By: Tom Donnelly

Tips for Transferring Risk to Others

Do…
- Have knowledgeable counsel draft indemnification clauses that conform to statutory and common law limitations, and don’t exceed these limitations.

- Back up indemnity provisions with insurance requirements.

- Require Additional Insured status, in addition to your contract’s indemnification clause, on your subcontractor’s General Liability policies and get a copy of the endorsement used to provide this coverage. This is what’s considered the “belt and suspenders” approach.

- Require Additional Insured status to include coverage for both on-going and completed operations. Many Additional Insured endorsements do not provide for completed operations coverage so get a copy of the endorsement and read it. An endorsement that provides for only on-going or worse yet additional insured for premises only operations is of very little use to you.

- Keep requirements reasonable. If you’re building a strip center is it reasonable to require a $50 Mil limit of insurance from your subs? It’s probably just going to drive up your costs and not provide you the protection you’re really after. Make sure the requirements fit the project.

- Update insurance requirements annually. Coverage forms change over time and your requirements and terminology should reflect what’s going on in the market as well.

- Keep copies of all certificates of insurance indefinitely. Pollution and asbestos claims are still being filed on policies issued in the 1960s.

Don’t…
- Invalidate risk transfers by exceeding the permissible level of risk transfer in your state.

- Let a subcontractor on a job without a properly executed certificate of insurance and supporting documentation. Don’t play the hold onto their money game until they correct the insurance certificate. Nobody wins in that game. By that time it is too late and you have placed yourself at an unfair disadvantage while damaging your relationship and reputation.

- Ask for coverages you can’t give a valid and specific purpose for requiring.

- Demand copies of all policies. Ask for copies of specific endorsements.

- Ask to be named as an Additional Insured on your subcontractors Professional Liability policy. Not only will most Professional Liability insurance companies not grant this request, but being an additional insured could be detrimental because most Professional Liability policies usually contain “insured versus insured” exclusions.

Tips for requiring additional insured status

Do…
- Require coverage equivalent to that provided in the appropriate standard endorsement.

- Require a copy of the endorsement used to provide additional insured status. Not all endorsements are the same.

- Check with your the insurance provisions of your own policies to see how they respond when other coverage is available to you as an additional insured. If not already provided do endorse your policy to provide as excess coverage when named as an additional insured.

- Keep requirements reasonable.

Don’t…
- Demand subcontractors to use older endorsements that are no longer in use. Instead have them use endorsements that are comparable and accomplish the same goal.

- Require additional named insured status.

- Agree to provide reciprocal or mutual additional insured status. The intent of being named as additional insured is nullified if you reciprocate by naming the subcontractor as additional insured on your own policy.

Tips for Accepting Risk from Others

Do…
- Read the ENTIRE contract. Many times people are so focused on getting the deal done that they completely forget about reading the insurance requirements which sometimes result in the downstream party trying to renegotiate terms after the deal has been signed.

- Add a blanket additional insured endorsement to your General Liability policy. The request to add an upstream party as an additional insured is so common in construction contracts that it is best addressed by adding a blanket additional insured endorsement to your policy.

- Add a per project aggregate endorsement to your General Liability policy. Carefully consider all contractual obligations in selecting insurance limits. If you have met the minimum requirements for the construction contract does that mean there are any limits of insurance available to you after your contractual obligations have been met? For example a contractor has 10 projects and each project requires the contractor to have $1 million per occurrence and general aggregate. One large claim on one project may leave little or no coverage for the other projects. Consequently if the insurance limits are insufficient to pay all the claims the contractor is still liability for those amounts.


Don’t…
- Negate a carefully negotiated indemnity provision by providing additional insured coverage that exceeds the indemnity requirements. Statutes limit the amount of indemnification the upstream party can request, but statutes do not limit the amount of indemnity the downstream party freely gives.

- Agree to waive subrogation if your policies do not give you the authority to do so.

- Agree to add another party as an additional insured on your workers’ compensation or professional liability policies. The intent of the upstream party is to protect themselves from claims brought by your employee’s injuries on the construction project. These are referred to as third-party-over action claims, and coverage is already provided for this under your General Liability policy.

- Agree to make changes in your insurance program, or to use manuscript endorsements or certificates, before discussing with your underwriter.


In summary, construction contracts impose many duties, obligations, and liabilities on contractors. Often the risk and insurance provisions receive very little attention by the parties signing the contracts. As a result many contractors become surprised by the requirements after it is too late. Read the contracts thoroughly and understand what you are accepting.