As Business Owners, we all hire contractors to build, repair or do general maintenance. Have you ever thought about what would happen if there were damages caused as a result of their activities? Imagine you own a building and operate your business in it. Say you rent some areas of the building that you do not occupy. You hire a contractor to work on the building and during the repairs, the contractor starts a fire.
As a result, you could have the following claims:
Tenants are injured while escaping from the fire, the building has damages, your business is shut down or relocated which leaves you with loss of income and/or added expenses. Your tenants also have to do business elsewhere, which also leaves them with loss of revenue. The contents of your building are damaged and the building next to yours, has also suffered damaged.
If the contractor that you hired is adequately insured the insurance company would likely respond to all of these claims. If this contractor does not carry insurance and has no other resources, you will be held responsible for all of the losses. If you carry adequate insurance, your insurer should pay your losses. However, you may still have to pay for part of the amount. You will still be responsible for your deductibles and there is the risk of your renewal premium increasing due to the claim. If you did not buy adequate insurance, you would have to cover the uninsured losses from your own pocket and you could also suffer poor PR with your clients, i.e.: customer is injured, that can also add to your losses. All of this is irrespective of whether or not you are the negligent party. The above scenario could put you into bankruptcy.
What can you do?
- Only hire contractors or subcontractors who are insured.
- Request Certificates of Insurance to confirm insurance coverage and limit.
- Implement a system to track and verify these certificates.
- Set minimum standards for coverage and limits carried by the certificate providers.
Ensuring that you have appropriate processes in place to obtain and verify insurance certificates, is your best defense. It is a simple solution to what could be a significant problem.