Understanding Insurance Requirements on Construction Agreements

By Sherry Whaley, Commercial Account Manager

On a daily basis, many contractors are required to create and sign several contracts in addition to submitting several bids to various contractors for work.  Once the job is awarded, the next step is to obtain an insurance certificate from their agent.  Along with obtaining the insurance certificate, the contractor needs to review the contract, submit W-9’s and a multitude of other items that need to be submitted before work can begin.

As an account manager and trusted adviser for my clients, I typically review the insurance requirements and begin analyzing the insurance portion of the contract to see what is required of the general contractor.  Below, is a review of insurance terms that are listed as requirements in most contracts.

Additional Insured Status:  The general contractor is asking to be included as additional insured, along with the project owner and other parties included in the contractual requirements.  The additional insured request may be requested on the general liability and the automobile liability. There are many additional insured endorsements to choose from, however, most contracts will require additional insured including completed operations coverage.

Waiver of Subrogation:  Waiver is a relinquishment of a known right.  The general contractor may request waiver on the general liability, automobile liability and the workers compensation policies.  Waiver of subrogation with respects to your general liability, auto liability and workers compensation, basically is stating that coverage will not be jeopardized if the insured has waived in writing prior to a loss any rights of recovery from a party responsible for the loss. This basically means if you request waiver of subrogation before a loss occurs, your insurance carrier may not subrogate (go back against) the general  contractors’ insurance coverage.

Primary and Non-Contributory: This is when the general contractor is requesting to transfer the financial consequences of legal liability arising out of the business relationship with the named insured. That means that in order to function effectively as a risk transfer technique, coverage that comes by way of additional insured status must respond first to a covered claim –before the additional insured’s own liability policy is called on to pay. The non-contributory wording is stating the general contractor is not wanting their insurance coverage to contribute to the loss.

Per Project Aggregate: The limit of liability would respond per project instead of applying per policy.

Cancellation Provisions:  Often times the general contractor will require 30 days cancellation guaranteeing return receipt, certified mail.  All policies will need to be endorsed to give 30 Days Notice of Cancellation for non-payment of premium if this provision is required.

Umbrella Policy– Normally an umbrella policy will be required by most general contractors.  The umbrella policy is excess coverage that follows form to your underlying policies: General Liability, Auto Liability & Employers Liability.  An umbrella policy would respond when your underlying policy limits have been exhausted.

Other insurance Requirements:

  • Pollution – Normally the contract will state the limit required
  • Mold- Normally the contract will state the limit required
  • Workers Compensation to be endorsed with special endorsements: US Longshore & Harbor(required when working over or near navigable waters), Jones Act, Admiral Act

This is of course not all of the items we see in construction agreements.  There are still other items you may be required to carry. Please feel free to call me on my direct line at 910-478-3316.

Familiarize Yourself With Workers’ Compensation Changes In North Carolina

Previously, we talked about the importance of an employer being covered by workers’ compensation in the case of an accident at the office. Workers’ compensation gives both employers and employees coverage in regards to financial and medical aid if an accident leading to injury happens at the office. It is important to keep up to date on the latest workers’ compensation laws, as employers need to make sure they know what to do when dealing with claims.

North Carolina legislators have recently made a few changes to the state’s workers’ compensation laws. Of particular interest are changes in the “Willful Misrepresentation In Applying For Employment” section, which details the circumstances in which compensation for an injured employee would be barred. Grounds for barring compensation include:

  • An employee knowingly and willfully making a false representation as to his physical condition.
  • An employer relying on the false representation as a substantial factor in hiring said employee.
  • A causal connection between the false representation and the injury or occupational disease.

In light of these changes, employers should make sure that they implement internal policies for the hiring of new employees, with regards to current medical condition and the physical mandates of the position. If no such policy is in place, there are several steps an employer can take:

  • Conduct research for examples of solid internal hiring policies.
  • Add a confidential post-offer, pre-placement medical questionnaire as part of the company’s hiring practices.
  • Brief HR personnel on any new workers’ compensation procedures in the hiring process.

These simple measures can save an employer’s experience modification rate and workers’ compensation loss ratio. Before implementing any new procedures, however, it is recommended that an employer consult on these matters with an attorney. Knowing the specifics of workers’ compensation and any changes in state law will save a company both time and money.

Photo Credit: Flickr User wools

Out of State Workers

These economic times are trying for workers in every industry – especially construction. Contractors have to find work wherever they can. Oftentimes this means leaving their hometowns to travel out of state to obtain contracts. The problem is when contractors cross state lines, gaps in their insurance policies may surface.

Every state has its own statutory laws regarding benefits to injured workers and specific requirements for required coverages. Leaving your home state, you may enter a state with laws different from the ones that dictated your policy. In some states, sections require that you list specific states on your compensation policy to avoid being fined for noncompliance. These fees can amount to hundreds of dollars.

So, how can you avoid these gaps in coverage and the penalties associated with noncompliance? Before you enter into any contract out of state, discuss the coverage that you currently have with your insurance agent. Understanding the availability of your insurance carrier to provide coverage out of state will help to reduce the aforementioned gaps.

Remember that agents review your policy on a quarterly basis, and these intervals are good times to discuss possible changes in your travel schedule and home address as well as coverages provided by national versus regional insurance carriers.

Photo source: Jason Riedy