Warren Buffett once said, “In the insurance business there is no statute of limitation on stupidity.” Let CVM Global make sure that your business does not fit that example. By offering professional standards of risk management, we can avoid common missteps regarding the hiring of third-party vendors. Insurance offers ways to insulate the risks subcontractors can pose to your business. Liability risk can be offset in most sectors, whether it be your pool maintenance company, a cybersecurity firm offering to protect your data, or lease software to your entity, to the subcontractors of your real estate development project.
Protect your business by requesting, at the bare minimum, the following from EVERY vendor via a Certificate of Insurance (COI).
-Limits of General Liability at $1 million per Occurrence/$2 million General Aggregate limit and $2 million Product Completed Operations limit. This is the standard for most industries. Umbrellas can also be added should your contract require more liability coverage. Request the vendor to place your entity as additional insured. If possible, you should also request a waiver of subrogation in your favor.
– If there is Professional Liability exposure, such as an Architect, GC, IT specialist, or Lawyer, require the third party to maintain Professional Liability (AKA E&O-errors and omissions) at $ 1 million per Occurrence/$1 million aggregate. While not all E&O policies will offer additional insured status, all general liability carriers should be able to issue a COI verifying your entity as additional insured. A waiver of subrogation would also be important to place in the entity’s favor, though not always required by a written contract.
-If there is a worker’s compensation exposure, always obtain policy limits and COI proof as well. Even a pool maintenance man should be able to provide proof of state exemption or proof of worker’s compensation. If not, should the pool man slip at your home and be injured, the claim falls to you as the homeowner. Similarly, if a subcontractor falls off a roof, and no proof of worker’s compensation or proof of exemption exists, their injuries can default to your business.
General liability policies stipulate, in virtually every risk type, that the insured work with fully insured, and, if applicable, licensed vendors, only. For the insured’s insurance to apply in the event of a claim, most carriers require that you have a clear statement of work designating work duties and insurance requirements between the parties that are dated and signed for enforceability. Failure to execute and enforce contract terms results in the insurance carrier having limited legal means to assist. The responsibility of obtaining proper certificates of insurance falls to the insured to request of the third-party vendor and keep them on file for a period of years, depending on the project.
When hiring subcontracted consultants, from property managers to business strategists, make sure they are managing correctly. These vendors also need to provide you with a COI. “Willfully blind”, “Negligent,” and “Failure to access a duty of care” are just a few phrases that will be bandied about by attorneys when a lawsuit occurs, and it is discovered the subcontractor COI does not exist. COIs should be obtained and verified by your entity, or those hired to act on your behalf. Without the COI, your business cannot lay off liability because the subcontractor never provided a legal way to do so.
Losses due to lack of proper insurance and licensing enforcement can extend far beyond one claim. If you do not obtain proper insurance proof, only your entity’s insurance applies. I have personally seen where this has caused a multi-generational family business to permanently shut down. The claim became more costly than their policy limit, and defense costs were exhausted, yet there were still settlements to pay out. The losses exceeded what their business could withstand. They were forced to shut their doors permanently.
A simple piece of paper can be all the difference between a successfully paid and closed claim, and a claim denied, or negatively impacted due to failure to follow general liability, professional liability, and workers compensation policy guidelines. It can result in policy cancellation and will certainly make obtaining insurance costlier and more difficult in the years ahead. Carriers do not like to see that a loss could have been prevented by following insurance procedures.
Besides damaging your bottom line and trust in your business, failure to obtain COI’s, to paraphrase Warren Buffett, is just “stupid.” Protect your business, your patients, your customers, and yourself, by implementing procedures for compliance and maintenance of third-party vendor insurance. Allow CVM Global to be a part of that process as your trusted agent.
LEGAL DISCLAIMER
The views expressed here do not constitute legal advice. The information contained herein is for general guidance of the matter only, and not for the purpose of providing legal advice. Discussion of insurance policy language is descriptive only. Every policy has a different policy language. Coverage afforded under any insurance policy issued is subject to individual policy terms and conditions. Please refer to your policy for the actual language