Contractual Risk Transfer

Understanding indemnification, additional-insured status, and waivers of subrogation

Upper-tier contractors commonly attempt to contractually transfer the risk of loss to lower-tiered contractors, such as subcontractors. The most common contractual risk transfer tools are indemnification/hold harmless clauses, request of additional insured status, and request of waiver of subrogation.

These concepts can be difficult to understand and are further complicated by the fact that upper-tier contractors frequently overreach and impose protections that are onerous and not achievable by most lower-tier subs in the current insurance marketplace.

I found an excellent article  that exposes the strong-arm techniques by upper-tier contractors. Presentation of this article to a general contractor can be persuasive in negotiations to lower some of these requirements.

I am all for contractual risk transfer to protect the legitimate needs of the general contractor. But the contractual provisions must be fair and readily achievable in the insurance marketplace. If not, they result in a great deal of wasted administrative time on the part of both parties and they force the subcontractor into a breach of contract position.