In the film Donnie Brasco, an aged mob hitman named Lefty befriends and vouches for a young jewel thief named . . . well . . . Donnie Brasco. With Lefty's word serving as his ticket in, Donnie is ushered into the underbelly of a prominent New York City crime family. One of the foreshadowing scenes in the movie occurs when Donnie warns Lefty that a particular diamond is actually a fugazi, a fake. After a series of events and suspicions, Lefty finds out Donnie is an FBI agent tasked to infiltrate the mob by putting his own life on the line by pretending to be someone else. After Donnie's true identity is revealed to the heads of the crime family, Lefty has to answer for vouching for the guy who brought down one of their crime rackets. The whole time Lefty was grooming Donnie to be a career mobster, he didn't realize he was putting his life on the line. Donnie's friendship with Lefty was the fugazi and it cost him his life.
Why mention this tale when it comes to your investment properties? Number one, we love movies at Insurance For Texans. Two, we don't want you to fuhgeddaboutit when it comes to putting your neck on the line in the form of liability.
Sure, you've found a great subcontractor who does the job well. They came with the highest recommendation, they are reliable for great work and getting it done on time. Everything about the subcontractor says, "Trustworthy". However, if the only thing protecting you from claims arising from their work is your word and their reputation, you're exposing yourself to serious risk.
If you plan to hire subcontractors to work on your investment properties, you need to know if your policies are going to provide protection and/or if your subcontractor carries their own coverage.
Know Your Current Protection
While you may carry business insurance coverage in the form of a general liability policy which covers any personal injury or property damage due to your own responsibility, you may not have coverage in place for a subcontractors actions causing harm to another party or their property. Often, any claims resulting from the action of a subcontractor will be excluded from your general liability policy. Your carrier wants to insure you, not your subcontractor. One of the key preventatives to obtaining blanket coverage is exposing yourself to this risk.
Another risk you take is in the form of increased premium. You expect your policy premium to increase if your carrier discovers you are dealing with an uninsured subcontractor, whether a claim is submitted or not. Your policy may cover independent subcontractors, but most likely, you are paying a higher premium for that extensive coverage.
You may have heard the language of business is the contract. And while contracting with a reputable subcontractor is a beautiful thing, if your policy isn't going to provide coverage for your subcontractor, your contract with the subcontractor needs to specify they will carry their own coverage and that they will prove it by submitting a copy of their Certificate of Insurance. This coverage should hold your harmless in the case their work damages property or people. You may also ask to be listed as an additional insured in the event you are sued as a result of their work gone awry.
There are also other ways to further protect yourself by making certain your subcontractor keeps their work insured. Requiring they carry Worker's Compensation is another level of protection in case the subcontractor's employees are injured.
At Insurance For Texans, we know how to infiltrate the complexities of the liability world and your investment properties. As an independent insurance broker, we can vouch for you with our network of carriers to find the right coverage at the best price. As far as putting your financial neck on the line when it comes to the work of subcontractors, fuhgeddaboutit.