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Academic year: 2021



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To meet the needs of many of our Producers or Agents who have developed a clientele of well performing general contractors, Crum & Forster’s Claims, Risk Engineering and Underwriting Departments have pooled their resources to identify areas where customer assistance can be provided. As part of that process, we have undertaken an analysis of those key ingredients, which, when combined, offer our insureds the greatest protection against bodily injury and property damage claims. This protection greatly increases the opportunities for a successful insurance program for everyone involved. Set forth below are some of the ways a general contractor can best insulate himself from liability claims.

When reading through this document, please bear in mind that different states have different laws, and in some cases, impose different contractual and insurance requirements. We do not intend to offer legal advice. We encourage our insureds to seek out legal advice as part of the process of implementing the ideas discussed.

Risk Engineering and Underwriting

The best protection against liability claims is the prevention of accidents. C&F makes available experienced and committed risk engineering and underwriting specialists who will provide risk management and risk engineering techniques to identify and minimize common workplace hazards. By working together with our insured and agent, we can increase opportunities for safety, not only at the jobsite but at administrative locations as well.

Subcontractor’s Coverages and Limits

General contractors should conduct business only with adequately insured subcontractors. The adequacy of coverage may depend upon the nature and scope of the work and associated risks, but it is axiomatic that the more coverage provided by the subcontractor, the greater the protection afforded to the general contractor. C&F generally prefers that the subcontractor maintain limits at least equal to those carried by the general contractor. If, during a premium audit, use of subcontractors with limits of less than $500,000 is confirmed, at underwriting's discretion, an additional premium may be charged. Further, it may become advisable, even necessary, to require the subcontractor to maintain umbrella or excess coverage and as noted above, to insist upon additional insured status with respect to such coverage.

In addition to the amount of coverage, consideration should be given to the scope of coverage. Although standard CGL forms now generally provide for "broad form" property damage and "contracts" coverage, the basic coverage is sometimes limited by endorsement. Subcontractors should not be allowed to limit their coverage in ways which diminish the insurance otherwise expected. The general contractor should also be alert to the existence of self insured retentions (SIRs) or deductibles in the subcontractors policy which can undermine and/or delay the full benefit of coverage which would otherwise be provided.


Indemnity and Hold Harmless Agreements

Hold harmless and indemnity agreements are contractual devices commonly used to transfer risk from one party to another. They typically appear in construction contracts between project owners and general contractors and

between general contractors and their subcontractors. Under these agreements, the general contractor may be called upon to hold harmless and/or indemnify the owner against certain liabilities for which the owner may otherwise be legally responsible. The same holds true for the relationship between the general contractor and subcontractor. (Please note that although the terms may be used interchangeably herein, some states recognize distinctions between the force and effect of "hold harmless" and "indemnity" agreements. As noted above, it is recommended that the insured consult legal counsel with respect to this and related issues.)

The most frequent loss situation in the construction industry involving hold harmless/indemnity agreements is the "third party over" action. This typically involves a lawsuit by an employee of a subcontractor against a general contractor for injuries sustained by the employee at a construction site. The workers' compensation laws in many states bar direct actions at law against the employer (in this case the subcontractor), limiting the employee's remedy to benefits (medical and lost wage) payable under the worker's compensation law. In order to avoid this limitation, the injured worker will bring an action against the general contractor (and/or the project owner, other subcontractors, etc.) against whom there is no "exclusive remedy". In this circumstance, the hold harmless/indemnity agreement may serve to contractually shift the exposure back to the subcontractor/employer.

The extent to which the liability will be transferred may depend upon the language set forth in the agreement. The "stronger" or "broader" the language, the greater the protection, even in situations where the general contractor may be partially or even primarily at fault; conversely, the "weaker" or more "limited" the scope of indemnity, the less the protection. Some indemnity agreements are so weak that they provide no more protection than would otherwise be afforded by operation of law. There is reluctance on the part of courts to enforce hold harmless/indemnity

agreements, particularly if the intent is to shift the "active" or primary unambiguous language from which the parties' intent can be readily understood. Where possible, it may be best to use standard language such as AIA Document 401. Whether or not such standard forms can be used, the general contractor's goal should be to obtain the greatest level of protection permissible under the governing law. Due to the subtly and precision which may be involved, we recommend the use of legal counsel in the process of selecting and/or drafting appropriate language.

Regardless of the care and attention given to drafting hold harmless/indemnity language, most states prohibit agreements which attempt to transfer liability for the "sole negligence" of the party to be indemnified. Because there is generally no similar proscription with respect to insurance, it is desirable for the general contractor to insist upon being named as an additional insured under policies issued to his subcontractors. This will be discussed later in this document.

Whenever a contractor subcontracts any construction work, C&F and our Custom Agent should strongly encourage that the following steps be taken. If done properly, these risk management techniques may assist in successfully transferring liability to a subcontractor where it is possible to do so under state law.

There should always be a written subcontract agreement between our insured and every subcontractor hired by our insured, prior to the start of work. If our insured does not have such a contract, the AIA Document A402, Standard Form of Agreement Between Contractor and Subcontractor, or the AGC/ASA/ASC Standard form Construction Subcontract, 1994 edition can be reviewed by the agent and insured as a sample

agreement, which, with appropriate oversight and tailoring (as necessary), may serve as the foundation for a workable subcontract agreement.


To the greatest extent possible, there should be consistency among the subcontract agreements entered into with various subcontractors, so that each subcontractor is subject to the same legal conditions and


For all jobs in New York, our insured should request (within the subcontract agreement between our insured and the subcontractor) that an Owners and Contractors Protective policy be purchased on behalf of our insured by the subcontractor. This is very important in New York since without requiring or requesting this policy in writing, the contractor will have no recourse under New York law to receive indemnification or reimbursement from the subcontractor or its insurance carrier for any liability imposed on our insured as a result of the subcontractor's own negligence. It is preferable to require purchase of the OCP protection on the contractor's behalf by all subcontractors as part of the standard subcontractor's agreement, regardless of location.

Any legal requirements imposed upon our insured as the contractor by a project owner should always be passed along to the subcontractors hired by our insured for that job. That is, the insurance protection provided to the project owner by our insured should not be broader than the protection the insured received from his own subcontractors.

Risk Engineering and Underwriting will provide ideas to enhance our insured's risk management and risk engineering techniques but will not offer specific legal advice or recommend contract wording, which is solely the decision of our insured and his legal counsel.

Additional Named Insured

A construction contract typically requires a general contractor or subcontractor to name an upper tier party (owner, GC, etc.) as an additional named insured on a liability policy issued to the general contractor or subcontractor. For the reason noted above (among others), C&F strongly recommends that its insured general contractors contractually require their subcontractors to provide such protection (with the endorsement providing coverage at least equal to that provided by ISO's form CG2010). Where circumstances warrant, it may also be prudent to insist upon and obtain status as an additional insured under umbrella and/or excess coverage maintained by the subcontractor.

Making the subcontractor's CGL coverage primary, non-contributing should be a goal, and, where obtainable, the same primary, non-contributing status should be applied to the umbrella and/or excess coverage. In the future, C&F may provide an endorsement which modifies the standard CGL "other insurance" clause to make the coverage excess over the subcontractor's policy in situations where the general contractor is named as an additional insured in the subcontractor's policy.

Waiver of Subrogation


Currently, C&F will agree to issue a waiver of subrogation endorsement for automobile and commercial general liability, for specific entities, when it is required by the insured under a written contract. Requests to provide blanket waiver of subrogation endorsements are becoming more common. These should be reviewed with the Extended Regional Team on an individual basis to determine acceptability. For workers' compensation, several states prohibit attachment of a waiver endorsement. Where permitted by law, we will attach the endorsement to a workers'

compensation policy subject to the same conditions described above for automobile and commercial general liability. The ISO waiver of subrogation endorsement, naming C&F's general contractor, should be attached to all

subcontractor policies; and the subcontractor should be contractually required to make sure that it is. This requirement is found in AGC Document 410, "Standard Form of Design-Build Agreement between Owner and Contractor", and AIA Document A201.

Certificates of Insurance

Hold harmless/indemnity agreements are only as sound as the ability of the indemnitor to respond, and named additional insured and waiver of subrogation endorsements only have validity with respect to insurance that is in force. For these reasons, owners and general contractors require subcontractors to supply certificates of insurance. These certificates are only an outline of the coverages, limits and expiration dates of the insurance maintained by the subcontractor. Certificates of insurance are generally considered to be only evidence of insurance. It is, therefore, prudent to separately obtain copies of contractually bargained for named additional insured and waiver of subrogation endorsements.

To ensure continued validity, it is also important for the general contractor, or "certificate holder" to require

certificates not only when the subcontract agreement is executed, but again, prior to expiration. In this connection, certificates can and should have a provision requiring notice to the general contractor prior to cancellation or expiration of the insurance. Failure to attend to these matters may result in non-renewal or substantial coverage changes from the originally in effect.

Certificate of insurance control programs should incorporate the following:

All contracts, purchase orders, and agreements which require certificates of insurance should be routed to the department overseeing the certificate control program. This control function should be centralized under a risk manager, contract coordinator, or insurance coordinator rather than with individual job superintendents.

A standard form letter should be drafted which specifies certificate requirements and issued to all parties from which certificates are requested.

There must be a follow-up system to insured that the initial request for certificates of insurance have been satisfactorily responded to. This follow-up should be with the contracted party, not the insurance agent. This follow-up should inform the party that work, payment, etc. will not be forthcoming without the appropriate certificate. This process should have a defined decision route or resolution point person in the event of no response from the contracted party.

When certificates are received, they should be copied for reference. A copy should be with the contract or master agreement, a second copy in a master alpha or contractor file, and a third in chronological file by expiration date. This can be computerized and should be set up to identify insurance by contracted party and the expiration date of the certificates. This allows for requests of new certificates in timely fashion.


The contractor should only accept original signed and/or stamped certificates issued by insurance carriers or their authorized agents. Faxed certificates should be used for reference only and originals required before work starts. If a certificate appears questionable, the contractor should contact the insurance carrier noted on the certificate to ensure coverages are in force. Crum & Forster agents may also be able to assist in validating certificates.


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