Commercial Insurance Blog

In one of our previous blogs, What is an Additional Insured?, we discussed additional insureds in contracting.   When subcontractors work for general contractors they need to show that they carry their own insurance so if something goes wrong, and sub’s insurance company will ultimately be paying first.   The GC will ask be an 'Additional Insured' to get coverage under the sub’s insurance program.   In addition, the general contractor will often require a 'Waiver of Subrogation' clause.  This waiver gives up rights of the subcontractor insurance program, so usually comes with a cost.  This is classic Contractual Risk Transfer at work.

Often required by larger, mopre sophisticated contractors, the Waiver of Subrogation shifts costs on any event entirely to the subcontrtactor: regardless of fault.   Suppose an electrical subcontractor hired by a GC is hurt on a job site due to negligence of the hiring contractor.  Without a waiver in place, the worker's compensation company will demand reimbursement through the general contractor’s liability insurance in a process called Subrogation.  

If a Waiver of Subrogation is in place, the electrician's insurer agrees NOT go after the GC's insurance, even if he's negligent, completely at fault.  The worker's compensation claim goes entirely on the electrician’s insurance history, increasing  the experience modification factor, and thus their future costs.   Nothing fair about that.

But the general contractor has shifted that risk off his own program, onto the subcontractor's, in a tactic known broadly as contractual risk transfer.  Because your insurance company knows it can't recover against a responsible party, they commonly charge more when granted.   

For a video on the topic that appears in BusinessTown, click to watch:.

If you have a question regarding your own personal insurance circumstances, please call the Gordon Atlantic Insurance professionals toll free at 1-800-649-3252.  Prefer to type versus talk?  Use the form to the left of this blog for a return phone call or email.

For other pertinent commercial insurance topics, check out our commercial insurance blog.