October 2012

Adding additional insureds to a Liability policy is a common request in the construction industry. It’s so common, in fact, that the Insurance Services Office (ISO), the organization which develops many of the standard insurance coverage forms in the marketplace, has created an endorsement for Liability policies that adds additional insureds on a blanket basis.

Before these endorsements, contractors had to add a new endorsement to their Liability policy for each additional insured. When a contractor had to add multitudes of additional insureds, the avalanche of paperwork became a burdensome task, particularly for smaller firms.

The blanket approach replaced the multitude of endorsements with a single attachment by changing the endorsement wording. A typical additional insured endorsement employs this (or similar) wording: “Who Is an Insured (Section II) is amended to include as an insured the person or organization shown in the Schedule.” In the ISO blanket endorsement (CG 20 33 10 01), the wording reads: “Section II — Who Is an Insured is amended to include as an insured any person or organization for whom you are performing operations when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy.”

A word of caution about using the blanket approach: Although the endorsement greatly simplifies the process of adding additional insureds by removing the requirement to name each one, it makes this inclusion contingent on a written contract or agreement stating that the additional insured must be added to the contractor’s policy. So, when using the blanket endorsement, be sure to keep copies of the contract, which provides the necessary written agreement to avoid any conflicts over insured status at the time of a claim.

If you have other questions about additional insureds, or any other endorsements to make certain your Liability coverage continues to meet your needs, please feel free to get in touch with us.

A review of many lawsuits and claims against firms in the construction industry reveals that one of the key causes of disputes, and thus litigation, can be summarized as “unmet expectations.”

Whether it’s a clear case of the contractor failing to deliver what was promised (such as work that doesn’t meet project specs), or an evolving standard on the part of clients (workmanship issues), an unhappy client/contractor relationship creates a fertile breeding ground for allegations of liability. Although we review your Liability coverage program and needs regularly, good risk management also requires other measures to help minimize or prevent such actions.

For example, when negotiating agreements, it’s crucial to define project parameters clearly. Never begin work until the agreements are completed fully. According to one industry study, companies experienced far more claims when they provided services before a completed agreement.

It also helps to be selective in choosing clients. A potential client’s history of past litigation, complaints against you or other contractors, and their reputation for fairness and financial stability all indicate what you can expect in future dealings. If there are one or more red flags, proceed with caution.

Beyond the specifics of any agreement, it’s also critical to manage the client’s expectations. Although it might be tempting to brag about how great the final product will be and list numerous examples of superior work during the negotiation (and pricing) process, the fact is that the higher the client’s expectations, the greater their dissatisfaction when you don’t meet those expectations. Be clear about what you can accomplish within a given budget and the effects of making changes once the job is underway. The more the client is prepared to accept what happens during a project, the less likely that they’ll immediately go to the mattresses once a problem arises.

It’s always better to negotiate expectations with your clients now, than to have their attorneys negotiating settlements later.

Subrogation occurs when an insurance company pays a claim and then uses the insured’s right to sue the other party for causing the loss as a way to recover their funds. This seems reasonable, so why do business contracts commonly include a “waiver of subrogation” clause?

Business contracts often require that one party or the other be primarily responsible for providing insurance. The purpose of including a waiver clause is to have the party carrying the insurance waive any rights of recovery against the other party for claims covered by the insurance. The intent is to reduce risks significantly by preventing the insurance company from circumventing the contract’s intent of making one party financially responsible for the losses through the purchase of insurance.

However, it’s also possible that overly broad language in the contract might leave the insured agreeing to take on far more responsibility than is reasonable. In such a case, agreeing to a blanket-waiver of subrogation might not be in the best interests of you and your insurance company. The party that transfers all of its responsibilities onto the insurance of others distorts the basic principle of liability, which is that the guilty party should pay.

Whenever you’re presented with a contract that requires you to purchase insurance for the interests of another and includes a waiver of subrogation, be certain to review the provisions with your attorney — and with us.

The American melting pot is fast becoming a smorgasbord of distinctive cultures. During the past 10 years, more than half (51%) of new entrants into the U.S. workforce have been minorities. The next 10 years will see a dramatic increase in minority workers, many of whom might lack English proficiency and familiarity with basic workplace safety precautions. To help you meet the safety needs of an increasingly diverse workforce — especially where language barriers are an issue — we’d recommend these guidelines:

• Speak slowly, explain fully, and repeat important points several times.
• Choose simple words and avoid technical jargon (whenever possible).
• Use a translator with groups of employees who have only minimal English skills.
• Team up non-English-speaking employees with English-speaking employees.
• Provide handouts in the language(s) that trainees speak and read.
• Make sure that workers are able to understand written materials. Don’t assume that they can read forms, signs, written directions, etc.
• Stress the importance of following safety regulations and policies.
• Show employees how to use safety protections and explain why they’re important.
• Demonstrate while you speak and use pictures, diagrams, props, etc., to supplement your words.
• Follow up on the job to make sure that employees properly apply what they’ve learned in training.