Author, Lauren Stumpf, Marketing & Media Communications Specialist, Rancho Mesa Insurance Services, Inc.

In a recent podcast episode, Daniel Frazee, Executive Vice President at Rancho Mesa, sat down with fellow Agency Principal Sam Clayton to explore a crucial topic in the realm of general liability insurance policies, the subcontractor warranty endorsement. This endorsement outlines essential requirements that contractors should pay close attention to when working with subcontractors.

The subcontractor warranty endorsement in a commercial general liability policy establishes the minimum conditions that the contractor must have in place with the subcontractors they hire. Sam highlights three key requirements including the necessity for a written contract with an indemnity agreement in favor of the contractor, being named as additional insured for both ongoing and completed operations through endorsement, and ensuring that subcontractors maintain insurance coverage with limits equal to or exceeding the contractor's commercial liability policy (typically $2 million in aggregate and $1 million per occurrence).

Failure to meet these requirements can have significant consequences. Different insurance carriers may react differently, but common outcomes include higher deductibles, potentially reaching $25,000, compared to the usual $2,500 or $5,000 deductible, and, in some instances, a complete denial of coverage.

Given these potential repercussions, Sam advises contractors to carefully read and understand the subcontractor warranty endorsement in their general liability policy. Additionally, they should take proactive steps to protect themselves such as legal reviews of subcontract agreements, insurance consultations with brokers to determine adequate coverage, and implementing robust documentation and monitoring systems for certificates of insurance.

The subcontractor warranty endorsement is a vital component of general liability insurance policies for contractors. Understanding its requirements and taking the necessary steps to comply with them can help contractors avoid potentially costly consequences in the event of a claim caused by one of their subcontractors. To learn more, please listen to Episode 345 below, or on your favorite listening platform.