General Liability Exposure: Subcontractors

A leak develops in the roof above the business office and must be repaired immediately.

Typically, the general manager looks in the phone book and calls the first roofer in the book, in this case AA Roofing Repair, to fix the leak. The contractor shows up quickly, but before any repairs are made, one of his employees falls off a defective ladder and is severely injured. If this contractor doesn't carry his own workers' compensation insurance, the result may be a workers' compensation or general liability claim against your company. The best time to establish a program for hiring contractors and vendors is prior to an emergency, when there is ample time to evaluate qualifications and obtain certificates of insurance.

The exposure created by using off-premises contractors can be equally significant. Anytime contractors are hired to service, customize, change or modify vehicles or other mobile equipment, you could be held liable for claims arising out of their completed work. Many of these companies come and go (out of business) so it is important to choose contractors wisely.

Landscaping crews, window washers, plumbers, heating/AC contractors and other assorted vendors visit your dealership every day. The fact is you can be held liable for injuries to their employees or injuries to others that were caused by their employees. If the contractor is not properly insured, you could also end up paying for damage to your (or your customer's) property for which the contractor or vendor should be held accountable. Implementing appropriate procedures will help ensure the risk associated with the use of vendors and contractors will be retained by their companies, where it belongs. These guidelines can reduce the exposure created by hiring contractors and subcontractors, or inviting vendors onto your property:

• Contractors/vendors should provide certificates of insurance as evidence of the following coverages:

1. Workers' compensation
2. Commercial general liability
3. Automobile liability
4. Umbrella liability

• Certificates should be mailed directly from the insuring company or agency to you. The “rule of thumb” is that their limits should be at least as high as yours.
• Conversion vendors may need higher limits of liability because the possibility of catastrophic loss is higher; they often modify the vehicle chassis, seats, and other safety equipment.
• Review the effective and expiration dates and update the certificates as necessary.
• Have your company added as an “additional insured” on their general liability policy.
• Require the contractor/vendor to sign an “indemnification and hold harmless agreement.”
• Develop an “approved vendor list” and make sure only vendors with certificates of insurance are included on the list. Having an approved vendor list in place will provide guidance to employees under ordinary circumstances and during emergencies.
• Select a contractor based on experience and expertise, not exclusively on price.
• Request and check references of unfamiliar contractors.
• Do not lend tools or equipment to contractors; injuries caused by defective equipment may be grounds for litigation.
• Contractors should be prepared to protect their jobsite or work area from the public.