Do Subcontractors Need Their Own Insurance?

subcontractor on job site

As a general contractor who builds or renovates properties for your clients, you are legally responsible for completing all work for that project. No matter how many subcontractors you contract with to perform a job, they are liable to you and you alone, making subcontractor insurance an important protection.

Contractors should be cautious that their subcontractors are adequately covered both by their policies and the subcontractor's own.

Many Commercial General Liability policies provide protection from any liability arising from subcontractors. However, others include an exclusion for independent contractors, which means if anything goes wrong due to the work that a subcontractor performed on your behalf, your policy will not cover that loss.

Subcontractor insurance protects the contractor

It’s important for subcontractors to have their own insurance coverage to bear the risk of loss associated with their work in the event of a lawsuit.

While some Commercial General Liability policies exclude independent contractors, even if yours doesn’t, you should still include in the contract an indemnification provision that demands the subcontractor assume defense of a claim.

CHECK OUT: Quick Guide to Errors and Omissions Insurance

This means fewer losses associated with your policy so your premium does not go up.

The same goes for Worker’s Compensation. In most industries, Worker’s Comp is not designed to cover an independent contractor.

However, in remodeling, if a subcontracted employee is not insured under their own policy, the exposure will be transferred to your Worker’s Comp policy.

When your policy is audited, you will be charged a premium for their payroll. As with Commercial General Liability Insurance, you run the risk of additional premiums.

This can also impact your future rates as a result of increased losses absorbed by your policy. 

What is subcontractor default insurance?

If you subcontract at least half a million dollars and conduct comprehensive subcontractor pre-qualifications, Subcontractor Default Insurance might be a better option for you than Surety Bond coverage.

This type of insurance compensates the insured if a covered subcontractor neglects to fulfill its contractual obligations. 

Best practices when working with subcontractors

  • Verify licenses — Make sure your subcontractors are licensed with your state.
  • Vet your subcontractor  Ask for references for previous work and check to see if any complaints are filed against your subcontractor.
  • Broker all communication  Since you are responsible for all work performed, everything should go through you. Do not let your client deal with your subcontractors. What you don’t know can hurt you!
  • Document a walkthrough — Make sure your subcontractors know exactly what you want done and that it is documented; when a project is finished, carefully walk through and inspect all work performed by subcontractors. If repairs must be made, re-inspect after they are completed.
  • Vet your subcontractor’s subcontractors  Make sure you approve of subcontractors and verify certificates of insurance for additional workers hired by your subcontractor. Again, you are ultimately responsible for all work performed.