Certificate of Insurance for Contractors
Contractor Insurance Issues - Are You Covered?
Don Bury
April 3, 2013
A smart general contractor knows that in today's litigious society, they need to have a certificate of insurance on file for every subcontractor performing work on every job. But what they might not know is that even if they get their certificates of insurance directly from the broker, as they should, they still might not be covered.
That's because insurance brokers often send worthless certificates of insurance that subcontractors use to get a pass to start working on their jobs. Because the general contractor doesn't know what to look for, they are simply logging certificates to their tracking system and letting subs start work.
And subcontractors might not be aware that the insurance coverage they are paying for might not provide coverage when it's needed. Both parties need to be aware of what's needed, and what their policies do and don't cover.
A certificate without an actual policy endorsement is of zero value. The certificate is the page showing dates, policy numbers coverage limits, and insurance companies. They tend to look very reassuring. The endorsement that must be attached spells out that you are actually covered as additional insured for the policy described in the certificate. In addition to the additional insured endorsement, we recommend you get two other endorsements. One is called "Primary and non contributory" which puts them first in line, and the other is called "waiver of subrogation" which promises not to try and get the money back from you.
Any certificates that come in without the endorsements should be rejected. If you find certificates in your files lacking endorsements, you should immediately request them.
Now, if you have the endorsement, we recommend actually reading it carefully and completely. You are likely to find coverage applies only to ongoing operations and does not cover completed operations. This means once the job is completed, the coverage stops. That little zinger will really help out the subcontractor's insurance company at the next construction defect claim settlement meeting. You want to get completed operations included in your additional insured endorsements. Some insurance companies will, some won't, but you should always ask for it.
Attorneys recommend that general contractors should also request the subcontractor's liability policy, with all its exclusions and limitations. On many occasions, we've found liability certificates given to residential remodelers that exclude residential construction. That makes the certificate worthless for a residential remodeler. Providing liability policies to additional insureds is not a common practice, yet. You may or may not get them, but I recommend you ask and see what they send you.
But there's more. If you don't have a written contract with your subcontractors that requires insurance coverage, that insurance coverage might not apply. In other words, the language behind the certificate often says it's only valid if it's required by written contract. No contractual requirement, no coverage. This is another handy way for an insurance company to make a convincing additional insured certificate worthless. If you're still dealing with subs on a purchase order basis or on a verbal agreement, you're on shaky ground. Get a solid contract in place, with detailed indemnity and insurance requirements, and make all your subs sign it. That way you have the insurance coverage you need, and your subcontractors are getting the insurance coverage they are paying for. Without a solid contract, you're likely to find your balance sheet severely depleted after a claim settlement. (Need an agreement? Check out our recently updated Subcontractors Manual*.)
A savvy subcontractor can get a competitive edge by being on top of this topic. You can make sure your insurance broker can provide valid and enforceable protection for the general, and then make sure the general contractor knows you've nailed it down for them. Your competitors most likely will be providing deficient insurance certificates, so fully understanding this topic will enable you to provide the greatest security and lowest risk to your general contractors.
Every general contractor and subcontractor needs to be clear on these issues. If you're concerned you might have a problem, here are some other resources. Construction attorney Dan McLennon has a valuable video available atwww.InsuranceControls.com (short video at the top of the page, longer video at the bottom). While you're there, sign up for Don's newsletter.
And here's a summary checklist to help get you on track:
1. Are the policy dates current?
2. Is the certificate complete, and in agreement with your requirements?
3. Is there a valid additional insured endorsement provided?
4. Does the additional insured endorsement include coverage for completed operations?
5. Is there a primary and non-contributory endorsement provided?
6. Is there a waiver of subrogation endorsement provided?
7. Are there exclusions you need to know about? Do you have the policy, or at least the exclusions?
8. Do you have a signed written contract requiring the above coverage, and including enforceable provisions requiring you be held harmless and indemnified for any losses? (I advise that only a qualified attorney should determine whether your contract is sound on these matters.)
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