TRAP 2 – The Insurance Section
How to find them, what they cost, and the equitable language to negotiate in their place.
Prepared for subcontractors and suppliers
What follows is a guide to negotiating better indemnity language in your agreements, and about where to look for hidden indemnity exposure. Indemnity is an area where many states have effective limitations on the degree to which indemnity can be invoked, and almost all states have some sort of legal protection for overly aggressive indemnification language.
That could be taken to mean that subcontractors and suppliers don’t really need to worry about negotiating better indemnification terms because the courts will protect them. We think that is a risky approach. There are two reasons for this. 1.) The courts might protect you. Lawyers are clever, and leaving your customers’ indemnity language as-is is a risky strategy. There may be exposure there that you haven’t accounted for. 2.) If the courts do protect you, it will be after you have spent money on legal fees and engaged in a successful legal action of some sort. We think you should avoid that process and the risk that comes with it if you can.
For those reasons, FairBuild’s entire philosophy on contracts is to always seek what’s equitable. That’s what’s fair and that standard doesn’t rely on the courts to intervene to project your interests. What follows is guidance that will protect you from predatory indemnification because it’s fair and balanced for both parties.
When it comes to indemnity, most subs and suppliers focus their contract review on a single section. The one titled “Indemnification.” They negotiate it as best they can, and they sign the rest of the contract assuming the indemnity issue is handled.
That’s not entirely true.
A typical commercial subcontract carries indemnity language in at least six different places. Each one is independent. Each one can be triggered by different facts. And when a claim hits, the GC’s lawyer doesn’t need to win on the section you negotiated.
This paper walks through all six. For each one, I’ve laid out:
The goal isn’t a perfect contract. The goal is the best contract you can get without losing the job. That means knowing where the real risk lives so you can focus your negotiation effort where it counts, and having the specific language to push back with credibility.
This is written for operators, not lawyers. I’ll assume you know your trade, you know your business, and you don’t need the basics explained. What I’m offering is structured analysis of how risk transfer actually works inside the subcontract, and the language tools to address it.
A note on what this is and isn’t
FairBuild doesn’t provide legal advice. This paper is designed to help you review and understand agreements from general contractors. For specific legal questions about your contracts, talk to a construction attorney in your jurisdiction.
When it comes to indemnity, most subs and suppliers focus their contract review on a single section. The one titled “Indemnification.” They negotiate it as best they can, and they sign the rest of the contract assuming the indemnity issue is handled.
That’s not entirely true.
A typical commercial subcontract carries indemnity language in at least six different places. Each one is independent. Each one can be triggered by different facts. And when a claim hits, the GC’s lawyer doesn’t need to win on the section you negotiated.
This paper walks through all six. For each one, I’ve laid out:
The goal isn’t a perfect contract. The goal is the best contract you can get without losing the job. That means knowing where the real risk lives so you can focus your negotiation effort where it counts, and having the specific language to push back with credibility.
This is written for operators, not lawyers. I’ll assume you know your trade, you know your business, and you don’t need the basics explained. What I’m offering is structured analysis of how risk transfer actually works inside the subcontract, and the language tools to address it.
A note on what this is and isn’t
FairBuild doesn’t provide legal advice. This paper is designed to help you review and understand agreements from general contractors. For specific legal questions about your contracts, talk to a construction attorney in your jurisdiction.
Where it lives
Five to ten pages into the contract, usually titled “Insurance Requirements” or “Insurance.” This section often carries the most dangerous indemnity provisions in the whole contract, and almost no sub treats it as risk transfer or indemnity-like language. The risk transfers through your insurance carrier, not through the indemnity clause, which means most operators never see it coming.
The language to watch for
The key phrases regarding your commercial general liability policy are “Subcontractor shall name GC as additional insured” and on a “primary and non-contributory” basis. The danger compounds when the contract references an older ISO (Insurance Services Office) endorsement form:
| “Subcontractor shall name Contractor and Owner as additional insureds on a primary and non-contributory basis using ISO endorsement CG 20 10 (10/01) or equivalent. Such coverage shall apply to all liability arising out of Subcontractor’s operations.” |
Why it matters
“Primary and non-contributory” means your policy responds to claims before the GC’s policy does, regardless of who was at fault. The GC’s coverage becomes a backup to yours. That’s a significant risk transfer happening entirely through the insurance market, with no indemnification clause involved.
The edition date of the additional insured endorsement changes what you’re actually giving away. The 10/01 edition of CG 20 10 uses “arising out of” language, which many courts read broadly. Depending on the state, it can expose your policy to claims where your fault is minimal or disputed. The 07/04 and later editions require that liability be caused at least in part by your acts or omissions. The 04/13 editions carry that causation standard forward and tighten the scope further. When a GC’s contract specifies the 10/01 edition or “its equivalent,” that’s not a clerical detail. It’s a request for the broadest coverage your carrier will give them, and it deserves a conversation with your broker before you sign.
What it can cost you
Insurance losses rarely arrive as judgments. They arrive as larger loss runs on your policies, which drive larger renewal premiums. Defense costs are included in your loss runs and with respect to a construction defect claim may amount to 100% of the total indemnity paid by your carrier. A sub whose policy has paid a few significant additional insured claims on behalf of GCs can see premium increases of 30 to 60 percent at renewal, and the surcharge often persists for several years because underwriters price off a five-year loss history.
On a specialty trade CGL package running $400,000 to $500,000 a year, that is six figures in added cost annually. I have watched this line quietly absorb margin for years after the claims that caused it were forgotten. Compounded over a 30-year operating career, the extra dollars flowing through the insurance line can run into the millions.
The equitable replacement
First confirm that your policy actually provides the endorsements that your subcontract requires as most subcontracts specify the endorsement numbers. A fair subcontract will require: ISO CG 20 10 (04/13) and CG 20 37 (04/13), or their equivalents. Have your broker pull the actual additional insured endorsements on your policy and read them against the language stated in your proposed subcontract.
Many carriers do not issue the ISO forms at all; they use their own blanket endorsements, and those may not marry up with the insurance requirements of the subcontract.
If you sign a subcontract that requires one type of endorsement but your policy provides a lesser type of endorsement, you are in breach of the subcontract and usually the subcontract will state the GC’s actions to accept your policy is not a waiver of this requirement. Consequently that gap becomes uninsured. If your carrier’s forms do not match, work with your broker to amend the contract language to the equivalent endorsements your policy actually carries. A certificate of insurance WILL NOT not settle this question. Only the endorsement the endorsement that is contained in your policy will.
Better Subcontract Language
“Subcontractor shall name Contractor and Owner as additional insureds on its Commercial General Liability policy, on a primary and non-contributory basis, using ISO endorsement CG 20 10 (04/13) and CG 20 37 (04/13), or their equivalents, but only with respect to liability for bodily injury, property damage, or personal and advertising injury caused, in whole or in part, by Subcontractor’s acts or omissions in the performance of Subcontractor’s Work. Such coverage shall not extend to liability arising out of the negligence or willful misconduct of Contractor or Owner.”
How to negotiate it
This replacement makes two changes, and both should be named when you send the redline. First, the form reference moves to the 04/13 edition to both ISO 2010 (relating to ongoing operations) and ISO 2037 (relating to completed operations). Those forms require that liability be caused at least in part by your acts or omissions, which materially reduces the odds of a claim landing on your policy when your crew did nothing wrong. (Confirm that your policy does in fact provides these endorsements, or any endorsements you propose.)
Second, the language excludes coverage for the GC’s negligence and willful misconduct. Your policy should respond when your work causes the problem, not otherwise. It should not become the GC’s first line of coverage for problems you had no part in.
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