Rancho Mesa's Vice President of the Construction Group Sam Clayton and Executive Vice President Daniel Frazee discuss residential exclusions and how they can impact those in the construction industry.

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Director: Alyssa Burley

Producer/Editor: Lauren Stumpf

Host: Sam Clayton

Guest: ⁠Daniel Frazee⁠

Music: "Home" by JHS Pedals, "The DeLong Incident" by Craig MacArthur

© Copyright 2023. Rancho Mesa Insurance Services, Inc. All rights reserved.

Transcript

Sam Clayton: Welcome, everyone, and thank you for joining us. I'm Sam Clayton, vice president of Rancho Mesa. And we're back once again with fellow agency principal and construction group leader Daniel Frazee. Welcome, Daniel.

Daniel Frazee: Thanks, Sam. Excited to continue our conversations on these key topics for our perspective and current clients.

SC: Great. Well, let's jump right in. Today's topic, we continue to focus on commercial general liability policies, which is pretty broad, but also very important. And I'm referring specifically to residential exclusions. Dan, can you explain to our listeners what your interpretation is of these exclusions and how they can impact those in the construction industry?

DF: You bet. Residential exclusions are typical on all general liability or GL policies and I think in general represent limitations in coverage based on how each carrier views this type of work. These exclusions can be as broad as a total residential exclusion, but most often there's some verbiage that gives back coverage depending on what specific type of residential work is being performed. I mean, these can impact our clients significantly when claims occur and coverage is potentially denied if and when the specific exclusion is referenced or identified.

SC: Thanks, Daniel. So can you expand a bit on what makes up residential work within the construction space?

DF: Sure. I mean, residential work can be really any of the following, you know, can be single family homes, both custom homes, ground up new and repair and remodel on single family homes. It can be spec home developments. We call these, like infill projects where a developer might purchase a piece of property and build multiple homes on a property, duplexes, condos, townhomes, apartments, tract homes. That that really gives the kind of overview of what all might be considered residential work.

SC: Appreciate that summary. So the construction companies need to be very clear on how they describe the residential work, correct?  

DF: That's actually really critical. It's a good point that you bring up. Construction firms have to be very, very specific as they prepare for renewal windows, not just the percentages of residential work, but most importantly, what areas they're working in, and that's something that I think is critical for them to to partner with their broker on.

SC: Does it matter if the residential work is new or service repair remodel and or maintenance work?

DF: Most often, yes. I think, for example, virtually all carriers in California have some type of restriction or exclusion for new condos, townhomes and I lump condos and townhomes together because very often they are kind of considered one in the same on and within those exclusions. But several of these carriers give back coverage with the caveat that a certificate of occupancy has been issued and the work being performed is repair, remodel maintenance. And I think with that, most of these carriers end up having a comfort level, naming, for example, the HOA, the Homeowners Association, as an additional insured, which is often a prerequisite for trades bidding this work.

SC: That's really important for our contractors to know. What about apartments?

DF: Well, that's another good question. I mean, apartments kind of ride the fence, depending on the carrier. And what I mean by that is that many carriers view work on apartments as commercial. They look at the fact that there's one entity or one owner similar to, say, a commercial building. So the residential exclusion allows for or designates that that work on apartments, new or remodel is acceptable. And then there are others that view apartments as residential. You can imagine. I mean, obviously an apartment building technically is a residence and there are people that are living there. And so many of the carriers view apartments as residential and will exclude this work altogether.

SC: Yeah, maybe the underwriters are scared these apartments will get converted to condos at some some point in time, you know.

DF: You know, yeah. Another good point, Sam. That we could go into a separate conversation on that. But quite a few carriers have condo conversion exclusions. So that's another thing that that our clients and prospective clients need to pay attention to on their existing policies.

SC: Understood. So, Daniel, can you walk our listeners through the importance of RAP or OCIP policies and how they also play into this residential work?

DF: Sure. And quite frankly, maybe another podcast topic we could we could jump into that in greater detail. But you know, RAP or OCIP policies or I should just say RAP or OCIP. Those are just acronyms for what essentially are project specific policies that are purchased by either owners, developers or the contractors themselves. We've certainly noticed, I think within our construction team, a trend in the last decade where these policies are put in place to “wrap” all of the sub trades under the policy so that coverage is afforded for many types of residential projects. So many of the home builders have what are called rolling wraps that are essentially master policies that add projects or portions of projects as they as they commence. And these typically are constructed without residential exclusions or limitations. So, trades who typically could not perform this work because of their existing residential exclusions, they can be added as a covered subcontractor.

SC: Thanks, Dan. I appreciate what you shared to this point. Any final thoughts on the subject?

DF: Yeah, I think we've talked about this before, but those of our clients in the construction space or frankly any contractor, you know, listening to this podcast needs to really understand their existing residential exclusion or exclusions, assuming they're performing any type of this work. We have a lot of our clients that that are doing commercial work, and then they'll comment that, well, on occasion I'll do some residential work. It's really important to understand what that looks like and then also understand how that may be impacted by their residential exclusions. So spend some time with your broker, or certainly consider reaching out to us for something along the lines of a full policy audit. We can explore those with you and at least put the potential exposures in front of you.

SC: Thanks, Dan. That concludes today's podcast. Really appreciate your time. And you know, there's a really great description of the residential exclusion. Thanks

DF: Thank you. Appreciate it.

Alyssa Burley: This is Alyssa Burley with Rancho Mesa. Thanks for tuning into our latest episode produced by StudioOne. For more information, visit us at rachomesa.com and subscribe to our weekly newsletter.