Insurance Law Lesson 71: Downstreaming

I used to represent an insurance carrier that insured many contractors and subcontractors.

A general contractor has many duties and is ultimately responsible for the job. But, the GC does not usually get hands-on. Instead, she hires subcontractors. Most of subcontractor agreements require the subcontractor to name the GC as an additional insured (see Lesson 5) for any liability arising out of the subcontractor’s work.

When a construction claim occurs, the GC’s insurer (or the GCs themselves before they go to their own insurers) will look to “downstream” the claim – to get a subcontractor’s insurance company to pick up the claim and cover the GC. On paper this makes sense because the subcontractor is the one who is doing the actual work, so the risk comes from the subcontractor acts. It follows that the subcontractor’s insurer – who agreed to take on that risk – should be covering a loss.

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