Commercial Insurance Blog

We have noticed a trend in our office for general liability policies to add an endorsement that excludes coverage for the acts of subcontractors. Because this is a deviation from traditional language, this change can create a problem and needs to be addressed.

The purpose of adding this endorsement is clear: lower costs to the carriers. Within any contracting operation, if a sub-contractor's actions prompt some kind of lawsuit the general contractor will almost always be included as a defendant...that's just how it works. When those suits arising from the lower level of sub-contracting operations can't reach the general contractor's insurance, it will cost less. We recommend that contractors hiring other contractors include an agreement whereby the subcontractor names the contractor as an Additional Insured. The purpose of this is to ensure that the insurance for the offending party defends both. Read our blog that outlines the importance of additional insured status in any contracting operation.

Many insurance underwriters providing coverage to general contractors will require that these agreements are in place, and that additional insured status is documented before providing coverage.

The latest iteration of this trend is a Commercial General Liability policy excluding coverage for the actions of subcontractors within the language of the policy itself. In short, it puts teeth into the requirement that each party has their own insurance to protect others from their actions.
If the insurance and the Additional Insured status are buttoned up tightly, this exclusion should not, in theory, pose a problem to a general contractor. However, everyone in the construction business knows that managing subcontractors is a complicated affair fraught with unknowns. For example, if a plumber, electrician, or other tradesman brings in their own subcontractors to meet deadlines or trade specialties, is it reasonable for the general contractor to have to police these guys as well? A lot of the work that actually gets done on a building or renovation site is arranged with longstanding informal relationships that may or may not have written agreements outlining what happens when somebody gets hurt. If the plumber's cousin, whose insurance cancelled last year because he was mostly working for someone else, causes damage or an event where someone is hurt, the lawsuit will go to the next level up. If the plumber and general contractor purchased lower-cost insurance with a subcontractor exclusion, we have an uninsured event.

What can a contractor do?

• Hold harmless and indemnification agreements, creating separation between entities
• Requirement to name the hiring contractor as an additional insured
• A requirement for subcontractors to hold their subcontractors (the cousin, in our example above) to the same standards outlined in the agreement
• Required notice by the subcontractor to alert the hiring contractor if their insurance terminates
• Statements that the insurance is primary and noncontributory
• Any agreements include specific limits of insurance, with $1 million per occurrence and $2 million aggregate, including products and completed operations. Higher limits are common with larger companies.
• Once executed, get insurance certificates documenting the carrier name, policy expiration dates and issuing agency
• Keep all certificates on file based on expiring insurance policy dates

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