Common Subcontractor Insurance Requirements
As a subcontractor, you have a unique set of insurance challenges and requirements that workers in no other industry face.
Why? Because subcontractor insurance must fulfill both your needs and the needs of the people hiring you, or else you won't get paid for your work.
You need a flexible insurance broker on your side and a policy that can accommodate the strict conditions of general contractors and project owners. But first, you need to know the typical subcontractor insurance requirements, how fulfilling them benefits you, and how to find the best provider.
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Common Subcontractor Insurance Requirements
Certificates Of Insurance
A certificate of insurance is a legal document that proves you're insured. Problems frequently arise because the general contractor or project owner wants specific wording within the certificate of insurance, for example detailing what is covered. Some requests for certificates can even require an insurance declarations page so the contractor can review exclusions more closely.
Most of these requests are for additional details, such as insured endorsements and waivers of subrogation. But sometimes the requestor wants specific wording on the certificate saying you're covered for things that either aren't possible to insure—such as "all roof work"—or that you’re not covered for. Subcontractor insurance coverage rarely includes everything. This is why you need the help of an experienced insurance broker to get an adequate certificate that will satisfy the general contractor.
Additional Insured Endorsements
Most general contractors and project owners want to be listed as an additional insured on your insurance policy. In fact, contractor insurance usually requires it as a condition for coverage.
But what is an additional insured?
An additional insured on a policy means that person or business is also covered under your subcontractor insurance. If they’re listed in a lawsuit arising out of your operations or the work you completed, the policy will pay their legal costs.
Per Project Aggregate
If you're a subcontractor who takes multiple jobs per month or week, you might have 20+ additional insureds listed on your policy at the end of the year. It's not uncommon to exhaust your insurance limits and leave your general contractor or project owner with no recourse for recouping damages.
The per-project limit assigns a dedicated limit of additional insureds to a specific project. This assures your project owner that if a claim were to arise, they would be able to collect from the full policy limits of your subcontractor insurance.
Contractors Pollution
Although rarer than the above terms, it is becoming more commonplace to require subcontractors to purchase contractors pollution liability. This policy covers any pollution arising out of your operations, including at a job site. For example, a pollution claim could arise from the spilling of a material or even hitting an underground pipe.
Pollution claims are usually substantial and involve the U.S. Environmental Protection Agency (EPA), which is why general contractors and project owners want to distribute the risk among subcontractors.
Subcontractor And Independent Contractor Coverage
Your policy must include coverage for subcontractors and independent contractors. It is becoming common for insurance carriers to exclude independent contractor and subcontractor liability coverage, which means they won’t pay your defense costs if an independent contractor or subcontractor names you in a lawsuit.
You don't want to be in that situation. There is a reason why insurance carriers are adding these exclusions—a LOT of claims arise from subcontractor and independent contractor use. Be sure to review your subcontractor insurance coverage to make sure this is included.
The Reasoning Behind Subcontractor Insurance Requirements
General contractors and project owners have subcontractor insurance requirements for the same reason you purchase insurance: to protect themselves. The single most significant risk on most job sites is a subcontractor injury or accident. Subcontractor insurance benefits them in a few ways.
Liability Protection
The construction industry is risky. Accidents or mistakes can cause property damage and injury. If a subcontractor is responsible, the general contractor could potentially be held liable if the subcontractor isn’t properly insured. By requiring subcontractors to carry their own insurance, general contractors shield themselves from liability.
Regulatory Compliance
Depending on the state, subcontractors may be legally required to carry certain types of insurance (for example, workers compensation insurance). The general contractor must ensure that all legal and regulatory requirements related to the project are being met.
Financial Stability
If a subcontractor without insurance suffers a big financial loss, it could jeopardize their ability to finish their part of the project. That can mean delays and additional costs for the general contractor. Subcontractor insurance requirements help ensure the financial stability of the project.
Professionalism And Trustworthiness
Comprehensive subcontractor insurance coverage shows that a business is serious about workplace safety. These subcontractors are often viewed as more professional. Insurance requirements are a quality control measure, helping ensure that the subcontractors hired for a project are reputable and reliable.
Contract Requirements
As part of the contract with the general contractor, the project owner might require them to check (and prove) that all subcontractors are insured. That protects the project owner’s interests if someone makes a claim related to the project.
3 Warning Signs A Provider Doesn’t Measure Up
Provider Doesn’t Offer Umbrella Coverage
Umbrella policies provide additional limits to meet contractual requirements. Many insurance companies offer baseline coverage ($1 million in limits) but do not have an umbrella policy product.
Other insurance companies won’t write an umbrella policy over someone else’s policy, because they cannot verify changes in the underlying insurance coverage or verify if it has been canceled, putting the umbrella insurance carrier in a bad position.
If your provider doesn’t offer umbrella coverage and you need to meet subcontractor insurance requirements quickly to get on a jobsite, you’ll have a problem. Instead of just requesting an umbrella quote, you’ll have to move all of your policies over to a new company, which could cause a significant delay and might end up costing you the job.
Provider Doesn’t Offer Common Construction Endorsements And Policy Types
General contractors sometimes have very specific or complicated subcontractor insurance requirements, like inland marine coverage, pollution coverage, contractor’s E&O, per-project aggregate limits, and much more. Some contractors want specific versions of older commercial insurance endorsements that require expertise to carry out.
Not all providers are familiar with the construction industry, and they may not be able to accommodate these requests or provide you with advice. Find an insurance firm with construction insurance experience and the ability to accommodate almost any job. You don’t want your insurance to be the reason you miss out on a big contract.
Policies With Classification Limitations Or Work Type Exclusions
Construction insurance is very specific due to the amount of risk involved. Many policies don’t cover every type of work and might not even cover you for activities that relate to, but are just outside of, your normal scope of work. The first common example is a classification limitation, which limits coverage to the type of work that the policy is rated for. This means if you are rated for electrical work, this is the only type of work that is insured. If you, your team, or even your subcontractors were to take a project that involved non-electrical work (i.e. drywall, deck building, etc) those non-electrical activities would be uninsured.
The second common limitation is a list of trades and services that are not covered under the policy (for example, roofing, welding, framing, or excavation). We suggest that you get a policy without any of these limitations, even if you don’t offer these services, but sometimes it’s unavoidable without paying prohibitively more in premiums. Always be sure you understand what activities are and are not covered under your policy.
The Bottom Line
The wrong subcontractor insurance coverage can not only cause you to lose job bids, but can mean you don’t get paid after the work has been completed. That’s why you need a specialty insurance broker who has experience with subcontractor insurance requirements and can not only accommodate the general contractor’s requests, but advise you on what you really need—and what you don’t.
LandesBlosch has that experience: 97 years of experience in the construction industry, to be exact. We’ve seen the evolution of subcontractor insurance first hand, and we can help you get what you need. Start a quote with us today and we’ll take it from there.
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.