Should You Require Liability Insurance Coverage for Subcontractors?
Contractors and subcontractors face situations that can leave them liable for damages. As a result of this, general liability insurance is essential coverage in construction.
According to Investopedia, general liability insurance has three main functions:
- Protects the insured and their business from legal fees and damage resulting from a lawsuit.
- Covers the cost of claims arising from injuries and damage to others or their property.
- Pays legal costs and payouts from lawsuits when the insureds are found liable.
In some places, liability insurance is a requirement. State regulations sometimes require independent contractors to carry general liability coverage in certain industries, especially construction.
Because of the complexity of this insurance, many contractors have doubts about their general liability coverage and subcontractors’ part in it.
Given these points, to help clarify, we are answering the most frequently asked questions about liability insurance for construction.
Why do Subcontractors Need General Liability Insurance?
Let us start with the basics. Firstly, the importance of general liability insurance for subcontractors starts with understanding why you need this coverage. For example, if there is a lawsuit resulting from an injury to a client due to faulty work or an unsafe construction zone, this insurance coverage will help you with the associated costs. As a result of not having the right insurance coverage, lawsuits can destroy an organization.
For this reason, it is important to ensure you and all your subcontractors have general liability insurance during the entire project. For instance, if a lawsuit involves one of your subcontractors and they do not have coverage, you are left vulnerable to the suit. This means that if you do not have coverage, in effect, costs could come out of pocket. A claim against your policy also means you will see premium increases.
Should You Cover Subcontractors Through Your Insurance?
In any case, it is unsafe to assume your insurance policy provides coverage for subcontractors. This is typically not the case. Many insurers specifically exclude subcontractors from general liability coverage. Although sometimes it is possible to add a subcontractor to your general liability insurance, this is usually only allowed for specific projects. In conclusion, these policies only cover you and your employees.
If you do not check with your insurer about the status of subcontractor coverage and then there is an accident, your policy may exclude third-party damage. In this case, you are left with the costs.
In most cases, the best option is to require your subcontractors to carry insurance coverage. Subcontractors can provide proof of coverage with a certificate of insurance (COI). This helps keep you out of lawsuits and protects you from premium increases if a subcontractor makes a mistake and your insurance policy kicks in.
What Does General Liability Cover for Subcontractors?
General liability is the most common type of insurance. It covers all bases for both contractors and subcontractors. However, it is a type of business insurance typically required to begin bidding on any project.
You can tailor this coverage to include various aspects according to specific needs. The five main coverage options provided are:
- Property damage
- Medical payments
- Personal injury
- Advertising injury
- Bodily injury
How to Require Coverage for Subcontractors
The best way to make sure the subcontractors you work with carry general liability insurance is by writing it into your contract. Doing so will make the requirement binding and enforce the importance of this coverage.
Even if you require general liability insurance in your contract with subcontractors, this does not mean they will comply. You need to make sure you can track what insurance coverage they have for your project. The best way to track subcontractor insurance is with COI tracking and management software.
Using automated software allows you to enter requirements for subcontractors and have them upload their proof of insurance to the system. In our case, SmartCompliance uses optical character recognition (OCR) to scan the document and make sure requirements are met. As a bonus, the software checks policy expiration dates and sends renewal requests to subcontractors with policies that are about to expire.
If you are ready to ensure protection from subcontractor liability, schedule a free demo with SmartCompliance to get tracking!
