Exemption from liability towards the client

Failure to Ensure a “Small” Contractor Signs the Insurance Addendum — Led to a Large and Problematic Claim

By: Itzik Simon

This concerns clients of our firm (we will not mention their names for client confidentiality), a construction company insured through us for many years. The company operates in a very organized manner regarding its agreements with subcontractors and suppliers, and in every work contract a proper insurance addendum is included (an insurance clause defining the requirements for insurance and proof of coverage). The company ensures that it receives signed proof of insurance from each contractor’s insurance company.

The key point: the insurance clause includes a waiver of liability toward the client regarding damage to the contractor’s property. In other words: if the contractor wants to insure it with comprehensive coverage as required, he will have insurance; if he prefers not to insure, he will know in advance that the client will not be responsible for any damage to his property on site.

And yet, as I always passionately argue, Murphy’s laws work overtime in the construction industry:

In a construction project the company carried out about a year ago, one of the contractors arrived with expensive heavy machinery to perform a short-term job lasting only a few days. Someone there (the project manager, the site manager, or whoever it was) decided to cut corners and skip a proper work contract and insurance addendum.

As fate (or Murphy) would have it, the expensive machinery—worth several million—was severely damaged when a wall collapsed on it during the work.

So, you might ask — did he have insurance? Not at all.

And who does he hold responsible for the damage? Of course: our client, who hired him for the job.

What can we learn from this incident?

As it implies: there is damage, there is a claimant, and there is a client who could have avoided all this headache if they had consistently followed the procedure of signing a proper work contract with every contractor and, of course, including a clear insurance addendum.