ASK THE EXPERTS
Ask the Experts :
BY : THOMAS HUGHES , EXECUTIVE VICE PRESIDENT
TRANSFERRING RISK — TIPS FOR PROPERTY OWNERS , MANAGING AGENTS , MANAGERS AND COMMERCIAL TENANTS
Building owners and managing agents routinely hire contractors to work on their properties . This work is a liability exposure . To insulate themselves from costly lawsuits brought by injured workers , residents , visitors and others , building owners and managing agents should enter into contracts that include hold harmless , indemnification and insurance procurement agreements . Handled properly and using a minimal amount of effort , your risk of legal liability can be transferred to the contractor responsible for the work and to its insurance company .
Here are a few tactics that will reduce your exposure to risk :
KNOW YOUR CONTRACTOR
• Verify that the contractor is properly licensed , insured and experienced in the type of work it is being hired to perform .
• Verify whether the general contractor uses subcontractors . If so , find out how it screens its subcontractors and confirm that its subcontractors are properly insured .
• Verify that there are written agreements in place between the building owner and its general contractor as well as between the general contractor and its subcontractors , with proper hold harmless , indemnification and insurance-procurement clauses . The contractor and subcontractors should name the building owner and the managing agent as additional insureds in written contracts and on their liability policies on a primary and noncontributory basis .
• Verify before entering into contracts with your contractors that the contracts make the contractors responsible for work site safety and for having safety and employee training programs in place .
• Verify contractors have obtained all necessary permits before they begin their work .
• Verify your contractors and their subcontractors do not have a history of Occupational Safety and Health Administration ( OSHA ) violations .
USE TRANSFER RISK TACTICS Using written contracts to transfer the risk of liability and damages from you to your contractors can protect you from claims of serious injury and potentially large damage awards . Remember — no job is too small for large losses . The following clauses have proven successful :
• Hold Harmless and Indemnification Agreements
Every contract between you and your general contractors , as well every contract between your general contractors and their subcontractors , must contain a clause requiring the general contractors and their subcontractors to “ defend ,” “ indemnify ,” and “ hold harmless ” the building owner and the managing agent from liability , loss or other damages that arise because of contractor negligence . It is important that this agreement be properly worded , dated and executed before the work begins .
• Insurance Procurement Requirement Contractors and their subcontractors must agree to add building owners and their managing agents as additional insureds to their insurance policies for any liability arising out of their work . The limits of these policies should be at least $ 1 million for a primary commercial general liability ( CGL ) policy and $ 5 million for an umbrella policy . Also , the additional insured coverage should be written on a primary and noncontributory basis .
• Insurance Requirements and Certificates of Insurance
While it is common practice to request a Certificate Of Insurance ( COI ) from contractors and subcontractors , the certificate alone generally does not confer or prove the existence of additional-insured coverage on your behalf . A proven best practice is to require your contractors to submit a copy of their primary liability and umbrella policies to you for review by an insurance professional . All COIs and insurance policies must be provided to the building owner or managing agent before the work begins . The COIs and insurance policies should also show that the building owner and managing agent are named on the primary and umbrella policies as additional insureds .
Be wary of exclusions that nullify coverage for the very nature of the work being done , typically used by excess and surplus lines carriers . +
Thomas Hughes is Executive Vice President & General Counsel , Corporate Secretary for Greater New York Mutual Insurance Company .
26 | SPRING 2017