Borrowing equipment is a common occurrence on construction sites.  But, it’s riskier than you might think.  There could be a number of questions about whose insurance is responsible to pay for damages should something go wrong.

The Situation

A fellow subcontractor has asked to borrow your backhoe for the remainder of the day.  You don’t need it for the work you are doing, so you let him borrow it.  The subcontractor promptly destroys your backhoe and damages the project.  Are you going to get reimbursed for the damage to the backhoe and who must pay for the property damage?

Insurance Coverage

The subcontractor’s Commercial General Liability policy will probably pay for the property damage, but it will not provide coverage for the damage to the backhoe because the CGL excludes coverage for someone else’s equipment in your care, custody and control.  The subcontractor’s property insurance may cover the backhoe. But, you will have to find out if he has coverage for borrowed equipment.  Remember, you loaned him your backhoe, you did not rent him the backhoe.

You may also run into problems if your CGL insurer pays for the property damage, but then looks to get reimbursed or subrogate against the subcontractor.  If the subcontractor does not have coverage for this loss, your insurer may look for direct payment from the subcontractor, which could put him out of business.

At the end of the day, loaning your backhoe to a fellow subcontractor can create real problems, that may not be insured.

Take Away: If you do make it a practice of loaning your equipment to others, put together a simple rental agreement that requires the proper insurance be in place before you loan it.