“They don’t need [to show] it for every job,” Simmonds says. “But every year, after renewal, you should be getting a new certificate.”
It’s also imperative that “hold harmless” and indemnification clauses are included in your contract with the sub. The “hold harmless” clause states that the general contractor will not be held liable for the negligence of the trade contractor. The indemnification clause states that the trade will be financially responsible for any loss that occurs due to his own negligence.
“If the trade does a poor electrical job and burns down the house, the homeowner will sue both the general and the trade,” Simmonds says. “‘Hold harmless’ says the trade won’t sue the general; indemnification says the trade will step up and take financial responsibility with the homeowner.” However, some states have laws that prevent or restrict indemnification, so Simmonds advises enlisting the aid of an attorney to draw up the contract language.
In addition to taking these steps, remodelers should also request that trades name them an “additional insured” on their insurance policy. “This allows the general contractor to deal directly with the trade’s insurance company,” instead of merely holding the trade contractor financially accountable, Simmonds says.
Your own work. As previously mentioned, general liability policies do not cover the actual work being performed by a contractor. This includes work that is damaged by vandalism, natural disaster, or other unforeseen incidents.
Brian Downs, of Downs & Associates, in Herndon, Va., recalls one such case in which a new kerosene heater that a contractor had placed in a recently drywalled room started a fire in the middle of the night. “The insurance company said there was no negligence since he followed standard practice and the heater was brand new,” Downs says. “The contractor ended up having to pay out of pocket to repair the damage.”
A “builder’s risk” policy will insure a contractor against the loss of his own work. An installation floater, a type of inland marine insurance, can also be purchased to insure tools and other materials while they’re on the jobsite. Other less notable exclusions include coverage restrictions for asbestos, urea formaldehyde, computer records and other “intangible data,” and employment practices.
HOW MUCH IS ENOUGH? Finding the right level of general liability insurance for your company can be tricky.
“No one can tell you how much to buy unless you can tell them how much you’re going to get sued for,” Simmonds says. There are two types of limits to keep in mind when purchasing insurance: the per occurrence limit (the maximum a carrier will pay per claim filed) and the aggregate limit (the total they’ll pay during the policy period).
Simmonds recommends obtaining a policy with at least a $1 million per occurrence limit. It is common to have an aggregate limit that is twice the per occurrence limit, though three times is better, Simmonds adds.