Signing a contract is often a necessary part of obtaining work and it outlines expectations for both parties. As a subcontractor, it is important to keep in mind that contracts are usually written by the general contractor, or an upper tier, and are intended for their protection. Always read and understand what you are signing – BEFORE YOU SIGN because most contracts shift elements of risk from the general contractor, property owner, or others to you. These shifts can obligate you to protect the other parties in the event your actions bring suit against them. As stated by Chris Boggs, Executive Director of the IIABA’s Virtual University, the ideal use of contractual risk transfer is to place the financial burden on the party closest to and best able to control the chances that loss will occur.
But contractual risk transfers can be misused and this is what you want to be on the alert for – BEFORE YOU SIGN. Examples may include things like:
1. Exculpatory contracts – where the general contractor (or upper tier) attempts to absolve themselves from liability by contractually forcing all of their liability onto you. There are circumstances or where this is not permitted by law in some states because of statutory provisions, criminal penalties or sole negligence torts. But, aside from these exemptions, if it is in the contract, courts may uphold the provisions of the contract.
2. A contractual provision that violates the law may not be transferrable to you (a lower tier) if a statute or common law sets a limit on what can be contractually transferred.
3. Contractual violations by either party.
Other instances may obligate you far beyond the scope of your insurance. Risk transfers can appear throughout a contract but a good place to start is within a section commonly titled “Hold Harmless” or “Indemnification”. Don’t assume that, because a contract lists minimum insurance requirements, that these limits are the cap of your responsibility! I tend to get nervous when I see Hold Harmless clauses that include wording to the effect of: “…hold harmless and indemnify against any and all claims, actions…”. There is no insurance that will cover “any and all”. All insurance contains limitations and exclusions and, if you agree to such language in a contract, you are agreeing to self-insure potentially serious things that may not be covered by your insruance.
An important thing to remember is that you can agree to most anything with another party. But, signing a contract does not change what insurance covers. Before signing a contract always have it reviewed by legal counsel to be sure there are no adverse provisions and by your insurance agent so that he/she can advise how your insurance will respond to the contract.
For information or a quote on insurance for your Michigan contracting business, CLICK HERE or call us at 800-220-5582 today!