Residential SubContractors Advisory

Finding liability insurance coverage still very difficult for residential subcontractors
By NIP Specialty Brokerage

While the general property and casualty insurance marketplace seems to be softening, the market for contractors and subcontractors who work on residential properties continues to get tighter. More and more, insurance companies are either avoiding these classes entirely or raising rates so dramatically that businesses are forced to make tough decisions on what kind of work they will do, and where they will do it.

The main culprit behind the current crisis in insurance availability and affordability is construction defects litigation. When a home buyer feels their residence was not built properly, they are bringing suit against the contractors and subcontractors responsible for the defects. Currently, this type of litigation has become so costly for insurers that some have withdrawn from residential construction markets completely.

While all states have had construction defects lawsuits, they have been worse in the western states, especially California and Nevada. Other states with significant construction defects problems include Arizona, Colorado, Texas and Florida. In all of these states, securing coverage for residential subs, the usual target in construction defect litigation, has become extremely difficult and expensive. Some builders have left states like California and Nevada because premiums were so high.

So while the difficulty of placing liability coverage for residential subcontractors is universal, the West Coast states remain the toughest, especially if they have condo and townhome exposure. This is again due to construction defects litigation being prevalent in these multi-residence developments, and the possibility of having claims brought against them by individual homeowners and the entire association.

Even within the category of subcontractors, some are easier to place than others. No one seems to want to touch structural subcontractors (framers, roofers, etc.) but we have had success with non-structural subs doing plumbing, HVAC, flooring, electrical work, painting, and cabinets. Also utility contractors doing residential work (water/sewer contractors doing home hookups, paving/road contractors doing driveways and streets in new communities). Placing coverage for subcontractors working on high-end custom homes is also a lot easier.

All residential subcontracting risks are easier to place in states East of the Mississippi, even those working on condos and townhouses. And finally, new or relatively new operations are harder to place than established operations, because you don’t have a track record to show the market.

As contractors and subcontractors continue to see markets drying up, options for obtaining insurance remain limited. Outside of the mainstream market, options include self-insuring (a very expensive and risky proposition), or joining forces with other contractors to form a purchasing group. With large numbers, contractors can become more attractive to the insurance industry. Finally, there is the E&S market. A wholesale broker like NIP Specialty Brokerage has strong relationships with insurance carriers that offer terms on hard-to-place classes of business. Sub-contracting risks and exposures are extremely difficult classes to place, but NIP Specialty’s knowledge of the markets and good relationships with the underwriters at our insurance carrier partners helps us succeed in getting terms for our retail agents.

If you end up turning to a wholesale broker, time is usually of the essence. There are things you need to have prepared to speed the submission and delivery of a quote: a completed contractor supplemental application, five years currently valued loss information, clarification of residential operations (percentage of work on custom homes vs. tract homes, etc.), payroll breakdown. Sometimes markets will also ask for the client’s financials.

Residential subcontractors are facing difficult times right now, both from the standpoint of avoiding costly litigation and securing liability insurance coverage. NIP Specialty Brokerage may be able to help you with the latter. Give us a call on your next hard-to-place construction industry account and see what we can do for you.

If you have an account in one of these classes, please submit it to us today:

  • Via fax: 732-634-2904 or
  • Via email:

For more information about NIP Specialty Brokerage, click here to check out our website.

To contact one of NIP Specialty Brokerage’s Construction Specialists, call
800-446-7647, ext 7550.

About NIP Specialty Brokerage
NIP Specialty Brokerage
is a wholesale brokerage operation targeting non-standard commercial risks underwritten by admitted and non-admitted specialty carriers, with a focus on the Construction Industry. NIP Specialty Brokerage assists agents and brokers in the structure and placement of complex insurance risks throughout the United States by accessing NIP’s brokerage expertise and relationships with global insurance markets.

NIP Group, Inc. 900 Route 9 North | Suite 503 | Woodbridge, NJ 07095-1003 | 800.446.7647