What to Do if a Subcontractor Does Not Have Liability Insurance
When working with subcontractors, it is important to make sure they have the right insurance protection. This can get confusing when you are dealing with many people on several projects. Additionally, some contractors do not even know what insurance they need to require for subcontractors.
Unfortunately, an inability to keep up with subcontractor’s insurance leads to big consequences for general contractors. Therefore, it is important to make sure everybody you work with has subcontractor liability insurance.
What is Subcontractor Liability Insurance?
Subcontractor liability insurance is much like general liability insurance. It covers events such as property damage and injuries. It is important to make sure subcontractors carry general liability insurance. Your policy will not cover them in the case of an accident. This means they can sue, and you are responsible for damage that may occur on your projects.
Subcontractor liability insurance also helps protect subcontractors against lawsuits. Lawsuits can arise from any job-related activities, and if subcontractors do not have coverage, the responsibility falls on the general contractor. That means expensive insurance claims, damage repairs, and project delays.
This coverage is also important for subcontractors. Many companies will refuse to hire them without this coverage.
Do Subcontractors Have to Carry Liability Insurance?
Businesses and general contractors must carry general liability insurance. Subcontractors, however, do not always have to have coverage. Although this is the case, you can still require subcontractors you work with to carry liability insurance.
It is a good idea to only work with subcontractors who carry subcontractor liability insurance. This way, if an accident occurs, at least your insurance policy is not all the subcontractor has to rely on.
What to do if a Subcontractor Does Not Have Liability Coverage
If you choose to add a subcontractor as an additional insured on your general liability policy, they will receive coverage from your policy. Before doing this, talk to your insurer because adding an additional insured is not always an option. Sometimes general liability policies will only cover damages caused by the policyholder.
Another way to work with a subcontractor who does not have liability insurance is through bonding. If your subcontractor agrees, you can pay a surety bond company which will help to cover the cost of damages. An important thing to note about this choice is that the bond is often not enough to cover all the damage.
You can also agree with a subcontractor that they will pay you back for any damage they cause. If you choose this route, involve lawyers so there is an official agreement, and you are not left with the cost of damages. When damage occurs, the subcontractor will have to indemnify you.
Make Sure Everybody Has Coverage
The most important thing to remember when working with subcontractors is that everybody needs some type of coverage. You can require subcontractors to carry liability insurance or choose surety bonds or indemnification. In sum, you need to make sure you are not left with the cost of damages.
All these options are great ways to assure you are not paying out-of-pocket for subcontractor’s mistakes, but the best way to assure this is with subcontractor liability insurance. Following this practice means you must make sure all subcontractors you work with have coverage for the duration of projects. This can be a lot of work without software to help.
Sign up for a free SmartCompliance demo to learn about how the software helps contractors:
- Track subcontractor compliance.
- Send reminder emails to subcontractors who are out of compliance.
- Allows subcontractors to upload documents proving they have coverage.