By R. Bruce Wright, CPCU
When we visit utilities across the country, one of the things that our field consultants routinely ask is “Do your subcontractors work under written contracts?” and “Do you require that they supply you with a Certificate of Insurance (COI) that you keep in file?”
Many times the response we get is that most contractors (but not all) work under written contracts, and that COIs are routinely requested. Okay, we hope that is, in fact, the case, but it concerns us that some General Managers and/or Safety Managers seem a bit bored by this question. Perhaps behind the scenes the question they really want to ask is, “Are these COIs just more silly paperwork that we don't really need?”
Absolutely not!
The typical utility's leaders are fairly conservative in their approach to risk. As a result, most members of our program carry substantial liability insurance limits, usually $2 million in the Package policy and $5 or $10 million in additional Umbrella Liability coverage. These limits are what the various management teams and boards deem necessary to protect their co-op's assets in the event of a loss that the company may be liable for and have to pay. This coverage generally applies to the negligent acts of the company, including its employees in the course of their employment, as well as other representatives and agents.
Quite often, utilities in this insurance program have the need from time to time to hire independent contractors (often referred to as sub-contractors) to do work on their behalf. Utilities often employ subcontractors to inspect poles, clear right-of-ways, trench for underground lines, construct overhead lines, build substations, service transformers, read meters, and perform a host of other duties. Other companies may use subcontractors for reasons such as high workload at certain times of year, the need for the specialized expertise that a contractor may bring to the job, or because of a conscious decision to use outside contractors for certain jobs as a more cost effective alternative to hiring additional people. Sometimes the decision to use an outside contractor is made specifically so that the company can transfer responsibility to the contractor for jobs that it cannot do, or chooses not to do, through employees, such as blasting.
No matter why your organization may have decided to make the choice to use outside contractors, the insurance coverage the subcontracted company has purchased for itself should be examined. If a subcontractor's employee makes an error on the job that causes damage or injury, the contractor's insurance should respond. If there is no insurance coverage available for the contractor, or if the limits of the policy are too low to cover the loss, where do you think the shortfall will be made up? If you said from the hiring company's policy, you are exactly right! Even in the case of an independent contractor's employees, working on their own with little or no day-to-day direction from the company that hired them, these people are still representing that company, working on its behalf, and are commonly treated by the law as its agents. After all, who picked the contractor, decided that they were capable of the job, and set them to work on the system?
Part of the prudent selection process when hiring any outside contractor should be to ask directly about their insurance coverage and to require that proof of the coverage (and of the limits) be provided to you before work begins. That's what the COI does. The Certificate of Insurance should tell you the name of the contractor's insurance company, the effective dates of the policy, and the limits available. You should require that all subcontractors working for you have insurance through a reputable carrier under a policy that is in force during the time they will be working for you, and that they carry at least a $1 million liability limit. (If you have any doubts about what coverages and what limits you should require a sub-contractor to carry, you should discuss it with your agent.)
I know that most times the contractors you may hire have good insurance companies, with in-force coverage and solid limits. But, unfortunately, it isn't always the case. A recent loss paid under our program reminded us all too forcefully that this is an important issue. One of the largest losses any co-op has had in the history of our program involved an uninsured subcontractor whose faulty work led to a third party fatality. As a result, our insurance carrier ended up paying the bulk of the loss.
The bottom line is simply this: COIs are important documents. They are critical in the effort to protect yourself from picking up the liability for work done by contractors. COIs are your primary means to verify that any contractor you hire has valid and collectable insurance - insurance with limits that are sufficient to protect your assets. You should require every contractor to provide you with a COI before beginning any work on your behalf.