With the economy in its current state, many companies turn to renovations or repairs as an alternative to new buildings when their offices need more space or updates. While intending to save money through this process, hiring a contractor who does not have proper insurance protection could cost a company more than it can afford to lose.Unless you are a contractor yourself, you might not be aware of the inherent dangers associated with leaky insurance policies. Whether hiring plumbers, electricians, cleaning services, lawn care, alarm services or snow removal, be sure that your contractors’ policies include the same basic features. Avoid letting the next contractor you hire pass the cost of doing business onto you.
What coverages to look for
While the scope of projects may require more in-depth coverages, here are the minimum requirements your business should expect, and look for, from hired contractors.Hold Harmless and Indemnification Clause
Include a hold harmless and indemnification clause in your contractor’s service agreement. In such a clause, the contractor agrees that your business is not responsible for any losses, costs, damages, expenses, or liability – including Workers’ Compensation – sustained due to the clause requires the vendor to indemnify you for any claims pursued against you due to contractor negligence. An example of a hold harmless agreement can be found at www.thehortongroup.com/library under “forms”.Insurance Limits
Although certain jobs require higher limits of insurance, we recommend that your contractor carry the following minimum types and limits of insurance protection:
- General Liability: $1M per occurrence $2M aggregate
- Auto Liability: $1M
- Workers’ Compensation: Statutory
- Umbrella or Excess Liability: $1M
- A.M. Best Rating: A– or better
- Insurance Carrier Policyholder Surplus: Level V ($10M to $25M) or better
When hiring a general contractor to build a large addition onto your existing facility, higher limits should be required. Adjust limit requirements accordingly as the scope of a contractor's job changes. Depending on their size and operations, some contractors can purchase proper coverage for as low as $1,000.Additional Insured Status
Your company should be named as an additional insured on the contractor’s General Liability policies. Gaining additional insured status on the contractor’s policy will give your company access to the contractor’s policy for defense and settlement payments. To activate the additional insured status, most policies require a written contract to be in place, spelling out this requirement. Waiver of SubrogationAs the hiring company, your business should also require the contractor to provide you with a waiver of subrogation on the contractor’s General Liability and Workers’ Compensation policies. A waiver of subrogation removes the right of recovery against another party. The contractor’s insurance company is then prohibited from countersuing your company after an unfavorable settlement. For example, a contractor is injured on your premises while carrying a piece of equipment into your facility that will be used for repairs. With a waiver of subrogation, the contractor’s Workers’ Compensation insurance carrier is blocked from seeking a recovery against your general liability policy.
Certificate of Insurance
When hiring a contractor, proof of insurance in the form of a certificate of insurance should always be obtained. The certificate should show the line(s) of coverage, coverage limits, insurance carrier and special endorsements. Your company’s name and address must be clearly listed on the certificate. Copies of certificates should be obtained and verified compliant by your company prior to the start of any job. Hiring the wrong contractor poses the risk of causing your company significant financial loss. Take precautions by requiring your contractors to meet minimum standards in order to protect your company. Following these important steps will help insulate your company from a contractor’s negligence.This article was written by Tony Hopkins, CPCU, Horton Risk Management Services, The Horton Group. Tony provides risk management and insurance solutions for clients in various industries. Contact Tony at 800.242.9028 or via e-mail at firstname.lastname@example.org.For additional information regarding this Risk Management Briefing, please contact Jason Wallace, President of Horton Risk Management Services, The Horton Group, at 708.845.3157 or via e-mail at email@example.com.This article is for informational purposes only and does not constitute a legal opinion. Contact your legal representative for information specific to your needs.