If you retain subconsultants, you should make sure they have insurance, ideally at the same limits of liability that you maintain. It’s a good idea to also get into the habit of requesting proof of that coverage at least once a year. Here’s why:
- If you were brought into a claim for professional negligence that is wholly or partly the fault of your sub, it would be good to know that your sub had professional liability at some point. Ideally your sub still maintains coverage, but if they let their coverage lapse you might be out of luck. (Since professional liability policies are written on a claims-made basis, almost always a policy has to be in-force when the claim is made in order to have coverage apply).
- Workers’ Comp rules require that if you have paid out fees to a sub, you need to have in your files proof that the sub was covered under a WC policy. If you don’t have such proof, the WC auditor can add the fees paid to that sub to your WC audit and charge you premium on those fees.
If I were you, I would contact each of the subs I use, and make the following request:
“Please send me a certificate of insurance for your firm, showing all lines of coverage, and including us as an additional insured on your general liability policy, your umbrella policy, and your auto liability policy. Please also waive any subrogation against us on all policies, and include this wording on the certificate of insurance you send.”
If this request is fulfilled there would be two additional benefits for you:
- Additional insured status – if you were named in a claim that was the fault of your sub, and that claim would be covered by general liability coverage, you would have the right to hand that matter to your sub and have them and their GL insurer take care of it instead of you having to use your own insurance. You would have this ability because as an additional insured, you have certain rights under your sub’s policy, and one of those rights is this kind of protection.
- Waiver of subrogation – if your sub’s insurer pays a claim on behalf of your sub, that insurer has the right to look around to see if any other firms might be partially at fault, and then to go after them for payment. If you hired a sub, you certainly don’t want its insurer making such a claim against you! If your sub agrees to waive subrogation against you before there has been a loss, it is likely that your sub’s insurer will honor this commitment and not come after you in that situation.
If I were retaining design firm subconsultants, I would want to make sure I had strong-but-simple contract and general conditions in place with them, either on a yearly basis or on a job-by-job basis. Some points that I would like to have in my general conditions would be:
- Make explicit that your sub will get paid only if and when you get paid. I know sometimes this is ‘understood’ but it may be better to have it acknowledged in writing.
- If you are operating under an owner/architect or owner/engineer agreement that has insurance requirements for you to meet, you should reference this in your architect/subconsultant or engineer/subconsultant agreement. Many times the project owner includes this kind of ‘flow-downstream” requirement, and it would be good to make sure it is clearly stated in your general conditions with your subs.
Michael J. Maloney
Maloney & Company, LLC