Subcontractor Warranties – CONTRACTORS BEWARE!

As a business owner, you’re probably aware of the fact that insurance companies will do whatever it takes to deny coverage in the event that you have a claim.  Subcontractor warranties written into commercial general liability policies are an easy way for them to do so.

As a general contractor, you are ultimately responsible for the ongoing and completed operations of your subcontractors.  There are two ways you can protect yourself:

1.       Include an indemnification agreement in your favor in the contract.

2.       Be named as an additional insured on your subcontractor’s general liability and collect updated certificates of insurance. 

This works great, until your subcontractor lets his policy cancel.  As the general contractor, you can request that the insurance carrier notify you in the event of a cancellation, but not all insurance carriers will agree to do that.  Furthermore, if a subcontractor has let his insurance policy lapse, odds are that he will not have the means to cover a loss even if you do have an indemnification agreement.   This is why subcontractor warranties can be so dangerous for contractors. 

Most subcontractor warranties have language that states that the subcontractor’s insurance must be in effect at the time of the occurrence.  Many subcontractor warranties stipulate that the subcontractor must carry adequate coverage for their operations.  So, as a general contractor, how are you supposed to know if the subcontractor’s policy cancels or is inadequate?  You are not the one paying the bill and you’re not an attorney that analyzes insurance policies either.  The best thing you can do to protect yourself is to hire subs that you can trust and buy a general liability policy that does not contain a subcontractor warranty.  

The experts at Orr & Associates can analyze your current coverage to find this exclusion and many others that you should know about.  For more information please contact Tarah Gruber at 619-487-0376 orTarah@redhotinsurance.net.  Or visit www.redhotinsurance.net.

The CG 2010 (11/85) - What You Should Know

It’s a common story.  A commercial contractor buys a general liability policy in order to fulfill a contract.  He spends weeks shopping for the best rate and buys a policy that includes additional insured endorsements.  He provides his certificate of insurance to the project manager, only to find out that his insurance is not sufficient.  His contract requires a CG 20 10 (11/85) additional insured endorsement, which his policy does not offer.  In the end, the contractor has to buy a new general liability policy and come up with another down payment. 

So what are differences between the 11/85 and other additional insured endorsements? The 11/85 is the original version of the CG 20 10 additional insured endorsements.  It’s actually a date, November 1985.  The CG 20 10 extends coverage to the contractor’s clients such as property owners, developers and general contractors.  The 11/85 differs from all later versions, because it does not exclude completed operations.  It covers liability arising out of “your work”. 

Here is an example of the CG 20 10 (11/85):

All later versions of the CG 20 10 replace the words “your work” with “your ongoing operations”.  The result is that once the project is completed, there is no longer coverage extended to the additional insured.  This is especially an issue in the construction industry because most construction defect claims arise years after the projects are completed.  

Here is an example of a later version of the CG 20 10:

There are many additional insured endorsements that are equivalent to the 11/85.  The important thing to look for is whether or not they exclude coverage for completed operations.  

Why is this important to me? Contracts for commercial and public works projects typically require the CG 20 10 (11/85).  Failure to supply the correct additional insured endorsement can hold up projects and more often, hold up payment for the work you've already completed.  The experts at Orr & Associates can analyze your commercial general liability policy and the insurance requirements in your contracts to make sure you are carrying the right coverage. 

For more information contact Tarah Gruber at 619-487-0376 or Tarah@redhotinsurance.net.  Also, check out our website, www.redhotinsurance.net.