The insurance/risk management industry, like nature, abhors a void. If someone's not insured, the industry will find a way to fill that hole. One relatively recent innovation making its way around the nation is a requirement by many insurance carriers that general contractors have a promise from subcontractors not to hold the general contractor responsible if the subcontractor causes damage (also called a “hold harmless” clause) and an “additional insured agreement” with all subcontractors, in favor of the GC. On the one hand, the rule offers peace of mind to the general contractor who is often seen as having the deepest pockets when a suit is brought. On the other hand, says Natalie Baker of Baker Builders, Princeton, N.J., who was required by her insurer to make these changes in order to renew her policy, it increases paperwork and stresses subcontractor relationships her company has taken years to cultivate. “Some subs are downright offended,” she says.

The question of paperwork is ultimately about “installing procedures and disciplines to accomplish the task,” says Mark Leininger, of NEK Insurance in Northern California, most of whose clients are remodeling general contractors.

At Merrick Construction, Little Silver, N.J., Tim Cross says that it's standard procedure for his secretary to contact each sub when their insurance is up. “We don't want to write a check to them if they don't have workers' comp,” he says. With these new requirements, she just makes it part of her usual call or writes a letter.

In California, where these insurance and legal remedy requirements have been in place for about 10 years, the hold harmless language exists in the subcontractor agreement. “This requirement is easily handled by inserting the clauses into the contract,” Leininger says. “Many general contractors simply sign the proposal or bid from the sub. But this will leave the general contractor with no governing contractual remedy and relies on expensive litigation to resolve disputes.”

Just putting the language into the contract is not enough in other states. Having a separate insurance document with an additional insured endorsement is better protection. “We make sure we get the document mailed directly from the insurance company and not from the sub,” Cross says.

Chris Craig, an attorney in northern Virginia practicing construction law, concedes that the administrative burden will go up for the remodeler as well as for the subs. But the requirement is a significant change. Having this language in the contract “shifts the risk burden back to the subcontractor and, at some level, you're adding assurances for the customer that the work will get done right,” he says.

As to the question of contractor relationships, says Craig, “it's something you'll have to build into your business model, if you're required to do it. The sub may be offended, but he may have no choice. You may think about asking, ‘Why are you offended?' Do they plan on doing something wrong?”

As more carriers insist on this, subcontractors unwilling to comply will find themselves without work. In the bigger picture, regulations like this can ultimately weed out those subcontractors that are not professional, which benefits everyone.