October 11, 2007

Completed Operations Insurance Coverage Now Rrequired: Residential Building Contractors and Remodelers Must Comply as of August 1, 2007

On August 1st, a new law goes into effect requiring certain residential contractors to maintain completed operations coverage through their insurance carrier.[1] The new law applies to residential building contractors, residential remodelers, manufactured home installers and certain roofers.[2] "Residential building contractors" and "residential remodelers" are defined by statute as offering to an owner to provide "two or more special skills" in connection with building or improving residential real estate.[3] If you fall into one of these categories, then you must comply with the new law.

The new law adds a requirement for completed operations coverage. The law requires minimum limits in the following amounts for commercial general liability insurance--which includes premises and operations insurance as well as products and completed operations insurance:

• $100,000 per occurrence;
• $300,000 aggregate for bodily injury; and
• $25,000 property damage.

These amounts are minimums. Higher amounts of coverage are strongly recommended. Indeed, it may be difficult to locate an insurance carrier offering a policy that only satisfies the minimum coverage mandated by the law.

The law requires this insurance to be written by "an insurer licensed to do business in this state."[4] Moreover, each contractor to whom this law is applicable must maintain a certificate of insurance on file with the commissioner of commerce.[5] The law further provides that the insurance coverage "shall not be cancelled without the insurer first giving 15 days' written notice of cancellation to the commissioner."[6]

A number of contractors may already possess completed operations coverage that satisfies the minimum requirements under the new law. However, action must still be taken by contractors to ensure that a certificate of insurance is filed with the commissioner of commerce providing that the contractor's insurance will not be cancelled with less than 15 days written notice by the insurance company to the commissioner. Previously, only 10 days notice was necessary and no notice to the commissioner was required.

Failure to comply with this new insurance requirement may result in the commissioner filing an administrative action against the builder.[7] If the administrative action is successful, then the commissioner may revoke or suspend a contractor's license.[8] There is also a possibility of a civil fine. Civil fines imposed by the commissioner may not exceed $10,000 per violation.[9]

A literal interpretation and application of the law regarding completed operations coverage may result in harsh sanctions if a contractor fails to comply. However, it is hoped that the commissioner will demonstrate leniency during the initial period after this new law goes into effect on August 1, 2007. Contractors should take prompt action to verify with their current insurance carriers that their insurance coverage complies with the new law. Many insurance agents are proactively contacting their insured contractors to discuss this issue. However, it is the responsibility of the contractor to obtain this coverage and file the appropriate certificate with the commissioner of commerce.

[1] 2007 Minn. Laws Chpt. 9, sec. 1.
[2] Id.; Minn. Stat. § 326.83, subd. 7.
[3] Minn. Stat. § 326.83, subds. 15 and 16.
[4] 2007 Minn. Laws Chpt. 9, sec. 1.
[5] Id.
[6] Id.
[7] Minn. Stat. § 326.91.
[8] Minn. Stat. § 326.91, subd. 1.
[9] Minn. Stat § 45.027, subd. 6.

Previously Published by Bowman and Brooke's Construction E-Newsletter on July 2007