Q&A: Insurance and Indemnity Language

If a lessee or contractor is a large one, do I still need to insist on the insurance requirements?

Yes, you would have no way of verifying that their assets were available for losses that might occur, whereas you could be confident in an insurance carrier with a quality Best's rating. (A Best's rating gives us a “picture in time” of the financial strength of the insurance company.)

Is it all right if the contractor alters the indemnification language?

No, the indemnification language has been carefully worded to afford us as much protection as legally possible. Altering the language would weaken our position.

If the contractor's insurance does not meet the criteria in the insurance requirements in our specifications, should we alter the requirements to fit the contractor’s insurance?

No, the insurance requirements language has been carefully worded to afford us as much protection as legally possible. Altering the language would weaken our position. The contractor should have the proper coverage needed by them in order to protect their business.

Can lower limits be permitted when we are dealing with small contractors or artisans, and we are only using them for small jobs?

No, if you think about it, these are the very people you want the limits from, as you can be relatively sure that they do not have the assets to indemnify us in case of a serious, underinsured loss. Risk managers can tell stories about entities who allow underinsurance because a job being done was small, only to suffer large uninsured losses that the entity had to absorb. (Small jobs can cause big fires!) Risk management is an art not a science, so ultimately, we can do what we deem correct; however, any loss we or our insurance companies suffer should be anticipated if it is to be managed.

The contractor’s agent says that we cannot get the endorsements as required by the insurance requirements in our specifications; what can we do?

In many instances, if not all, the agent or broker has not even approached the insurance company with your request—they are merely trying to discourage you from asking so that they will not have to bother. If this happens, please call the Risk Manager and she can check with the District’s insurance broker for confirmation of the unavailability of endorsements from the contractor's insurance company.

Does a contractor need professional liability insurance?

Only if the contractor is expected under their contract with us to provide us with "professional services." The simplest way to decide is to determine whether the nature of the services provided entail brain work or physical work. If it is only physical work, then a general liability policy and/or automobile liability policy will cover our exposures to loss. However, if the work or a portion of the work is expected to involve primarily thinking, professional liability insurance is required.

Does a contractor need proof of automobile liability insurance when they are hired to work on the premises?

Yes, for the very simple reason that the contractor has to use some means of transportation to reach our premises, and to transport tools, supplies, and materials. If the contractor is determined to be engaged in business on our behalf when they are involved in an automobile accident, then we could be held liable as the respondent superior. In that case, the contractor’s automobile insurance would respond if we had been properly named as an additional insured.

Should we ask to be named as an additional insured on the contractor’s professional liability policy?

No, the contractor’s professional liability insurer would not do so, nor would any professional liability carrier. The reason is that the insurer would not want to pick up our professional liability hazards, which it could do if we were an additional insured. Professional liability policies are written to cover individuals who are individually underwritten based on their professional history. The insurer is not able to do this careful underwriting on our professionals, and therefore will not add us.

What can be done if we don’t have the certificate of insurance when it is time to start the work?

There are no good choices when this situation occurs. (This is why the insurance specifications should be given to the contractor early on in the process.) Either we must delay the work while we wait for the proof (which can upset our fellow staff members), or we must, in effect, "self insure" the contractor until the certificate is received and accepted, and hope that the contractor’s insurance will meet our specifications.

Why do we need an indemnity clause when we are added as an additional insured on the liability policy?

Always remember that insurance is only one way that the contractor can protect us, and if you have an indemnity provision in our contract with the contractor, that contractor is obligated to indemnify us whether their insurance covers the loss or not. This puts the onus on the contractor rather than us to make certain that their coverage is sufficient and current.