NY Contractor’s Guide for Using Commercial Risk Transfers

Gramercy addresses the unique exposures facing New York contractors with Commercial Risk Transfer (CRT) Programs, which shift the cost of claims to another party.

3 Elements of a Commercial Risk Transfer Program

1) Include Indemnification and Hold Harmless Language in Contracts

Indemnification and hold harmless agreements are a way to allocate risk. In commercial risk transfers, the party doing the work (a sub-contractor) assumes the cost of claims, lawsuits and related expenses, shifting the financial burden away from the contractor. Have counsel draft or review indemnification and hold harmless agreements before they are used.

What CRT Contracts should Include

  • A statement that the agreement applies to the fullest extent permitted by law.
  • The parties being indemnified, defended and held harmless should extend beyond the contractor/company alone, and include directors, officers and employees.
  • It should cover not only the work being done by the subcontractor, but the work of any other party (sub-subcontractors) retained by the subcontractor.
  • Such parties must also agree to indemnify, defend and hold harmless the contractor and provide proof of insurance.
Two people go over a commercial risk transfer contract.

2) Include Insurance Procurement Language

Requiring subcontractors, suppliers and others to carry certain types and limits of Insurance in a commercial risk transfer is a way to determine if the other party can honor its indemnity agreements and pay claims.  Coverage from the other party’s liability insurer is likely with additional insured status.

Insurance procurement requirements vary, but the basic requirements for construction are:

  • Workers Compensation and Employers’ Liability
  • Commercial General Liability
  • Business Automobile Liability
  • Commercial Excess Liability
Two men shake hands after a commercial risk transfer meeting.
A gavel used during a commercial risk transfer proceeding.

Limits should be established after consulting with your insurance advisor and/or business attorney.  They should reflect the type of exposure as reflected by the nature of the work.

Insurance procurement language also includes, requests to name the contractor as an additional insured language on a primary and noncontributory basis; using acceptable additional insured endorsements; obtaining waiver of subrogation language, and using insurers that are licensed in NY State with an AM Best rating of A- or better.

A man signs a commercial risk transfer agreement.

3) Review Certificates of Insurance and Related Documents

In commercial risk transfers, certificates of insurance are evidence (but not proof) of insurance.  Additional insured and other endorsements are often included. Certificates, endorsements and any other documents must be carefully reviewed to check compliance.

7 Potential Problem Areas

  • Missing coverages
  • Insufficient limits
  • Non-licensed insurers
  • No additional insured status
  • Missing or inadequate additional insured endorsements
  • Policies with unacceptable exclusions
  • Policies that are about to expire

This guide contains general information about Commercial Risk Transfers.  It is not intended as legal or risk management advice.  For assistance with risk transfers, contact your insurance broker, or attorney.

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