One of the more troubling clauses for dealers is the broad form indemnification. While specific form indemnification requires paying to defend claims against the builder from the dealer’s role in the job, broad form indemnification puts the dealer on the hook for claims that arise out of the sole negligence of the builder.
Raven, for one, says he doesn’t begrudge builders trying to transfer as much risk as they can to suppliers and trade contractors, but “you can’t sign away your future to get the business.” Because of its size, Builders FirstSource has been able to negotiate some clauses for an equitable level of shared liability, but “we don’t think we should have to sign on to any program that makes us responsible for other people’s work. … We’ll accept our fair share. Beyond that, it doesn’t make good business sense.”
One solution may be insurance wrap policies, Raven says. Already used in California and Arizona, where liability coverage is extremely limited and expensive for trade contractors, wrap policies cover everyone on a project. That gives a plaintiff’s attorneys fewer targets and makes a project less attractive for litigation.
Broad form indemnification clauses warrant particular attention because coverage for it is disappearing as insurance companies institute new policy forms that eliminate coverage for sole negligence. Some insurers are already using the new forms; others haven’t yet switched over, but the forms are en route. “It’s like a freight train coming down the track,” says Bob Scullin, vice president of The Graham Co., a regional insurance broker based in Philadelphia. “These are big deals. They’re not small claims. The watchword [for dealers] is to take the time to understand what is and isn’t provided in their policies and to make sure they understand what they’re being asked to sign up for [from the builder].”
Healthy Approach While risk managers and safety officers are sweating out liability and workers’ comp coverage, their counterparts in human resources (HR) have equally daunting challenges with health care. They typically dread the annual renewal process, knowing it will bring dramatic increases in premiums, reductions in benefits, or both. Plus, they know how important health benefits are to attract and retain staff. Even in this tough arena, though, some dealers are finding ways to offer health care at reasonable rates.
In 2003, Steve Coleman actually got good news on the coverage he offers his 160 employees at Anderson Lumber Truss Co. Millwork and Rental in Alcoa, Tenn., whose single location includes a door shop, millwork shop, truss plant, and rental business. At renewal time, he expected a 15 percent increase over the previous year. Instead, the quote was a more affordable 4 percent increase. Part of the reason was a corporate wellness program that offers his employees incentives to stay healthy. Coleman, president of the company, pays half the cost of a gym membership if employees work out. Bonuses are paid to employees who get down to the weight their doctor recommends (“Some people have lost as much as 100 pounds,” he says) or quit using tobacco products. “We have more employees now that [have quit smoking] and others on a wellness program,” he says. “Those are little things that help. Insurers like to hear that.”
As another strategy to keep health care affordable for its 79 employees, Winston-Salem, N.C.–based Smith Phillips Building Supply chose to partially self-insure; the company sets aside funds to cover a portion of its insurance risk and uses a third-party administrator to run the program. The current plan costs employees at Smith Phillips’ three retail locations and its millwork and industrial cut-to-size divisions $47 per bi-weekly pay period. That same level of coverage through Blue Cross Blue Shield would have cost them $181 per pay period, says general manager Chris Yenrick. To the employees, the new plan has the appearance of a fully insured program, with a $20 co-pay, but the company retains a high-dollar deductible that covers most expenses.
The company’s premium actually stayed the same in 2003—something of a miracle in the current health insurance environment, Yenrick says—because the company’s self-insured status gave it access to its loss ratios. “We know what’s being paid out in premiums, what’s being paid in medical bills, and know the difference between them,” he says. “We can go back and say ‘Hey, you made a lot of money off of us.’ They tried to do an increase this year; we looked at it and said, ‘No way.’ They kept it the same.”
The success of Coleman and Yenrick in holding down health insurance costs, and the ability of companies such as Boone County Lumber and Casco Lumber to keep liability and workers’ comp costs in check, are strong evidence of the opportunities that are available for dealers to gain some level of control over rising expenses. It takes a lot of effort, but the payoff can be significant. In the area of contracts, Speed notes, it’s time for more dealers to have straightforward conversations with their customers about everyone stepping up to the plate instead of just passing along the risk to someone else.
“We’re all in this together,” he says. “Let’s not hand it off to each other. Be a united front and see what we can do to manage risk.”—Pat Curry is a contributing editor for PROSALES.
