Potential claims of property damage or bodily injury can still arise despite the presence of quality workmanship. The work carries a risk that injury or damage may occur, which could result in costly lawsuits. With the complicated mix of contractors and subcontractors involved in each project, determining who is liable for this risk can be difficult. It’s important to understand the obligations and liability associated with operations to navigate this convoluted issue.
Operations Liability and Obligations: Defining Responsibility
In an insurance policy, “your work” refers to work that the policyholder or someone acting on their behalf performs. This encompasses the use of materials, parts, or equipment in connection with the operations. If a subcontractor performs work on behalf of the policyholder, it is considered the contractor’s work. Consequently, if an electrician’s faulty electrical work results in a fire or other damage, the contractor may be held liable. Nonetheless, a standard commercial general liability (CGL) policy would cover such liability.
Operations Liability and Obligations: Contract Requirements
A contractor or other involved party could be held liable for defects in a subcontractor’s work years after it has been completed. Plus, filing the claim under the contractor’s CGL policy could cause the premium to rise. Many construction contracts require subcontractors to provide insurance coverage for claims resulting from their completed work for a finite period of time. This is especially true for the one- to five-year range. Typical contracts also require that the subcontractor name the owner, the architect, the general contractor and other third parties as “additional insured” parties. This entitles them to coverage under the insured subcontractor’s CGL policy. Naming additional insured parties requires a separate endorsement to that policy.
Operations Liability and Obligations: Contract Implications
This means that as a subcontractor, you can be held liable for claims of property damage or bodily injury resulting from a defect in your work. It is also critical to maintain this coverage into the future. Failure to do so could lead to a breach-of-contract lawsuit brought by the contractor or other party.
It is important to understand this commitment when signing the contract–the insurance commitment doesn’t end with the project. Furthermore, in the event of a large claim, the subcontractor could be faced with a substantial increase in premiums on the policy.
Reducing Risk
To avoid litigation, it is crucial to know local regulations and adequately document proper performance. Know your company’s documentation practices relative to each subcontract, and carefully keep records of all processes.
Respecting the Contract
It is crucial for subcontractors to respect this requirement if included in the contract. Failure to do so could result in breach-of-contract lawsuits. Naming additional insured parties is complicated, so it is very important to work closely with O’Connor Insurance Associates at 704-510-8884 to ensure that your operations liability and obligations are satisfied.
This Risk Insights is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice. © 2011 Zywave, Inc. All rights reserved.
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O’Connor Insurance Associates is fully licensed to provide personal and commercial insurance solutions for individuals, families and businesses across North Carolina.
We proudly serve families and business owners from our office in Charlotte, North Carolina. As an independent, family-owned agency since 2000, our team works with more than one insurance company to make sure homeowners, drivers, contractors, landscapers, small businesses and other personal and commercial clients receive coverage that fits their real risks.
About the Author
President & Founder
I’m Terry O’Connor, President and Founder of O’Connor Insurance Associates. I grew up in Pennsylvania, earned my bachelor’s degree at Edinboro University and my master’s at Gannon University, and in 1998 I traded snow for sunshine and moved to Charlotte. In January 2000, I started this agency on my own because I wanted to help people protect what matters most to them. More than two decades later, we’ve grown into an independent agency serving families and businesses across North Carolina, and we’ve been recognized as an IIABA Best Practices Agency every year since 2010, a distinction held by fewer than 1% of agencies nationwide.
I’ve seen firsthand how the right protection can change a family’s or a business owner’s life, and that’s why I lead with empathy, education and honest advice. As an independent agent, I work for you, not for one insurance company. I take the time to explain your options in plain language, and when you call our office, you reach a real person who knows your account.
Outside the office, you’ll usually find me outdoors hunting or fishing, or on the mat coaching wrestling as an assistant varsity coach at Mallard Creek High School. I’m also a proud supporter of the arts, usually in the front row cheering on my daughter in local theater productions. I’d be glad to review your coverage with you. Call me at 704-510-8884 or email terry@oianc.com.
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