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
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