Liability Exposures: Use of Subcontractors
By Universal Underwriters Group's Loss Prevention Department

A leak develops in the roof above the business office and must be repaired immediately. The manager calls AA Roofing Repair to come and fix the leak. The contractor shows up quickly, but before any repairs are made one of their employees falls off a defective ladder and is severely injured. Tough break for that guy and his company you say? If this contractor doesn't carry workers compensation insurance, it could end up being a disaster for your company.

Landscaping crews, window washers, plumbers, heating/AC contractors and many assorted vendors may visit your business every day. Have you ever considered them a threat to your business? The fact is that you can be held liable for injuries to their employees, or injuries to others that were caused by their employees. You could also end up paying for damages to your property that the contractor or vendor should be held accountable for.

The exposure created by using off-premises contractors can be equally significant. Anytime contractors are hired to service, change or modify vehicles or other mobile equipment, you could be held liable for claims arising out of their completed work. Many of these companies come and go, so it is important to choose contractors wisely. After an incident occurs, it is often too late to find out how long they've been in business, what kind of reputation they have or to verify insurance (products/completed operations) coverage.

Reduce Your Exposure

Following these guidelines can help reduce the exposure created by hiring contractors and subcontractors, or when inviting vendors onto your property:

Contractors/vendors should provide certificates of insurance as evidence of the following coverages: Workers compensation; Commercial general liability; Automobile liability; and Umbrella liability. Certificates should be mailed directly to you from the insuring company or agency. The rule of thumb is that their limits should be at least as high as yours.

Review the effective and expiration dates and update the certificates as necessary.

Have your company added as an "additional insured" on their general liability policy.

Require the contractor/vendor to sign an "indemnification and hold harmless agreement."

Develop an "approved vendor list" and require certificates of insurance for each vendor included on the list.

Select a contractor based on experience and expertise, not solely on price.

Do not lend tools or equipment to contractors. Injuries caused by defective equipment may be grounds for litigation.

Selecting a Contractor

Select a contractor based on: Expertise and experience; A proven track record; and compliance with all standards and codes.

Before Beginning a Project

Arrange a pre-project meeting where you review: Specific safety requirements for critical items; areas restricted to contractor's employees; condition of equipment to be used by contractor; and safety considerations for installation of major equipment.

Make sure all subcontractors are held to the same standards as the general contractor.

It is equally important that you transfer risk associated with contracts or agreements (e.g. sublet repairs). Require liability insurance to fund the transfer of liabilities. Include in all contracts a requirement that the other party add you to their liability insurance as an additional insurance.

Having an approved vendor list in place will provide guidance to employees under ordinary circumstances and in emergencies. The best time for establishing a program for hiring contractors and vendors is prior to an emergency. By using the above procedures, the risk associated with the use of vendors and contractors will be retained by those companies - where it belongs.