What is a hammer clause? And why should you try to avoid one!

For contractors in New York a lot of terms are thrown around related to your insurance, Hammer clause is one of those terms.

You should familiarize yourself with it, as having a hammer clause can be extremely costly to your business.

In short, a hammer clause related to contractors insurance, is a exclusionary form added to your general liability policy to restrict or eliminate coverage because of the insurance of your sub-contractors.

Sometimes the term Sub-Warranty is also used to describe the same thing.

Having a hammer clause isn’t ideal, it puts all the responsibility on you as the general contractor to make your sub-contractors have the coverage required by your policy.

Typically the requirement has to do with “action-over” coverage. I won’t get into that to far as that is an article of it’s own.

Hammer clauses are problematic. Not only because the exclusion to your policy if subs don’t maintain the right insurance but also some owners or general contractors won’t hire you if you have a hammer clause.

Now this isn’t to say any policy with a hammer clause isn’t worth considering.

For example if you are a direct labor only contractor with no sub-contractors a restriction based on sub-contractor work is not an issue.

However, in my experience very few contractors never hire subs.

Even if you do hire sub-contractors sometimes taking a policy with a hammer clause is worth the risk, due to the premium savings.

Additionally if you are a startup or new venture the options are very limited for a policy without a hammer clause.

Bottom line with excellent risk transfer and strict document review and management it is possible to work with a hammer clause.

However if the option is available it is always worth considering a policy without a hammer clause.

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