Protecting General Liability Limits

Date: September 27, 2019

Craig Carstens, BITCO Vice President, Land Improvement/Utility Contractors Program Manager

How to Manage Contractual Risk Transfer to Alleviate Surprises

It’s a fact: a subcontractor’s negligent actions can expose you to large liability losses that impact the amount of insurance you have available to respond to your own exposures and can increase the costs of your policy.

Managing your contractual relationships using the following tips is a surefire way to mitigate your risk.

Obtain Proof

One way to lower your risk of bodily injury and property damage is to require subcontractors to provide updated certificates of insurance every year upon renewal. It is wise to ensure the subcontractor’s limits of insurance are adequate for the amount of risk posed by the work performed. If the limits are inadequate, the subcontractor may be treated as your employee, which can increase the cost of your own insurance. 

Request Additional Insured Status

Subcontractors can add others to their general liability policies as an additional insured. By requesting that you be named as an additional insured on their policies and requiring their coverage to be primary and not ask for any contribution from any of your policies, you can avoid unnecessary erosion of your general liability coverage limits. The additional insured endorsement should also provide you coverage for completed operations losses for the length of time as the statute of repose for the state you are doing business in.

Sign an Agreement

A hold harmless/indemnification agreement protects your liability limits by making your subcontractors liable for bodily injury or property damage losses arising from the work they do for you. It’s important to obtain hold harmless/indemnification agreements in your favor whenever possible, and to have them signed by the proper parties involved. Once in hand, have the agreements reviewed by an attorney and included in your subcontract with a signed copy kept indefinitely for your records. 

Be Critical of the Requests You Receive

It is not uncommon for others to seek every possible means of transferring their liability to others. That’s why you should review and question the validity of requests you receive to add others to your general liability policy as an additional insured. Any time you agree to add someone to your policy, or agree to a hold harmless/indemnification agreement, you agree to expand your coverage to include them and in turn, increase the risk that your company or you will be held liable.

It’s better to take preliminary precautions than to suffer possible consequences. In the cases when an agreement is absolutely necessary, you should always consult with your attorney on any indemnification and/or insurance wording you are agreeing to in your contracts.

While BITCO can help with your policy, we rely on you to proactively follow these tips to help make sure you adequately protect the general liability insurance limits you have purchased. By doing so, you decrease the chance you have to rely on your own general liability policy to respond to losses from lawsuits from subcontractors’ employees or their workers’ compensation carrier.

Consult with your BITCO agent for more information on contractual risk transfer. Together, let’s protect you and your valuable assets. 

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For information purposes only. BITCO's blog content does not address all potential circumstances and is not a substitute for business, safety, or legal consultation.

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