Three Reasons to Read Subcontractor Warranty Endorsements

Author, Sam Clayton, Vice President, Construction Group, Rancho Mesa Insurance Services, Inc.

 Man reading a contract with pen in hand.

Contractors General Liability Policies provide coverage for bodily injury and property damage for which the named insured is legally liable. This legal liability can result from the company’s direct operations or from other subcontractors hired by the named insured.

Many general liability carriers will include some form of subcontractor warranty endorsement which establishes minimum requirements for subcontractors relative to insurance and other risk management benchmarks. At a minimum, these forms require written indemnification in favor of the named insured, certificates of insurance with additional insured wording, and specific insurance limits required by subcontractors.

These endorsements can vary widely from carrier to carrier; so, contractors may be faced with serious consequences in the event that requirements are not met. Below are three types of penalties policyholders may encounter:

  1. Coverage is DENIED relative to any loss resulting from the work of the subcontractors.
  2. Coverage is not altered, but a higher deductible or retained limit applies to any loss resulting from the work of the subcontractor. For example, should you fail to comply with the warranty, the deductible on the policy is amended from $5K to $25K.
  3. Coverage is not altered, but failure to comply will result in an additional premium charged at the final audit.

It is critical to have a strong contractual written transfer program in place with proper certificates of insurance from your subcontractors, regardless of the contract amount. Lean on your broker to interpret these endorsements and help negotiate the most favorable terms as you head into your renewal. Understanding these nuances can be the difference between a covered loss and an unexpected large capital expense.

For more information about subcontractor warranty endorsements, contact Rancho Mesa Insurance Services, Inc. at (619) 937-0164.