Put it in writing
by Leslie Kazmierowski
This column uses fictitious case histories to introduce important loss-control principles. The details for these case histories are not meant to represent any particular occurrence. Any similarities to living people or actual events are purely coincidental.
Max, the owner of a local general contracting company, needed to have a cedar shake roof system installed on a new home and hired Ernie, ERP Roofing’s owner.
Because Ernie’s crews were working at other job sites, he decided to subcontract the shake work to Peter, a carpentry apprentice who did roofing work on weekends. No contract between Ernie and Peter was signed—the work was established through a verbal agreement.
After accepting the work, Peter told Ernie he did not have commercial general liability (CGL) or workers’ compensation insurance. Therefore, Peter did not have insurance for the job. Because Ernie needed someone to install the roof system soon and did not have time to look for another worker, he took a chance and hired Peter.
Before Peter began the job, he checked the roof deck to make sure it was free of debris. After completing this task, Peter needed to bring the shakes and felt to the roof. He disengaged his fall-protection harness so he could descend, and as he was descending to get the materials, he lost his balance and fell 20 feet (6.1 m) to the ground. Paramedics were called, and Ernie was rushed to the hospital.
As a result of the fall, Peter’s right ankle and left foot were fractured; he was told he needed extensive surgery and physical therapy. Because Peter did not have insurance, the prevailing state law made Peter a statutory employee of Ernie. Therefore, Ernie’s workers’ compensation insurance carrier paid for Peter’s claim.
Ernie’s loss-control representative told Ernie he should not hire subcontractors who do not have insurance. He also was told a signed, written agreement should be secured from subcontractors before work begins. Verbal agreements are difficult, if not impossible, to enforce. A written agreement should define the contractor’s and subcontractor’s responsibilities regarding insurance issues, tools and materials, safety and other aspects of a project.
A written contract or agreement also should include the following:
- A hold-harmless clause that protects a contractor from another party’s acts or omissions
- A requirement that the other party name the contractor as an additional insured under its CGL policy
- Specific insurance requirements for CGL, workers’ compensation and automobile liability insurance
- A requirement for 30 days notice before cancellation, nonrenewal or material change of insurance coverages
As if addressing insurance problems was not enough, Ernie also learned Peter had filed a lawsuit against Max alleging failure to supply a safe work environment. Peter was claiming total and permanent disability because he was not able to pursue his carpentry occupation and sought $1.75 million in projected lost earnings.
Because Max and Ernie had a signed contract with a valid indemnity provision, Max transferred the lawsuit to Ernie.
Ernie’s CGL carrier had to pick up the defense and settle Peter’s claim. Ernie knew his insurance premiums would suffer the effects of the workers’ compensation and CGL claims for years. If Peter had had insurance and Ernie had insisted on a written contract as recommended by his loss-control representative, Ernie’s insurance probably would not have been affected by the accident.
Because Ernie was concerned about future contract problems, he asked his friend Tom, a local contractor, how he contracts with subcontractors.
Tom told Ernie he uses a standard subcontract agreement that is modified to state that an agreement is in place for all work performed by each subcontractor used. He applies the subcontracts to all subcontractors he uses except when a separate subcontract has been issued for work done on a specific job.
Tom said some guidelines he uses for applying blanket subcontracts include work that exceeds $25,000 or lasts for a certain duration, such as more than 90 days. The guidelines can be established based on each subcontracting company’s size and scope of operations. Tom also obtains a blanket-subcontract insurance certificate at the time a blanket subcontract is issued.
Ernie liked Tom’s system and decided to implement a similar one.
Leslie Kazmierowski is NRCA's insurance programs manager.
|
