Insurance Mic

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

Everest Insurance Company - Quick Summary

For those of you who are too busy to read and digest the detailed, but important information in my first post about Everest / Sirius America, here is the "skinny" if you get a quote or own a policy. This where they fit in the market place;

UNDERWRITING GUIDLINES: Broad, the great thing about Sirius is that they will write a lot of accounts that most companies won't touch. They will write Residential GC's, frame construction and better. Condo projects, renovation projects, typically anything residential or commercial. This is why I said "I much prefer a market with them in it". They write the tough classes.

THEY WON'T WRITE: Roofers, Waterproofers, Scaffold Companies, or most other trade classes that go up on ladders or scaffolds.

TERRITORY COVERED: New York State (including the boro's on NYC)

PRICING: Typically based on cost of sub's if your a G.C. which is better than cost of sales. There pricing is "fair". On the better accounts with excellent loss history they will be very competitive on the tougher classes, they tend to be higher, because they know their competition is very thin at best. Truth be told they could probably get more for that Frame project going up in the Bronx than they are. No one else wants it.

BE CAREFUL OF: Endorsement # ECG 21 594 12 05 (Exclusion of Coverage) . This endorsement imposes very strict, and meticulous paper work administration by the coverage General Contractor, and or Developer for coverage to be triggered. For a more detailed explanation please refer to my first Everest Insurance Company post. Endorsement # ECG 99 506 12 05 (Classification Limitation) This endorsement effectively limits coverage to whatever trades are listed on the declarations page of the policy when issued. Please be sure before you sign the application to bind coverage that any and all trade work that you do is properly reflected on the application. If you are a roofer, and it only lists painting on the application, than you my friend have no coverage for any claim that results from roof work. Game , Set, Match! Endorsement # ECG 99 510 12 05 (Minimum & Earned Premium) in a nut shell if the result of the audit reveals that your "premium basis" in most cases " cost of sub's" is less than what you originally applied for, you will NOT receive a refund. Conversely, if the "premium basis” is more, than you will receive an audit bill. This is not a discussion about what's fair, I am just telling you what it is so you can understand it, it's ramifications, and ultimately manage it to your advantage. Please ask for "Blanket Additional Insured" endorsement. Currently it's "as on file with the company". Problem is they never confirm back to the insured client whether your specific request to add an additional insured on the policy was ever complied with. That's a problem if you deal with City Agencies, and Lender relationships. The company itself has a very difficult time tracking that. I make a habit of printing my clients certificate list from the prior year, and making it part of the application. I refer specifically to attachment A (Additional Insured List) on the application, and ask the company to bind coverage consistent with my application. No ambiguity there. On Additional Insured Certs order during policy term, get confirmation from the company the request was received. This will save you many headaches when the construction client, lender, and City Agency are all sued, and all looking to our G.C. client’s policy for defense and indemnification. If I missed anything you would like to know, or you know something I have not addressed, please post a comment on the site, and share for the benefit of all.

Everest Insurance Company

Everest Insurance Company is the latest incarnate from "Inter-Rico" the company that brought to the New York contractor's insurance market, Insurance Corp of New York, and Sirius America. Clearly there is a love hate relationship going on with Inter-Rico, the insurance brokers who place the business, as well as the end user, which are construction clients.

Most brokers and construction clients have short memories. By mid 2002, most insurance carriers insuring Developers and General Contractors left the New York marketplace. I remember having a large construction company waiting for a competing quote, and there was none to be had. They had 1 choice, Sirius America. Those were scary times indeed. The point being these guys occupy an important space in the construction insurance market for New York. They have been providing a general liability product consistently thru both good and bad times. Like them or not, love em or hate em, a lot of jobs and projects were saved by the underwriters at Inter-Rico.

Enough accolades, lets get down to the skinny. The claims experience of most insurance brokers and construction clients , with Inter-Rico is less than satisfactory. In part because a lot of the brokers did not properly prepare, and explain the coverage triggers that are critical for there to be coverage. This is imperative if you purchased an Inter-Rico insurance product. Thus when they had a client's claim denied they were as shocked as the construction client. Leaving a poor taste in everyone’s mouth. Equally at fault may be Inter-Rico's culture of looking for the nearest exit on each an every claim that was presented to the company. The consensus opinion of the market place is that Inter-Rico spends most of their efforts looking to deny claims rather than cover claims, serving their construction clients, rightly or wrongly so. No matter the cause, the end result is that many construction clients and insurance brokers have soured on Inter-Rico's products, rightly so or not.

My personal opinion is that they still have a very important role, and place in our market. I much prefer an insurance world with them as an option, than one without them in it. The critical point here is that if you have purchased a policy underwritten thru Inter-Rico, currently placed with Everest Insurance Company, you need to be aware of the “coverage trigger”. When I speak of a “coverage trigger” I am simply stating that a certain condition, or condition(s) in this case, must be present for coverage to be “triggered” thus the expectation that your claim will be covered. Nothing is more disconcerting than a letter from the insurance carrier you just paid a truck load of money, in the rightful expectation they will defend your law suit, and cover the resulting judgment should you lose. However this is precisely what can and does happened all too often because the contractor is not aware of the “coverage triggers” contained in the insurance policy they just bought. You can’t manage what you don’t know! Which brings me to my point, and one of the big differences in the Everest policy from many of the other policies your contracting business could purchase. It comes in the form of an “endorsement”. Endorsements are policy specific language that insurance carriers use to custom tailor your individual insurance policy. They typically use them to either add or increase coverage, which typically comes at a cost or premium, or they use them to remove or restrict coverage, as is the case with this particular endorsement I am referring to. It’s the “EXCLUSION OF COVERAGE” endorsement; SAIC 159 is the form number. This exclusion contains three separate triggers that all must be complied with in order for Everest to “respond” or offer coverage. The first two are fairly easy to comply with. (1) Obtain a signed and executed indemnity agreement, also known as a Hold Harmless Agreement, from all sub-contractor’s, and sub-subcontractor’s. (2) Consistent with the Indemnity Agreement, you must obtain certificates of insurance naming your contracting entity as additional insured. (3) This one is the kicker! The insurance company that insures your sub contractor’s must have “contractual liability” coverage offered in their insurance policy. Contractual liability is the coverage feature that states if you obligate yourself by written contract, with some limitation, the insurance company will back that obligation. That is over simplifying the concept, however it suffices for our purposes.

The problem with item 3 is that it’s near impossible for you the contractor to manage that coverage trigger. Even if you have a list of companies that do not offer “contractual liability”, you seek to enforce that provision in your Indemnity Agreement, provided you were smart enough to put that in your agreement in the first place, there are too many variables for you to manage. If you have a sizeable event, (translation, Claim) can you feel secure you have insurance coverage on the day that event occurs? The answer is no, you will drive home that day from work and have no idea if you have coverage. Reasons being you don’t know on the day of the loss if your sub-contractor met all that third requirement of “coverage trigger”. The most difficult aspect of the endorsement is that you cannot manage that coverage trigger. If your sub-contractor replaces his coverage because he found a much cheaper option, you won’t know until you ask for his renewal certificate. What if his policy cancels for non-pay? That is precisely the frustration the market place has had with the insurance policies offered by Inter-Rico. It’s very difficult to manage, and it gives them the perfect out if it’s not perfectly complied with. ( See Our Special Section on Managing Sub Compliance) .It’s also the reason they have been able to stay in this market place year after year. I have to imagine they are fairly profitable, ratio of claims paid to premium taken in. You cannot begrudge them a profit. It’s up to the market place to understand the product, and either accepts the risk, and the policy, or not. There are some additional endorsements that deserve attention, like the “CLASSIFICATION LIMITATION ENDORSEMENT”, that states if the construction class is not listed on the declarations page, there is no coverage. Look for additional discussion under the Endorsement Section of my Blog. Now that you have read this, you can no longer feign ignorance. I would encourage either our fellow brokers, or construction companies that were insured with either Sirius America, or Everest to weigh in with their personal experiences or comments. Everyone is welcome for the benefit of all.