New York Contractors: Your General Liability Policy May Not Protect You If You Fail to Follow Its Subcontractor Requirements.
If you are a New York construction contractor, you probably purchased general liability insurance believing that it would protect your business if something went wrong on a jobsite. You pay your premiums, provide certificates of insurance when requested, and assume that your insurance company will be there if a lawsuit or serious accident occurs.
But there is something many contractors overlook that could put their entire business at risk: the subcontractor warranty endorsement contained in their general liability policy.
Some New York contractors have policies containing what insurance professionals refer to as a Hard Hammer Subcontractor Warranty.
This is not just another piece of insurance paperwork. It can be one of the most important provisions in your entire general liability policy.
If you fail to comply with its requirements, you could discover that the insurance coverage you thought you had may not be available when you need it most.
Let’s take a closer look at how these warranties work and why every New York contractor needs to understand them.
1. What Is a Hard Hammer Subcontractor Warranty?
A Hard Hammer Subcontractor Warranty is an endorsement attached to a general liability policy that establishes specific requirements a contractor must follow when hiring and using subcontractors.
The insurance company is essentially saying:
“We are agreeing to insure your construction business, but you must follow certain rules when hiring subcontractors and transferring risk.”
These requirements are generally designed to make sure that subcontractors carry appropriate insurance and that the general contractor is properly protected from liability arising out of subcontracted work.
Depending on the actual endorsement, requirements may include:
- Obtaining certificates of insurance from every subcontractor before work begins.
- Maintaining copies of subcontractors’ insurance policies or other required documentation.
- Requiring subcontractors to carry specified general liability limits.
- Obtaining additional insured endorsements naming your business as an additional insured.
- Obtaining written contracts containing specific insurance and indemnification provisions.
- Making sure subcontractors maintain workers’ compensation insurance when legally required.
- Maintaining records demonstrating compliance with the warranty requirements.
The important thing to understand is that the exact requirements are determined by the wording of your particular endorsement.
One insurance company’s requirements may differ substantially from another’s.
Never assume that obtaining a certificate of insurance alone satisfies your subcontractor warranty.
2. Why Is It Called a Hard Hammer?
The term Hard Hammer is used in the insurance industry to describe particularly strict subcontractor warranty requirements.
Unlike a more flexible arrangement, a hard hammer provision can impose serious consequences when a contractor fails to follow the required procedures.
For example, imagine you are a New York general contractor hired to renovate a commercial building.
You hire a framing subcontractor, a plumbing contractor, an electrician and a drywall company.
You obtain certificates of insurance from some of these subcontractors, but you fail to obtain the required additional insured endorsements. Perhaps one subcontractor starts working before you collect the required documentation.
Everything appears to be going smoothly until an employee of one of those subcontractors suffers a serious injury.
A lawsuit follows, naming your company, the property owner and other parties.
You immediately notify your general liability insurance carrier and expect it to defend you.
But then the insurance company examines your policy and discovers that you did not comply with the subcontractor warranty.
Suddenly, you have a potentially serious insurance problem.
Depending on the endorsement’s language, the nature of the violation and applicable law, the carrier may assert that coverage is unavailable, restricted or otherwise affected.
You could find yourself paying substantial legal expenses and potentially facing a significant uninsured liability.
That is a risk no contractor should take lightly.
3. A Certificate of Insurance Does Not Necessarily Protect You
This is one of the biggest misconceptions in the construction industry.
Many contractors believe that obtaining a certificate of insurance from a subcontractor means they have satisfied their insurance obligations.
That is not necessarily true.
A certificate of insurance is primarily evidence of insurance at a particular point in time. It does not amend the policy, create additional insured coverage or guarantee that the subcontractor’s policy provides the protection you need.
For example, your subcontractor might provide a certificate showing $1 million in general liability coverage.
However, your insurance company’s warranty might require:
- A specific additional insured endorsement.
- Coverage for both ongoing and completed operations.
- Specific liability limits.
- A written contract executed before work begins.
- Verification that the subcontractor’s policy does not contain certain exclusions.
If the required endorsements or documentation are missing, you may not have satisfied your policy’s requirements.
The difference between having a certificate and having the actual required insurance protection can be enormous.
4. What Happens If a Subcontractor Does Not Have Insurance?
Here is another situation that deserves attention.
Suppose you hire a small subcontractor who gives you a very attractive price for a particular job.
The subcontractor tells you that he does not carry general liability insurance but promises that he will take responsibility for anything that happens.
You decide to hire him anyway.
Unfortunately, if your general liability policy contains a hard hammer subcontractor warranty requiring every subcontractor to maintain specified insurance, you may have violated the warranty.
Now imagine that someone gets injured while that subcontractor is working on your project.
Your general liability carrier may take the position that you failed to comply with the policy’s requirements.
The consequences could be devastating.
The contractor who saved a few dollars by hiring an uninsured subcontractor could end up facing a lawsuit without the insurance protection he expected.
Saving money on subcontractor costs is never worth jeopardizing your general liability coverage.
5. What About 1099 Workers?
This is another area where contractors need to be especially careful.
Many construction businesses use independent contractors, temporary workers and individuals paid on a 1099 basis.
Some contractors assume that because these individuals are not traditional employees, they do not fall under the subcontractor requirements.
That assumption can be dangerous.
An insurance company may consider a 1099 worker a subcontractor for purposes of the warranty, depending on the policy language and the actual working relationship.
If that individual does not carry the required insurance, the contractor could have a compliance problem.
Before allowing a 1099 worker or independent contractor onto a jobsite, review your policy and determine exactly what documentation and insurance protection are required.
Do not wait until an accident occurs to find out.
6. What Should New York Contractors Do to Protect Themselves?
If you are a general contractor, construction manager or subcontractor operating in New York, there are several steps you should take.
First: Read your general liability policy.
Do not simply look at the declarations page to see your limits and premium. Review the endorsements attached to your policy.
Pay particular attention to any subcontractor warranty, subcontractor exclusion or other endorsement dealing with subcontracted work.
Second: Understand the requirements before hiring subcontractors.
Make sure you know what insurance limits, endorsements, contracts and documentation your carrier requires.
Third: Collect the necessary documentation before work begins.
Do not allow subcontractors to start working while you are still waiting for insurance documents.
Fourth: Verify the actual coverage.
Certificates are not always sufficient. Obtain and review the endorsements and other documentation required by your policy.
Fifth: Maintain organized records.
Keep certificates, endorsements, written contracts and other required documentation readily available.
Sixth: Have your insurance broker review your policy.
An experienced construction insurance broker should be able to identify potentially problematic endorsements and explain what your company must do to remain compliant.
7. The Bottom Line: Your General Liability Policy Is Only as Good as Your Understanding of It
New York construction is already a difficult business.
Contractors face significant exposure from construction accidents, New York Labor Law claims, employee injuries, property damage and lawsuits involving owners, general contractors and subcontractors.
Your general liability insurance is supposed to help protect your business from these risks.
But purchasing a policy does not mean you can ignore the conditions, exclusions and endorsements attached to it.
A Hard Hammer Subcontractor Warranty deserves particular attention because failure to follow its requirements can have serious coverage consequences.
Do not assume that your insurance company will overlook a missing certificate, an improperly insured subcontractor or a missing additional insured endorsement after a serious accident.
The time to understand your insurance requirements is before a claim happens, not after you receive a lawsuit.
One overlooked endorsement could become one of the most expensive mistakes your construction business ever makes.
About BGES Group
BGES Group is an independent, boutique insurance brokerage specializing in insurance solutions for New York construction contractors and business owners throughout New York, New Jersey and Connecticut.
We understand the unique insurance challenges facing the construction industry, including general liability, subcontractor requirements, workers’ compensation, umbrella and excess liability, commercial auto, disability insurance and other essential business coverages.
At BGES Group, we believe in doing business the old-fashioned way, with modern technology and personal attention.
We are not an internet insurance factory. We believe in knowing our clients, answering the phone, understanding their businesses and being available when they need us.
Our philosophy is simple:
- Personal service and one-on-one attention.
- Phone calls answered promptly.
- Certificates of insurance handled quickly.
- Competitive insurance markets and practical solutions.
- Experienced guidance when insurance problems arise.
- Helping contractors obtain coverage when other brokers cannot.
We have been helping businesses navigate the insurance industry since 2002, bringing more than 45 years of insurance experience to the table.
At BGES Group, you are not just another policy number. You are a client, and we treat you that way.
Contact BGES Group
Gary Wallach
BGES Group
Phone: 914-806-5853
Email: bgesgroup@gmail.com
Website: www.bgesgroup.com
If you are a New York contractor and have questions about your general liability policy, subcontractor warranties or whether your current insurance program adequately protects your business, give us a call.
Let’s make sure you understand what you are buying before you need to use it.