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Discussion Starter · #1 ·
Just got a letter from one of my customers who is a builder:

The sub-contractor shall purchase and maintain the following insurance coverages and limits with an insurer which has an A.M. Best rating of "A" or better:

  1. Commercial General Liability at $1,000,000 Occurrence/$2,000,000, General Aggregate/$2,000,000 Products-Complated Operations Aggregate.
  2. Business Automobile Liability at $1,000,000 per Occurrence
  3. Statutory Workers Compensation
  4. Umbrella /Excess Lilability at $1,000,000 per occurrence
XYZ Builders, Inc. is to be included as Additional Insureds on a primary, non-contributory basis.

A waiver of subrogation must be provided in favor of XYZ Builders, Inc....
I have everything listed here, except the excess umbrella coverage.

They are also asking for an indemnification/hold harmless agreement.

Is this an industry standard these days?
 

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I don't know if it would necessarily qualify as an industry standard - but it is certainly becoming more the norm.

When I have GC'd jobs, as well as been a carpentry sub for a GC, they pretty much ask for the same thing - and I am in PA, by the way.

Basically, my insurance is saying everyone should be on a level playing field on the same job so one subs work can not fault the other or the GC.

The umbrella policy is new to me, but a good idea, in my opinion.

You can never be too safe or cover your arse too much these days.

As an old college business professor said to me: "I would rather have a hundred 'what if's', than one 'oh sh*t'"!
 

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are you in Sussex?

I have a commercial account who made me sign up with ComplianceDepot in order to do business with them...they required everything you listed in addition to stricter automotive limits where as anyone driving anything on the property would be covered. As I understand, the umbrella raises a single occurence to 2 million (1mil for the umbrella nad 1mil for the general). either way it was an added cost which was then passed on.
 

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Not much of that makes sense to me.

The GL with 2 mil does, the automotive I guess I can see, but I think I need to be explained that one.

WC isn't a blanket requirement, so it should be WC or something proving ineligibility.

Now the umbrella policy? What is that about? This is referring to a personal umbrella policy or is there some business one I don't know about? What on earth would be the logic of requirement of a personal umbrella policy for the sub contractors owner?
 

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I see this all the time anymore. Also been in the insurance business for 26 years. What would be my biggest concern is the waiver of subrogation. Personally I do not know if this has ever been tested in the courts but as Cooke says " a what if"....
 

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Every large project that I manage has similar requirements as this. Indemnity clause/agreements are common practice and industry standard.
 

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Discussion Starter · #8 ·
Well, this particular customer does not do large projects. These are single family homes, mainly modular type located on private property, usually owned by the person who bought the home.

It just seemed to be a bit excessive, considering the scope of work that we have been doing for them. And we have been their electrical contractor for over 10 years now.
 

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It is interesting to see that the contract calls for $1 million CGL and Auto and then a $1M Umbrella, rather than just asking for $2M CGL and Auto limits. An Umbrella or Excess policy is an additional layer of liability insurance. After the first $1M is paid out by the first insurance company, then the Umbrella or Excess insurer will start paying from $1,000,001 and upwards. There are two different types: Commercial Umbrella and Personal Umbrella. They each have the similar idea of overlying primary liability levels, but they have different wordings that deal specifically with either business risk or personal risk.

The difference between Excess and Umbrella is that the Excess policy will provide the exact same coverage and exclusions that the underlying coverage has. An Umbrella Policy, however, will have extra coverages that your primary CGL policy excludes. These coverages are referred to as “drop-down” coverages because the coverage drops down to the first dollar (you don’t have to wait till $1,000,000 is spent before you can access the insurance). Some common drop-down features are non-owned aviation and watercraft (liability coverage if you rent a plane or boat for business/commercial purposes); some limited pollution coverage; worldwide coverage if you get sued in another country; libel and slander; and more. All of the above are general statements re what MANY policies cover and don’t cover; and not necessarily what EVERY policy provides, therefore, you need to check with your broker/agent re what they actually sold you.

Since Item 4 of the contract asks for either Umbrella or Excess, it looks like the drop-down coverages aren't a concern because an Excess policy is acceptable. I am assuming the reason they re splitting the liability between primary and umbrella/excess is probably because of the General Aggregate. The contract stated $1,000,000 Occurrence/ $2,000,000 General Aggregate. If you have a policy that is written this way it could potentially mean you have no insurance for this new job if there are previous claims at other jobs. Example:

Job #1 – paid out $750,000 (within the $1 million per occurrence limit)
Job #2 – paid out $500,000 (within the $1 million per occurrence limit)
Job #3 – paid out $750,000 (within the $1 million per occurrence limit)

Now you are at this job (Job #4). The job owner doesn’t know where you’ve worked the last couple of months since your policy’s effective date; nor if there were claims or not. You can show him that you have $1,000,000 per occurrence limit insurance and it all seems okay; BUT, $2,000,000 has already been spent by the insurance company, so they are not going to be paying another dime if you have any more claims because you’ve hit the General Aggregate limit. On the other hand, if you had a $1,000,000 Umbrella, then you could access that policy since your primary policy is already all used up.

If you have a CGL policy that does not have a Gen Agg (and that is the reason the job owner is asking for the Umbrella) then have your insurance agent call and explain that your CGL coverage with no Gen Agg already takes care of their concern re previous claims, and then try to have the Umbrella requirement removed from the contract.

P.S. – You should check to see if your policy’s limit includes or excludes Claims Expenses as part of the limit calculation. For example, you could have a claim where a court awards $750,000 to a third party plaintiff, but if it dragged on for a long time and special engineering and consultant reports were part of the claims investigation and settlement, you could be looking at another $350,000 in expenses, which actually turns that $750,000 claim into a $1,100,000 claim. The insurance company will always pay claims expenses, but if they include them as part of the limit of insurance, then a $1,000,000 policy may not be enough - as per my example - and with what lawyers & consultants charge, it is not that far-fetched to have expenses run that high; not kidding.
 

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Discussion Starter · #11 ·
...Since Item 4 of the contract asks for either Umbrella or Excess, it looks like the drop-down coverages aren't a concern because an Excess policy is acceptable. I am assuming the reason they re splitting the liability between primary and umbrella/excess is probably because of the General Aggregate. The contract stated $1,000,000 Occurrence/ $2,000,000 General Aggregate. If you have a policy that is written this way it could potentially mean you have no insurance for this new job if there are previous claims at other jobs. Example:

Job #1 – paid out $750,000 (within the $1 million per occurrence limit)
Job #2 – paid out $500,000 (within the $1 million per occurrence limit)
Job #3 – paid out $750,000 (within the $1 million per occurrence limit)

Now you are at this job (Job #4). The job owner doesn’t know where you’ve worked the last couple of months since your policy’s effective date; nor if there were claims or not. You can show him that you have $1,000,000 per occurrence limit insurance and it all seems okay; BUT, $2,000,000 has already been spent by the insurance company, so they are not going to be paying another dime if you have any more claims because you’ve hit the General Aggregate limit. On the other hand, if you had a $1,000,000 Umbrella, then you could access that policy since your primary policy is already all used up.
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Not applicable in my case. My policy states that the General Aggregate limits apply per project, not per policy. Also, I already have double the coverage they want. We are inquiring whether we actually need an umbrella policy or not, since we are covered for more than that from the onset.
 

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Example:

Job #1 – paid out $750,000 (within the $1 million per occurrence limit)
Job #2 – paid out $500,000 (within the $1 million per occurrence limit)
Job #3 – paid out $750,000 (within the $1 million per occurrence limit)

Now you are at this job (Job #4). The job owner doesn’t know where you’ve worked the last couple of months since your policy’s effective date; nor if there were claims or not.
I'll bet $100 this contractor doesn't get a Christmas card from his insurance agent.
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Not applicable in my case. My policy states that the General Aggregate limits apply per project, not per policy. Also, I already have double the coverage they want. We are inquiring whether we actually need an umbrella policy or not, since we are covered for more than that from the onset.
Looks like you have a good broker/agent, who's doing a good job for you by having your insurance set up this way.

There is no other reason why you would need the Umbrella as the coverage and limits you already have are more than equivalent to meet the contract requirements. If the job owner doesn't understand this and keeps insisting on an Umbrella Policy, then have your insurance broker/agent call them and explain.
 

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Just got a letter from one of my customers who is a builder:



I have everything listed here, except the excess umbrella coverage.

They are also asking for an indemnification/hold harmless agreement.

Is this an industry standard these days?

It sure is. You get to pay ahead of time for them to be insured and their limits on work they can do increase. If someone is looking to sue, the first ones they sue are contractors with liability insurance because they all bend over and then will stick you with the amount they paid out. In California. a lisence bond has that was 100 per year is now 1300 and a rip off. I am thinking about quiting after 32 years. Carl
 

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In California. a lisence bond has that was 100 per year is now 1300 and a rip off. I am thinking about quiting after 32 years. Carl
I'm in California and my $12,500 license bond is $75 per year. You may want to shop around next time it comes due.

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I'm in California and my $12,500 license bond is $75 per year. You may want to shop around next time it comes due.

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Mine has been for 30 years as well but now you can have that but your indemnifying the insurance companies for any claims they pay. I read the fine print. Seems Surety of the Pacific sold out and now there is a new kid on the block. Thanks for the reply and advice. Carl
 

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New Insurance Requirements

It's just the company trying to protect themselves. That way if anything happens down the road on a project, they will be protected and you will have the insurance to cover it.


AC PROFESSIONAL SERVICES
"Structuring for Success"
Office 951-392-0834
Fax 951-927-9392
 

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Just got a letter from one of my customers who is a builder:



I have everything listed here, except the excess umbrella coverage.

They are also asking for an indemnification/hold harmless agreement.

Is this an industry standard these days?
There is a difference between Umbrella and Excess. Excess Liability policies will usually just provide excess coverage over your general liability policy. An umbrella provides excess coverage over all of your policies, including general liability, employers liability and commercial auto.

Yes, indemnification agreements are pretty standard. But, the type of indemnification agreement you sign can often be negotiated. Talk to a risk manager or an attorney about that. But, if you're in CA and you're a subcontractor, stay away from Type I Indemnity agreements. You can get totally screwed on those.
 
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