Contractors today are facing more legal risk than ever, yet many don't realize it until it's too late. Shifts in indemnity statutes, stricter project timelines, and evolving risk transfer demands have made commercial contracts more complex and more dangerous for the underinsured. But according to Jeffery McIntosh (pictured), an agent at Energy Insurance Agency with expertise in both commercial insurance and surety bonds, the problem often begins with the construction contracts.
"There's a huge difference between writing surety and writing insurance," said McIntosh. "Most practitioners do one or the other." And in his experience, that separation leads to blind spots. "Surety agents and underwriters usually don't know anything or have any understanding of insurance, and don't want to, to be honest."
Insurance agents typically never see the full contract, just the insurance section or a sample certificate. Surety agents might see the full contract but rarely read it in detail. "They have the blinders on and think, 'Well, this is all I have to do, to complete the certificate as requested,” he said.
McIntosh said his advantage came from being trained across disciplines, writing not just surety or insurance, but both policies that all tie back to contractors' financial stability. That broader view has given him access to full contracts, not just the snippets most agents work from. And what he's found in the fine print should worry contractors.
"The indemnity agreement has evolved to start out with a sentence," he said, "‘To the fullest extent permitted by law.' No-one stops and says, 'I need to see what the law is.' And that's the first mistake.''
Each US state has its own indemnity statute. What’s enforceable in Florida may be void in Kentucky. “In Kentucky, for example … any provision to indemnify another party for their own, sole negligence is void and wholly unenforceable,” he said. But that won’t stop contracts from including the language – and most agents miss the implications.
“Even when the contract may require a million-dollar limit and a $5 million umbrella, are the contractors only limited to those amounts? Well, no, they’re not,” said McIntosh. He warned that coverage shortfalls often come from a misunderstanding of what indemnity truly demands. Auto liability, pollution, contractors’ E&O – none of these are covered in a standard general liability policy, but all can be triggered by indemnity clauses.
One of the most overlooked protection mechanisms is the surety bond. Faulty workmanship is a common exclusion in commercial general liability (CGL) policies, but contractors assume they’re protected.
“If I’m a general contractor and I hire you as a subcontractor and you do some faulty work, your policy is not going to pay for it – but mine might,” said McIntosh. “If it hasn’t been excluded, work performed by others on my general contractor's behalf is provided.”
He said a bond solves this gap. “If the general contractor had asked the sub-contractor to provide me a contract surety bond for your work, The general contractor has coverage for your faulty work now,” he said. “I can make you come and fix it. Or if you won’t, I can hire someone else to come and fix it and let your surety pay for it.”
He’s seen far too many agents pitch bonds simply to capture more commission. “You need to think through why they would be an advantage to the client,” he said. “It’s not about locking in a client – it’s about giving them the better product.”
McIntosh flagged another growing risk area: job site pollution. “Used to be that you would get some pollution coverage,” he said. But now, “we’re seeing more and more absolute pollution exclusions.”
That means even basic site incidents – like backing into a tank and spilling contaminants – may not be covered unless pollution is added back through an endorsement. “I choose carriers based on them being able to add those things in,” he said.
He urged agents to read policy forms carefully and avoid relying on summary titles. “These are forms you have to read,” he said. “They’re bought on the title, and the title’s usually great, but the coverage is often not very good.” Many exclusions are buried in endorsements that agents skip over.
And price-driven buyers, he warned, may find themselves with policies that look cheap until a claim hits. “There’s always a focus, always has been, on cost,” said McIntosh. “But not all coverage is created equal.”
Choosing not to bond a subcontractor to save on a bid might win a job – but it can cost more later. “If you have a sub and you didn’t get a bond because your bid would be cheaper, you could end up with a claim on your GL policy,” he said. “And that happens all the time.”
In many of those cases, the contractor is left paying out of pocket. “The owner doesn’t care,” said McIntosh. “Your contract says that ‘you perform this’ and you haven’t done it correctly, so go do it correctly.”
Bonds come with at least a one-year warranty, which can stretch coverage where insurance falls short. “Contractor E&O policies typically only help with faulty work after they’re gone, completed operations. But the bond will do both,” he said.
Beyond project-specific protection, McIntosh said contractors should also be thinking about long-term continuity. Sureties often require life insurance on owners. “What happens if they die? Who’s going to pay to complete the work?” he said. That concern extends into succession planning and key person coverage, areas where insurance quietly underpins business survival, financial stability is key to surety.
Despite all this, many surety underwriters don’t ask about crime or employee dishonesty. “The general contractor will be passing funds back and forth... it’s a huge opportunity for forgery or alteration,” McIntosh said. “Those things should be very important to the surety, but they’re not. But they’re still important to my client.”
Contractors relying solely on insurance to carry their contractual obligations are exposing themselves to serious risk. As policies get narrower and contracts get tougher, only those who understand both insurance and surety – and how they interact – can fully protect their business.
