As a contractor in New York, purchasing insurance can often be a headache. Among the various construction and labor laws, there are certain insurance exclusions that could put your firm at risk of tremendous claims. If you have experience working with brokers on specific projects, you may have heard of an exclusion referred to as the hammer clause.
What is a Hammer Clause?
Technically speaking, a hammer clause is an exclusionary form included in a variety of insurance policies that state the insurer does not have to pay a claim. Wait… what!? Yep, that’s right. Basically, you can be denied coverage if you or your subcontractor does not comply with the company’s regulations.
Although there are various types, a typical hammer clause in a Contractor’s CGL policy will read like this:
This insurance does not apply to any claim, “suit”, demand or loss that alleges “bodily injury” to any “worker” that in any way, in whole or in part, arises out of, relates to or results from operations or work performed on your behalf by a subcontractors, unless such subcontractor:
- Has in force insurance at the time of such injury or damage a Commercial General Liability insurance policy that:
a) Names you as an additional insured;
b)Provides an each-occurrence limit of liability equal to or greater than $1,000,000; and
c)Provides coverage for you for such claim, “suit”, demand or loss;
2. Has agreed in writing to defend, indemnify and hold harmless the Named Insured and any other insured under the policy for any claim or “suit” for “bodily injury” to any “worker” arising out of the work performed by such subcontractor, to the fullest extent allowed by law.
Why Contractors Should Avoid A Hammer Exclusion
I mean, it’s obvious isn’t it? Contractors don’t want to worry about checking their subs insurance policies for adequacy, you’re a contractor, not an insurance professional! Brokers understand that your main focus is to bid, get the job, and get it done right, with (hopefully) little to no obstacles. Can you, as a contractor, afford to shell out money for bodily injury to your subs employees? Some MAYBE, but for most, the answer is no.
Additionally, if you’re offered to work as a subcontractor for another firm, having a “hammer” clause in your insurance can keep you from being hired.
What If You’re Stuck with a Hammer Clause?
Though there are contractors who don’t use subs, in my experience that is usually not the case. If you’re a contractor that has no option but to purchase a policy with this exclusion, there are ways for you to avoid getting “hammered” by your carrier. Excellent risk transfer and management could be helpful to avoid any issues with claims. Here are some tips to follow if you’re a contractor with an insurance “hammer” clause on your CGL policy:
- Always require subs to include your company as an additional insured on their policies and they must provide proof (*an insurance certificate is not proof! Always request a copy of the endorsement!)
- Create detailed contracts that clearly lay out the insurance requirements your subs must fulfill in order to do business.
- Don’t go for the cheapest policy. Talk to your broker about other options that may be a little more pricey, but have less coverage restrictions.
Please keep in mind that there are many more details and restrictions that are not included in this article. The best way to make sure you’re contracting firm is covered properly and aware of possible restrictions or exclusions, is to work with an experienced broker. Call me today if you are a General Contractor looking for insurance!
Opinions expressed in this article are solely the author’s opinion, not intended to provide the reader with legal or any other professional advice. Should you need advice or opinion, consult with a qualified professional to address your specific needs.