Subcontractors routinely work without contracts in the alarm industry. Whether installing burglar, fire or other electric protective devices, subcontractors are often happy to get work and give little thought to anything other than getting paid when they are done with the job. Recently a subcontractor called me because he had been asked by the General Contractor (in this case another Installing Alarm Company who had the contract with the subscriber) to obtain a certificate of insurance naming the General Contractor as additional insured. Not an unusual request. However, the subcontractor’s insurance company refused to issue the certificate unless the subcontractor could produce a contract with the General Contractor in which the General Contractor agreed to hold the subcontractor harmless.Under these circumstances it would be highly unlikely that a General Contractor would agree to indemnify and hold the subcontractor harmless. In fact, since the subcontractor was the one actually doing the work it is more likely that the subcontractor should be required to indemnify the General Contractor. Putting aside the question of who should indemnify whom, perhaps a more important question for the subcontractor, and its insurance carrier if it has one, is what liability and exposure does the subcontractor face? Typically the subcontractor does not have a contract with the subscriber directly. The subcontractor relies on the contract between the General Contractor and the subscriber.

 

So, lets skip to what happens after the job is completed, everyone’s paid, and the subscriber suffers a loss. Lets use a burglary loss just to keep it simple, as opposed to a multi building fire that destroys life and property. In our hypothetical lets also assume that experts can establish that several protective devices where improperly wired into the panel and were undetected until after the burglary, and that it was through the unprotected areas that the burglars gained access and committed their deeds. The subscriber’s lawyers do their homework and find out the name of the subcontractor. A lawsuit names the General Contractor and the subcontractor. The General Contractor relies on several defenses. First it claims that it has no liability because it was the subcontractor who actually did the installation and was negligent. Secondly the General Contractor produces its contract with the subscriber which contains an exculpatory clause and limitation of liability provision. The General Contractor is off the hook. Now the subcontractor. Unfortunately he can not claim someone else did the work. He also can not produce any contract with any protective provisions; or can he? The only contract that the subcontractor can look to is the one between the General Contractor and the subscriber. Either it provides some protection or it doesn’t. A properly drafted alarm contract (see contains a provision that provides that the Alarm Company has the right to subcontract services required under the contract, and that the protective provisions of the contract extend to protect the subcontractors. If that provision is in the General Contractor’s contract then the subcontractor will escape liability. Without the contractual protection to rely on the subcontractor will most certainly face a trial, the cost of which will likely put him out of business, not to mention the impact of a sizable award against him.

 A subcontractor should be certain that the General Contractor’s agreement with the subscriber contain language protecting the subcontractor. There should always be a written contract between the General Contractor and subcontractor, but it is unlikely that the General will indemnify the sub. A subcontractor should also take the precaution of having errors and omissions insurance with a reputable company, and the subcontractor needs to know the requirements of the insurance policy to trigger coverage. If a contract is a requirement for coverage than the subcontractor needs to be sure to satisfy the carrier’s underwriters in that regard by finding out if the contract between the General Contractor and subscriber will satisfy the coverage requirements. Otherwise a sub may need to get the subscriber to sign a contract, something that the General Contractor ( and subscriber) is likely to object to.

 

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Comments on ARE SUBCONTRACTORS PROTECTED FROM LIABILITY?

 

Ken,

Insurance carriers need to know what to look for. It seems like they didn't know what to look for. Did they request a copy of the contract signed by the end-user for the services the subcontractor was providing, even if it wasn't the subs contract? The majority of the time the subcontractor doesn't get the opportunity to sign a contract with the end- user. The requests that I see usually are coming from the GC's contract and it requires any and all subcontractors (and their subcontractors) to provide additional insured (or primary additional insured including waiver of subrogation) and indemnification. This is definitely a topic to expand on and I am curious to read the input that you receive from the dealers. Everyday the dealers are presented with signing someone else's contract and providing additional insured and/or indemnity. The contracts are with builders, developers, property managers, etc. This is a great topic and I look forward to hearing more!

Thanks!

Alice Cornett Giacalone

Senior Vice President

Berrian Insurance Group

(v) 800-917-2542

 

Ken,

You are correct here. You may also want to point out that should the IRS question the status of a “contractor” they may also look at the absence of an agreement as evidence that the contractor was actually an employee, thereby exposing the alarm company to payroll taxes. The presence of an agreement does not prove that the contractor is not an employee, but its absence could be a huge problem.

Mitch Reitman

S.I.C. Consulting, Inc.

307 West Seventh Street

17th Floor, Suite 1700

Fort Worth, TX 76102

817-698-9999

 

If this kind of job was preformed they both should be can not if think of installing a system and not doing a complete check of all devices. We test every zone and then have the central station send us a report to put in file to show the test was received.

DK