Risk & Business Magazine Sterling Insurance Summer 2018 - Page 7

CONTRACT LIABILITY BY: PAUL MATTES STERLING INSURANCE GROUP CONTRACT LIABILITY: Knowing When It Isn’t On You W hen it comes down to it, business is based on contracts, especially in the construction industry. Whether written or verbal, some agreement is going to be reached which spells out the scope of the work being done, how insurance should be handled, and everything else. Unfortunately, a lot of contracts are approached in a free and haphazard way. Who can blame contractors who see a job and jump into it without a second thought? The problem, of course, is the potential risks and liabilities which open up when contracts aren’t examined closely. During construction, contractual risk transfer is the norm. It’s how an owner transfers responsibility to an architect, to contractors, then to subcontractors, and so on. Let’s go over a few examples of how this might work. An architect designs a house and the design itself leads to an unstable home after it is built. Is the builder responsible? The architect? How about if a subcontracted carpenter drops a piece of lumber on a homeowner. Is the subcontractor responsible or the general contractor of the job? These are the kinds of issues spelled out in contracts, and these types of issues are vitally important. Here are two key takeaways that you should pay attention to when it comes to contract liability. DON’T JUST RUN IN AND SIGN THE CONTRACT WITHOUT HAVING A PROFESSIONAL LOOK OVER IT FIRST The sound of a “yes” can be very appealing for many contractors (and any other business owners). The allure of that sound, however, needs to be tempered with a dose of reality. Don’t sign anything without looking it over first and making sure everything is applicable. Often, boilerplate contracts are used which may not even apply to your company or the job on which you are going to be working. Contracts have room for negotiation, and that should be taken full advantage of during and after the bidding process. KNOW HOW TO HANDLE VENDOR CONTRACTS For many contractors, especially general contractors, anyone you bring in to help on the job is going to be another risk you are taking on. Not only do you need to vet these subcontractors in terms of the kind of work that they do, but you also need to ensure they have their own insurance which covers them in case of an accident. Work with your insurance professional to make sure your own contracts have “hold harmless” language and indemnification clauses so that, should something go wrong with a subcontractor, they are the ones who are held responsible and not you. Contracts can be simple or they can be unbelievably complex. When you get down to brass tacks, it pays to have a professional go over your contracts and spend the time and effort to customize them to each client. A boilerplate contract is better than nothing, but not by much, and it won’t be as ironclad as something specific would be. Does your company spend enough time on contracts? Need a little assistance moving forward? Contact Paul at 586-685-0113 or pmattes@sterlingagency.com for more information. + Paul Mattes is the Vice President of Sterling Insurance Group. Joining the agency in 1998 and partnering with Joe Haney as Principal, Paul has been dedicated to instrumental growth of the firm. Using his CIC, LIC, CRM, CRA, CBWA and CAWC knowledge paired with over 28 years of experience, Paul works with clients in various industries to prepare solid Risk Management and Employee Benefits programs tailored to meet their needs. Contact him at pmattes@sterlingagency. com or (586) 685-0113. 7