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Legalease
Legalease, Attorney
Category: Business Law
Satisfied Customers: 14529
Experience:  14 years experience corps, LLC's and partnerships; preparation, negotiation of complex contracts and business agreements
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Hi, We are a small general contractor who normally does business

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Hi, We are a small general contractor who normally does business with property management companies to improve the spaces their tenants are about to occupy. History has shown, repeatedly, that when we do work directly for the tenant that things can sour quickly. We have completed $3,000 of a $9,000 contract on a 'hand shake' (don't get me started on how angry I am about that!), anyway, before continuing we are trying to hash out a contract before completing the remaining work. We are already getting an uneasy feeling from the customer with statements like saying, "well, that should have been included so you should include it for the same price". We created a general short form contract, to which they provided the following "addendum". I responded with the additions that are in CAPS. They have now responded with the following statement:
"The changes to Section 1 and Section 2 are acceptable. The change to Section 3 is not acceptable, as the contractor’s insurance must in all circumstances be primary to DPI’s insurance, which is non-contributory."

Here is the Addendum. Please review Section 3 and let me know what you think.
NOT ENOUGH ROOM IN QUESTION BOX FOR WHOLE ADDENDUM....

3. Notwithstanding anything contained in Section 14 or elsewhere in the Contract to the contrary, Contractor shall at all times carry comprehensive general liability insurance, including but not limited to coverage for product liability, contractual liability, and business operations, with limits of not less than $1,000,000 per occurrence/ $2,000,000 annual aggregate for bodily injury and property damage; employer's liability of not less than $1,000,000 each incident; workers' compensation as required by statute; and riggers liability and automobile liability insurance for any owned or leased automobiles with limits of not less than $1,000,000 per occurrence for bodily injury and property damage. Owner shall be named as an additional insured on the liability policies. Contractor’s insurance, and its contractors’ and subcontractors’ insurance shall be primary and Owner’s insurance will not contribute with any such Contractor or its contractor’s and subcontractor’s insurance for any reason OTHER THAN WILLFUL MISCONDUCT OR GROSS NEGLIGENCE ON BEHALF OF THE OWNER AND/OR OWNER AFFILIATES. Further, Contractor for itself and for its insurance company shall waive all rights of subrogation against Owner and all Owner Affiliates under any Workers' Compensation policy. As a condition of the execution of the Contract by Owner, evidence of the coverage described herein in a form reasonably acceptable to Owner shall be provided to Owner by Contractor prior to commencement of any work on Owner’s premises by Contractor or anyone. In no event shall Contractor’s liability be limited by insurance maintained by Contractor, required hereunder or otherwise.
Submitted: 11 months ago.
Category: Business Law
Expert:  Legalease replied 11 months ago.

Hello there Wendy --

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The language that you have asked to be added (or you have added) to Section 3 is actually very standard in the construction industry and it is language that I would insist upon myself if I were handling the contract. Your insurance will not pay for any claims made due to the owner's misconduct or gross negligence (in fact, no insurance company will pay any claim of any insured if another party committed willful misconduct or gross negligence -- it simply does not happen). My husband is also a contractor and I am very familiar with smaller construction / remodeling contracts of this nature. It seems to me that the owner simply does not understand that whether this language is in the contract or not, if the owner is found to be grossly negligent or commits an act of willful misconduct, your insurance company will simply refuse to pay the claim and the insurer is legally within their rights to refuse to pay the claim -- leaving the plaintiff party or parties bringing suit to file a lawsuit against the owner directly. If the owner is going to be stubborn about this language due to failure to understand it, and refuses to let you add that into the paragraph, the practical effect of it is as follows (a) as I said, the insurer will not pay the claim anyway - that is a standard exclusion in your policy and the policies of any subcontractors and there is no way you can purchase additional coverage to cover these items -- it does not exist - so a lawsuit CAN be filed against the owner, (b) such a liability scenario is extremely rare - owners do not generally do anything at the property that would amount to anything more than standard negligence - it must be a situation such as the owner committing arson and setting his own property on fire before it gets to the "willful misconduct" phase and be excluded from coverage under the contractor policy -- so you may consider the benefits/futility of arguing with the homeowner when the homeowner either will deliberately or ignorantly continue to not understand the situation and the likelihood of anything like this happening is very, very rare.

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My suggestion here is to simply try to explain to the owner that whether the language is in section 3 or not, there is not a contractors insurance company in business that will cover the gross negligence or willful misconduct of the owner of the property and by adding the language it is standard to simply put the owner on notice that such coverage does not exist in the real world. If that does not work, then you should decide whether you want to move forward without the language, given the fact that it really doesn't matter because the insurer will not offer coverage under those circumstances anyway.

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And, you have my sympathies. I have seen this many times with my husband - every person who hires him wants him to throw additional work in for free (he calls it the "while you are here" attitude -- "while you are here, can you do this or that for the same price? It shouldn't cost anymore money because you are here anyway and you are opening that wall anyway" .............. I could go on forever, but I won't).

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MARY

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Expert:  Legalease replied 11 months ago.

Hello again Wendy -

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I note that you viewed the answer about 20 minutes ago. Do you have any further questions for me on this issue? If not, can you please press a positive rating underneath this ANSWER box so I will be paid for my time? I truly am paid nothing unless you press the 3rd, 4th or 5th smile face below (we do not receive paychecks - we are paid per question accepted with a positive rating). THANK YOU VERY MUCH

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MARY

Customer: replied 11 months ago.

Hi Mary,


 


Thank you for the answer and explanation.


 


I immediately emailed my insurance broker to see if the same applies to our policy - not sure if it makes any difference but the client is a business and the work to be done is commercial construction at the business location. Is it the same commercial & residential?


 


Thank you, Wendy

Expert:  Legalease replied 11 months ago.

Hello Wendy -

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There is no difference between commercial and residential work when it comes to this particular clause. In fact, I first learned to request the same language in contracts when I worked on larger commercial projects for the firms I worked for in Boston and NYC. Then when I opened my own practice I notice that it is pretty standard in smaller projects as well. I would not call this a deal killer if the owner refuses to put it in the contract because, as I said, a court will hold the owner responsible for gross negligence or willful misconduct (that is the legal standard) and the insurers know this so the insurers simply refuse to pay the claim if that is what it is based upon -- and, as I said -- it is extremely rare that something happens due to the gross negligence or willful misconduct of any party to the contract, including the owner.

--

MARY

Customer: replied 11 months ago.

Thank you for coming out and saying you don't think it should be a deal killer. I appreciate you stating that clearly as well as the law on gross negligence.


 


You have been great. Thank you, Wendy

Expert:  Legalease replied 11 months ago.

No problem. If you have not done so already, I would appreciate it if you would press a positive rating below so I will be paid for my time assisting you today. THANK YOU

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MARY

Legalease, Attorney
Category: Business Law
Satisfied Customers: 14529
Experience: 14 years experience corps, LLC's and partnerships; preparation, negotiation of complex contracts and business agreements
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