A tradesman recently had his trailer -- with over $20,000 worth of his tools and equipment -- stolen. Unfortunately, his insurance company wouldn't reimburse him for the tools because his policy had a "Locked Vehicle Warranty" on it, meaning for him to be covered, he had to show proof of forced entry. The lock had been cut, but the tradesman couldn't locate it, so his insurer denied coverage.
This type of horror story can be a common occurrence for contractors or trades that don't have insurance specifically designed for the type of work they do.
Let's explore how to protect yourself against such a damaging episode.
Tool insurance comprises a wide range of events, explains David Elliott, President of Newcastle, Ont.-based InsureMyTools.ca, an insurance provider specializing in covering contractors and trades.
"Normally, the coverage would protect you against loss of tools due to things such as fire and theft," he says. "Some policies may also include coverage for rented tools, or even pay the cost to rent tools while you are replacing yours," Elliott adds.
He says the company will insure tools only, but he recommends contractors get a full commercial policy, which includes Commercial General Liability coverage protecting you from lawsuits because of bodily harm or property damage.
So you don't think tools insurance is important? Think again.
Most contractors have a huge arsenal of tools, and many often assume that their equipment is covered by their home insurance policy. However, Elliott explains, most home insurance policies carry an exclusion for tools pertaining to a business, so it's vital you review the wording of your policy.
You probably have at least $10,000 worth of tools in your truck or trailer; if someone stole the vehicle, this would be a huge loss. Or imagine if the site burned down and your tools were destroyed in the fire. Either way, you're in trouble. Without your tools, you can't operate your business, so if something happened to them, you would need seamless coverage.
It's unclear how many contractors don't have coverage, but those without it are definitely playing with fire.
"Most job sites will require a certificate of insurance before allowing a contractor onsite, so I would assume any contractors on commercial sites would be insured," Elliott says. "But there may be some residential contractors operating without insurance. This is a scary scenario, as they could be one lawsuit away from financial ruin."
While insurance brokers abound, Elliott says he isn't familiar with another Ontario company other than his that specializes in contractors and trades people.
"This is why we started," he says. "We found that too often a general insurance agent was setting up insurance for contractors without truly understanding the industry."
Because InsureMyTools focuses on contractors and trades only, Elliott says, they keep an eye on the market. The company can offer a policy which does not include the locked vehicle warranty, meaning that if a contractor's tools are stolen from a vehicle, he does not have to prove that it was broken into.
"This is certainly something all contractors should be aware of, and normally this warranty is hidden in the long form wordings of the policy," he says.
Another example is that most contractor policies will contain a co-insurance clause which may limit a claim payout, "whereas our policy has the ability to write coverage on a blanket amount with no co-insurance clause," Elliott says.
Some things to consider when picking an insurer:
- Pick an insurance provider that knows the contracting industry: If the company's website is filled with information about home, auto, business and pet insurance, it's fair to ask yourself if they really know about contractors' insurance. "Too many providers these days are simply focused on the sale and not the best interest of the contractor," Elliott says.
- There's more to a policy than price: the real value is in the long form wordings attached to the policy, Elliott says. Watch out for warranties and exclusions which may limit coverage. Every policy has exclusions; just ensure the ones in your policy are reasonable, he advises.
- Expert opinions: with all the insurance options that exist for contractors and trades, you want a provider that will actually provide value by pointing out all your options and giving you suggestions based on your specific situation and needs.