Our firm has deep expertise in working with home builders and general contractors. We know when it comes to insurance and risk management, clients are generally thinking about coverages, premiums and deductibles – aspects they believe to be the most important components of their protection.
While these are all important elements, there are other equally important considerations for companies that subcontract all or most of the work performed on a project.
The first line of defense should always be the insurance programs of the subcontractors and suppliers contributing to the project. This helps contractors limit contractual liability and avoid paying for claims that result from subcontractor mistakes.
One of the first places to start is evaluating your subcontractor agreement, paying special attention to the insurance requirements for subcontractors and also the indemnity/hold harmless provisions designed to push certain risks and liabilities to the subcontractor that performed the work or is responsible for a claim.
We consult with clients to ensure that they require their subcontractors to carry the correct insurance coverages, with limits and endorsements that provide the general contractor the greatest protection during construction and after a project is complete.
The devil is truly in the details. Having a current and relevant subcontractor insurance requirement section in your contract can transform how the subcontractor's insurance program engages to defend and protect you on a project when a serious claim or incident occurs.
The methods a general contractor is allowed to use to shift risk through indemnity/hold harmless provisions vary state-by-state. We always recommend that a general contractor forms a strong and collaborative relationship with a law firm that specializes in construction.
One of our firm’s core values is to be inquisitive. We like to ask a lot of questions. It helps us better understand the risk environment of our clients. In our diagnostic process, we will often verify that the general contractor is using a strong subcontract agreement which contains excellent subcontractor insurance requirements and indemnity provisions.
After you’ve carefully developed your subcontractor agreement, it’s imperative to enforce compliance, ensuring subcontractors you work with illustrate adequate coverage.
When we ask how prospective clients enforce this compliance, we often learn that there's a person assigned to simply check boxes, not verify endorsements, and they understand very little about insurance and the importance of their task.
When this is the situation, contractors are highly exposed to taking the brunt of a claim due to inadequate insurance on the part of their subcontractors. They're asking for the right protection, but it's just not there due to a control weakness.
We understand this challenge. No one went to work for a builder in hopes of becoming an insurance expert! That's where we can help. We often host seminars at our clients' offices to educate their staff about the coverages they require subcontractors to carry and why.
We also partner with Certsure, which provides world-class subcontractor insurance compliance services. This provides access to economical options to outsource this critical pillar of their risk management program to insurance professionals.
If you’d like to learn more, start a conversation with a member of the Hotchkiss home builder division.
This article first appeared in the Greater Houston Builder Association's Houston Builder magazine. Read more.