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HOW TO VERIFY YOUR SUBCONTRACTORS HAVE MET THEIR CONTRACTUAL OBLIGATIONS REGARDING INSURANCE

Brian P. McCormick

INTRODUCTION

Every time a roofing contractor engages a subcontractor to work on a project, the roofing

contractor exposes itself to legal liability for claims, damages or lawsuits that could arise out of

the subcontractor’s work. To mitigate this risk, the subcontractor will be required to provide

various types of insurance covering its operations. Working in conjunction with its insurance

advisers and legal counsel, a roofing contractor may spend a considerable amount of time

deciding on the specific types and limits of insurance coverage that should be provided by its

subcontractors and drafting subcontract language that appropriately captures and communicates

those obligations. These obviously are the roofing contactor’s required first steps in protecting

against liability arising out its subcontractors’ work, but they are not the only measures the

roofing contractor should take. The roofing contractor also must take affirmative action to ensure

its subcontractors actually have satisfied their contractual insurance obligations.

Verifying a subcontractor is in compliance with its subcontract is important for a number

of reasons. If the subcontractor fails to provide the contractually required insurance and a claim

arises out of the subcontractor’s work, the roofing contractor (or its insurance company) would

be liable for the claim. The roofing contractor could file a lawsuit against its subcontractor

alleging breach of contract of other causes of action in an attempt to recover the amounts owed

by the roofing contractor, but if the subcontractor goes out of business or has minimal assets,

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recovery may be difficult or even impossible, and the roofing contractor will be left to shoulder full

liability for the claim. In the context of workers’ compensation insurance, verifying a subcontractor

has obtained proper coverage is especially important in states requiring the roofing contactor’s

workers’ compensation insurance to cover injuries to a subcontractor’s employees if the

subcontractor does not have coverage.

THE CERTIFICATE OF INSURANCE

The first step a roofing contractor should take to verify a subcontractor has obtained the

contractually required insurance is to obtain and review the subcontractor’s current certificate of

insurance (COI) for the project. This should be done before the subcontractor commences work on

the project. As a result, the insurance section of the roofing contractor’s form subcontract

specifically should require the subcontractor to submit its COI for the project at the time the

subcontract is executed or, if the roofing contractor uses a master subcontract agreement and issues

purchase orders to a subcontractor for individual jobs, at the time the purchase order is issued and

signed by the subcontractor.

The COI indicates the types of coverage obtained by the subcontractor for the project and

the dollar limits of that coverage. The COI also contains other important information, such as the

name(s) of the insurance carrier(s) providing the coverage, the insurance policy numbers and the

name of the producer (the insurance agency or broker that actually created the COI), that can be

used by the roofing contractor to make additional inquires to verify whether the subcontractor has

provided the required insurance.

When reviewing a subcontractor’s COI, a roofing contractor should make sure the COI is

current (by making sure the date on the COI indicates it was prepared recently) and the insurance

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information is accurate, complete and satisfies all contractual requirements. Where a subcontractor

is required to name the roofing contractor and possibly others as additional insureds on any

applicable liability policies, the roofing contractor should require the subcontractor to attach to the

COI a copy of the additional insured endorsement form the subcontractor intends to use. This

requirement also should be included in the roofing contactor’s subcontract agreement with the

subcontractor. Obviously, if any questions or concerns arise in reviewing the COI or the attached

additional insured endorsement, the roofing contractor should consult its insurance advisers and/or

legal counsel.

ADDITIONAL STEPS

A COI can be obtained quickly and easily by a subcontractor, so it serves as a valuable tool

to a roofing contractor in determining whether the subcontractor has met its contractual obligations

regarding insurance. However, a COI has certain limitations that must be considered.

First, a COI is not equivalent to an insurance policy. It does not create any contractual

relationship between the insurance company providing coverage and the insured subcontractor or

any other party, including the roofing contractor. When there is a conflict between what is listed on

the COI and the actual policy of insurance, courts typically will rely on and enforce the policy

language over what appears on the COI. Second, a COI only captures the types and limits of

insurance in place at the time the COI was generated. It does not guarantee the insurance will stay

in effect for the project’s duration or that the insurance even still is in effect when the roofing

contractor reviews the COI.

Given these limitations, a roofing contactor may choose to take additional steps to verify a

subcontractor has obtained the required insurance, especially when a review of a subcontractor’s

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COI suggests further follow-up is necessary. These steps may include calling the producer of the

COI and/or the insurance company or companies listed on the COI to verify the subcontractor’s

coverage, as well as obtaining copies from the subcontractor of the actual insurance policies

covering the subcontractor’s operations and reviewing them for the appropriate coverage. The

roofing contactor’s right to make these additional inquiries may be set forth in the subcontract if

desired. As it relates to the subcontractor’s workers’ compensation insurance specifically, the

roofing contractor also may contact its state’s workers’ compensation board or department to verify

the subcontractor has the required coverage in place.

CONCLUSION

Giving appropriate consideration to the insurance that should be provided by a subcontractor

is not enough to protect a roofing contractor from legal liability for claims, damages or lawsuits that

may arise from the subcontractor’s work. The roofing contractor must review its subcontractor’s

COI and, if necessary, make additional inquiries to verify the subcontractor has provided the

contractually required insurance coverage.

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