Note: This is a letter that I received from my insurance provider. Risk is where we sign a contract for installation (typically in new construction) and become a subcontractor. Watch for these new endorsements:

Background: Most contracts that a subcontractor signs assigns the sub the liability of the general contractor. Typically the contract limits the sub to the one location of the job, but it doesn't state that you'll only protect the GC for work you've done. The GC gets pulled into any problem from the jobsite, so the GC can pull in ALL the subs on that particular job based on the contract that you've all signed. We see this kind of contract language on BOTH new construction and larger remodel work.

From a concept stand point, I like the thought of limiting your liability to ONLY the work that you're doing. But the contracts that you're signing typically make you responsible for much more than that. This means that you'd have a large gap from what you've "agreed" to and what the policy will cover. That "gap" would then be yours alone. This includes defense costs, damages, etc.

As far as I know only three companies have used this endorsement or some similar wording. Many agents don't know about it and wouldn't know to inform their clients of this gap. For this reason, I'm trying to make my clients aware of it. They can then help to educate the rest of the contractor "population" to look out for it. Either the standard contract language needs to change or this endorsement does. Attorney's can also be helpful here.

Hope this helps!

RE: Endorsement Changes

CG2426 & CG2294

In an effort to keep you informed of the changing insurance environment, I’m sending you a letter to let you know of recently seen changes to General Liability that will effect your coverage if you should have either of the endorsements.

Some of our carriers began using these forms on April 1^st, 2006 and others are expected to follow. The first endorsement is called CG2426. This endorsement will be applied to all general liability policies with contractor codes shown as the rating basis and alerts the policyholder of the presence of endorsement CG 24 26 AMENDMENT OF INSURED CONTRACT DEFINITION which indicates that the policyholder (you) will no longer have coverage for liability assumed under an insured contract unless they, or someone working on their behalf, contributed to the injury or damage (damage you cause). 

Typically we see contracts used that make you (the subcontractor) obligated under broad indemnity clauses (where the insured assumes liability arising from another party’s sole negligence) representing a significant exposure for many businesses, one that general liability policies have traditionally addressed, and have been specifically drafted to insure.  CG 24 26 thus eliminates an important component of the protection that has normally been available under GL policies.

We are also running into companies that add CG 2294 which is an Exclusion-Damage to Work Performed by Subcontractors on Your Behalf.  When CG 2294 is in place a general contractor has no coverage for damage to its work, if the work was performed by a subcontractor or if a subcontractor’s work causes damage to other elements of the work.

The most complete way to protect yourself from these exclusions, would be to change the wording of the contracts that are being used. If this is not possible, you should review your contracts closely and determine exactly what you have agreed to provide protection (or indemnify) for. Your attorney could also help you with this.

Please also let others in the construction business know that this is on the horizon. I am happy to discuss this in more detail with anyone who might have questions on it.

Thank you again for placing your insurance trust in our agency!