Introduction:
Contractors in New York often come across various insurance terms, and one of them is the “hammer clause.” It is essential to understand this clause as it can have significant financial implications for your business. In this article, we will explore what a hammer clause is and why it is crucial to try and avoid having one in your insurance policy.
What is a Hammer Clause?
In the context of contractor insurance, a hammer clause refers to an exclusionary form added to your general liability policy. Its purpose is to restrict or eliminate coverage due to the insurance status of your subcontractors. Sometimes, the term “Sub-Warranty” is used interchangeably to describe the same concept. Essentially, a hammer clause puts the responsibility on you as the general contractor to ensure that your subcontractors have the necessary coverage required by your policy.
The Problem with Hammer Clauses:
Hammer clauses can be problematic for several reasons. Firstly, they impose exclusions on your policy if your subcontractors fail to maintain the required insurance. This puts the financial burden on you in case of any incidents or claims arising from subcontractor work. Moreover, some owners or general contractors may refuse to hire you if your insurance policy contains a hammer clause, limiting your opportunities in the market.
Considerations for Contractors:
While it is not ideal to have a hammer clause in your policy, there are certain scenarios where it may be acceptable. For instance, if you are a direct labor-only contractor without any
subcontractors, a restriction based on subcontractor work may not be an issue. However, most contractors hire subcontractors at some point, making it crucial to carefully evaluate the risks and benefits associated with a policy containing a hammer clause. In some cases, the cost savings offered by such policies may outweigh the potential drawbacks.
Exploring Alternatives:
If possible, it is always worth considering insurance policies that do not include a hammer clause. Such policies provide greater flexibility and minimize the risks associated with subcontractor coverage. However, it is important to note that for startups or new ventures, options for policies without a hammer clause may be limited. In such cases, thorough risk transfer practices and diligent document review and management become crucial to mitigate the impact of a hammer clause.
Conclusion:
Understanding the hammer clause and its implications is vital for contractors in New York. While it may be possible to work with a hammer clause through effective risk management, exploring insurance policies without this clause is advisable whenever feasible. By doing so, you can protect your business from potential liabilities and maximize your opportunities in the market. To discuss this topic further and explore suitable insurance options, feel free to reach out to us.
