Contractual Liability is a real thing!
When you sign a construction agreement you are agreeing to all the terms and conditions of that agreement. Not just what you are going to build, the material and when you are going to build it but also the indemnity and hold harmless agreements along with the type of contractors insurance you promise to carry and the additional insured forms you will provide. All of this is negotiable, but you need to make sure you have a clear agreement about what you will be providing and if it is agreed that it can be changed, then that agreement is also in writing and well documented. Here is a page we have up that will help you understand your contractual obligations to provide the proper additional insured forms and why. http://www.gdiinsurance.com/research-center/contractors-insurance/understanding-additional-insured-status-and-forms
Again I will stress that these obligations can be changed, or you can agree to change them with the contractor or owner requiring them, but those changes must be in writing and well documented as they modify the agreement / contract that you are responsible for!
Even quality workmanship is not immune to potential claims of property damage or bodily injury. All operations carry the risk that injury or damage may occur as a result of the work, leading to costly lawsuits. Considering the complicated mix of contractors and subcontractors that contributes to each project, who is liable for this risk?
In insurance terms, “your work” as used in an insurance policy is a broadly defined term that includes operations performed by the policyholder or on the policyholder’s behalf, including material, parts or equipment in connection with the operations. Operations or work performed on behalf of the policyholder means work done by a subcontractor is considered the contractor’s work. Therefore, faulty electrical work performed by an electrician that causes a fire or other damage could be considered the contractor’s liability, but would be covered under a standard commercial general liability (CGL) policy.
Because a contractor or other involved party could be held liable for defects in a subcontractor’s work years after it has been completed, and filing the claim under the contractor’s CGL policy could cause the premium to rise, many construction contracts require subcontractors to provide insurance coverage for claims resulting from their completed work for a finite period of time, typically the one- to five-year range. Typical contracts also require that the subcontractor name the owner, the architect, the general contractor and other third parties as “additional insured” parties, entitled to coverage under the insured subcontractor’s CGL policy. Naming additional insured parties requires a separate endorsement to that policy.
This means that as a subcontractor, you can be held liable for claims of property damage or bodily injury resulting from a defect in your work. It is also critical to maintain this coverage into the future; failure to do so could lead to a breach-of-contract lawsuit brought by the contractor or other party.
It is important to understand this commitment when signing the contract–the insurance commitment doesn’t end with the project. Furthermore, in the event of a large claim, the subcontractor could be faced with a substantial increase in premiums on the policy.
To avoid litigation, it is crucial to know local regulations and adequately document proper performance. Know your company’s documentation practices relative to each subcontract, and carefully keep records of all processes.
It is crucial for subcontractors to respect this requirement if included in the contract. Failure to do so could result in breach-of-contract lawsuits. Naming additional insured parties can be complicated, and it is very important to work closely with GDI Insurance Agency, Inc. to ensure that your contractual obligations are satisfied.