Who is responsible to pay for stolen equipment on job site?

Recently on our legal forum a user asked, “I was hired for small demolition job. While the equipment (bull dozer and excavator) were on jobsite they were vandalized and three batteries and a radiator were stolen. Who is responsible for replacing of property?”

Construction companies lose an estimated $1 billion dollars per year due to vandalism and theft. Not only does this potentially delay the completion of work, it may lead contractors and subcontractors to purchase and use cheap materials and equipment, further eroding the morale of the labor force.

While there are several steps you can take to protect your equipment, such as installing safety measures, taking a full inventory of your equipment, controlling access, doing background checks on all employees, and reporting all loss and theft to law enforcement, it’s inevitable that theft and vandalism will occur. This means you will need to take additional steps to protect yourself.

Builder’s insurance coverage

Major construction projects should not begin until the builder has purchased adequate insurance coverage to pay for any property damage, including damage to work in progress, equipment used for the work, materials, and tools. Insurance will also often offer protection from damage caused by third parties, such as a thief or a vandal, or from damage caused by a subcontractor or a contractor.

Insurance coverage may, however, exclude coverage for certain types of equipment used in construction, especially if the tools and equipment which were damaged were subcontractor tools and were not going to be permanently installed at the completion site.

How do you know whether your equipment will be covered by the builder? The first step is to contact the builder or main contractor and find out whether you were covered under their insurance policy.

Review your contract

Next, you will need to review your contract. Often the builder will include clauses in contracts which could read something like this:

• The risk in all goods and materials to be incorporated in the sub-contract works and in all plant, tools and equipment for use in connection with sub-contract works, including but not limited to third parties and employees and damage and loss howsoever caused, shall remain with the subcontractor which shall at its own cost maintain insurance of its goods and materials until Practical Completion of the Main Contract Works.
• Notwithstanding clause above, hereof, all goods, materials and temporary works shall become the property of the Contractor as and when the goods, materials and temporary works or any part thereof are first identified, inspected and appropriated by the Contractor for the Sub-Contract Works and in any event upon delivery to the site and whether payment therefore has at that time been made by the Contractor in whole or in part or not at all.

If your contract has clauses like those identified above, you may not be responsible if you were working on a project and you brought materials to the project site, such as shingles for a roof, and the materials were identified, inspected, and appropriated by the Contractor, but were later stolen from the property site.

If, on the other hand, you had a power tool or battery stolen from your work truck, this equipment could be considered your equipment and liability for its care and safe storage would therefore remain with you, which means there is an expectation that you would have your own insurance to cover the damage of your own property.

So are the subcontractors covered?

But the issue could even be a bit more complicated.

For instance, it could be a question of indemnity. Historically, it was much easier for the general contractors or builders to write risk transfer clauses which contained blanket indemnity agreements which shifted the costs to subcontractors for certain types of losses.

Some states, however, have updated contract laws, making it more difficult for the contractor to shift the liability for loss if the loss was caused by their own negligence.

You will need to review the indemnification clause of your contract to find out whether or not you or the contractor or builder may be liable.

If you have indemnified the general contractor from the consequences of certain accidents of property damage it will depend on the level of the indemnity clauses, which can be limited, intermediate, or broad form.

Under a limited indemnification clause, you would only be liable if your negligence caused the loss, under the intermediate indemnification you would assume liability unless the general contractor was negligent, and under the broad indemnification clause the entire risk of loss is on you, regardless of the actions of the builder or general contractor.

Bottom Line:

Whether or not you should have to pay for your own equipment which was stolen off the job site will depend on whether you are covered under the builder’s insurance policy, whether there are clauses in your contract which exclude the liability of the general contractor, or whether you have clearly stated the indemnification for negligence, which should have been explicitly and expressly sets forth in the contract.