How Purchasing Materials Early May Create Insurance Problems

Contractors and manufacturers are getting creative in responding to today’s supply-chain issues. Many are purchasing and storing materials ahead of time to create a more fluid job site. But they may be creating new insurance problems. Their existing insurance contract may not cover the extra materials.

For example, say a subcontractor purchases materials such as electrical wire, grout or steel for a job, invoices the owner, and the owner pays for them. The materials are delivered to the subcontractor’s warehouse. Technically, the materials now belong to the owner, so the subcontractor’s insurance may not cover them. To have an insurable interest, you need to have ownership or a contract that stipulates the coverage. In this case, the subcontractor should probably add an endorsement or an installation floater.

In another example, a manufacturer buys materials ahead of time and asks the vendor to hold them at their location. But the manufacturer must ensure them. This might require temporary storage coverage with specific assignment to that location.

In each situation, you want to make sure you know who is responsible for the materials and specifics on how they are supposed to be stored. You or your client may not have the proper storage capacity or conditions, given the larger quantities than usual.

It’s important to know your policy’s limits and what it covers and excludes. While some policies have some off-premises coverage thrown in, it’s not likely a high enough amount to cover the additional quantities you’re purchasing today.

Most of this can be handled by your broker or carrier. A quick call can help you discover whether you have the right coverage and the right limits in place.