The Butler Blog

Uninsured Contractors and Others Who Put Your Business at Risk

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Have you verified the insurance coverage for your contractors, subcontractors and vendors? When an insured business does not take the time to determine if their contractors, subcontractors and vendors are insured, they enter The Danger Zone. They are putting their business assets and perhaps their personal assets at risk. These kinds of business insurance risks vary so let's sort them out.

It is helpful to know the difference between a contractor, subcontractor and a vendor:

• A contractor performs work for you, such as the construction of a new building or the repair of your existing place of business. Typically, something like construction of a new building is not directly related to your deliverable products and services. The plumber, you hire to fix a leaky faucet, is a contractor.
• A subcontractor does provide labor or products which become part of your product or services. If you build cars, the tire manufacturer is a subcontractor.
• A vendor supplies materials or services which do not become part of your final product or service but are necessary for your business operations. The copier machine distributor is a vendor.

I think most business people understand that a construction contractor can cause bodily injury to your employees, customers and to your property. Nevertheless, I still find business owners who allow uninsured contractors to do repairs. That is certainly hazardous. And it is just as hazardous to use uninsured subcontractors and vendors. Many business owners do not realize the risk they are taking.

Here are some examples to ponder:

The Contractor Risk-You own an apartment building. You hire an uninsured handyman to thaw some frozen pipes. He uses a propane torch and sets the building on fire. It burns to the ground. People are seriously injured. As the building owner, you become liable for the injuries and any jury awards. Your property insurance pays for your building. Your insurance company pays for the injuries, but you are in court for 5 years. Your insurance costs are now triple what they were before the fire.  It pays to use insured contractors.

The Subcontractor Risk-In most states liability runs up hill. What I mean is you can easily become legally liable for actions, omissions and the products of uninsured subcontractors. If your uninsured subcontractor makes a mistake that causes bodily injury or property damage, your business is legally liable by default. If your subcontractor carries no Workers Compensation insurance, you become legally liable for the injuries of their employees. And if your insurance company determines you are using uninsured contractors, you will be penalized financially. It pays to use insured subcontractors.

The Vendor Risk-Many small businesses fail to verify that their vendors have insurance coverage. Let’s suppose your copier supplier has no liability insurance. The vendor supplies a table for the machine. The table is not designed for the weight of the copier.  While one of your best customers is visiting your office, she asks to make a copy. When she is making the copy, the table collapses and crushes her foot. Now you have a problem. Your liability insurance will likely pay and your insurance rates will go up. You’ll likely lose the customer because she may have to sue to collect. It pays to use insured vendors.

If you are one of Tennessee’s business insurance buyers you might want to join The Butler Blog. It will help you keep up with the emerging risks of today’s changing business world.

Do you need help with a business risk or business insurance problem? Feel free to give me, Chester Butler, a call at 615-690-8856 or if you prefer drop me an email at chester@insurancebutler.com. I am happy to help you.

Disclaimer

Always consult your attorney and other business advisors regarding business risks. Always consult your insurance policies because insurance contracts vary widely. I am not an attorney and do not give legal advice. The Butler Company, Inc. is an insurance agency and does not give legal advice. My comments are based on my experience as an insurance agent and broker.