When you are looking at sublet services, collision repair shops ought to be mindful to ensure vendors are properly insured to mitigate risk if something goes wrong.
Intrepid Direct Insurance Sales Director Alex Whittit said shops shouldn't only determine what is the greatest coverage, both in amount and kind, to have for themselves but additionally the things they expect of the vendors.
“They have to make sure that their general liability is going to include a contractor doing sublet work for them after which it’s usually a good idea for them to get listed being an additional insured with that subcontractor’s policy too,” he explained.
For example, it’s ideal to make sure third-party repairers are covered by the shop’s insurance just in case they go bankrupt or their insurance lapses. “You can’t just trust the sublet’s policy won’t fall through would you like to protect yourself just in case something happens, but ideally you would like the sublet policy to take care of it so you’re not hitting your own insurance and raising your own rates,” Whittit said.
He recommends shops ensure vendors have general liability, garagekeepers liability, and workers’ compensation coverages when the vendor works on site. When the vehicles are taken to the vendor’s location, general liability is actually all that’s necessary, he explained. Most general liability policies come with $1 million of coverage per occurrence and $2 million in aggregate.
Spark Underwriters founder and chief underwriting officer David Willett echoed that advice and took it a step further to recommend that shops possess a tracking system in place to ensure insurance is current and valid all year round rather than only verifying at the outset of contracting them and assuming they’re always covered. Tracking systems will ping shop owners if a vendor is dropped from their insurance for nonpayment or otherwise.
“You’re going to be accountable for the work they do and when they don’t have valid insurance that you can push them back to, you’re going to be liable for it yourself,” Willett said. “Factors to consider that they have how you feel to become adequate limits of insurance for the type of work that they do. Their liability limit for his or her work should be high enough that you simply understand it. …if you’re getting into [hiring] somebody who’s working on safety components and whether they’re calibrated properly and all that nature, give me an idea to possess protected? Is it $1 million? Should it be exactly the same limit you have for the liability if you’ve got an umbrella [policy] too?”
He added that shops should think of vendors like they are doing their very own employees with regards to liability.
Willett recommends shops write a vendor letter that sets general liability insurance coverage expectations with a minimum of $1 million. However, that will depend on who the sublet services are with. Auto dealers, he said, and advanced driver assistance systems companies should have higher coverage limits whereas independent contractors may not.
A study released in June 2022 by insurance verification company Evident, states 75% of third parties was not meeting the insurance requirements established through the companies they’re working for.
“In the realm of risk mitigation and management, verifying and improving insurance policy for third parties is increasingly important,” the research states. “The more effectively companies can enforce compliance with insurance requirements, the lower the risk of unexpected vicarious liability claims related to incidents among organizations that may impact the company's brand and/or finances.”
Evident stands out on the following:
- Require partners to hold general liability, workers comp, property, auto, umbrella liability, and crime and employee dishonesty insurances;
- “Right-size” the needs you have that “best align” with your business objectives, such as supporting growth and reducing risk; and
- Effectively and/or consistently communicate to obtain up-to-date proof of coverage.
