Understanding Contractual Risk Transfer
Suppose one of your company’s construction workers is injured on a construction site while sub-contracting for another company. Your worker decides to file a lawsuit against the sub-contractor for not maintaining a safe workplace.
Even though your company has contractors’ general liability commercial insurance in NY, the sub-contractor is pursuing two remedies against your company – one for contractual indemnification and one for protection as an additional insured.
This is an instance where contractual risk transfer is needed to protect your company from absorbing additional costs. First, you need to understand what contractual indemnification and additional insured means.
1. Contractual indemnification – in the subcontract between your company and the sub-contractor it states that your company will indemnify the subcontractor for injuries and damage that arise from the work performed by your company.
2. Additional insured – this means you added the subcontractor to your general liability policy as an insured.
As long as the sub-contractor was added as an additional insured, there’s a good chance the insurance company will be required to absorb the cost of the lawsuit brought up against the sub-contractor.
Most liability policies do cover liability assumed by the contract (i.e. contractual indemnification), as well, which would protect your construction business from future costs.
The reason the sub-contractor is filing both remedies is because they’re not sure which one will yield the best outcome. Claiming protection as an additional insured should work unless the sub-contractor is found to have some negligence in causing the injury. In that case the insurance company could deny coverage.
That’s why the sub-contractor is seeking a remedy under contractual indemnification as well.
Understanding contractual risk transfer can be a challenge, but the specialized agents at Miller & Miller Insurance can help you make sense of it, should you find yourself in this situation. We understand your industry and the unique risks it faces. Let us craft your next contractors’ general liability commercial insurance in NY. Contact us today!
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