Just Bought an Electrical Contractor? Your Insurance Review Checklist

After buying an electrical contractor, start with the past: a fire from old wiring can surface years after a job, so find out which policy responds to the seller's work and whether the completed operations limit is big enough. Then check the license qualifier and bonds, solar, roof and height work, subcontractors' insurance, and how bucket trucks, tools and materials are insured. The table below also covers workers' comp. This checklist is for searchers, Small Business Administration (SBA) loan buyers and holding companies who just closed on an electrical contracting business.

What should you check first after buying an electrical contractor?

Work through this table with the declarations pages, full policies and five years of loss runs. The general document list is in the pre-closing insurance checklist.

Who pays for a fire caused by the seller's past work?

An overloaded circuit or a loose connection in a panel can start a fire years after the job. When it does, the building owner's property insurer often pays the loss and then pursues the electrician who did the work (subrogation). That claim goes to general liability. The part that handles it is called products and completed operations. Under the standard form, it covers injury and damage away from your premises caused by your finished work. It has its own aggregate limit (the most it pays in a policy year), separate from the general aggregate. Fire claims can be large, so check that aggregate and the umbrella above it.

Which policy responds depends on the deal. In a stock purchase, the company's own past policies stay with it. In an asset purchase, your new company's policy covers "your work", meaning work done by you or on your behalf. The standard wording does not mention work done by the company you bought from, so a fire from the seller's past job may not land cleanly on your policy. The seller's old occurrence policies respond only to fires that happened during their policy years, usually before closing. For fires after closing from the seller's work, the usual answers are a discontinued operations policy bought by the seller and written confirmation from your carrier. See completed operations claims from the seller's past jobs, and ask deal counsel how the purchase agreement allocates these claims.

Keep the seller's permits, inspection sign-offs and job files. A passed inspection can be useful evidence when an old job is blamed; your carrier and defense counsel decide how to use it.

Who holds the license, and what happens to the bonds?

Electrical licensing is set by states and, in some places, by cities or counties. Many require a licensed master electrician or qualifier tied to the business. Low voltage, fire alarm and solar work can each carry a separate license type, so a company that does all three may depend on more than one license holder. Many jurisdictions also set how many apprentices a licensed journeyman can supervise on a job, which caps how many crews you can field if a license holder leaves. In owner-run shops the qualifier is often the seller. If they leave before a replacement qualifies, permits and licensed bids can stop. See when the seller holds the contractor license.

Bonds are usually re-underwritten after a sale, and a bond protects the customer or the government agency, not the business: the surety expects to be repaid if it pays a claim. See do surety and license bonds transfer and surety bonds for electricians.

Are solar, roof and height jobs covered?

Height is where electrical work gets dangerous and where policies get restrictive.

• Solar. Some contractor liability policies exclude or restrict solar installation, or treat it as a separate, higher rated class, partly because it puts crews on roofs and can involve roof penetrations and leaks. If the seller added solar work recently, confirm the carrier knows.
• Roof work. Some policies exclude roofing operations or limit work above a certain height. Read the exclusions and the description of operations.
• Falls and workers' comp. The Occupational Safety and Health Administration (OSHA) lists falls among the leading causes of construction worker deaths, and its construction rules generally require fall protection at six feet or more. A fall injury goes to workers' comp, and a serious one can push up your experience mod for several years if the company is experience rated.
• Shock and arc flash. OSHA also lists electrocution among the leading causes of construction deaths. Underwriters often ask about lockout and tagout procedures, energized work policies and training records, so gather them for your renewal.
• Utility and high voltage work. Work on utility lines or high voltage systems is a different risk from building wiring and may need a different policy or class code.

Class codes. In states using National Council on Compensation Insurance (NCCI) rules, construction businesses can carry more than one basic class code, but splitting one person's payroll between codes needs actual time records. Without them, the pay goes into the highest rated code. California, Pennsylvania and Delaware use their own classification systems, and in North Dakota, Ohio, Washington and Wyoming, workers' comp comes from a state fund (or self-insurance in some of those states), not private insurers. See workers' comp class code corrections.

Do your subcontractors carry their own insurance?

Electrical contractors often sub out low voltage, trenching, or extra labor at peak times. Two problems follow if the subs are uninsured or underinsured:

• Your workers' comp audit. If a sub has no workers' comp of its own, its payroll can be charged on your policy at audit, and state law may treat you as the employer for injuries. A certificate alone does not settle the question.
• Your liability policy. If a sub's work causes a fire or injury and it has no coverage, the claim can come to you, and some policies exclude or restrict coverage when subs lack required insurance.

Use written sub agreements that require general liability, workers' comp and auto, additional insured status for you, and a waiver of subrogation. Collect certificates and the endorsements before work starts, and track expirations. See do your subcontractors carry the coverage your contracts require and 1099 contractors and the workers' comp audit bill.

How are bucket trucks, tools and materials insured?

• Bucket trucks. Under the standard forms, a cherry picker or similar device mounted on a truck chassis is treated as an auto, so driving the truck belongs on the commercial auto policy. Operating the boom itself is different: the standard business auto form excludes injury or damage from operating that equipment, and the standard general liability form covers it. You usually need both policies to fit the truck. Check your actual forms, tell both carriers about the aerial devices, and confirm that physical damage covers the boom and equipment as well as the truck. See mobile equipment vs auto.
• Vehicles in the seller's name. Retitle and schedule them, and pull motor vehicle records for every driver. See vehicles still titled to the seller.
• Tools and equipment. Meters, benders, pullers and lifts usually need an inland marine (contractor's equipment) policy, since a property policy may only cover them at your shop.
• Materials before installation. Wire, panels, switchgear and fixtures on a job site may need an installation floater until the work is accepted, especially on large commercial jobs.

A hypothetical example. A searcher buys an electrical contractor in an asset deal. The seller had started installing rooftop solar a year earlier, and the buyer's new policy, written with the seller's carrier, copied the old description of the business: "electrical wiring within buildings." Six months after closing, a solar job the buyer's crew finished leaks into a tenant's space and damages $60,000 of inventory. The carrier reserves its rights (it defends for now but says it may deny coverage later), pointing to a solar exclusion in the endorsements. A review in the first weeks after closing that compared the job list with the policy would have caught the mismatch, letting the buyer add proper coverage or pause solar work until it was in place.

A Morrow review can compare the work your crews do with what the inherited policies describe.

Keep reading

• Completed Operations Claims From the Seller's Past Jobs: Who Pays?
• When the Seller Holds the Contractor License: Insurance and Bond Risks
• Do Your Subcontractors Carry the Coverage Your Contracts Require?
• New Owner Review: Tools, Equipment and Inland Marine
• Just Bought an HVAC Company? Your Insurance Review Checklist
• All guides for new business owners

Frequently asked questions

Does my electrical contractor's general liability cover fires from past jobs?

Often, for jobs your company did, through products and completed operations coverage, subject to its aggregate limit and exclusions. Jobs the seller did before an asset purchase may not be clearly covered by your policy. Ask your carrier in writing, and ask whether the seller bought a discontinued operations policy, since the seller's old occurrence policies generally cover only fires that happened before closing.

Does general liability cover my electricians if they get hurt on a job?

No. Injuries to your own employees go to workers' compensation. General liability covers injury to other people and damage to their property.

Do I need separate insurance to install solar panels?

Possibly. Some contractor liability policies exclude or restrict solar work, or rate it as a separate class. Tell your broker and carrier exactly what solar work crews do and confirm coverage in writing before taking those jobs.

Is my bucket truck covered by general liability or commercial auto?

Usually both. Under the standard forms, the truck is treated as an auto, so driving it belongs on commercial auto, but injury or damage from operating the boom is excluded on the standard auto form and covered by general liability. Check your own forms with your broker, and confirm that physical damage covers the boom.

What happens if a subcontractor has no workers' comp?

Its payroll can be charged on your workers' comp policy at audit, and state law may treat you as the employer for its workers' injuries. Collect certificates and endorsements before subs start, and require coverage in your sub agreements.

What happens to our license if the seller was the master electrician?

It depends on your state's and city's rules. In many places the license, and your ability to pull permits and bid licensed work, rests on a qualifier tied to the business. If the seller is that qualifier and stops qualifying the business, permits and licensed bids can stop until a replacement qualifies, and how quickly one must be named varies by state and locality. Agree in the purchase documents how long the seller will stay, line up a replacement qualifier early, and confirm the requirements with the licensing board and deal counsel.

References

• ISO: CG 00 01 12 07 Commercial General Liability Coverage Form (carrier-hosted copy)
• OSHA: Fall Protection in Construction, 29 CFR 1926.501
• OSHA: Fall Protection overview
• OSHA: Commonly Used Statistics (construction's leading causes of death)
• NCRB: Basic Manual Rule 2, Premium and Payroll (NCCI rules, North Carolina edition)
• NCCI: ABCs of Experience Rating

This article is general information, not legal, tax or financial advice, and not a coverage determination. Coverage depends on the actual policy wording, carrier underwriting, your purchase agreement and your contracts. Ask your attorney and accountant about deal and legal questions.