and leaves it there and one of your employees gets injured. Excluding that liability would make sure that the owner becomes responsible and you're not indemnifying the owner for your employee or some other person's injury that's actually coming from a condition the owner knew about and left there and didn't tell anybody.

Similarly, if another contractor on the job has done something that is so poor that it is potentially a danger either to other work or to cause injury. Let's say framing was done with a too small of a header and nobody knows that one day comes crashing down. That would be an example that if the contractor knew that their other sub had put in that bad header and didn't tell anybody that you would want to exclude that damage. So I definitely recommend adding language, excluding the gross negligence of either the owner or the contractor.

DF: Okay, all right.

CS: And a final example, it goes back to the defense costs. So in every contract for indemnity, the law implies this duty to defend. And the duty to defend arises at the time that they tender it to you, they say we've got a claim against us. And so you're now paying the legal fees of somebody else before the claims ever resolved and it's determined whether or not you did anything wrong.

Now, in our example, it said attorney’s fees and costs and you could imply that that is that duty to defend, but simply striking that wouldn't be enough, because the law actually implies the duty in to any contract of indemnity. So you have to specifically excluded it. So what you could say is I have no duty to defend a lot of times though Your contractors and owners might reject that. So what we could also consider is limiting what that duty to defend to be.

Two possibilities you could talk about is; saying that you will only agree to pay your proportionate share of the potential defense costs based on your proportionate share of the potential damages so that it's now shared amongst other subcontractors or of the contractor whoever else might be involved in the particular accident or event. The other would be to put a limitation of liability provision in where you could say our liability is either limited to what insurance proceeds pay or even to a specific dollar amounts. I've seen people say let's put it to the total amount that I was paid on the project or a set number like $100,000. Those types of provisions can help limit that defense cost that you ultimately could see picking up from an alleged accident.

DF: Okay, all right. Thanks for kind of going into that detail. Very helpful for our subs to understand some areas to be focusing on. So, if you look at indemnification clauses from a direct contractor's perspective on commercial and service contracts, what should they be watching out for and how can they redline or a change language that can minimize their exposure?

CS: Sure. So, obviously, when you're talking about these direct contractors, those on a commercial or a service agreement, their relationship is a little bit different. So they're now no longer a subcontractor lower down in the chain, but they're in a direct contract, probably with the project owner. So a lot of our discussion before on subcontractors would still apply, but there's a few other things that you might want to look at as well.

First, I've seen in a lot of direct contracts lately that in the indemnification provision, one of the parties to indemnify that owners have been adding is the design team, either the architect or the engineer. Those should be excluded because as the contractor--unless we're talking about a wholly different subject, which is design build agreements--the contractor has no control over the design. They're not able to influence how it's done, how it's built, or most of the times the design's done long before they ever get there. So to indemnify the design team doesn't make sense because it's not someone that you ever had any ability to control the quality of that work. So I think that those should be excluded, be redlined out, and also you would consider adding a phrase that says something to the effect of the contractor is not responsible for claims that arise from design defects or design errors or emissions. You don't really want to be taking on liability for a designer that you didn't have any business with and you're not in contract with.

DF: That makes sense.

CS: Another example that I've seen is that a lot of these indemnification agreements with owners are very broad. They say all claims, damages, liabilities, or losses and the problem is it doesn't clarify for what claims. Are we talking about claims from the owner or claims made to the owner? So what I've been recommending lately is that in those broad indemnity provisions, that it be revised to say for third party claims. That way the owner can't sort of hodgepodge the indemnity provision into a requirement to you to pay their defense fees to sue you. So that's a revision that we've seen come up more often than not lately.

Another that really is beneficial and it sort of goes back into the design question from a minute ago is putting in a reverse indemnity provision. So in a lot of projects, the owner provides to the contractor a set of plans, maybe some reports, some geotechnical reports, whatever the case may be, and the contractor does their work based on those reports. In a reverse indemnity provision, the owner agrees to indemnify the contractor for errors and emissions in those reports. So let's take for example, you are doing, you know, subterranean grading and there is a retaining wall to hold in that subterranean dig if the design plans didn't build a big enough set of supports and you build what's in the design plans and it fails, you shouldn't be the one responsible for that failure because it's the design, not the construction. So the reverse indemnity provision would then make the owner responsible to go to that designer for that claim rather than come to you as the contractor.

DF: Okay, all right.

CS: Finally, there are a lot of other ancillary provisions in a contract that read together with the indemnity provision can help minimize your liability. We talked about two of them with the subcontractors. That's a consequential damages waiver, those indirect costs that may come up. And the other being excluding damages for latent defects. We talked about it in the underground, an unknown type, things you wouldn't know there, like utility or box. Those types of provisions you could consider having in there and they would define when your indemnity would kick in.

Others that you could talk about adding would be a clearly defined delay provision. If your project is running late, who's responsible for that or defining what the damages would be and maybe setting a liquidated damages amount on a daily rate or a monthly rate. So at least you could control your risk because you know what that potential damage would be if it runs late.

And finally, it would be a provision limiting what recoverable damages could be, either to insurance proceeds or the maximum amount of liability, like we discussed earlier.

So the main point is that every construction business is a little different. And it makes sense to tailor your contracts to the type of trade that you're in, the type of jobs that you're doing, they could be public, they could be private, and there's different risks and allocations that come with those different types of projects. So in my belief, a little bit of foresight in working with your contracts in advance can really help control your risks in the event that something does go wrong in the future.

DF: Well, and I think Drew alluded to it too, that your process of being out in front of this and proactive really aligns with how we interact with our clients trying to mitigate risk on the front end. But so often we get feedback that sometimes crosses that line of insurance to legal, where we can comment and provide some feedback, but we don't have the expertise that you do in the background that can really help them truly negotiate these contracts or just tighten up everything that they have with respects to sub-agreements and/or indemnification.

So these bullet points are so helpful for us and our team, and I can't thank you enough for sharing this. I know this is just the tip of the iceberg too. I know what you do for many of our clients is so effective. Tell us again, if people need to connect with you, what's a good way to start the dialogue?

CS: Well, again, thank you for having me here today. It's been a pleasure. You're absolutely right. It is the tip of the iceberg. There are so many different things we could talk about. We could have gone on for hours. I really do like to tailor to a specific contractor's needs. So the best thing to do is literally to reach out. We're available by phone, consultation is free, I can be reached at my office, it's 714-451-7919, send me an email, that's ckstec@lanak-hanna.com or you can go to our website, which is Lanak-Hanna.com.

I say it all the time and I'll say it again here, I think that a little bit of upfront attention, a small amount of money you spend consulting with a lawyer. If it saves you from one lawsuit, it's worth every penny.

DF: Agreed and I think that's been consistent with the clients that have partnered with you and I think they would say the same thing. So thank you again and thanks to our listeners for joining us again in this series and we'll see you next time.

Catch Up on Part 1