Risk Management Strategies for Contractors

This review of various strategies for managing risks by petroleum equipment distributors and contractors highlights the features and limitations of liability insurance policies are a shelter from risks. Understanding and management are the keys.

With the UST deadline fast approaching, many petroleum equipment contractors are using subcontractors. In the May/June issue of PE&T, I presented some safety management strategies that contractors can use when working with subcontractors. This column presents some contractual risk management strategies for contractors.

A pricy decision
The selection of a contractor based solely on price could lead to some unexpected financial loss down the road. Whether you are the contractor or the subcontractor, I recommend that you follow these nine guidelines.

• Require certificates of insurance from each contractor and verify that the certificates meet your contractual requirements. The contractor should be able to provide certificates for workers' compensation, general liability, contractual liability and automobile liability insurance. Contractual liability insurance covers tort actions of indemnities that the contractor has assumed in the contract. If you are not sure, contact your lawyer or insurance broker.

• Verify the adequacy of the insurance limits stated on each certificate. Typically, $1 million limits are considered a minimal requirement.

• Verify that the contractor's policy covers explosions, collapses and underground property.

• Verify that the "other insurance" clause of the policy does not make the contractor's policy excess. The contractor's policy should be primary for all parties.

• Require accurate and up-to-date certificates of insurance. Keep old certificates of insurance. It is not unusual for claims to be made years after the event. Your defense may be improved with accurate insurance documentation.

• Review all "hold harmless agreements" to determine whether the indemnity language is enforceable. If you are unsure, contact your lawyer before signing the contract.

• To assist in future enforcement of the indemnity agreement, ask that you be named as an additional insured under the indemnitor's commercial general liability policy.

• Review your insurance coverages and requirements for certificates of insurance periodically to ensure a coordinated approach.

• When a claim is made against your firm, let your insurance broker know about it. Never make declinations of coverage or pay claims on your own.

A safe bet
It is essential to manage risks created by using subcontractors. To ensure uniformity of your safety program, subcontractors and their employees need to comply with certain safety regulations. Furnish all subcontractors with a set of safety instructions specifically developed for them. Consult with OSHA and develop a complete set for applicable safety instructions for contractors.

Although it may be impossible to prevent all losses involving subcontractors, risk management and subcontractor safety compliance can help control the losses.

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