Breach of Contract, Sometimes it’s the Little Things
Are you in compliance with the contracts you sign? There’s a good chance the answer is no.
For several years now, the insurance industry has been using Blanket Additional Insured and Waiver of Subrogation forms; most of the contracts you sign require the company that issued your contract to be added as an additional insured on your general liability, auto and umbrella policies. They also typically require Waivers of Subrogation from the insurers on the same three polices, plus your Workers’ Compensation policy. But, that’s not where the problem lies.
Many contracts require the same treatment for upstream parties. For example, if you are a general contractor, the architect/engineer must be an additional insured. If you’re a trade contractor and your contract is with a GC, the owner and architect must be an additional insured and your insurers must waive subrogation rights against them as well.
This is part one of the problem – many insurance carriers’ blanket forms only extend to the party “with whom you have agreed in a written contract or agreement” (emphasis added). The GC doesn’t usually have a contract with the architect; the trade contractor doesn’t usually have a contract with the owner, so those parties aren’t additional insureds on those policies.
Part two of the problem – many of your contracts require that your subcontractors provide the same status to the entities you are required to provide additional insured and waivers for. If your subcontractor’s insurance policy uses one of the forms with the wording mentioned above, your subcontractors are putting you in breach of contract, and you won’t know it unless there’s an occurrence related to the project that results in a lawsuit against the owner and/or architect.
Here’s the really bad news. When the owner or architect files a lawsuit alleging breach of contract, your general liability is unlikely to cover the claim. The best case scenario here is that your insurance covers the loss in the first place, leading to an escalation in your insurance costs, and you never see that lawsuit for breach of contract.
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