Thursday, April 30, 2009

Service & Sub Contractor Insurance Guide

Service & Sub Contractors present a significant loss exposure to your business. Potential losses may come from injuries to their employees or injuries or damage to others as a result of their work.

I recommend that you take these steps to protect yourself against this exposure:

1. Require all service contractors to provide a Certificate of Insurance showing that they carry at least General Liability & Workers' Compensation coverage. Effective dates should be current, and policy limits should be at least as high as the limits on your own policies.

2. Require them to name you as Additional Insured on their General Liability policy. If you are an Additional Insured on their policy, then their insurance carrier will be obligated to defend and pay claims on behalf of both of you.

3. Be an Additional Insured for both Current & Completed Operations on their General Liability policy. Many forms will add you as an additional insured for a contractor's current operations, but they will exclude coverage for completed operations. This could create a large gap in coverage for you (on the contractor's policy), if a suit is brought alleging damage caused after they left their jobsite. A "current operation" exists while the contractor is working on the site. A "completed operation" exists after the job is completed.

4. Require Waiver of Subrogation endorsement on the General Liability & Workers' Compensation policies. If a contractor's insurance company has to pay out money on your behalf, they may try to go against you to be reimbursed. This is called subrogation. A Waiver of Subrogation means that they cannot come after you for reimbursement.

5. Require Primary, Non-contributory wording on their General Liability policy. This wording means that the contractor's insurance policy will respond first in any claim that involves the two of you.

6. Require Workers' Compensation insurance regardless of your state's requirements. All states have their own Workers' Compensation statutes. Virginia, for example, requires Work Comp insurance for companies of 3 employees or more (full or part-time). If an employee is injured on the job, then they are entitled to medical & disability payments from their employer. In our situation, your contractor may not carry Work Comp insurance. If one of their employees is injured while working on your property, then that employee may bring suit against you for his/her injuries. If you require your contractors to carry Work Comp insurance, then that policy will cover those expenses.

This is a checklist of items that I share with my insurance clients. If you have any questions, or suggestions to improve this list, please send me a note.

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