Contractors face dangers on the job daily such as work-related injuries damages caused by negligence or accidental loss and property damage. The general contractor afraid of any such event might insist that subcontractors sign hold harmless clauses and contractual transfer agreements. What are these exactly? Most liability policies exclude “contractual obligations” other than those incidental to the insured’s business operation. A hold harmless or indemnity agreement is a contract and therefore it is important that they contact your broker to review it from “an insurance perspective” to ensure that it would be an insured contract.
Liability policies have exclusions and limitations. A hold-harmless agreement may transfer obligations to the subcontractor that are not covered by Commercial General Liability coverage such as workers compensation claims or design errors.
So essentially a hold harmless clause simply means that the subcontractor is taking the responsibility for any accident or injury that should befall them while working. The legal liability is then depending on the exact wording wholly on the subcontractor and not on the general contractor. Along these same lines a contractual transfer places the risk in the lap of the subcontractor and therefore alleviates legal liability from the main contractor. Now these protections do vary according to the region field and the specifics of any incident but they do significantly minimize the amount of risk and liability that a hiring party has while placing a great deal more risk on the subcontractor.
Insurance and Hold Harmless Agreements
So what exactly is the typical insurance company’s stance on these types of agreements between parties working together? In some instances depending on the type of agreement enacted your insurance company may have some concerns about what this means for you as the subcontracted party. By signing a hold harmless agreement and transferring all risk to yourself rather than to the general contractor you as the subcontractor are basically putting your own business and therefore your insurance provider directly in the line of fire for anything that could occur while you are performing your job duties. The problem here is that your policy has limits. In most cases the general contractor is asking you to provide insurance coverage for all risks associated and to absolve them of any liability. Given the terms of your own insurance policy you may not be sufficiently covered if you sign such an agreement. If something does occur you may have to be prepared to be personally liable for any damages and/or expenses.
If the general contractor insists that you sign this agreement or give up the work and you can’t convince them otherwise then you may want to add them as an additional insured under your policy. This signifies that they will now be covered by your policy should anything happen to you or as a result of something you did. Though this is not the ideal situation it at least helps to better protect you in a case of contractual transfer.
To have a better understanding for what you should do in your particular circumstance talk to your insurance broker about the various options available and about the implications of signing any sort of hold harmless agreement.
