General Contractors working on high-end homes often have a job owner who has the money to do things exactly as they want, often providing a large percentage of the GC’s work for that year or in general. In turn, these jobs are goldmines for the GC’s Sub Contractors as well. So when things go bad, both the GC and Sub are united in the desire to get things back in order as quickly and as painlessly for the homeowner as possible.
Examples of a loss might be:
In summary, prepare for post loss on a pre loss basis. Have your contractual position established and engage the system prior to any potential problems down the road. Remember, this is what risk management is all about. By taking care of these issues up front, you manage the risk of damaging good business relationships, and leave pocket books undamaged after a loss.
- A Sub installs a product and the product fails causing damage to the project.
- The GC or Sub fail to properly secure the doors of a project in winter, the doors open and the project freezes top to bottom.
In each example, we have a damaged project and contractors that are concerned with maintaining the goodwill of the owner. Here is where the contractors do the right thing to maintain the relationship with the owner, but typically do not understand ramifications to their pocketbook and to the working relationship between GC and Sub down the line.
Often the GC will rush in immediately to fix whatever went wrong and call on the services of the subs on the job. Rather than negotiating for the work to be done, the subs follow the GC into battle as a way to preserve business relations and they assume they will be paid for their work. In these scenarios the GC will remedy the problem out of pocket and try to avoid asking the homeowner to file a property damage claim under the owner’s homeowner’s insurance policy. This is where things go wrong.
Ideally, the owner should file a claim with their homeowner’s insurer if there is property damage to a home, which takes care of them on a first-party basis. The carrier will do what it can to make its client whole and do so under the terms of the homeowner’s policy, which are typically the most generous of insurance policies. While the homeowner may be annoyed that a claim must be filed on their insurance policy, this is the path that will provide the most generous and gracious benefits to the owner. The homeowner’s carrier will coordinate the rebuilding in a business like manner, and the contractors doing the repair work will be assured of getting paid for their efforts.
Once the owner is made whole (home rebuilt, living expenses, etc.) the homeowner’s insurance carrier will then look for the responsible party and try to get its money back from them. The carrier is now filling the shoes of the homeowner as they are now the one with the loss. This process is called subrogation. The homeowner’s insurance carrier will send a letter to all parties involved intoning that they along with other parties may be held responsible for the loss. At this point, each contractor submits this letter to their agent and general liability carrier. The carriers for each contractor must now defend their respective clients. The carriers of the homeowner, the GC and all subs will work together to determine who pays what. Meanwhile, as this is being sorted out, all parties involved have returned to normalcy.
The contractor may be unhappy that their carrier paid an amount on a loss that they feel they are not responsible for, but this is a deal considering the alternative. The alternative is that the GC rushes in, subs in tow, and returns everything to pre-loss conditions. Then, once the owner is happy or at least calm, the GC looks to be made whole by somebody, as do the subs. This is where the blame game begins with no legal guidelines.
Typically, the GC will inform its general liability carrier that the loss occurred and the Subs will do the same. At this point several insurance carriers will be on notice that their client was involved in a loss. Some may investigate while other carriers may sit and wait for a legal demand. While all parties may be prepared to do battle, someone has to throw the first punch. This is not going to happen with all the carriers in a defensive position.
To start, the GC made the homeowner whole, so no one is legally pursuing the GC and therefore no one is trying to hold the GC legally liable. Under this set up, the GC’s insurance carrier will stand idle until a demand is made by a 3rd party (a demand from the GC for its own work does not qualify). With no demand being made by a 3rd party, the GC’s insurance carrier will not enjoin the battle and will not go looking for responsible parties.
Similarly, no one is legally pursuing the subs either. The GC and sub may furiously lament to their insurance agents, but their insurance carriers will not get in the game until someone formally initiates a legal demand to be made whole.
At this point, you have several insurance carriers on alert that a claim may be coming in, and a GC and several subs out of pocket for money spent on remedying a problem. The GC and subs will eventually be forced to eat the loss, or the GC will have to take legal action without the help of its insurance carrier. The GC is upset with the subs, especially the one the GC feels is responsible; the GC and the Subs are upset with the insurance carriers and everyone is mad at their agent.
As a GC or a Sub, you can avoid this misery if you implement one or more of the following strategies:
- If you are a GC, purchase a Builders Risk Blanket policy that covers all jobs and all Subs. Many GC’s kid themselves that they put this responsibility on the Owner. At the end of the day the owner will look to the GC to make the situation right. The GC will act, or risk losing the owner’s goodwill, business and referrals in the future. The smart GC will take control and purchase the Builders Risk policy in their name and name all the Subs as Additional Insureds.
- If no Builders Risk is present, then the GC must be direct with the Owner and instruct them to look for relief through the Owners HO3 policy. This may initially sour the relationship, but in the long run the owner is whole and the process initiates in a proper way. All carriers are triggered properly and life goes on. The carriers are left to pick up the pieces.
- The Owner, GC, and Subs should use proper Risk Transfer Contracts to spell out who is responsible for what after a loss. This will make the job of the carriers much easier when determining who pays for what.
- The GC should inform the homeowner prior to any project to check with their insurance carrier to make sure they are willing to keep the insurance in place during the project. Do not wait until a problem arises to inform them.
- Subs should know who they are working with in terms of the GC, including their business practices of the GC. Remember the adage, you are known by the company you keep.
In summary, prepare for post loss on a pre loss basis. Have your contractual position established and engage the system prior to any potential problems down the road. Remember, this is what risk management is all about. By taking care of these issues up front, you manage the risk of damaging good business relationships, and leave pocket books undamaged after a loss.
- A Sub installs a product and the product fails causing damage to the project.
- The GC or Sub fail to properly secure the doors of a project in winter, the doors open and the project freezes top to bottom.
In each example, we have a damaged project and contractors that are concerned with maintaining the goodwill of the owner. Here is where the contractors do the right thing to maintain the relationship with the owner, but typically do not understand ramifications to their pocketbook and to the working relationship between GC and Sub down the line.
Often the GC will rush in immediately to fix whatever went wrong and call on the services of the subs on the job. Rather than negotiating for the work to be done, the subs follow the GC into battle as a way to preserve business relations and they assume they will be paid for their work. In these scenarios the GC will remedy the problem out of pocket and try to avoid asking the homeowner to file a property damage claim under the owner’s homeowner’s insurance policy. This is where things go wrong.
Ideally, the owner should file a claim with their homeowner’s insurer if there is property damage to a home, which takes care of them on a first-party basis. The carrier will do what it can to make its client whole and do so under the terms of the homeowner’s policy, which are typically the most generous of insurance policies. While the homeowner may be annoyed that a claim must be filed on their insurance policy, this is the path that will provide the most generous and gracious benefits to the owner. The homeowner’s carrier will coordinate the rebuilding in a business like manner, and the contractors doing the repair work will be assured of getting paid for their efforts.
Once the owner is made whole (home rebuilt, living expenses, etc.) the homeowner’s insurance carrier will then look for the responsible party and try to get its money back from them. The carrier is now filling the shoes of the homeowner as they are now the one with the loss. This process is called subrogation. The homeowner’s insurance carrier will send a letter to all parties involved intoning that they along with other parties may be held responsible for the loss. At this point, each contractor submits this letter to their agent and general liability carrier. The carriers for each contractor must now defend their respective clients. The carriers of the homeowner, the GC and all subs will work together to determine who pays what. Meanwhile, as this is being sorted out, all parties involved have returned to normalcy.
The contractor may be unhappy that their carrier paid an amount on a loss that they feel they are not responsible for, but this is a deal considering the alternative. The alternative is that the GC rushes in, subs in tow, and returns everything to pre-loss conditions. Then, once the owner is happy or at least calm, the GC looks to be made whole by somebody, as do the subs. This is where the blame game begins with no legal guidelines.
Typically, the GC will inform its general liability carrier that the loss occurred and the Subs will do the same. At this point several insurance carriers will be on notice that their client was involved in a loss. Some may investigate while other carriers may sit and wait for a legal demand. While all parties may be prepared to do battle, someone has to throw the first punch. This is not going to happen with all the carriers in a defensive position.
To start, the GC made the homeowner whole, so no one is legally pursuing the GC and therefore no one is trying to hold the GC legally liable. Under this set up, the GC’s insurance carrier will stand idle until a demand is made by a 3rd party (a demand from the GC for its own work does not qualify). With no demand being made by a 3rd party, the GC’s insurance carrier will not enjoin the battle and will not go looking for responsible parties.
Similarly, no one is legally pursuing the subs either. The GC and sub may furiously lament to their insurance agents, but their insurance carriers will not get in the game until someone formally initiates a legal demand to be made whole.
At this point, you have several insurance carriers on alert that a claim may be coming in, and a GC and several subs out of pocket for money spent on remedying a problem. The GC and subs will eventually be forced to eat the loss, or the GC will have to take legal action without the help of its insurance carrier. The GC is upset with the subs, especially the one the GC feels is responsible; the GC and the Subs are upset with the insurance carriers and everyone is mad at their agent.
As a GC or a Sub, you can avoid this misery if you implement one or more of the following strategies:
- If you are a GC, purchase a Builders Risk Blanket policy that covers all jobs and all Subs. Many GC’s kid themselves that they put this responsibility on the Owner. At the end of the day the owner will look to the GC to make the situation right. The GC will act, or risk losing the owner’s goodwill, business and referrals in the future. The smart GC will take control and purchase the Builders Risk policy in their name and name all the Subs as Additional Insureds.
- If no Builders Risk is present, then the GC must be direct with the Owner and instruct them to look for relief through the Owners HO3 policy. This may initially sour the relationship, but in the long run the owner is whole and the process initiates in a proper way. All carriers are triggered properly and life goes on. The carriers are left to pick up the pieces.
- The Owner, GC, and Subs should use proper Risk Transfer Contracts to spell out who is responsible for what after a loss. This will make the job of the carriers much easier when determining who pays for what.
- The GC should inform the homeowner prior to any project to check with their insurance carrier to make sure they are willing to keep the insurance in place during the project. Do not wait until a problem arises to inform them.
- Subs should know who they are working with in terms of the GC, including their business practices of the GC. Remember the adage, you are known by the company you keep.
In summary, prepare for post loss on a pre loss basis. Have your contractual position established and engage the system prior to any potential problems down the road. Remember, this is what risk management is all about. By taking care of these issues up front, you manage the risk of damaging good business relationships, and leave pocket books undamaged after a loss.
IMPORTANT NOTICE: The information presented here is for informational purposes only and should not be relied on as legal advice. No one should act or refrain from acting on the basis of the information provided but should instead seek the appropriate legal advice on the particular facts and circumstances at issue from a properly licensed attorney. Insurance policies are contracts that can and will vary depending on the unique circumstances associated with a particular business matter.