Written By: Dennis Kane

 I have seen a significant number of high value claims as a result of contractors or subcontractors not carrying insurance or inadequate limits of insurance.

Examples of high value claims against dealerships include:

• Claim against a dealership’s workers’ compensation carrier or general liability carriers due to an injury of a subcontractor’s employee and the subcontractor doesn’t carry workers’ compensation insurance.
• Claim against a dealership’s property insurance carrier because a roofing contractor started a fire repairing the roof and didn’t have adequate insurance.
• Claim against a dealership arising out of work performed by a subcontractor to modify or perform specialty services on a vehicle. The work performed was later determined to be faulty or negligent resulting in serious injuries and the subcontractor was out of business with no insurance.
• Claim against a dealership’s liability carrier arising out of a contractor’s negligence for services performed while removing snow and the contractor didn’t carry insurance.

Here’s what you need to know: You can be held liable for injuries to employees of, and the negligent work of, contractors and subcontractors. The good news is there are relatively simple steps you can take to reduce your exposures to high value losses. Use this checklist for selecting contractors or subcontractors:

1. Require the contractor/subcontractor to provide a certificate of insurance as evidence of coverage for Workers’ Compensation, General Liability and Umbrella Liability. It’s very important the limits of liability insurance are      adequate. A good minimum standard for establishing the limit of insurance is requiring the same limits as your business liability insurance. This is effective to address inadequate limits by contractors and subcontractors.      Review the effective dates of insurance to confirm the insurance is valid.Certificates need to be mailed directly from the contractor’s agency or carrier, not the contractor. This prevents contractors from issuing their own certificates to satisfy the insurance requirements and secure the winning bid without proper insurance.
2. Require your company to be added as an “additional insured” on the contractor’s General Liability policy. You should require a copy of the endorsement from the carrier or the agency of the contractor.
3. Ask your attorney to draft a “hold harmless and indemnifications agreement” that contains absolute defense and indemnification language and repayment of any expenses incurred in accordance with your state law to insulate you for any type of claim due to any inference of negligence. This agreement needs to be executed before work or services begin.
4. Do not use “friends” or a friend of a friend to do any type of work, use only certified licensed contractors.

As you bid out work for your dealership, make the steps outlined above a required part of the selection process. You will find many legitimate contractors/subcontractors with excellent reputations for quality service and work willing to comply with these standards. If any of the steps above can’t be provided by your contractors or subcontractors, it’s definitely an early warning of potential problems that need to be investigated further.