Recently, I had a case where a husband and wife, who were in the process of developing three vacant lots, were sued after their contractor hit and severed a large water main while grading the lots. The severed water main flooded several homes and resulted in six years worth of painful litigation. In the end, the husband and wife deeded the three lots to the plaintiffs as part of a settlement.

The husband and wife were passive defendants (they did nothing wrong – they were sued for the acts of their agent). How could something like this happen to two innocent people? The problem for the husband and wife stemmed from the fact that the grading contractor had an insurance policy that excluded coverage for excavation work (how a grader would have such an exclusion in his insurance policy is whole different story). Moreover, the innocent husband and wife were not named as additional insureds under the contractor’s policy (not that it would have helped, given the excavation exclusion).

How can you avoid this happening to you? When you hire a contractor, make sure you review the contractor’s liability policy carefully. If you are uncertain about your ability to review an insurance policy, hire an attorney to review it for you. You should also investigate the insurance carrier to confirm that it is a reputable company. Make sure none of the work performed would fit within an exclusion in the policy if not performed properly. Above all, do not allow the contractor to commence work without first being provided an additional insured endorsement naming you as an insured under the policy.

An ounce of prevention is worth a thousands of dollars of cure.

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