Global Indemnity Insurance Nj
Global Indemnity Insurance Nj
How many times as an insurance agent have I asked the question of a contractor, what protections do you have in place regarding risk transfer of your subs? Usually after looking at me quizzically for a few moments they say, “oh, you mean, do I get a certificate of insurance, yes.” Sometimes, I will get the ones that say, “I get named as additional insured on their policies. They don’t get paid until we have that.”
These answers come from contractors large and small.
If you have a contractor/sub relationship, it is essential that you have a written contract that provides direction for the insurance that you are seeking to be additional insured on. It is also imperative that this transaction occurs PRIOR to your sub setting foot on your jobsite. Until you have a contractual relationship, they are no more than a visitor on your jobsite and you are subject to a lot more exposure.
Strictly from an insurance standpoint, if your sub lists you as an additional insured and you do not have a hold harmless and at the very least an indemnity provision in your contract, you have given the insurance company no direction as to how they are to protect your interests and you may find that nasty reservation of rights letter or a flat out denial of coverage under the subs policy (which is the whole intent of being additional insured to begin with).
The contract is like the roadmap or instruction booklet in how the insurance company should be responding when there is a claim that involves the sub. The insurance is the funding vehicle that follows the path that has been set up prior to a claim. These are 4 essential parts of the contract regarding risk transfer and insurance provisions.
Part one is the Hold Harmless provision. The sub holds you harmless for everything you can put in there allowed by law which does vary from state to state.
Part two is the indemnification. The sub indemnifies you (pays to defend and/or pays for your damages) for any and all claims allowed by law.
Part three is the waiver of rights or subrogation. The sub waives his/her right to recover damages paid to you if it is subsequently found out that bear some or all of the responsibility.
Part four is the additional insured status. When you are properly (for both ongoing and completed operations) endorsed as the additional insured, this is how the contractor will be able to fulfill his contractual obligations of the prior 3 items. Without the prior 3 items, the additional insured really does not do very much and gives the insurance company no direction as to how you have insurable interest in the sub.
It is also important to note that when referring to the additional insured, the indemnification and the hold harmless provisions will only provide coverage within the scope of the insurance agreement. If you have a properly executed hold harmless provision, you may be held harmless for a loss that is not covered by insurance but financially stressful none-the-less (work stoppage, delay, etc). This could be your sole remedy for not paying for it out of your pocket but requiring someone else to pay for it on your behalf.
It should also be noted that defense coverage can be negotiated with a properly executed contract but without obtaining the additional insured endorsement. When this occurs it is likely to be considered “an insured contract” in the policy but it will be subject to the policy limits for both defense and damages. If the contractor is specifically named as an additional insured, the standard General Liability policy will defend without limits and not deteriorate the limits of liability of the policy.
The additional insured status by itself is not enough. It should be an integral part of a sound risk transfer policy.
Ronald Hicks, CIC, CRIS
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