Part 2–Protection Through Subcontractor Liability Coverage
Tailoring Insurance Coverage for Subcontractor Liability
In Part I of this series, I discussed the importance of using Commercial General Liability (CGL) terminology instead of Public Liability, and outlined other essential insurance coverages to consider in your program. These include core coverages such as Business Auto Liability, Workers Compensation/Employers Liability, and Umbrella/Excess Liability. Depending on the nature of the job, additional coverages like Environmental Liability, Professional Liability, and Privacy/Network Security Liability may also be necessary.
This article focuses on tailoring insurance coverage to protect your business from coverage gaps arising from your subcontractors’ Commercial General Liability policies. Specifically, it addresses what you should request to ensure adequate protection.
Additional Insureds
While your business may carry its own CGL coverage, being added as an Additional Insured on your subcontractor’s policy provides an extra layer of protection against their negligent actions that result in bodily injury or property damage. For example, if a third-party trips over lumber left by your framing contractor on a construction site, they may sue you—even though you weren’t responsible for the hazard. If your contract requires the subcontractor to name you as an Additional Insured, their insurance carrier should cover the claim against you stemming from the subcontractor’s negligence.
However, it’s not enough to simply request Additional Insured status. There are two distinct liability periods to consider: ongoing operations (while the job is in progress) and completed operations (after the job is finished). To ensure full coverage, specify that you are to be listed as an Additional Insured for both ongoing and completed operations under the subcontractor’s CGL policy.
Being explicit is crucial. In one case, a general contractor hired a subcontractor to build a deck. Six months after completion, the deck steps collapsed due to defective wood. The general contractor was sued and sought coverage under the subcontractor’s policy. Although the contract required Additional Insured status, it did not specify coverage for completed operations. The court sided with the insurance carrier, denying the claim. To avoid such outcomes, clearly state: “Subcontractor must include General Contractor as an Additional Insured for ongoing and completed operations under the Commercial General Liability policy.”
Additional Insureds – Completed Operations
It’s also important to define the duration of completed operations coverage. Recommended durations range from 3 to 5 years after the subcontractor’s work is put to its intended use or after final payment. Alternatively, coverage could align with the Statute of Repose in the jurisdiction where the project is located.
Primary and Noncontributory Coverage
Once you’ve secured proper Additional Insured status, ensure the subcontractor’s policy is primary and noncontributory. This means their insurance pays first in the event of a claim, before your own policy is tapped, and won’t seek contribution from your insurance policy. Without this provision, both policies may share the cost, potentially affecting your coverage limits. To prevent this, include language stating that the subcontractor’s CGL policy is primary and noncontributory to any other insurance available to you as a named insured.
Waiver of Subrogation
Even with the right endorsements, there’s one more safeguard: a waiver of subrogation. Subrogation allows an insurer to recover costs from a third party responsible for a loss. If your subcontractor’s insurer pays a claim, they may seek reimbursement from you—especially if you contributed to the incident. To prevent this, require a waiver of subrogation in your insurance terms. Most reputable insurers will provide this endorsement, but you must explicitly request it.
Summary
To recap, here are the key insurance requirements to include in your subcontractor agreements:
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Require that your company be listed as an Additional Insured for both ongoing and completed operations under the subcontractor’s Commercial General Liability policy.
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Specify that completed operations coverage must extend for a specified number of years after the subcontractor’s work is put to its intended use or after final payment, or align with the Statute of Repose in the project’s jurisdiction.
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Ensure the subcontractor’s CGL policy is primary and noncontributory to any other insurance available to you as a named insured.
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Require a waiver of subrogation endorsement, in your favor, in the subcontractor’s CGL policy.
In Part III of this series, we’ll elevate these insurance requirements from good to great by incorporating more specific provisions.
Image by Mikael Blomkvist on Pexels.
About the Author:
Scott T. Harrigan (CIC, CRM, CCIC), currently at Rue Insurance, 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.
