Keeping up with subcontractors' insurance records can be a burden for a small remodeling company. “Each sub must have $2 million of aggregate insurance. They must also have an addendum for an endorsement to us, and we have to be indicated as additionally insured. We have to have an addendum form attached to each of their insurance certificates. It's a lot of paperwork,” says Carolin Fast, treasurer at MRF Construction, Tacoma, Wash., who has a dozen subs and an occasional floater. “Every time we use a sub we must make sure that their insurance is up to date, that we have a valid sub agreement with them, and that they're current in their workers' comp premiums in the state of Washington. Luckily, there's a Web site [https://fortress.wa.gov/lni/crpsi/] I can go to to make sure they're paying their premiums.” (Other states have similar sites. In California, go to www.cslb.ca.gov.)
The alternative — not keeping track — could mean legal trouble. “Having direct access [to a sub's insurance] is a must for the general contractor,” says Mark Leininger, of NEK Insurance, El Cerrito, Calif.
Fast keeps alphabetized binders with the most current insurance certificate on top. “We have a 10-year insurance history for some of these people,” she says. Fast advises against making a new binder each year: “If the insurance company audits you, it's easier if you don't have to flip from binder to binder.” She also created an Excel spreadsheet that lets her know when a subcontractor's insurance is due to expire and whether the company has a current subcontractor agreement. Most subs pay their bills on the 10th of the month, so that's when Fast checks their status — and she does so once more for good measure at tax time.
Why Keep Up? Mark Leininger of NEK Insurance, in El Cerrito, Calif., says the additional insured (AI) endorsement does the following for the general:
- It provides first dollar defense for litigation arising from a loss caused by the sub — the endorsement should also name the project owner, so they have defense as well.
- There is wording in the standard policy form that says the general's policy will switch to an “excess” basis when the general is named as an AI. This means the general would have no payments made from their insurer until the claim exceeded the amount available from the sub's insurer. This protects the general from increased insurance costs due to a claim coming from a sub.
- The AI status makes the general/owner a “first party” to the sub's policy. If the insurer treats the general/owner unfairly they can be sued for “bad faith” and could be punished by the court with punitive damages.