There are several ways for contractors and subcontractors to allocate the risks of damage on job sites to subcontractors. Constructing a contract that requires subcontractors obtain insurance is one of the best risk management strategies. The subcontractor’s coverage should also include the contractor or higher subcontractor as an insured party. With this option, contractors have the same rights as policy holders under Commercial General Liability policies. Both the hiring contractor and the party purchasing the policy have the same rights and coverage provisions. By requiring this coverage for subcontractors, general contractors are able to prevent paying for the expensive legal fees arising from damages on a job site.
When a subcontractor’s employee is injured on the job, the subcontractor usually tries to sue the higher tier subcontractor or general contractor to cover damages. The hiring party then faces the expenses of court costs, legal fees, damages and lost salary for the injured worker. However, a hiring party that requires all subcontracted parties to have CGL insurance naming them as additional insured parties has protection from such financial burdens. In some cases, the CGL policy is primary to any others. This means that CGL policies naming the hiring contractor as an additional insured party must be the first to pay legal fees and damages.
With these policies, there are no requirements for subcontractors to ask for indemnification for loss claims as a condition for the hiring party’s coverage. There is also no need for determining the faults of each party involved. Having a subcontract that requires subcontractors to provide adequate insurance is enough. The simple requirement of the policy to pay for legal fees is one of the most advantageous aspects of this coverage. Another advantage is that the scope of coverage is broad. Insurance companies must pay for attorneys’ fees whenever there are allegations of a complaint. Although the insurance company may not be required to pay all damages claimed by an injured worker, they have a strong duty of defense.