Contractor Tools – Co Insurance

Unlike many businesses, contractors frequently leave their place of business (shop) and work on their client’s premises. The fact that contractors are mobile means that traditional property insurance coverage, which is very often specific to a single location, won’t meet the property coverage needs of most contractors. The contents coverage at a shop location won’t respond for property that is away from the shop. Specialized coverage is available, which we will discuss next.

Tools and equipment used in the course of a contractor’s work can be insured on a mobile floater, often called a tool floater or an equipment floater. A tool floater is designed for small miscellaneous items, typically with a value of under $2,500. These “tools” can be things like drills, nail guns, compressors, or mixers. These small items are usually insured on a blanket basis, meaning one limit of insurance is selected to cover all of these smaller tool items.

When an item has a value that is greater than $2,500 it is generally considered equipment and such items are specifically listed on an insurance policy with a full description and a dedicated limit of insurance for that one item. 

Floater coverage is generally provided on an “all risk” basis, which means the coverage is quite broad. Causes of loss that are covered typically include, fire, wind, hail, theft, vandalism, impact as well as collision during transport. Some things that are not covered include, wear and tear, or mechanical failure. 

When insuring tools, a contractor must ensure that they have met their policies co insurance requirement. Co insurance is a clause that is found in virtually all property insurance and which requires that the limit of insurance reflect the actual and total exposure (value) of all property owned by the policy holder. Failing to insure to this limit creates a situation where the policy can only pay partial amounts of losses, proportional to the amount of insurance chosen. 

Let’s look at an example: A contractor has $50,000 worth of small tools, and typically runs 5 job sites at a time with their crews. Any given job site has about $10,000 worth of tools present at any given time. The contractor selects a limit of insurance of $10,000 believing that is the most that could be stolen at any time. A claim occurs, and the contractor loses $10,000 worth of tools from one job site. Upon review, the insurance company who holds this contractor’s policy realizes the contractor actually had $50,000 worth of mobile tools. In this case the contractor only insured 20% ($10,000 of $50,000) of their tools. Now with the $10,000 loss the contractor has suffered, the insurance company will only pay the percentage insured or 20% – meaning $2,000, leaving $8,000 of the loss uninsured. 

For this reason, it is very important that tool floaters represent the total value of all tools that are mobile. Similarly, an equipment item must be insured to its actual value to ensure that a loss to that item is not co insured.

Remember to let your insurance provider know about new purchases as soon as they happen, maintaining an adequate limit of coverage is the best way to avoid unpleasant surprises in the event of a loss.