Understanding Subcontractor Insurance - What You Should Know

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’re trying to shift the exposure to YOU, the subcontractor.

There are ways to protect yourself. By knowing and understanding your construction 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 property damage or bodily injury coverage to include claims that happen after you’re 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. Or you might have an office building where you keep spare parts or equipment that your customers have purchased or that are waiting to be installed.

These tools range in cost, but they’re always an expense you don't want to shoulder if they’re stolen from a job site. This type of property can be covered under a property or heavy 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. Additionally, depending on your state, you can be responsible for the injuries of your independent contractors. 

Workers’ compensation covers the medical payments associated with an accident an employee had while working for you. Having workers' compensation and employers' liability is critical to protect your business 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 damage to company vehicles as well as any liability from accidents that happened on the job.

Bonding

If you’re bidding on a large construction project or one that is publicly funded, you will either need to be covered under a surety bond or a subcontractor default insurance program.

These policies cover your obligation to finish the project if you’re financially unable to do so, or your company shuts its doors. This gives the general contractor or project owner peace of mind, 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. Sometimes the U.S. Environmental Protection Agency (EPA) will even get involved and force you to pay fines, cleanup costs and more. If paid out of pocket, pollution claims often result in bankruptcy. 

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

Errors And Omissions (E&O)

Your general liability policy will not cover certain claims. There are some situations where you will need coverage for claims other than property damage or bodily injury. In these situations, a contractors E&O policy fills in a lot of the gaps, covering allegations or claims involving:

• Failure to deliver promised services
• Negligence in providing professional services
• Poor, incorrect, or incomplete work
• Errors and oversights

Benefits Of Subcontractor Insurance

Protection From Financial Loss

If a contractor is found liable for an injury or mistake, the costs—including medical costs, legal fees and damages—can be overwhelming. Liability insurance provides financial protection against these risks, while equipment insurance and property insurance cover repair or replacement costs if the business’s physical assets are damaged, lost, or stolen.

Compliance With Laws And Contract Requirements

In many areas, certain types of insurance, such as workers compensation and liability insurance, are legally required for businesses, including contractors. Contracts for certain projects, especially commercial and government projects, also often require proof of specific types of insurance and adequate coverage to protect against potential risks.

Employee Protection

For businesses with employees, workers compensation insurance provides essential protection. The potential liabilities resulting from a severe injury can be huge. Workers comp covers medical costs and lost wages if an employee gets injured or sick while on the job.

Professional Reputation

Carrying adequate insurance coverage can enhance a contractor's reputation. It shows potential clients that the contractor is professional, prepared for risks, and able to handle issues responsibly.

Are subcontractors covered under the general contractor's insurance?

Every contractor is usually responsible for carrying their own insurance. Sometimes the general contractor’s insurance policies may cover you, but there are 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.

The Bottom Line

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

LandesBlosch has decades of experience in the construction industry, and we’re happy to answer any questions you might have. Contact us today to learn more about subcontractor insurance and find the policy that’s right for you.