Insurance Mic

Be Careful of the Contractual Liability Limitation Endorsement

There is a little known, but widely used endorsement being employed by many of the insurance carriers who are underwriting, both the Sub-Contractors, and G.C./ Developers. The form number is " CG 21 39 10 93" "Contractual Liability Limitation". The effect of this endorsement is that it essentially omits critical coverage from the Definition of Insured Contract, by eliminating Item (F) "Other Business Contracts". The insurance policy's contractual liability would respond to other categories of an insured contract such as leases, sidetrack agreements, easements, municipal indemnity required by ordinance, elevator maintenance agreements, but not to other indemnity agreements pertaining to the named insured's business, namely "Hold Harmless Agreements".

If you are a General Contractor and / or Developer, you need your project managers to watch to see if the sub-contractor's policy contains this endorsement. The reason is you want their insurance policy to respond to the written contractual obligation you both had agreed to prior to the commencement of the job. In absence of this endorsement, there will be no capital to re-imburse you the G.C. or Developer for the loss. The result, your policy will pick up the claim, which will hurt you significantly when you go begin to negotiate your renewal. The only way you will know this is through ordering a copy of both the declarations page of their current policy, which should include a full listing of all the "Forms and Endorsements" contained on their policy. A simple Certificate of Insurance will not show this important information.

Another suggestion for the Project Manager would be to insist that all certificates contain the following passage in the "Remarks" section on the Certificate.

" The issuing Agent/Broker warrants that the general policy for this Named Insured Listed on this Certificate contains the following endorsements CG 24 26 (07/04) Amendment of Insured Contract Definition, and the Additional Insured Endorsement is CG 20 37 (07/04) which will provide additional insured status for "Completed Operations" as well as "Your Work"."

Please note if you are an Architect, Engineer, or surveyor, CG 24 26 (07/04) will not work for you. Those professions are specifically excluded under that endorsement. If you would like to know what endorsement to use for your profession, contact me directly or reference Arthur O'Leary's fabulous article written specifically for Architects. The link to his article is: Mysteries of Construction Insurance. He's a fabulous resource for Architects.

Strategies on Managing Sub-Contractors Insurance ( For Everest Policy Holders )

The Importance of Managing Sub-Contractors Insurance:

If you are a General Contractor or a Developer, and your insurance carrier is Everest Insurance Company, you need to be particularly vigilant of the insurance policies insuring your sub-contractors. The reason being, coverage on your Everest policy is conditional, upon the sub-contractor having the correct coverage’s in place on their policy. The days are gone where you simply secured a Certificate of Insurance naming your company as an additional insured, and your done. Now, if your sub-contractor does not have the right coverage in place, Everest will deny your liability claim, leaving you the Developer & General Contractor to pay for your own legal defense, and if you lose the lawsuit, you pay the judgment from your own resources. The following business practices should be put in place to help prevent this situation from occurring. It is certainly not fool proof, and perfection cannot be guaranteed, however your success rate in preventing a claim denial because the sub’s insurance was inadequate should be greatly reduced.

The Strategy:

To identify, and correct situations where the sub-contractor’s insurance is deficient to the point that if there were an incident or claim, “our” insurance would not respond because it does not meet the minimum requirements set forth by "our" insurance carrier, Everest Insurance Company, thus resulting in a denial of coverage on “our” policy.

The Minimum Requirements:

1) The General Contractor or Developer must have a signed an executed “Indemnity Agreement” or “Hold Harmless Agreement” in force between the sub-contractor, and you the General Contractor or Developer. They must remain on file for a period of 6 full years, and be executed, or signed/dated by both parties prior to the loss.
2) Consistent with the “Indemnity Agreement” and/or Hold Harmless, you the General Contractor or Developer must have in your possession a valid Certificate of Insurance, naming you the General Contractor or Developer as additional insured.
3) The sub-contractor’s policy must not have a contractual liability exclusion, or limitation.

The Action Plan:

1) From each and every sub-contractor, Project Manager should request the proper Certificates of Insurance naming General Contractor or Developer as Additional Insured, as well as other entities specified in the contract documents.

2) Simultaneously request a copy of the Declarations pages, (especially a complete list of forms & endorsements on the sub-contractor’s policy). These forms and endorsements are the insurance policy equivalent of the “table of contents”. The agency that produces the sub-contractors certificate should be in position to send this as well. The sub may also have this on file in their office depending on where they are in the policy term.

2A) If the sub cannot produce the “Declarations Page” including forms and endorsements page, ask for either a written copy of their application, or a written copy of the quotation proposal, preferably the proposal which should show the forms and endorsements.

It is not a valid excuse that none of these items are available. That would be an embarrassment to the sub. That means they bought an insurance policy blind, not knowing what the terms and conditions are, and what they are covered or not covered for. If they don’t know this, than they better learn quick. As a sub-contractor for thisGeneral Contractor or Developer we need to know before you have a claim, what’s covered, and not figure it out afterwards if the sub has coverage or not. So let’s figure out your coverage now, before it’s too late. We (G.C. / Developer) will help you do that.

3) Ask the sub-contractor how much he’s paying for his insurance policy. If it’s a real low number than you know he just bought paper, and not coverage. It’s a good indicator of quality coverage. Typically the cheap liability insurance policies are the ones we need to watch out for. If the guy is paying a decent number for his policy, it does not mean it’s good; it just doesn’t raise a red flag as yet. Still confirm the forms and endorsements even if he’s paying a lot.


1) Upon collecting all of this data, please submit to your insurance consultant or Broker the Certificates, Declarations pages, including forms and endorsements, and pricing information, for tentative approval. Give sub’s no more than 2 weeks to pull this info together. They should be able to do it in a week no problem. Give them 2 because most are notoriously bad with paperwork.

2) No Sub contractor gets paid unless either Consultant / Broker or project manager approve.

3) If a Sub hires a sub, it needs to be approved by the General Contractor or Developer, and they must go thru the same process as the Primary Sub-Contractor.

There may be an occasion where Consultant / Broker or project manager does not like what they see, or may need clarification, and want to see the exact wording on the endorsement. At that point we must request that information from the sub-contractor, and impart the fact this is for their benefit as well as ours

Who Should and Who Should Not Contemplate Mt Hawley As Their Insurance Carrier

Should Look for a Quote:

The only residential work Mt Hawley will contemplate is those construction companies that work only for the "Unit Owners" of the Co-Op or Condo. If this is you, please be absolutely certain that you have "ENDORSEMENT CGL 331 (11/00) EXCLUSION -RESIDENTIAL DEVELOPMENTS" . The last paragraph is the "EXCEPTIONS", which is the back door that will permit "UNIT RENOVATION CONTRACTORS", to do this work and still have coverage, if all the conditions are met.

Main advantage of Mt. Hawley is they are inexpensive relative to the market, but can be an excellent fit if you do not have oppressive insurance requirements, and will not contemplate anything that smells like a residential project. You also need to be prepared for the reservation of rights issue should you have a claim. I am not saying they won't provide coverage, it just may be sometime before they commit. If you fit this profile, then this carrier is a lady you should certainly think about dating !

Don't Even Think About It:

If you do any "new" residential work, or do work on any common area of any cooperative or condominium building, whether you are a general contractor or trade contractor, you do so at your own peril, because that work is not covered! Mt Hawley is deathly afraid of the Class Action exposure these types of buildings present. Same is true of 1 Family Homes, Town Homes, or Tract Housing. There is no coverage for any claims arising from work on these types of projects. Look for ENDORSEMENT CGL 352 (03/03) EXCLUSION-RESIDENTIAL DEVELOPMENTS & CONDOMINIUMS. It's this endorsement that takes away coverage for companies that work on Co-op's and Condo's, specifically the common areas or the buildings themselves, not the unit owners. Please request a copy of this endorsement and read it to see how it's application would impact your company should you have a claim.

The big issue with the Developer's and Project Owners you work for may require a certain "additional insured" , endorsement, typically the CGL 20 10 11. With Mt Hawley's contract your "Additional Insured" Certificate holder's lose "additional insured" status when the job is complete. A better contract will provide additional insured status long after you have left the job, consistent with NY State Statute This is an important issue, which needs to be addressed before you purchase a policy from Mt. Hawley. Have your insurance broker review your insurance obligations for your current and future projects before you commit. Once you bind coverage your stuck. If you need further clarification on this issue, email me directly. I don't want to belabor the point.

As stated above their sweet spot is for guys that do only "commercial" work, or do unit renovations in cooperatives or condominiums.

Analysis of Mt Hawley / RLI Construction Insurance Policy Part I