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March 8, 2013
Borrowing equipment is a common occurrence in the construction business as it can save time and costs to do so. However, whether it’s for an hour or a week, there is always the risk of damage to the borrowed equipment. The question then arises as to who pays for the damage. There are potential loopholes in construction equipment coverage that could make a simple equipment loan a very expensive and confrontational proposition. Fortunately, there are ways to ensure you are covered and damaged equipment costs do not come out of your pocket
1. Know the Coverage – A borrower of equipment is likely to be expected to provide coverage for a damaged item, even though there is no contractual agreement in place. Most equipment policies will provide coverage for borrowed equipment but you cannot assume they automatically do so. The coverage is often added as an endorsement upon request. Equipment lenders need to take heed here as well as their own equipment policy may deny coverage for any equipment loaned out to others. Equipment lenders need to also inquire also if coverage for borrowed equipment not only is in place by the borrower, but is it adequate enough in terms of value and does not prohibit the types of equipment borrowed or exclude certain coverages specific to your type of equipment such as boom or weight of load damages. Another option is for the borrower to ask their property underwriter to place the borrowed item on the scheduled list of equipment already insured by their policy.
2. Borrow with operator – Remember, the general liability form of the borrower will exclude coverage for the item in question as it is considered under the borrowers “care, custody and control”. However, if the equipment is operated by an employee of the lending equipment owner that exclusion would not be applicable to the borrower. Damage to the equipment caused by operator error would not be the responsibility of the borrower and damage caused by any negligence of the borrower may then receive coverage by their General Liability policy.
3. Consider a rental agreement – For longer-term loans on higher value items, it is advisable to establish a contractual requirement for coverage by converting the loan to a rental. This then lays out who is responsible for coverage and a certificate of insurance should be issued. This would require that the parties check with insurance advisors that coverage is in place and adequate. Also, be careful about sharing third-party rented equipment. If you loan out the backhoe you rented from an equipment supplier, you may void the rental agreement and any insurance coverages you may have agreed to in the rental contract.
Protect yourself, your equipment, and your professional relationships by knowing the rules. No matter how small and mundane these risks seem, they can add up to one big headache. Utilize the expertise of the Construction Practice Group to help identify and mitigate some of these risks. >