Know the subs on your project? Take notice and make sure their insurance covers you!
I just came across a case that I think truly paints the insurance dilemma for contractors. Thanks to this recent Illinois case, I don’t have to make up any factual scenarios – so kudos to Attorney Robert Boylan for posting it.
In reading over my RSS feeds this weekend, I noticed a great writeup on Chicago-based Illinois Construction Law Blog. Attorney Robert Boylan’s post describes a recent Illinois case where a general contractor was denied its additional insured status on a second-tier subcontractor’s insurance. The reason for the denial: the general contractor failed to procure an agreement in writing with the second-tier subcontractor, requiring it to be listed as an additional insured.
In Westfield Insurance Co. v. FCL Builders, Inc. (link at Illinois Construction Law Blog), the general contractor’s agreement with a subcontractor required it to be listed as an additional insured. There is no problem there. But, the subcontractor then subcontracted a portion of the work to a second-tier subcontractor. The contract between the general and subcontractor was incorporated by reference into the subcontractor and second-tier sub’s contract, but the general had no direct communication or privity with the second-tier sub.
After one of the second-tier subcontractor’s employees were hurt on the job, the general was sued and demanded coverage. The second-tier sub’s insurer denied under the “additional insured” obligations of the policy. Those conditions were: 1) the entity seeking coverage must be one “for whom you are performing operations;” and 2) the second-tier subcontractor and the entity seeking insurance coverage must have agreed “in writing in a contract or agreement” that the entity seeking coverage must be added to the policy as an additional insured. The court denied coverage for failure to meet the second condition – a direct written contract.
Now, many of us are probably up in arms about this result. It appeared that the general and subcontractor did what was necessary, correct? Well, it appears that generals must go the extra step – and based on this case I would recommend it.
Generals should ensure that they have complete subcontractor lists, including any person/entity working on the project. Before that person sets foot on a job, a general should ensure that they have insurance in place that provides adequate coverage. This case is an eye-opener for many, I presume.
Hey Doug! Actually, Josh is at http://www.constructionlawtoday.com/ (Just an FYI)
Well, my goodness. I think that he was referenced at Illinois Construction Law Blog once or twice and I must have made that connection. Thanks for pointing that out!