Thought Leadership on Property & Casualty/Risk & Insurance Management presented by Commercial Insurance Managers.
Verbal contracts are simple and easy. All you have to do is ask a roofing contractor to get up on your roof and repair the shingles that are missing. The subcontractor’s worker arrives, takes the ladder, leans it up against the building, climbs up and loses his balance falling onto a sidewalk with jutting broken bricks causing severe back injury requiring surgery and 6 months convalescence. Who is going to pay for the medical injury, loss time and rehab? Nothing was said about injury in the verbal contract. I wonder if the subcontractor has workers compensation insurance. Am I going to be sued because my sidewalk is not in good repair? Perhaps verbal contracts are not simple and easy.
Homeowners and small businesses don’t always require written contracts with subcontractors. They probably should.
Written contracts are the way to define the work to be performed and the conditions under which the job will be conducted by the subcontractor. There are 4 minimum requirements which the contract language should contain:
- Subcontractors insurance should be verified. You should ask the subcontractor to show you his certificate of insurance before the job begins. The subcontractor should show minimum limits of $1,000,000 each occurrence/aggregate for premises, operations, completed operations and product liability insurance. Workers Compensation insurance should be shown to comply with statutory limits to provide coverage for a work related injury by the subcontractor or his employee.
- You should be named as additional insured on the subcontractor’s general liability coverage and certificate.
- There should be a hold harmless or indemnity agreement in the contract protecting you from any and all losses arising from the job under contract.
- You should have wording in the contract acknowledging that the subcontractor’s coverage is primary and non-contributory in favor of you for the job.
The advantages of written contracts over verbal contracts don’t become obvious until you’re sued by the subcontractor, his employee or other subcontractor doing the work , or a third party injured as a result of the subcontractor’s negligence. The subcontractor will also appreciate the written agreement because the job and his compensation will be defined.
Article written by Gordon M Mumpower Jr. CPCU, MBA, President of Commercial Insurance Managers Inc. Check our blog on www.businsure.com for additional risk management articles.