A little work up front can help you avoid a major headache later on. Read on to learn about steps you can take immediately to better protect yourself, your family and your operation.
Whether you’re a consumer or real estate investor who needs to hire a contractor (general or for a specific trade), or you’re a contractor yourself who needs to hire a subcontractor to perform work on your behalf, utilizing good judgment and a little extra effort up front can go a long way to avoiding a major headache later.
Here are 5 steps you can start using immediately to better protect yourself, your family and your operation.
1. Their Insurance Is Essential
Only use an insured (and bonded, when necessary) contractor. It’s always possible to find someone who will do the job for less than a reputable, responsible contractor. It’s simply not worth the risk. When you choose to use an uninsured contractor, you are also choosing to be held responsible (and possibly legally liable) for their actions and any damage they cause. Also, demand confirmation in writing from the contractors that all of the subs used for the contract either have their own insurance or are listed by name on your contractor’s policy.
2. Call To Verify
If you followed step 1, then the contractor gave you a Certificate of Insurance. At the top right of that document is the name and contact number for the agent who wrote the policy for the contractor. Call that person, and ask them to verify coverage. Give them the contractor’s name and the policy number listed on the certificate. Virtually no one does this part, and it is critical. Unverified coverage is the same as no coverage.
3. Are They Registered?
Only use contractors who are legitimate businesses, registered with the state and county. Check the name of the contractor’s legal entity against the State Comptroller’s entity search to ensure they are active and in good standing. It can be extremely difficult to hold an individual or sole proprietor responsible for damages like you can a legitimate business (LLC, Inc., LP, etc.)
4. Additional Insured Status
Require the contractor to add you as an additional insured party on their insurance policy. This will provide you extensive protections if the contractor is responsible for any bodily injury or property damage liability to any third party. Specifically, ask for the AI status for both Ongoing Operations and Completed Operations. These both used to be on the same document, the CG 2010 11/85 document, but virtually no insurance companies will give that any more. Look for the contractor to provide you a CG 2010 certificate (for Ongoing Operations) and a CG 2037 certificate (for Completed Operations) so that you are fully protected against claims that may arise against your contractor.
5. Hold Harmless and Waiver of Subrogation
Require a Hold Harmless Agreement and Waiver of Subrogation to be provided by the contractor, and written in your favor. Have your attorney review these two documents before hiring the contractor, as they are critically important protections that prevent damaged third parties from seeking recovery of their losses from you. If you don’t take this last step, you are opening yourself up to the possibility that you may be caught up in a lawsuit against the contractor. Also, without a Waiver of Subrogation, the contractor’s insurance company may come after you to recover their damages if they determine that your actions or lack of action contributed to the claim they paid out.
Bonus: Always, always use a written contract
We are amazed how often we see people hiring a contractor or subcontractor on a handshake or verbal agreement. While it is admirable to be trusting of people, it is also virtually impossible to hold someone accountable for work performed on a verbal or handshake agreement. Further, most insurance companies are totally unwilling to pay out claims for damages caused in the absence of a written contract and scope of work. Yes, it is some extra hassle, but making the commitment to always work under the protection of a written and signed contract is always a good idea.
If you have questions or want to get additional risk management advice, feel free to call us at 469-678-8001. If you are a contractor who would like to request a no-cost review of your insurance program, click here and complete the quick and easy form.