Understanding Contracts for Contractors

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As a contractor, you know that when you enter a contractual agreement with a customer or even with other contractors on the job, this involves the legal transfer of risk. Your insurance policies may need to respond to certain aspects of the contracts in place and some of the risks you assume may not be insurable. Because of that, it’s important to share your contracts with your lawyer and your insurance agent so that they can break these things down for you.

Some important things to look at in a contract can include:

Indemnity Agreements- read these carefully and get your lawyer to look at them. This is where the vendor or client may be asking you to indemnify and hold them harmless regardless of whose fault the problem arises from.

Additional Insured Request- Often you are being asked to name the vendor/client as additional insured on your General Liability or Business Auto policy (or both). This is where the vendor/client wants your policy to cover them in the event of your negligence (“error or omission”). It can mean a lot of different things and are they asking for AI status for “ongoing” and “completed operations”? The standard AI endorsement just includes coverage for “ongoing operations”. “Completed operations” is usually an additional cost. Any type of additional insured request may incur extra costs for you.

Primary and Noncontributory- This is another endorsement the vendor/client may request whereby your insurance is always considered primary to any other available insurance related to your General Liability and Business Auto. This becomes applicable in states where tort liability may be shared among various parties.

Waiver of Subrogation- Another endorsement often requested on General Liability, Business Auto and Workers Comp policies. This means your insurer is waiving all rights to subrogate and go back after the vendor/client for any recoverable liabilities after a lawsuit or claim.

These are some of the most common clauses in contracts that relate to your insurance. It’s important that your agent review the contract in its entirety to advise of any coverage gaps you may be assuming if you sign the contract!

Also, you may want your agent to quote any possible policy changes like the ones listed above. You will need to read the contract carefully because sometimes it may also be asking you for higher policy limits than you currently carry on your policies. This can be yet another source of increased costs.

Worried about missing something on a contract? We can handle reading over them for you and make sure that you’re protected where you need to be! Feel free to contact Shields Insurance Agency today at (205) 783-5893 or visit https://shields-insurance.com/home/commercial-small-business-insurance/contractor-insurance/

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