General Contractors Agrement with Sub Contractors by zht86150

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									                      LOSS CONTROL ALERT
                                    Ri sk Transfer Techniques

          Certificates of Insurance, Waivers of Subrogation, Hold Harmless Agreements


Imagine that you are the owner of a multi-tenanted retail building that just had a new roof
installed. Shortly after the construction is completed, the new roof collapses. You arrive at the
scene of the collapse and see your tenants’ customers injured, some still pinned beneath the
collapsed debris. Who is responsible for this accident? Who will pay for the injuries and medical
bills of the injured shoppers ? Who will compens ate your t enants while the building is being
repaired requiring them to close their businesses during the repair period? How will you afford
the costs of defending yourself onc e the law suits are filed?

Questions of liability arise when a subcontractor installs a product or performs services on your
behalf that results in an injury or property damage, or when a contractor’s employ ee is injured in
your workplace or on your premises. Liability should ideally lie with the party that has the most
control over the potential sources, haz ards and exposures of the potential liability. One way to
prevent or avoid such c onfusion and your assumption of unintended liability is to employ a
strategy where your suppliers, contractors and subcont ractors agree to assume the risk or
indemnify you.

Trans ferring risk is a strategy that involves contractually shifting risk from one party to another.
The most common form of transferring risk is purchasing an insurance policy transferring risk
from the entity purchasing the policy to the insurer issuing the policy. Other methods of
transferring risk to another party or entity include contractual agreements or requirements and
hold harmless agreements.

Performed effectively, transferring risk distributes or allocates risk in an equitable manner and
places responsibility for assumption of risk on specific and designated entities in a manner
consistent with their ability to control risk.

Adequate insurance coverage for the other parties, verified by Certificates of Insurance, along
with Waivers of Subrogation, Hold Harmless Agreements and Owner’s & Contractors Protective
Policies are important assurances. The guidelines listed below are intended to assist you or
your company in applying each of these risk transfer t echniques. These guidelines are not an
appropriate s ubstitute for adequate insuranc e, appropriate loss prevention activities or thorough
legal review practices on your corporation’s part.

Certificate s of Insurance

To minimize the liability arising out of the work performed by contractors, subcontractors , vendors
or a supplier (of a product or a component part ), begin by ensuring that the other party carries
General Liability, Product Liability, Completed Operations and Workers’ Compensation insuranc e.
(If the service being provided requires transportation activities, the evidence of Commercial
Automobile Insuranc e coverage should also be requested). A Certificat e of Insurance is a
document that attests to the existence and limits (amounts) of insurance coverage on the other
party. When issued to you or your company by the other party’s insurer, Certificates of Insurance
also allow you to receive notification of lapse of coverage.



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All Certificat es of Insurance should contain the following information;

        date the certificate was issued
        name of the insurance carrier for each line of coverage
        policy numbers, effective date and expiration date for eac h line of coverage
        limits of liability or c overage amounts for each line of coverage (the policy limits or
         amounts should be equal to or greater than the amounts of insurance y ou or your
         company carries)
        include a requirement to notify you or your entity should the policy be cancelled prior to
         the expiration date provided
        name, address and telephone number of the agent issuing the certificate of insurance
        the certificate should be signed by a representative of the insurance carrier or an
         authorized agent of the insurance carrier (do not accept faxed copies of certificates of
         insurance); if you do accept a fax copy, insist on the original being mailed to you
        your name or your company’s name as the certific ate holder
        you or your company should be listed on the certificat e as an “Additional Ins ured”

Being listed as an “Additional Insured” on a policy provides specific rights under the policy
provisions as compared t o simply being a “certificate holder” which only provides information
regarding the other party’s insurance coverage.

An “additional insured” status requires the other party’s insurance policies to be endorsed to add
you or your company as the named ins ured. Once you or your c ompany has been endorsed as
an “additional insured” you should receive a copy of the policy(s) endorsement indicating your
status as an “additional insured”. This status can provide protection under the other party’s
insurance policy for liability that may occur as a result of the named insured’s performance or
involvement on a job.

When requesting status as an “additional insured” you should assure that the ot her party’s policy
will provide the same broad scope of coverage as afforded the named insured, as the coverage
could differ significantly.  Your legal department or advisor should review t he policies,
endorsements and differences in coverage to assure proper protection.

Benefits of an “additional insured” endorsement:

        provides certain rights under the other party’s insurance policy, specifically defense
         coverage
        discourages the insurance company providing the additional insured status from
         subrogating against you when a loss is caused by your ac ts, errors or omissions
        provides coverage in the event a court decides that your hold harmless agreement is
         invalid
        Offers more prot ection than being a certific ate holder

By requiring the contractor, subcontractor, vendor or supplier to name you or your company as an
“Additional Insured” you effectively make their ins urance c overage the primary respondent in the
event of any claims resulting from their work, service or product. This requirement should also be
applied t o their Umbrella and/or Excess Coverage policies. Most importantly, the other party’s
primary responding policy should provide the “additional insured” endorsement.

Certificates of Insurance should be updated every year or as t he cert ificates expire based on the
policy expiration dates listed on each c ertificat e. If the certificates expire while a contractor is still
performing a job for you, an updated certificate should be required.

Consideration should be given t o use specific disciplinary measures t o encourage enforcement
and compliance with y our certificate of insurance requirements. These measures should include
actions that can be contracted for including;



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       terminating the contract unless sufficient and satisfactory proof of compliance is provided
        within a specified period of time
       not permitting services, work or installation to begin until sufficient evidence/proof of
        compliance is received
       withholding payments for services until sufficient or satisfactory evidence of compli ance is
        received
       acts as a stop gap tool if the indemnity provisions turn out to be unenforceable

Waivers of Subrogation

E ven if each of your vendors, contractors or subcontractors is adequately insured, their insurers
have a right to seek subrogation (recover some or all of their costs) from y ou if they believe or
determine that you were at fault or that you caused the event that led to the claim. This can
obviously result in significant legal action and blaming bet ween the parties involved.

To avoid such actions, you or your company would need to have a waiver of subrogation from the
other party’s insurer prior to any loss. The waiver of subrogation is an endorsement to the
insurance policy issued to another party.

The following points should be remembered about waivers of subrogation;

       A waiver should be general and encompass all hazards, locations or work performed. It
        should cover all operations for which the other party is responsible when performing their
        work for you or your company.
       A waiver of subrogation should not contain limitations as to t he specific entities, locations
        or work performed. It should cover all operations conducted by the other party.
       A waiver of subrogation should not contain clauses requiring the consent of the named
        insured (the other party) for the waiver to be applicable.
       A waiver of subrogation is necessary even if no specific clause in the policy of the other
        party expressly permits subrogation.

Hold Harmless Agreements or Indemnity

To maximize your protection, you may wish to seek a Hold Harmless Agreement from your
vendor, contractor or subcontractor. This agreement is a legally binding cont ract in which the
other party agrees to hold you or your company harmless for any liability that may arise out of
their work (or product) including liability for claims that would normally not be covered by
insurance (such as product recalls). In Particular, thes e agreements even cover situations where
you or your company is solely negligent. One caveat is that many hold harmless agreements
have been invalidated by courts finding them too binding on the ot her party and passing too much
of the liability or responsibility from you to the other party.

Important points to remember about hold harmless agreements include;

       Hold Harmless agreements must be in writing and must clearly state the indemnifying
        party’s (the other party’s) responsibility to indemnify you or your company against any
        liability, loss or damage.
       If a corporation signs the agreement, the authority of t he perso n signing the agreement
        should be apparent (vice president, president, etc). Most corporate bylaws permit a vice
        president to contractually bind the corporation. The same may not be true for corporation
        secretaries, treasurers or managers.
       The preferred form of indemnity agreement is one that indemnifies against liability; since
        it does not require that actual damages be shown before the agreement operates. For
        this reason, Indemnity agreements that indemnify against “liability” are preferred and
        should go s o far as to require the indemnitor to “defend against suits/actions” and should
        also include legal fees and costs incurred by the indemnitee (you or your company) in
        their own defense of the claim or suit.


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         The agreement should not have a term or be cancelable without sufficient notice in
          writing to you or your company.
         There should be no limitations on the amount of time in which to make a claim.
         There should be no limitations on the amount of the indemnit or’s liability.
         The agreement s hould specifically state that the indemnification is provided for y our own
          or your company’s own negligence.

In c onclusion, risk transfer strategies are an important part of a risk management program
because t he permit your entity to minimize its chances of taking on anot her entity’s liability
unknowingly, or from being exposed to additional liabilities due to the actions of others. They
also permit the shifting of liability to others.

Prior to accepting any of these risk transfer strategies, documents and contracts (or prior to
providing them to ot hers ), you or your company should have them reviewed by your legal
advis ors or corporate attorney.




Loss Control is a daily responsibility of your individual management. This publication is not a substitute for your own loss
control program. The information that is provided in this Alert should not be considered as all encompassing, or suitable for
all situations, conditions, or environments. Each organization is responsible for implementing their safety/injury/illness
pre vention program and should consult with legal, medical, technical, or other advisors as to the suitability of using the
information contained in this Alert.




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