Four years ago, soaring business-insurance costs caught remodeling professionals off guard.

A perfect storm of negative events triggered what can best be described as market flight by many insurance carriers. The growth and spread of construction-defect litigation; the frenzy over the potential debilitating health effects of mold contamination in homes; and the reduced financial position of many insurance firms in the wake of the 9/11 terrorist attacks all converged, in quick succession, to spur some insurers to simply exit the remodeling market.

Those carriers that continued coverage for remodelers tightened underwriting requirements and raised premiums. In hard hit states, especially California and New York, remodelers witnessed annual premium increases of over 60 percent. The high cost of insurance and difficulty finding coverage forced some out of business. And there are stories about those who have continued operations without insurance, living day-to-day with the prospect of financial catastrophe hanging over their heads.

But the problem of higher insurance costs goes beyond those states with many willing litigators. Remodelers in all states have experienced higher premiums and reduced coverage. It is now commonly required for subcontractors to carry their own general liability insurance. Some insurance carriers are asking their remodeling contractors to require subcontractors to also name them as "additional insureds." Meanwhile, many remodelers have managed to keep their insurance costs down only by allowing significant exclusions for coverage of mold and "pollutant"-related claims. This has effectively gutted the security that insurance is designed to bestow.

"Our insurance company did not want us to do any termite or rot repairs, commonly part of the remodeling operations, which is are our bread and butter," says Michael Mills CKBR, CGBP, of Michael Mills Construction Inc, in Aptos, Calif. "They did not want us to do foundations, or to drill any piers, or to raise a house. They did not want us to do any work in a condo or townhouse, even if it was only interior work for a unit owner. And, oh yes. Stay off the roof, and don't crawl under the house."

The solution for Mills was to opt out of the traditional insurance market and to join a risk retention group that has less oversight from the California insurance commission. It provides the company coverage for all of the exclusions listed above at a higher cost.