With increasing frequency in the construction defect cases we defend, we are seeing commercial general liability insurance policies with “subcontractor warranty” endorsements. Also known as contractor or subcontractor special conditions, these endorsements could have severe and negative consequences for builders that do not comply with their requirements. In researching for this article, I reviewed six different endorsements used by six different carriers, all of which contained some or all of the following requirements:
- The builder must have signed subcontract agreements with its subcontractors that require subcontractors to hold harmless, i.e., defend and indemnify, the builder for “bodily injury” or “property damage” claims caused by their negligence.
- The subcontractors must maintain their own insurance with limits equal to or greater than the limits in the builder’s own policy, with limits of at least $1 million per occurrence.
- The subcontractors’ insurance must not exclude the work being performed for the builder, e.g., the excavator’s policy cannot exclude earth movement claims, the subcontractor’s policy cannot exclude residential construction.
- The subcontractors must maintain their own workers’ compensation and/or employer’s liability insurance.
- The subcontractors must provide the builder with an endorsement or a certificate of insurance indicating that the builder has been added to the subcontractors’ insurance as an additional insured.
- The subcontractors must provide the builder with an endorsement or a certificate of insurance indicating that their insurance carriers have agreed to provide waivers of subrogation in favor of the builder.