Understanding Subcontractor Insurance - What You Should Know

November 12, 2019

Construction projects are a virtual landmine of risk and potential liabilities. Every party involved in the building process is trying to manage risk and ultimately shift the liability exposure to other companies. 

And most of the time, they are trying to shift the exposure to YOU, the subcontractor.

There are ways to protect yourself, however. By knowing and understanding your insurance program and purchasing coverage for your risks, you can increase your chances of surviving 

5 Subcontractor Insurance Coverages You Should Have

General Liability

A quality general liability insurance policy is a core coverage for any subcontractor. It not only covers property damage that you cause at the job site, but also bodily injury (to a non-employee) that you create.

A general liability policy for subcontractors should also cover products and completed operations coverage. This extends your insurance coverage of property damage or bodily injury to include claims that happen after you are finished with the job. An example of a completed operations claim would be if a deck you built a year ago collapsed and injured people.

Property/Contractors Equipment

As a subcontractor, you most likely work with specialized tools or heavy equipment. These tools can range in cost, but each can likely be an expense you don't want to shoulder if they are stolen from a job site. 

Additionally, you might have an office building where you keep spare parts or equipment that your customers have purchased OR are waiting to be installed.

This type of property can be covered under a property or contractor's equipment insurance policy. 

Workers' Compensation

Employee injuries frequently happen on construction sites. Although you might be able to pay for small injuries out of pocket, a severe injury could bankrupt your company. In most states, this coverage is also required by law.

Workers' compensation covers the medical payments associated with an accident an employee had while working for you. 

Additionally, depending on your state, you can be responsible for the injuries of your independent contractors. Having workers' compensation and employers' liability is critical to ensuring you are protected from the costs of these injuries.

Commercial Auto

If your business uses vehicles for its operations, it is important to have them covered under a contractor's commercial auto policy. This coverage will pay for the liability and damage to your automobile caused by a wreck or accident.

Bonding

If you are bidding on any significant or public construction projects, you will either need to be covered under a surety bond or a subcontractor default insurance program.

These policies cover your obligations to finish the projects in the event that you are financially unable to do so, or your company shuts its doors. This gives the general contractor or project owner the peace of mind that you bona fide subcontractors insurance, but also assures them they can hire another subcontractor to finish work they already paid for.

3 Subcontractor Insurance Coverages You Should Consider

Excess Liability

With the court system commonly awarding judgments in the millions, it's essential that you purchase a liability policy that can protect your business in the event of a lawsuit.

Most excess insurance policies can increase the limits of your employers' liability, your general liability, and your commercial auto limits.

Environmental

Being liable for an accident that causes an environmental claim can result in enormous consequences. Frequently, the EPA will also get involved and force you to pay fines, cleanup costs, and more. If paid out of pocket, pollution claims often result in bankruptcy. 

A contractor's environmental or pollution policy will cover the fines and damages you cause from a pollution event on a job site (or even in transportation).

Contractor's Errors & Omissions (E&O)

Your general liability policy will not cover certain claims. There are some situations where you will need coverage that doesn't involve property damage or bodily injury. In these situations, a contractor's E&O policy fills in a lot of the gaps. A strong contractors E&O policy covers allegations or claims involving:

  • Failure to deliver promised services

  • Negligence in providing professional services

  • Poor, incorrect, or incomplete work

  • Errors and oversights

Are subcontractors covered under contractor's insurance?

In general, every contractor should be responsible for carrying their own insurance. You can be afforded some protections on other contractor and subcontractor insurance policies, with caveats. 

These protections can be additional insured endorsements, per project aggregates, and certificates, but make no mistake...if you aren't directly paying for the insurance policy AND your name isn't listed on the declarations page, you cannot rely on an insurance policy that isn't yours.

Additionally, some insurance policies exclude liability from any operations that aren't yours.

Conclusion

Subcontractor insurance can protect your business and investments in one of the most high-risk industries out there. It is important to know what your policy covers and have an insurance professional who understands your business to help guide you through the process.

About The Author: Austin Landes, CIC

Austin is an experienced Commercial Risk Advisor specializing in property & casualty risk management for religious institutions, real estate, construction, and manufacturing. He has his Certified Insurance Counselor designation and has been featured in multiple national publications for his expertise in commercial insurance.

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