How to Minimize Risk When Lending and Borrowing Equipment
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Say you’re on a jobsite and an issue comes up with the project, and you need a crane to lift a sizeable piece for the project. You didn’t expect to get to this today and don’t have the equipment needed. You see another sub on the job has something that might work for this lift. You don’t want to hold the work up to wait for a piece to be delivered, so you ask to borrow the crane for the lift. Well, what happens if there’s an accident when you’re in control of the equipment? Many things can happen, but you still need to protect your balance sheet by thinking this through.
Borrowing equipment is a common occurrence in the construction industry as it can save time and costs. Whether it’s for an hour or a week, there’s always the risk of damage to borrowed equipment. There are also potential gaps in construction equipment coverage that could make borrowing equipment a very expensive and sometimes awkward situation.
Here are three ways to ensure your construction company is covered and any claim costs don’t become your expense:
1. Know the coverage – A borrower of equipment is likely expected to provide coverage for a damaged item, even though there’s no contract in place. Your policy should be endorsed to provide coverage for borrowed equipment. This coverage is not automatic in most policies.
On the flip side, if you’re the “nice guy” lending equipment to another sub, you need to ensure coverage on your behalf and inquire if coverage for borrowed equipment is in place by the borrower. Even if it is, check that the limit is adequate enough in terms of value. Also, see if the borrower’s policy prohibits the type of equipment borrowed or excludes certain coverages specific to your type of equipment, such as boom or weight of load damages. If there are any issues, ask the borrower to place the item on the scheduled list of equipment already insured by their policy.
2. Borrow with operator – Usually, the general liability form of the borrower will not cover an item in question as it’s considered under the borrower’s “care, custody and control”. If the equipment is operated by an employee of the equipment owner, that exclusion would not be applicable for 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, and for that matter any type of equipment loan, it’s advisable to establish a contract for coverage by putting the loan of equipment in an actual rental contract. This then memorializes who’s responsible for coverage. An insurance certificate can also be issued at this point. This requires each party to check with their insurance advisors to ensure coverage is in place and adequate. Also, be careful about sharing third party rented equipment. If you loan out the crane 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 how insurance coverage will react. No matter how little risk you think there is, borrowing or lending equipment can easily add up to one big headache.
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