Contractors, Subcontractors, and Business Insurance: What You Need to Know

If you’re a contractor to a large client, you might hire subcontractors to help carry out your services. The arrangement works, but if a client is dissatisfied with the outcome or someone is injured on the job, you should have an insurance plan for backup in that situation.
However, if a claim is filed against the subcontractor, you could still be responsible, especially if that third party doesn’t have insurance coverage. As your business arrangement with a subcontractor unfolds, what should you be aware of to protect yourself?
Getting Coverage
Legally, both contractors and subcontractors are required to have business insurance. General liability insurance protects a business against lawsuits, pertaining to accidents or other situations where the business may be held accountable. Other industry-specific coverage may be needed beyond general liability coverage for:

• Construction
• Carpentry
• Plumbing
• Cleaning
• Electrical work
• Landscaping
• Painting
• Plowing

In most cases, a Business Owners Policy provides coverage for your equipment, your office building, any lost income, operation costs, commercial vehicles, professional liability and worker’s compensation.
Dealing with a Claim
Oftentimes, business insurance can seem like an unnecessary expense…until you face a claim. If you’re frustrated about the extra expense, consider what could go wrong with insufficient coverage, or none at all:

• You face a claim from a subcontractor, and later discover your insurance company doesn’t want to pay.
• Your general liability policy won’t cover work done by the contractor.
• Your policy excludes all subcontractor work, making it your responsibility when a client complains about a poor-quality job.
• Your premiums go up because the insurance company considers an uninsured contractor part of your company.

Additionally, having your own coverage often isn’t enough. Any subcontractor you take on must also be insured. What can you do to make sure you’re not being held responsible?

• Put an insurance requirement in their subcontractor agreement.
• Request proof of coverage, such as a Certificate of Insurance.
• Require the subcontractor list your company as “Additionally Insured” on their policy. Should a disagreement arise, the subcontractor will have to pay the claim.

Does your BOP or business insurance policy include coverage for subcontractor labor? Contact Ion today to learn more about how we can help you amend or expand your business insurance coverage.