Reducing Your Insurance Risk When Managing A Construction Project

Proper insurance coverage is a must.  This is true in any industry, but even more so in construction. There is always an inherent risk on a construction site as well as any industrial setting. When hiring contractors to work at your warehouse or plant they must provide a Certificate of Insurance (COI), but you shouldn’t stop there.

Adding your company as a certificate holder on the policy is one way you can increase your level of protection.  Doing so ensures you will be notified of any changes to the policy during the coverage period, including cancellation of the policy.  One additional recommendation is to put a tracking system in place which ensures that renewal certificates are received each time a policy reaches the end of its term.  The policy expiration date is listed next to each policy on the COI.

In order to benefit from the full protection available under the insurance policy, a contract must be signed between the two parties.  The contract should clearly state that your company is to be added as an additional insured on the policy.  Without a contract, the insurance company will provide coverage protecting only the contractor.  Both the contract and the insurance paperwork should be in place before the contractor steps foot on the site.

Additional insured status creates a critical layer of protection. When added to the COI and the contract, along with an indemnification clause, it provides an opportunity to directly file a claim under the contractor’s insurance policy.  This also serves as a level of defense against lawsuits which may be caused by the contractor.  Both of these benefits will keep the losses off your claim history.  Lastly, additional insured status and the waiver of subrogation can keep the contractor’s insurance company from attempting to recover the losses from your insurance company.

The written contract can also help insulate your company from the liability risk involved in the contractor’s work.  A strong contract should include the following:

  1. Safety standards
  2. Scope and quality standards
  3. Warranty
  4. Dispute resolution clause
  5. Timeline
  6. Payment terms
  7. Indemnification from the contractor
  8. Liquidated damages (if delays in the work could result in a loss of profits)

Depending on the project and scope of work being performed, there are other coverages that should be requested and added to the contract.  A couple of examples are:

  1. Pollution liability coverage – should be added when the work involves environmental hazards such as:
    • Use of hazardous substances
    • Concerns about underground storage containers
    • Fumes
    • Potential for fuel spills
    • Asbestos or mold concerns (should be discussed with your insurance agent because they are often excluded from policies)
  2. Professional liability coverage – provides protection from losses caused by any errors or omissions on the part of the contractor if they are providing things like engineering or consulting services

The key to minimizing the risk associated with hiring contractors is being diligent about your insurance and contract requirements.

This article is not intended to constitute legal advice.  Please consult with your legal counsel and/or insurance agent to discuss the specific policies and coverages that are best for your project or company.