When hiring a subcontractor, there are some inherent risks that must be carefully considered. Understanding the importance of risk transfer, as well as the insurance language used, is key. This knowledge can help mitigate the presented risks and prevent possible losses. Keep reading to gain a deeper understanding of risk management and to learn how insurance coverage and contracts can offer much-needed protection when working with a third party.
The Goal of Risk Management
The transfer of risk involves shifting the contractual responsibility to the party best equipped to manage the risk presented. In addition to managing risk, this party is tasked with controlling potential losses. In this scenario, one party assumes the liabilities of another and provides businesses more control of the exposures they are willing to undertake.
Subcontractor risks are ever-present within the telecommunications industry, but can be transferred using one of these two methods:
At Telcom Insurance Group, contracts are not a requirement for insurability. There is, however, a heightened degree of importance to using a contract in conjunction with insurance coverage – especially when working with a third party. This comprehensive approach ensures that all areas of risk are covered in the event of a loss.
Understanding Contract and Insurance Terminology
Once a project is underway, third parties – such as subcontractors – may damage property, cause injuries, or fail to properly perform the task at hand. Including certain terminology in a contract or meeting certain insurance requirements can help reduce your exposure to loss regardless of the project’s size or scope.
Breaking Down Elements of a Contract
- Terms and Conditions of Work: These clearly define the work responsibilities of both parties and prevent disagreements. Includes specific details, such as the type of work, notice requirements, completion timeline, payment terms, and amount.
- Insurance: This section determines who is responsible for insurance and coverage limitations. For instance, the contractor’s insurance limits should replicate the telecom company’s insurance limits. This section should also address Workers’ Compensation insurance coverage and any additional policies.
- Safety: This section places responsibility for employee safety on the subcontractor, requiring them to comply with local and federal safety and labor regulations.
- Indemnity: This requires the third party to pay for the liability, defense, expenses, claims, and suits due to the third party’s (or its employees’) negligence or violations.
- Waiver of Subrogation: This prevents an insurer from recouping its payment on a claim from the at-fault party.
Insurance Protection and Provisions
- Insurance provision: Requires the third party to purchase insurance covering itself and the primary party (the client) through “additional insured” coverage
- “Arising out” additional insured endorsement: Covers the additional insured, in this case the primary party, for its own liability (as long as it’s related to the subcontractor’s work)
- “Cause, in whole or in part, by” additional insured endorsement: Covers the additional insured, in this case the primary party, for its partial negligence (if the subcontractor is at least partially at fault)
- Commercial general liability: Provides coverage to a business for bodily injury, personal injury, and property damage caused by the business’s operations or while on the business’s premises
- Workers’ Compensation: Provides cash benefits and/or medical care for workers who are injured or become ill as a direct result of their employment
Protecting Your Business Through Subcontractor Insurance Coverage
When utilized in tandem, contracts and insurance can provide comprehensive protection in the event of a loss. The first line of defense is requiring (within the contract) that proper coverage is in place. The second line of defense, should certain areas of the contract fail, rests in the insurance of the contractor. A certificate of insurance details the carrier and coverage limits that the contractor has.
A certificate of insurance specifically defines the current insurance coverage of the subcontractor, including commercial general liability limits, Workers’ Compensation coverage, and umbrella liability limits. If no COI is presented, your business could be faced with an underinsured or uninsured subcontractor. Employment of an underinsured or uninsured subcontractor poses a significant risk to both your business and Telcom Insurance Group if a worst-case scenario should occur. Proper coverage can make all the difference if “what-if?” becomes “what now?”
Help Mitigate Subcontractor Risk with the Help of Telcom Insurance Group
Employing a subcontractor is often necessary when a company is faced with time constraints, labor shortages, and/or specialized projects. Despite the benefits that a subcontractor offers, hiring one comes with an element of risk to your overall business. Putting the proper protections in place, whether in the form of a contract, insurance coverage requirements, or both, can help to mitigate any potential risk and manage loss prevention.
At Telcom Insurance Group, we strive to help you manage the risks associated with subcontractor exposure. Our commitment to clients allows you to focus on the rewards within the telecommunications industry – without the worry! Contact us today for more information on the peace of mind and confidence we provide, and how we can help manage the risks associated with hiring subcontractors. To get in touch, email TIG@telcominsgrp.com.