Questions answered by Dawn M. Becker-Durnin, CIRMS
Why should an association care if their contractors have insurance?
Contractors who work on-site and off-site pose risk as far as property damage to association property as well as bodily injury to members and guests. Having an insurance policy would provide funds and defense of the association if the contractor’s work or employee caused such damages.
What does contractual risk transfer mean?
Transferring risk via contract; one party may accept the risk or agree to partially accept the risk to complete the transaction. For example — transferring risk to an insurance policy is a contract with the carrier and insured to pay for losses in the event of a claim.
There are four (main) types of risk management –
- Avoidance – withdrawing from a risk scenario or deciding not to get involved in the first place (for example – not entering into a contract with contractor who is not insured or licensed)
- Reduction – technique applied to keep risk to an acceptable level and is designed to reduce the severity of loss through mitigation or optimization. (for example – daily/weekly/monthly site inspections, fire monitoring such as alarms and sprinklers, as well as training and safety for employees/guests/volunteers)
- Transfer – risk can be reduced or made more acceptable if transferred (for example – by purchasing an insurance policy)
- Retention – when risk is agreed, accepted and accounted for in budgeting, and it is retained (for example – in the case of roof replacements and maintenance)
What role does workers compensation insurance play?
Workers compensation is coverage for employees (associations may purchase coverage inclusive of volunteer coverage) who become injured while performing work related tasks. Coverage can include not only medical benefits but disability as well as payroll reimbursement (depending upon the employee class status/volunteer).
It is important to note that commercial general liability insurance excludes injuries to employees, employees of contractors, employees of subcontractors and volunteers. Therefor workers compensation should always be carried by the contractor/subs performing the work.
What are some of the types of insurance involved?
- Commercial General Liability
- Property & Builders Risk and Installation
- Automobile Liability
- Umbrella Liability
- Professional Liability or Errors & Omissions – depending upon work performed
- Workers Compensation
- Environmental Liability
Should an association care if their contractors hire subcontractors?
Yes, contractors pose risk to associations in the event their employees or actions of their employees causing damage or bodily injury.
Is the association responsible for their contractor’s contractors?
It is the responsibility of the association to vet their contractors, have written contracts with them and obtain proof of coverage prior to work. The written contract should specify rules of engagement for use of subcontractors by the general contractor/contractor and what requirements the contractor has for their subs and employees. As far as responsibility of the contractors and control – that is more of a legal question, as the definition of employee and contractor varies depending on state laws.
How is the amount and type of coverage for each contractor significant?
It depends upon the job, however all contractors should have commercial general liability, auto, umbrella and workers’ compensation at minimum. The amount of coverage should be defined by the risk of the work performed, not the cost.
What is “Short Form Insurance”?
Short form is typically a one-page requirement contract for insurance stipulating the insurance requirements for coverage including the limits and basic indemnification. It is a simplified form typically used for landscapers and painters — small value, low-risk work.
Does Insurance need to be reviewed on a project-by-project basis?
Insurance is typically provided on an annual basis, however some projects that are more complex and involve a multitude of trades may be best served with an Owners Controlled Insurance Program (OCIP) or a Contractors Controlled Insurance Program (CCIP), so that any losses involving this particular project do not impact other insurance policies. In addition, the limits a contractor has currently stated on an evidence of insurance may be reduced by other claims, and the association may not be given the benefit of the full policy limits that were required by a contract.
Is having a signed contract with broad insurance provisions enough?
It depends. Ultimately, contractors are contractually obligated to provide such and therefore should do their best to meet the contractual obligations. The evidence of insurance is proof that the insurance is in force when the proof was requested. Insurance should be carried throughout the term of the project as well as for a certain amount of time after the project (as dictated by the contract).
Does the extent or cost of project matter?
The extent or cost of the project does matter. It matters as far as the cost to insure (rating on payroll, sales and/or project size). The cost of the work does not correlate with the risk, however some projects are rated on cost and time to complete.
What are the insured and primary and noncontributory endorsements, and are they important?
They are very important. Primary designates that one party’s liability policy is responsible to a claim first before another entity’s policy or policies. Noncontributory stops the primary party’s insurer from seeking contribution from the other entity’s policy for paying a claim. Noncontributory makes only one policy responsible for covering a loss. Contracts required by upper tier companies like general contractors or property owners, and for lower tier subcontractors, should be required to provide additional insured endorsements to their policies for associations on a primary and non-contributory basis. Adding this endorsement clause provides the general contractor with coverage under the subcontractor’s policies. This prevents the contractor or owner from needing to use its only liability policy in the event of a claim it did not directly or fully cause. The contractor’s loss history stays intact.
Another term is waiver of subrogation (WOS), often confused with above but a separate requirement. WOS requires that an insurance company forfeit (waive) its right to sue another insurer for full or partial payment made on a claim involving multiple parties.
Together, the primary and non-contributory and WOS endorsements help protect the additional insured’s (the association’s) insurance policy from contributing towards payment during a claim, while a WOS prevents reimbursement after a claim payment.
Dawn M. Becker-Durnin, CIRMS, is Vice President, Insurance Advisor with PeopleFirst.