We have noticed a trend for general liability policies to exclude coverage for the acts of subcontractors. Because this is a deviation from traditional language, this change can create a problem and needs to be addressed. Today we’re discussing the ramifications of excluding subcontractors from your general liability insurance in Salem OH.
The origin of this support is clear – it’s for lower costs. Within any contracting operation, if a subcontractor’s actions result in a lawsuit, the general contractor will almost always be included as a defendant. That’s just how it works.
When those suits arising from subcontracting operations can’t reach the general contractor’s insurance, it will cost less. We recommend that contractors hiring other contractors include an agreement whereby the subcontractor names the contractor as an additional insured. The purpose of this is to ensure that the insurance for the offending party defends both.
Many insurance underwriters who provide liability insurance in Salem OH to general contractors will require that these agreements are in place, and that additional insured status is documented before providing coverage.
The latest instance of this trend is commercial general liability’s policy excluding coverage for the actions of subcontractors. In short, it requires that each party has their own insurance to protect others from their actions.
If all the payments and liability insurance are buttoned up tightly, this exclusion should not, in theory, pose a problem to a general contractor. However, everyone in the construction business knows that managing subcontractors is a complicated effort laden with unknowns.
For example, if a plumber, electrician, or other tradesmen bring in their own subcontractors to meet deadlines or trade specialties, is it reasonable for the general contractor to have to keep an eye on them as well? A lot of the work that is actually performed on a building or renovation site is arranged with long-standing informal relationships that may or may not have written agreements outlining what happens if someone gets hurt.
For example, if the plumber’s cousin, whose insurance cancelled last year because he was mostly working for someone else, causes damage or an event where someone is hurt, the lawsuit will proceed to the next level. If the plumber and general contractor purchased lower-cost insurance with a subcontractor exclusion, they will, unfortunately, be uninsured.
What can a contractor do?
Contractors should have good legal counsel draft a subcontractor agreement to be used whenever hiring someone else. At a minimum, such agreements should include:
- Hold harmless and indemnification agreements, which creates separation between entities;
- A requirement to name the hiring contractor as an additional insured;
- A requirement for subcontractors to hold their subcontractors to the same standards outlined in the agreement;
- Required notice by the subcontractor to alert the hiring contractor if their insurance is terminated for any reason;
- Statements that the insurance is primary and noncontributory.
Once executed, be sure to secure insurance certificates documenting the carrier name, policy expiration dates and issuing agency. Keep it on file based on expiring insurance policy dates.
Interested in learning more about liability insurance in Salem OH? Call us today to schedule a consultation and I’ll be happy to answer your questions and address any concerns you may have.