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These days, it would be difficult, if not impossible, to find a business that is not exposed to a certain level of risk in its day-to-day operations. However, no business is more exposed to risk than that of a contractor.
How the contract you signed affects your general liability policy
As a contractor, you take risks each and every time you enter into a contract to perform work for another party; you have been conditioned to it. You then purchase insurance to cover that risk, so all is good, right? The answer to that question is a firm maybe!
Maybe your general liability policy will respond to a particular clause or condition in that owner’s or general contractor’s proprietary contract you signed; or maybe not. After all, your broker said you have “contractual” coverage in that policy, correct? So, you are all good, right?
Well, that depends upon whether or not that contract you signed is considered an “insured contract” by policy definition. Chances are you did not consider that when bidding or negotiating that particular contract.
The specific Additional Insured Endorsement on your policy matters
Secondly, your contract may also require you to name one--or several--parties as additional insureds. That’s no problem, because you have an Additional Insured Endorsement on your policy, right? Well, again, maybe! There are still many additional insured endorsements that require contract privity for coverage to apply.
The doctrine of contract privity provides that a contract cannot confer rights or impose obligations arising under it on any person or agent, except the parties to it. In the example where you sign a contract with a general contractor, and the contract requires you to name the general contractor and owner, lender, or governmental agency as additional insureds, the additional insured coverage would only apply to the general contractor; it would not apply to the rest because they are not a party to the contract.
So, the question is which Additional Insured Endorsement do you have on your policy?
The right broker makes a difference for a contractor’s risk management
One more thing. Are you developing your contracts with subcontractors to reflect the hold harmless, indemnification and insurance requirements of the contracts you sign? You should, as that ‘pass through’ is the foundation of a sound risk management approach, which will protect your bottom line while avoiding paying for a loss.
These are just 3 examples of the complexities of the risk environment contractors operate in on a daily basis. There are solutions to all 3 of the examples above. The key, however, is to have the right broker as your risk management partner. Trusting your company bottom line to a generalist exposes you to financial and reputational losses from which you might never recover.
TSIB is a construction specialist. Like you, construction is in our DNA. Our upstream and downstream contract review, coupled with our insurance knowledge and market relationships, allows us to provide timely and relevant advice to our clients, resulting in a lower total cost of their risk. Want to make sure your risks are covered? Contact TSIB today for a complimentary risk review and assessment!