Risk Management: How to Protect Your HVAC Business

As a result of signing a contract, your HVAC company may be responsible for defense costs and damages if you’re sued by a customer, even if your company isn’t responsible for the damage. And although your business has insurance, the protection may not extend to certain losses, particularly in cases involving pollution or subcontractors.

Since 1985, most insurance companies have been excluding pollution claims from their commercial general liability policies. Excluding pollution from the policies protects the insurance companies from paying for costs associated with cleaning up contaminated buildings, claims resulting from lead or asbestos, and illness claims related to mold. Eliminating pollution from insurance policies also invites the opportunity for more lawsuits directed at businesses.

A variety of different lawsuits can occur due to building-related symptoms. Building owners may file lawsuits against HVAC contractors if legal claims are made against them by workers or tenants. Lawsuits may allege a defect in design/installation, negligence in maintenance or failure to disclose potential problems.

Over the years, claims have resulted in expensive lawsuits. For instance, staffers at a technical college in Wisconsin sued after they were diagnosed with sarcoidosis, a life-threatening lung disease. In the lawsuit, the school alleged the ventilation system was poorly designed, resulting in indoor air quality issues causing the lung disease. The school sued the architects for $750,000 and won $500,000.

Here’s another case from California: A few weeks after moving into a brand new building, two accountants of a particular software company suddenly started having trouble breathing. They began coughing, choking, and their eyes burned. Within two weeks, everyone in the office began feeling sick. They had headaches and other problems.

The owner of the company complained to building management. But management did nothing to correct the problem. Ultimately, it was determined that workers who were remodeling another part of the building were using strong, solvent-based adhesives to seal holes in the air ducts. And the ventilation system was spreading the vapors throughout the entire building. Finally, the software company moved to another building. But the owner of the company filed a lawsuit against the previous building’s owner, architects, HVAC contractors, and managers. They settled out of court for several million dollars.

Some states, such as California, provide additional protection to its citizens against exposure to pollutants. Proposition 65 is a California initiative that addresses chemicals causing cancer, birth defects or reproductive harm. A list is updated yearly with chemicals – both natural and synthetic – proven to cause harm. Some chemicals are found in products, but they may also be found in construction environments or they’re the byproducts of certain processes.

Businesses must provide clear warnings before exposing anyone to one of the listed chemicals. Citizens as well as attorneys and advocacy groups can file lawsuits if a business does not comply. The penalty for violating the proposition can run as high as $2,500 per day for each violation.

Read our blog post “Indoor Air Quality Disasters: How Liable Are You as an HVAC Professional?” for a more in depth look at what kind of insurance your business should procure. Commercial General Liability (CGL) insurance is a good start. It offers some protection to a HVAC contractor, but Contractors Pollution Liability (CPL) and Professional Liability Insurance (PLI)/errors & omissions (E&O) insurance fills in the gaps to provide your company with a full insurance package.

Here are some helpful tips from the ACCA (Air Conditioning Contractors of America) to protect your business:

  • Consider carefully which subcontractors to include on your insurance policies. Remember you are assuming responsibility for these people or businesses. Your rates can increase if working with these individuals/businesses results in frequent claims;
  • Choose adequate limits to cover your business, employees and chosen subcontractors;
  • Consult with an attorney before signing contracts to review clauses in them;
  • Negotiate terms so all parties assume liabilities relevant to their own activities. Refrain from assuming financial responsibility for risks not covered in your current insurance policies;
  • Talk to your insurance agent if you have questions concerning your policy, its coverages, or policy limits.

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