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Risk transfer:  What's the big deal?

Posted by Kristin Bowen on Apr 5, 2017 1:30:04 PM

bigstock-construction-roofer-carpenter--61502114.jpgHave you ever hired a subcontractor to perform a service for your business?  If so, risk transfer is important to protect your business.   

So what’s the big deal?  When a contractor works on your business’ premises or jobsite, your business may be taking on the majority, or all, of the liability for the services this contractor performs.  This includes anything from hiring a contractor to install the wiring for the home your business is in charge of building, to hiring a contractor to clear the snow from your parking lot and walkways.  Without proper risk transfer in place, your company’s assets, reputation, customers and employees are left at risk.  These risks include legal expenses, awarded damages, and repair expenses in the event of a claim.   

Here are some examples of claims where risk transfer would have played a significant role:

  1. A general contractor building a home hired a subcontractor to perform the roofing work for the job. An employee of the subcontractor fell and was killed.  The trial from this incident resulted in damages in the millions, not including the large defense costs incurred.  Without adequate risk transfer, the general contractor paid most of the claim for the subcontractor’s employee.
     
  2. The owner of a restaurant hired a contractor to provide snow and ice removal services. Ice built up in the parking lot and a customer slipped and fell.  The customer was injured and this resulted in a large claim against the restaurant owner.  Even though the claim resulted from the faulty work of the contractor, the restaurant owner paid the claim because their risk management plan was not sufficient.

In these situations, risk transfer is the solution.  It’s common for businesses to require a contractor to present a certificate of insurance, proving that they have an insurance policy of their own, prior to starting work.  While this is important, the certificate in and of itself does not provide enough protection.  Other important risk transfer steps include having the contractor list your business as an additional insured on their insurance policy, as well as requiring a written contract.

When requesting to be added as an additional insured on the contractor’s policy, this should be on a primary and noncontributory basis for all liability and expenses arising out of their work, including completed operations.  This will give your business the same rights under the contractor’s policy as the insurance company affords the contractor.  A written contract adds another final layer to your risk transfer policy.  This contract should include requirements for a hold harmless agreement, an indemnification clause, a waiver of subrogation, insurance requirements, and a safety clause.    

Click here for more details on these risks and proper risk management techniques.

This blog was written by Jenni Valdes, Underwriter - Commercial Lines

Topics: Commercial business, small business owner

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