Part 4—Refining Insurance Language

In Part II and Part III, we went deep into the Commercial General Liability policy.  We’re going to switch gears and talk about the other insurance coverages mentioned in Part 1. 

We laid a lot of ground work regarding Additional Insureds, Primary and Non-Contributory, and Waiver of Subrogation and its importance to the Commercial General Liability coverage.  We’re going to revisit them again for these other coverages.

For Business Auto Liability and Umbrella/Excess Liability

• Make sure on the Business Auto Liability that your company is included as an Additional Insured.  For the Umbrella/Excess Liability, industry insurance policies usually grant Additional Insured status as long as the underlying policies do the same.

• Make sure you state in your contract that the Business Auto and Umbrella/Excess policies are primary and noncontributory.

• Final point here is you need to state in the contract that the Business Auto and Umbrella/Excess have a Waiver of Subrogation endorsement.

For Workers Compensation

• You will never be able to add your company as an Additional Insured to a subcontractors Workers Compensation policy because you are not the employer per se of the subcontractor.  However, if the law of the State where the project occurs allows, you can ask for a Waiver of Subrogation endorsement on the Workers Compensation policy.  Some states, like New Jersey, do not allow a waiver of subrogation.  Therefore, make sure if you are asking for a Waiver that you include, “If allowed by Law” language.

For Environmental Liability

• Like Commercial General Liability you can ask for an Additional Insured for ongoing and completed operations status along with a primary and noncontributory endorsement, and a waiver of subrogation.  Most Environmental Liability carriers will allow this.

For Professional Liability

• Depending on the type of professional liability service and the respective insurance carrier you can ask for Additional Insured status based upon the negligence of the contractor.  Underwriters for professional liability will want to restrict your insured status to a vicarious liability position.  Because, Underwriters want to avoid providing professional liability coverage for your company’s operation.

For Privacy/Network Security Liability

• Similar to Professional Liability, request to be listed as an Additional Insured for breaches of confidential data caused by the subcontractor’s negligence.

Other Best Practices

Now that we have established the different coverage endorsements you are going to want to add other best practices to improve your contract language.

• Require a certificate of insurance to be provided to you.  The certificate of insurance should be kept on file for as long as you keep your project documents.  Also require the subcontractors to provide them after the project is over to keep an update record of commercial general liability coverages.

• Require that the subcontractor has their insurance policies written with an Insurance Carrier that has an A.M. Best Rating of A- or better.  In the insurance industry, A.M. Best is a recognized organization for their financial ratings.

• Require a minimum 30-day notice of cancellation from the subcontractors’ insurance carrier. Note that some states only mandate a 10-day notice for cancellations due to non-payment.

This four-part series outlines the insurance provisions that underwriters prefer in construction contracts. We urge you to consult with a legal professional when drafting any contract provisions.  Legal professionals who draft these provisions will equip their clients with robust protections and set them up for long-term success.

Coda

This article was written from the perspective of you as the primary contractor working with subcontractors in the state of New Jersey.  If you have subcontractors who hire other subcontractors (i.e. a sub-sub-contractor) you should add language that any subcontractor hired by your subcontractor must comply with the language of this contract.

Also, if you are working for a project owner, they may have contractual language and insurance requirements which exceed those addressed in my four-part series.  They may also compel you to require all of your subcontractors to meet the same requirements.  Therefore, you may have to modify your subcontractor agreement accordingly. 

Image by Mikhail Nilov on Pexels.

About the Author:

Scott T. Harrigan (CIC, CRM, CCIC), currently at Rue Insurance in Hamilton NJ, has over 30+ years of experience in the insurance industry.  He creates comprehensive insurance and risk management portfolios for clients.  In addition to creating portfolios, he enjoys writing and teaching about various insurance coverages and risk management topics.  Scott is an active member of the Rue Insurance Educational Team, providing continuing education classes to Rue Insurance professionals on an annual basis.