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Northeast HVAC News Guest Column
Plumbing vs. HVAC.
By Christopher F. Hawthorne CPCU, CRIS, CIC, LIA.
It may seem obvious to those in
the business that plumbing, heating, ventilation, cooling that
the trades have many variations. Yet to many outside of the
industry it is not that clear. The reason may have to do with
the fact that many contractors do some of each and that the
company names they select can be open to interpretation.
Using Hawthorne Co. as an example let’s consider some of the
names that might be used:
Hawthorne Plumbing and Heating
Hawthorne HVAC
Hawthorne Mechanical Services
Hawthorne Heating and Cooling
To many they might interpret all of the above as a form of
plumber or simply as HVAC never really seeing the differences of
the various activities. This lack of clarity includes insurance
agents and some of the carriers for which they sell policies.
When an agent walks into your business do they know what they
are looking at? The underwriter at the insurance carrier will
assume so. What is at stake is whether your general liability
(GL) and workers compensation (WC) policies are set up properly.
Setting up the policy based on assumptions can be expensive.
Here are a few questions that should be asked to make sure the
GL and WC policies are set up correctly.
For Plumbing Operations
Type of plumbing performed?
__% Residential
__% Commercial
__% Industrial
__% Service Work
__% New Construction
__% Process Piping
__% Medical Gas
__% Sprinklers
Why? For GL policies, some carriers have different rates for
residential and commercial. If the wrong class was used then
either they held too much of your money throughout the year or
you will owe them money at audit and typically an audit bill is
100% due at audit. Also, many carriers will not work with
industrial pluming, process piping, sprinkler and or medical gas
contractors. These distinctions are very important.
Carriers that rate you as a plumber on your GL may be assuming
you are a residential service plumber. It is important to
remember that if a carrier feels it was not given accurate
information about your activities, they may try to either cancel
coverage mid term if they discover the activity or not pay a
claim if it leads to a loss.
For WC, all of the above are rated as Plumbing, class code 5183
at $3.88 per 100 of payroll except Sprinkler work which is class
5188 at $4.689 per 100 of payroll.
For HVAC Operations
What type? ___%
Service ___%
Installation
Why? On the GL, the classification for doing installation is
almost a lower cost than the plumbing class. I cannot give a
specific number on the GL rates as each carrier has different
rates per classification (unlike WC rates which are set by the
state.) Suffice it to say you want to take advantage of this
separation if you can. On the WC, if a contractor is providing
HVAC service and repair then all of the payroll can be
classified as plumbing on WC at the current rate of $3.88 per
hundred of payroll.
However, if ductwork is being hung, then the WC classification
is changed to classification 5538 Heating and AC Ductwork at the
current rate of $5.74. For $100,000 of payroll that equals
$1,860 difference. What if the contractor has employees
performing both service and installation? For GL, most carriers
will allow you to split the payroll between classes of plumbing
and HVAC work.
Story continues below ↓
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For WC, if your firm
is responsible for the entire installation of an HVAC system then
all employees must be listed as class 5538. If an employee is simply
servicing or repairing a system then Class 5183 may be used. It is
wise to keep very good records to avoid a contested audit.
As a former business owner I understand that cash flow is critical.
One aspect of protecting your cash flow is preventing surprise bills
such as an audit from an insurance carrier for past coverage due to
the policy being set up incorrectly. Worse yet would be to have a
carrier contest a claim if they felt they received bad information
on the application. Therefore it is important that both the agent
and the business owner are clear on the activities of the operation
and that the GL and WC are set up correctly. I hope you find this
helpful.?
Chris Hawthorne has represented Thomas Gregory Associates and has
specialized in working with contractors since 1995 for their
insurance and risk management. Chris can be reached at 781-914-
1038. If you have questions or have issues you would like addressed
in future articles or wish to find prior articles, please contact
Chris at 781- 914-1038 or chawthorne@thomasgregory.com.
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