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 Seven Deadly Endorsements – Part 7 General Liability Endorsements That Are Bad For Contractors

Endorsement #7 – Designated Work Exclusion

A Designated Work Exclusion is a form used by insurance carriers to exclude specific types of work from coverage.  This general liability endorsement can be harmless or very bad for a contractor depending on what it says.  This is a “fill in the blank endorsement”.  Below is an example:

This exclusion can be especially dangerous for contractors if part of what they do is listed.  For example, a painting contractor might think he is covered to do all aspects of painting for which he is licensed.  When he bought his insurance policy, he wrote Interior Painting on his insurance application.  Six months into the policy, the painter does an exterior painting job not realizing that he had a Designated Work Exclusion which listed “Exterior Painting” as an excluded operation.  During the exterior job, an overspray results in the damage of several cars.   In this scenario, the painting contractor would have no coverage for the damage to the vehicles. 

If you notice that your policy has a Designated Work Exclusion, take a second look to be sure that parts of your operations are not excluded.  The experts at Orr & Associates can review your current insurance policies to find this and other key exclusions which you should be aware of.  We’ll give you the knowledge and tools to make the right decisions about your insurance.  For more information, please contact Tarah Gruber at 619-487-0376 orTarah@redhotinsurance.net.  Or visit www.redhotinsurance.net.

The Seven Deadly Endorsements – Part 2 General Liability Endorsements That Are Bad For Contractors

Endorsement #2 - The Prior Work Exclusion

At face value, prior work exclusions do not always concern contactors. The rationale is, why should they buy coverage for prior work when they already had policies during the time that work was completed? To understand why this endorsement is dangerous, you must first understand coverage triggers. Most general liability policies for contractors are written on an Occurrence form, meaning that coverage is based upon when the loss occurs. Most often a loss is considered to have “occurred” when a project is completed, but not always. It depends on the type of loss and the coverage trigger wording in your general liability insurance policy. 

Many occurrences happen years after a project is completed, especially construction defect losses. Because of this, a contractor with a Prior Work Exclusion may think he is covered, but most likely is not. According to one major carrier in California, this is the number one reason that claims are denied in their contractor’s general liability program. 

The experts at Orr & Associates can analyze your policy and identify prior work exclusions as well as many other exclusions and limitations that you should be aware of. Our goal is to give you the tools to make the right decisions about your insurance. For more information, please contact Tarah Gruber at 619-487-0376 or Tarah@redhotinsurance.net. Or visit www.redhotinsurance.net. 

Check back tomorrow to read about deadly endorsement #3.