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:
Include an indemnification agreement in your favor in the contract.
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 things you can do to protect yourself are to hire subs that you can trust and buy a general liability policy that does not contain a subcontractor warranty.
The experts at Red Hot Insurance.net 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 or Tarah@redhotinsurance.net.
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