The Seven Deadly Endorsements – Part 4

 General Liability Endorsements That Are Bad For Contractors

                                                    Endorsement #4 – The CG 21 39

One of the most important considerations a contractor must make is the amount of liability he assumes in a contract and whether or not his insurance covers contractual liability.  In most construction contracts, liability is transferred through an indemnification agreement.  There are different types of indemnification agreements and laws regarding such agreements vary from state to state.  Here’s how it typically works though:

1. A general contractor is automatically liable for the work of his subcontractor.

2. The GC transfers that liability back to the subcontractor through an indemnification agreement. 

3. As a result, the subcontractor is now obligated to indemnify the GC in the event of a loss, including the GC’s defense costs. 

Now the question is: Will the subcontractor’s liability policy cover the subcontractor’s contractual obligation to indemnify the GC?  The answer is maybe. 

First, let’s look at the standard language regarding contractual liability in an ISO Occurrence Policy.  The coverage for contractual liability is actually found in the exclusions section.  See below:

As you can see, contractual liability is excluded unless the contract is an “insured contract”.  To find out what is an insured contract, we must go to the Definitions section of the policy.

Under the definitions Section 9.f. an indemnification agreement would be considered an insured contract. 

The CG 21 39 simply deletes sections 9.f. from the definitions of an “insured contract”.  The result is that a subcontractor can now be on the hook to pay for the legal expenses and liability of the general contractor in the event of a loss.  So, before you sign your life away on an indemnification agreement, check your insurance policy for a CG 21 39. 

The experts at Orr & Associates can review your current policy to uncover this and other endorsements that you should be aware of.  We will give you the tools to make the right decisions about your insurance and risk management.  For more information, contact Tarah Gruber at 619-487-0376 orTarah@redhotinsurance.net.  Or visit www.redhotinsurance.net.

Check back tomorrow to read about endorsement #4.