How important is tracking sub-contractor’s liability insurance? My insurance agent says that tracking sub-contractors’ insurance coverages is important. This seems like a lot of work for no reason.
Your insurance agent is correct, but it is more important that you understand a potential reason. A primary reason tracking is important is that it could be a necessary condition before your liability insurance covers a loss. This means, that if you are not tracking subcontractors’ insurance—your insurance policy has no obligation to cover a claim.
The following is one example of the language an insurance policy could have that could prevent coverage from applying. The sample language comes from Evanston Insurance Company a Markel company. This is endorsement applies to both a Commercial Excess Liability Policy and a Commercial Umbrella Liability Policy. These types of insurance policies sit on top of underlying policies such as your commercial automobile insurance policy, workers compensation, employer liability, or commercial general liability. Markel’s endorsement is titled, “Contractors and Subcontractors – Indemnification and Insurance Conditions” and the form identifier is MAUB 1513 04 17. The one-page document states (emphasis added):
The following is added to the Conditions section:
Contractor’s And Subcontractor’s Indemnification And Insurance Conditions
As respects all work performed for or on behalf of any insured, and as an express condition precedent to this insurance, each insured agrees for itself as follows:
a. It has confirmed or will confirm that it is named as an additional insured on all contractors’ and subcontractors’ Commercial General Liability insurance policies and that such policies are written on an occurrence basis with a current policy period subject to limits no less than that shown in the Schedule of this endorsement as Minimum Primary Limit; and
b. It has obtained or will obtain hold harmless agreements from all contractors and subcontractors indemnifying each such insured against all loss and expense arising out of or related to any insured to any person or property arising out of such contractor’s or subcontractor’s work for such insured.
Failure of an insured to comply with any of the above conditions shall not invalidate this policy but in the event of such failure, this policy will apply to the same extent had the contractor or subcontractor maintained the insurance as required by this endorsement.
Each insured agrees that no prejudice need result from an insured’s noncompliance for this endorsement to be enforced.
All other terms and conditions remain unchanged.
Looking only at the language that applies to tracking your subcontractors’ insurance coverage, this endorsement says that coverage provided by your policy does not apply unless you meet these conditions:
1) Before a loss, confirmed your company is named as an additional insured on your contractors or subcontractors commercial general liability policy; and
2) such policies are an occurrence coverage form; and
3) the evidence of insurance must be current—not expired; and
4) the limit of insurance of the contractors or subcontractors must be no less than the required minimum limit stated in the schedule;
The effect of the rest of the language says that the insurance company gets to keep your premiums and not pay the claim. This could mean that after your commercial general liability policy exhausts its limits that the additional coverage limits that would follow under this excess or umbrella policy would not be funded. That could leave millions of dollars of exposure for your company to absorb.
While the focus of this article is the importance of tracking contractors and subcontractors insurance coverage, Part B addresses necessary conditions of your contract terms between you and your contractors and sub-contractors. These conditions are not being addressed in this article, but they are important to having an expectation that coverage could apply in the event of a loss. The true application of coverage requires more analysis and nothing in this article should be viewed as expressing an absolute opinion, but it is important to comply with the conditions of an insurance policy.
So, you might be wondering—how to track contractors’ and subcontractors’ insurance policies. Certificates of Insurance is the way most companies achieve compliance. I’ve never heard of an insurance agent who is unable or unwilling to issue a certificate of insurance. The good agents will request a copy of the contract requiring the certificate. That’s because the contract will spell out what must be included in the certificate.
It seems nowadays everything has a mobile app or web platform. Plenty of certificate tracking software solutions exists in the market. One only needs to use their favorite search engine to find many options. Talking with your insurance agent about options is also important, they may have a solution or offer the service.
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