How risk transfer can help the homeowner

roof-work
Think of risk transfer as the transfer of responsibility.

I recently had a new roof put on my house. Before construction work could begin, there was the job of negotiating the terms of the project.

After I accepted the winning bid, the contractor sent over a contract outlining the scope of the work, their duties, my duties, etc. I reviewed the contract and made a few addendums, particularly in relation to risk transfer, additional insured status and insurance requirements. I then signed and returned the contract to the contractor. We negotiated several changes I’d made before finally reaching an agreement, then the work was performed according to the terms of the contract.

Wait… back up. You what? Risk transfer, additional insured … huh? And what about this contract negotiation stuff; you can do that?

Sorry. Sometimes I forget there is a world outside of the nerdy insurance realm where I operate. Let’s start with risk transfer. It’s a well-used insurance term that simply means a transfer of responsibility. Typically that transfer occurs between two parties with shared responsibility. The party having very little control will transfer full responsibility to the party having the most control.

In the case of my roof, the roofers and I have a shared responsibility: me as the property owner, them as the people working at my property. What happens if someone is injured on my property as a result of the work being done there? What happens if a lawsuit is filed? That suit is likely going to be filed against both the roofers and me. Even though I did nothing wrong, as the property owner, I am responsible for what happens there. I solve that problem by transferring responsibility for injuries resulting from the roofing project to the roofing contractor.

How did I accomplish the transfer of responsibility? Quite simple; I asked the contractor to add me as an additional insured on his insurance policy. As an additional insured, I have liability coverage under the roofer’s insurance policy for lawsuits brought against me as a result of injury or damage caused by the roofer. Of course, coverage limitations and other items may not protect me completely; this is a very simplified example, so it is important for you to talk to your independent insurance agent and your legal advisor about this.

And yes, to answer the question that probably remains on the tip of your tongue, the contractor thought I was nuts for requesting these things. Residential contractors assume that you’ll simply sign the contract and let them do the work; that’s how it’s usually done. Once they understood what I was asking and why, they were willing to accept my terms.

In the world of commercial construction, contractors spend a lot of time on risk transfer and additional insureds. Regardless of the world in which you operate, if you hire a contractor – whether it’s a general contractor, a subcontractor, residential or commercial work – risk transfer should be an important part of the hiring process.

In the end, my beautiful new roof was installed without a hitch. That’s the way most projects go. But you need to be ready for the times they don’t.

This loss control information is advisory only. The author assumes no responsibility for management or control of loss control activities. Not all exposures are identified in this article.

 


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3 Responses to “How risk transfer can help the homeowner”

  1. Wendi Volkert, CRM, CIC, AAI, MLIS, CRIS

    Awesome article! Couldn’t have said it better myself. I had my roof done last year and went through the same thing. My contractor couldn’t believe I was asking not only for a Certificate of Insurance, but to be named Additional Insured!

    I spend many hours working through risk transfer with my commercial clients, but no one ever seems to think about taking it down to the level of personal lines clients! Well done!

  2. Rebecca Wanovich

    Fantastic! We’ve been on a “campaign” to educate our insureds on this subject, and developed a tutorial and sample COI that we regularly give out. Nice to see an article that supports this important topic.

  3. Godwin Ayiku

    insightful article on risk transfer

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