Page 36 —
COLORADO REAL ESTATE JOURNAL
— April 6-April 19, 2016
H
ere’s the scenario:
Your construction
firm is hired for a
job. You bring on subcontrac-
tors with an agreement you’ve
been using for years (or one
you found on the Internet). One
of the subcontractors inadver-
tently makes a mistake – a big
one. This will cost someone.
But who is liable? If you and
your subcontractors don’t have
a clearly defined subcontractor
agreement in place, that liabili-
ty and penalty could come back
on you and your business, even
if it wasn’t directly your negli-
gence that caused the issue.
If you are a general contrac-
tor, owner, developer or top-
tier subcontractor, you may
routinely hire subcontractors.
But your agreement may not be
structured to provide the right
protection for you and your
business.
As an insurance firm that
specializes in the construc-
tion industry, Moody Insur-
ance regularly sees instances
of incomplete, insufficient and
even nonexistent agreements.
With a little time up front, you
can make sure you have a fair
agreement that clearly dictates
terms, conditions and responsi-
bilities before anyone sets foot
on the job site.
Here are some tips and fea-
tures that a good subcontractor
agreement should have to make
sure all parties are protected.
n
Call a pro.
This is not the
time to DIY. Have your agree-
ment prepared by an attorney
(either your in-house attorney
or someone you work with on
a contract basis), and make sure
the attorney is an expert on
state and local contractual laws.
n
Spell it out.
The agreement
should include a well-defined
scope of work, including exact
job requirements, license and
permit requirements, and
terms.
n
Two words: indemni-
ty clauses.
Make sure your
agreement has strong indem-
nity clause(s) applicable to state
laws, including a hold harmless
agreement. Put simply, indem-
nity means one party agrees
to “indemnify” the other party.
When you
i n d e mn i f y
someone else,
you agree to
absorb the
losses caused
by that party
or you agree
to compen-
sate
that
party if some-
thing you do
(or don’t do)
causes them
to experience
loss,
dam-
ages or a law-
suit from a third party.
n
Check their coverage.
Your
agreement should include sub-
contractor insurance require-
ments with clearly define lim-
its and coverages based on the
scope of work. This should
include, at a minimum, general
liability, auto liability, workers
compensation and employers
liability and excess liability. The
Certificate of Insurance should
include all required limits.
Also be sure to get all company
forms and endorsements from
the subcontractor’s insurance
company.
n
Shift risk appropriately.
Your agreement should include
a waiver of subrogation in favor
of the company. This is a clause
that is added to general liabil-
ity, auto liability and workers
compensation. It’s designed to
prevent a subcontractor’s insur-
ance company from filing a
claim against an owner/gen-
eral contractor for the subcon-
tractor’s negligence.
n
Prepare for the worst –
just in case.
Get an addition-
al insured endorsement with
wording that includes both
ongoing and completed opera-
tions hazards. This provides
coverage and defense costs
in the event a subcontractor
causes bodily injury or prop-
erty damage due to the negli-
gence of their work.
n
Protect your job site.
Make
sure your subcontractor has a
per project aggregate, which is
a separate limit that applies to
each project. This extends the
total value of limits of coverage
so that your project gets full
protection from the subcontrac-
tor’s policy vs. being spread out
among all the different projects
they may be working on.
n
Let them go first.
Make
sure the subcontractor has
added primary noncontribu-
tory wording to the general
liability policy and that the
policy notes your specific job.
This allows the subcontractors
policy to be the first to defend
and pay claim or suit against
the owner/general contractor.
n
Look for the safest subs.
Make sure your subcontrac-
tor is required to have safety
programs relating to employee
safety, driving safety and job-
site safety that are consistent-
ly monitored, implemented/
taught and enforced.
Insurance can be complicat-
ed and confusing. That said, a
strong subcontractor agreement
pays dividends with every proj-
ect you start and sub that you
hire. Working with an expert
can save you significant time
and headaches – not to mention
legal fees down the road.
s
Kenton Miles
Construction risk and
insurance consultant,
Moody Insurance
Agency, Denver
Construction, Design & Engineering
buyer’s expense, but that could
be a subject of negotiation, espe-
cially if the endorsement cures
a title problem any normal
buyer would insist be cured.
Commonly requested endorse-
ments include the so-called
“comprehensive” endorsement
when the property is burdened
by covenants (one of the ALTA
9 series) and mineral endorse-
ments (100.30 or ALTA 9) when
mineral rights have been or will
be severed from the property.
Obtaining endorsements is
often handled outside the con-
tract, with the buyer dealing
directly with the title insurance
company to have them added
to the title commitment. Oth-
erwise, endorsements are han-
dled as part of the title objection
and resolution process, with
the buyer lodging an objection
to title unless the title com-
mitment is revised to provide
that the desired endorsements
will be part of the title insur-
ance policy issued to the buyer
following the closing.
Trap:
A
buyer who requires a title endorse-
ment and lodges it as a title objec-
tion takes the risk that the seller
will refuse and the contract will
terminate, unless the buyer is will-
ing to waive the requirement prior
to the title resolution deadline.
If
the buyer knows that it will
require certain endorsements
to its title insurance policy, the
buyer is much better off if it
adds that requirement to the
contract.
s
