Article Reviewed by a licensed insurance professional: Sam Meenasian (CA dept of insurance license #0F75955).
Estimated reading time: 4 minutes
Key Takeaways
- General Contractors must ensure subcontractors have their own insurance to protect against liability.
- Subcontractor insurance is often required by contracts, lenders, or owner agreements to mitigate risks.
- Request a Certificate of Insurance (COI) from subcontractors to verify their coverage before starting work.
- Always verify the COI with the subcontractor’s agent or directly with the insurance company to avoid fraudulent documents.
- USA Business Insurance offers support in finding the right coverage for both GCs and their subcontractors.
If you’re a General Contractor working on a big job, you know what’s at stake. You know that when things go wrong, the owner will be coming straight for you. You know that liability for accidents is a major piece of the job, and when something does happen, you know your insurance coverage will likely be involved.
It’s probably not a secret to you that your subcontractors need their own insurance, either. While the risks of working without insurance are clear to you and you have the necessary coverage, do the people out in the field that you’ve hired to perform the specific tasks you can’t do need their own insurance, too? The answer is typically pretty straightforward. Of course they do.
Why Should Subs Have Their Own Coverage?
Subcontractor insurance requirements are rarely mandated by statute alone. It may be required by contract, lender conditions, or owner agreements. General contractors and owners almost always require subcontractors to have their own insurance to protect themselves from liability when accidents occur that are in the subcontractor’s scope of work.
When a subcontractor has their own insurance coverage, they are protecting themselves from high costs. Think about injuries related to dangerous work. If something goes wrong, huge legal fees and settlement amounts are on the horizon. And we’re talking big, if a pedestrian suffered a severe injury.
As a GC, though, you care less about the protection it affords the subcontractor and more about the transfer of risk aspect. You want the subcontractor’s insurance to protect you and the owner when something goes wrong with the subcontractor’s work. No one wants to be left holding the bag when an accident occurs.
The best way to ensure that this is the case is by adding requirements to a tightly-worded contract. As the GC, you should always require your subs to provide proof that they’re duly insured. You should always request proof of insurance. This is called a certificate of insurance. Always request proof of a COI before allowing your subcontractor to start work.
How Can I Verify A COI?
If you want to be on the safe side (and you should! ), always request the COI directly from the subcontractor’s agent or broker. This has happened to me before. A subcontractor wants a large job and isn’t insured. So, they forge a COI so that they get the bid. When the injury occurs, the general contractor is left on the hook for it because they didn’t verify that their subcontractor’s insurance was real.
Most reputable companies use an ACORD form for their liability insurance. The font and spacing should be consistent throughout. There shouldn’t be blurry words or odd-looking fonts that look out of place.
You should also ensure their insurance company is real. You can check on AM Best to see an insurer’s rating. Ensure the subcontractor’s agent’s information is complete, and their email address matches the company’s domain.
And if you’re still not sure, reach out to the agent directly. Use the phone number provided on the COI. You can ask the carrier if the policy is active and what it covers. You can verify the coverage types and limits. You can even ask about any specific endorsements. In construction, make sure your company is named as an additional insured if required by contract.
Trust USA Business Insurance For Your Commercial Insurance Needs
As a GC, you’ve got enough on your plate. Whether or not you are properly insured should be a big concern for you. Thankfully, the team at USA Business Insurance is here to help you find the right coverage. And if one of your subcontractors is in need of coverage, we can help them, too, by connecting them to the right carrier to ensure you’re both covered in a worst-case scenario.
