Are General Contractors Liable for Subcontractor’s Work?

A major project, like building an addition or remodeling a kitchen, has many components. As a general contractor, you may find yourself delegating components of that project to subcontractors. Are you prepared for the insurance liabilities that may occur?

When work is performed by someone other than yourself you may be held liable for the subcontractor’s work. For example, you hire a flooring contractor to install some hardwood floors but then a couple months later the floors start to buckle. Upon investigation, it’s revealed that the subcontractor stored the floorboards incorrectly before installing, which directly contributed to the buckling of the hardwood floor. The owner, whose obviously unhappy, wants to the sue for the cost it takes to redo the floors and views you, not the subcontractor, as the person responsible. Ask yourself, do you have the time and money to go through a costly litigation?

How to Mitigate Liability Risk

The most common method for mitigating liability is to name your company as additionally insured under the subcontractor’s liability policy. This transfer’s liability for work performed to the subcontractor and away from you. This also helps you keep tabs on the “health” of the policy. If insurance goes into cancellation or revision, you would get notification of these changes. Before work is performed, it’s best to verify the subcontractor has coverage by requesting a certificate of insurance.

This endorsement can also help in providing extra liability in case of a serious accident and it can limit the insurance premiums for the person who is additionally insured because it will lessen the probability that their insurance company will have to pay claims. Of course, this depends on your situation and may not be applicable to all situations.

Not All Additionally-Insured Endorsements Are Created Equal

The additionally insured needs to carefully read the terms and conditions of the additionally-insured endorsement so they know what may or may not be covered. Some endorsements may only provide coverage while the work is being performed, but exclude losses arising out of the named insured’s work which may come up at a later point after the project has been completed.

Another pitfall is the denial of the duty to defend due to a weakness in the endorsement as the following example illustrates:

Davidson Construction is the general contractor for a large apartment building that subcontracted Wally’s Windows for some replacement work. Davidson is listed as additionally insured, but the bodily injury is only covered due to the fault of Wally’s Windows and directly excludes any act or omission by Davidson or its employees.

Fast forward a month after being added as additionally insured, one of Wally’s Windows employees falls several stories and breaks his leg. He sues Davidson Construction and alleges no negligence by his employer. Davidson seeks a defense from the named insureds insurance company but gets denied because bodily injury is only covered if the blame is solely on Wally’s Windows. Since the employee alleged that Wally’s Windows is blameless, coverage is denied.

Not all additionally insured endorsements are created equal, and the contractor looking to be listed as additionally insured needs to review exclusions carefully.

Armed with this information, do you need to review your status as additionally insured? If so, call John Quinn at 617-612-6533 or email him at jquinn@hkinsurance.com.