Insurance Journal Forums

Ok I want to get some responses that I can pass on to my customer about the importance of having a written contract between himself and his subs which include requiring insurance, supplying certs, and naming him as additional insured. Since a/i endorsements naming him as additional insured include the wording "when required by written contract" I'm emphasizing to him that its important because in the absence of it, it may negate the endorsement. He says he can understand that but that this is the first time he's heard of this in 30 years and he never had to pay for waiver of sub, primary wording etc before. When I asked him who he was insured with before, he said "Federated" (about 7 years ago). Oh by the way, we're in California. I told him that if we were in a room with a bunch of other agents that they would agree with me and that it sounds like he may have had an agent in the past that just didn't explain all this. So I'd appreciate any comments and I'll pass them along just as if you were explaining it to him yourself! (be nice though).

Thanks

Rob

C'mon, 19 views and nobody wants to chime in with their opinion on this? I would have thought this would be interesting.

yeah, You are correct. It's an uphill battle with smaller contractors in the Northeast as well. One method that is working for me lately..believe it or not... is to have the client ask his attorney. They're not all that bad you know.

crossins wrote:yeah, You are correct. It's an uphill battle with smaller contractors in the Northeast as well. One method that is working for me lately..believe it or not... is to have the client ask his attorney. They're not all that bad you know.

Yeah I told him if he asked his attorney that he would agree with me. However, its not like he has counsel readily on hand or has a "set" attorney.

Thirty years ago the job was done with a handshake .. in 2007 the Contractor could be doing a job for his sister and if she saw a hint of moisture in the corner of a window she would SUE HIM for all he is worth!

Most GL policies sold in CA to Contractors have extensive requirements pertaining to the relationship between Contractor and Sub-Contractor and you're right, non-compliance will equate to NO COVERAGE or certainly extreme limitations.

We tell our Contractors this is your BUSINESS - not just your craft, be PROFESSIONAL. That means real Contracts, real Change Orders, if your customer calls with a problem CALL BACK and FOLLOW THROUGH, process your Mechanics Leins within the proper time frame, etc.

I empathize with your situation and your right all Brokers are different and some are still in the dark ages. However, who are they going to come screaming to the next time their carrier declines a claim (for non-compliance) or they didn't get paid by the homeowner/GC .. you guessed it .. if we don't give them the proper advice - even when it hurts - we are going to be the ones having a conversation with an attorney!

great answers! Thanks keep em coming!

Ok so here's the biggest obstical you have with this guy - he hasn't bothered to have ins for 7 years - has he been living under a rock all this time? Alot has happened in the industry over that time period.

You say he's a small contractor - going to assume he's a residential general - ok? Most of these guys aren't too picky about who they use for subs - their thinking is the cheaper the better. (anyone they can 1099 they consider a sub - part 1 of the education process). There is also generally a lack of follow-thru on the paperwork side. Because of this, there are few carriers (in AZ )who want to cover these guys and those that do require a copy of the contract between the general & sub before quoting.

Forget the A/I endorsement route - I've been in the business for 30+ years and have never yet seen that used to deny coverage. Also, someone who's been operating without insurance for 7 years apparently isn't worried about claims. But I would explain in detail about how he's responsible for his subs and without a written contract demanding these items he can't withhold payment to get their insurance documentation (which is what most generals do here) if he lets them on the job site without getting the cert/A/I up front. I always stress that they're going to need those certs if there's a construction defect claim in order to collect from the sub - not to mention annual audit or someone's going to be paying a lot of additional premium for uninsured subs.

CATHIEA wrote:Ok so here's the biggest obstical you have with this guy - he hasn't bothered to have ins for 7 years - has he been living under a rock all this time? Alot has happened in the industry over that time period.

You say he's a small contractor - going to assume he's a residential general - ok? Most of these guys aren't too picky about who they use for subs - their thinking is the cheaper the better. (anyone they can 1099 they consider a sub - part 1 of the education process). There is also generally a lack of follow-thru on the paperwork side. Because of this, there are few carriers (in AZ )who want to cover these guys and those that do require a copy of the contract between the general & sub before quoting.

Forget the A/I endorsement route - I've been in the business for 30+ years and have never yet seen that used to deny coverage. Also, someone who's been operating without insurance for 7 years apparently isn't worried about claims. But I would explain in detail about how he's responsible for his subs and without a written contract demanding these items he can't withhold payment to get their insurance documentation (which is what most generals do here) if he lets them on the job site without getting the cert/A/I up front. I always stress that they're going to need those certs if there's a construction defect claim in order to collect from the sub - not to mention annual audit or someone's going to be paying a lot of additional premium for uninsured subs.

CATHIEA

No sorry I didn't mean to lead anyone to believe he has been uninsured. He has been insured and the last 3 years have been with me. He is also nearly 100% commercial. He is getting bigger and in so many other ways he is fairly "retentive".

His attitude is this: "Ok, I'll do that but why am I just hearing this for the first time?"

Also now that he is getting bigger contracts, HIS prime contractors are asking for more endorsements: primary wording, waiver of subrogation etc. So the current carrier says "$100 for the a/i, $250 for the primary wording, $250 for the waiver" and he says "I don't remember having to pay for these before". I explained that perhaps in past primary and waivers weren't required by the contracts and as for the standard a/i perhaps he had a blanket a/i before.

So CATHEIA, your contention is that the additional insured will hold up even without a written contract?

You have to find a way to explain it in a way that shows how it will affect his "pocket". Money talks.

Explain to him how an uninsured subcontractor affects his insurance premium or how a claim from an uninsured subcontractor can effect his claim history/experience modification. Explain how if there is a claim and he gets sued and the damage is from his subcontractors work, he will at the least receive defense for his part of the suit from the subs policy by being included as an additional insured. These are just a few reasons why he needs a subcontract agreement and request certificates, etc. Another reason, most insurance carriers now require their insureds who use subs to utilize subcontract agreements, and to make sure he has some system in place to make sure he receives certificates of insurance from his subs. That is another argument - "your insurance carrier requires you to do........".

I believe you are right that his prior agent may not have explained things properly. I can't see how 7 years ago he was getting waivers and primary for $0 premium but you never know.

Todays market is changing every day. Most of the blanket additional insured endorsements are "as required by written contract executed or permit issued prior to the bodily injury or property damage. If there is no written contract, you are right, the additional insured status does not exist. If there is no written contract you need to request a scheduled additional insured endorsement and then most likely it will be for ongoing operations only.

OK, now, lets complicate things and think about this - Your insured gets a signed contract, receives a certificate of insurance indicating he is additional insured on GL as requied by written contract..blah, blah, blah.....Now, the sub doesn't pay his premium and his policy cancels for non payment. Is the carrier going to notify your insured that his subcontractor's policy is cancelled? NO, they are not. And why is that? Because he is included as additional insured on a "blanket, as required by contract" endorsement and because the certificate says they "will endeavor to" notify him of the cancellation. They can't notify him because they don't know he exists. The carriers do not want copies of the certificates anymore because of the blanket Addl Insd Endts. If you send them copies anyway, they end up in the trash. They do NOT want them. Do you think that subcontractors agent is going to send your client a copy of a "cancelled" certificate? Most likely the answer would be no there also.

Just a thought.....

I have seen carriers deny claims when the written contract does not exist. And I have seen retailers forge AI certificates, adding the CG2010 11/85 endorsement when the carrier isn't even filed to use that endorsement. And I have seen that retailer lose in court.

If the AI endorsementrequires a written contract, and there isn't one, someone's insurance will pay...the retailer's E & O, if you didn't tell him about the written contract requirement.

what are the typical charges to add this cover on a blanket basis, I usually see $ 250 in Oregon

Depends on what your client is doing, and the AI form that is on the policy.

I have a couple of questions in response to some of the answers to this, namely:
1. If additional insured status is denied(regardless of whether it's because there was only a blanket a/i endt requiring a written contract and there isn't one, or whether it was a completed operation and the a/i endt excludes comp ops, or whatever the reason may be), what happens? My guess is that the entity that expected, but did not receive, A/I status from the sub, would then have to bring their subcontractor into the lawsuit at additional legal cost in order to hold them responsible for whatever loss occurred in which the GC was being sued, and then separately sue the sub for breach of contract(obviously, only in cases where there is a contract to breach by not having additional insured status)to recoup their additional legal costs for having to countersue the sub? I mean, the sub's GL still has completed ops coverage if he is directly sued, even if the additional insured endorsement doesn't, right?

And furthering this question, if I am right, then what is the agent's potential E&O responsibility? Would it not be limited to the additional legal fees(or perhaps the entire cost of the defense, but ultimately, not the judgement)the GC incurred by having to sue his sub to obtain coverage under the sub's policy(as well as perhaps some additional damages due to the souring of a relationship between the GC and sub as a result of becoming enemies in the suit)?

2. For those of you writing contractors as retail agents, to what extent are you making sure that your clients know whether or not their GL policy is or is not providing completed operations under their additional insured endorsement?
3. Again for retail agents, are you asking on every certificate request you get that needs additional insured status, whether it is required by written contract? I have seen some agents that do not ask, but they issue their additional insured wording on every cert with the disclaimer "certificate holder is additional insured for general liability for ongoing operations performed by the named insured only, provided a written contractual request has been made for additional insured status", and basically assuming that if there WAS no written contractual request, that they can blame the certificate holder for not reading the certificate. (I am of course assuming that there is a blkt addl insd endt in place for the purposes of this question)

I personally think that would be sufficient protection for the agent, but at the same time I wonder if a court would hold the agent to a higher standard of professionalism, IE,ruling that the insured contractor would assume the agent was omniscient with respect to the matter and would not have questioned the certificate no matter what subjectivity was on it, and that said E&O court would further suppose that if there were any doubts it should be the agent's procedure to specifically ask that of his client...

Thoughts?

Rob,

Thanks for posting this question. You reminded me why I don't like to write small GC's. I have never felt that the hand holding time invested was with the commission.

volstrike, you may have hit the nail on the head!

So after taking the time to go out and hold their hand, review the in's and outs of additional insureds, waivers, primary endorsements etc, contracts, then agreeing to remarket the account for them (so we can try to get blanket a/i's etc), preparing the applications etc....he asks for loss runs! This is definetely one of those bullheaded accounts that just doesn't get anything you tell them (even after repeating it time after time). I tried to explain about blocked markets and they didn't get that either. After all this I'm to the point where I feel I should just cut my losses and tell them "good luck".