It is important to ensure in each contract into which you enter that the other contracting party is obligated to carry certain insurance policies, including comprehensive general liability, automobile liability, workers’ compensation, employer’s liability, and occasionally, umbrella insurance. Further, the following additional steps should be taken:

1. require that all policies be endorsed to waive rights of subrogation against you;
2. require that all policies, except workers’ compensation, be endorsed to add you as an additional insured; and
3. require that the insurance companies of the contracting parties provide evidence (certificates) such insurance policies are in place and that you will be provided advance written notice (10 – 30 days) of any policy cancellation or material change.

1. require that all insurance policies, except workers’ compensation, be endorsed to state that they are "primary" over other valid and collectible insurance; and
2. require (pursuant to the terms of the contract) that the other contracting party indemnify and hold you harmless from claims of the employee’s of such other contracting party (and its agents, contractors, etc.) for injury or loss, even in the event such injury or loss arises as a result of Your negligence. (Note: provisions that meet the "conspicuous notice" and the "express negligence" tests under Texas law must accompany this indemnification and hold harmless provision.)

The example I shall use is an accident caused in part by an employee of yours as a result of which an employee of your contractor on your site suffers a serious injury which leaves the employee paralyzed, and therefore, unable to work the remainder of his life.

Because we have insisted that the contractor carry workers’ compensation insurance, the injured employee likely will elect^* to receive the workers’ compensation insurance benefits that pay:

1. 100% of the associated medical expenses that are incurred during the remainder of the injured employee’s life;
2. a statutory percentage of lost wages for a certain period; and
3. a statutory amount for the permanent disability which can be paid (at the option of the recipient) in a lump sum or in installments for the remainder of the injured employee’s life.

The injured employee yet may wish to (and likely will) sue you for the difference between the statutory amounts and the provable amounts for lost wages and permanent disability, as well as damages for pain and suffering (for which there is no recovery under workers’ compensation insurance). Because you have required that the contractor carry comprehensive general liability insurance and include you as an additional insured, the contractor’s general liability and related umbrella policies will respond to the claims of the injured employee against you. If you have chosen to not take one of the two additional steps identified above (i.e., secure the primary endorsement or the indemnification and hold harmless contractual obligation) the contractor’s and your comprehensive general liability and umbrella policy carriers will share the costs in a manner prescribed by the principles for contribution of multiple policies that will be specified in the insurance contracts. If one of the aforementioned additional steps is taken, the defense and any recovery will come first from the contractor’s comprehensive general liability and umbrella insurance policies.

The family members of the injured employee also may wish to sue the contractor (the injured employee’s employer) and you for recovery of claims they may have (e.g., loss of consortium). Claims of the family members against the contractor will be covered by the employer’s liability policy that you required the contractor to carry. As with the workers’ compensation insurance, you have required that the employer’s liability insurance carrier waive its rights of recovery against you. Accordingly, any benefits paid by the contractor’s employer’s liability insurance carrier will lessen the amount of any claim against you, and you will not be pursued by the carrier for the amounts the carrier must pay to the family members. The claims of the family members against YOU for negligence will be addressed by the same comprehensive general liability and umbrella policies of the contractor that responded to the claims of the employee against you. Again, if you have required that the insurance be primary or that the contractor indemnify and hold you harmless from claims arising as a result of injuries to the contractor’s employees, the comprehensive general liability policy of the contractor will be responsible for 100% (subject to the policy limits) of the costs of defense and the amounts of recovery.

One additional reason to require that all contractors that send their employees to your site carry workers’ compensation insurance is to avoid additional premium assessments under your policy. Under Texas law, an employee of an employer that does not carry workers’ compensation insurance that is injured on Your premises can elect to be covered by Your workers’ compensation insurance. Accordingly, at policy year-end Your workers’ compensation carrier performs an audit that includes a review of the contracts (e.g., purchase orders) issued by you for work performed on your site. In the event such contracts do not require the contractor to carry workers’ compensation insurance, you will be assessed additional premium on the basis of the contract amount.

In summary, by requiring that the other contracting party (i) carry the above insurance policies, (ii) ensure their insurance carriers waive their rights of recovery against you, (iii) ensure their insurance carriers include you as an additional insured under the appropriate policies, (iv) ensure their comprehensive general liability policy is endorsed to be primary; and (v) indemnify and hold you harmless from the claims of such party’s employees, you can significantly minimize its exposure to claims from injured employees of the other contracting party (or its agents, contractors, etc.) and avoid the demands for your personnel resources associated with lawsuits.

Failing to take the suggested steps can subject you to:

1. claims on your insurance policies that will result in future premium increases;
2. significant personnel costs to support the effort to fight lawsuits;
3. additional workers’ compensation premium assessments; and
4. uninsured losses (i.e., losses for which we have no insurance coverage, and therefore, which must be satisfied with your assets).