Safety

Why Subcontractors Need to Be Insured

General contractors that hire subcontractors without proper insurance may find themselves footing the bill for lawsuits or claims, including property damage, bodily injury and even pollution.
By Joseph Lalla
July 6, 2018
Topics
Safety

Most people wouldn’t let a doctor perform surgery without proper insurance. The same principle rings true when general contractors hire subcontractors to work on their projects. If general contractors fail to properly vet their subcontractors, they could find themselves on the hook financially and their reputation in shambles.

Why is it important for subcontractors to be insured?

When a general contractor takes on a project, it assumes relative responsibility for the entire project. This includes not only management aspects, but also the teams they hire. If a general contractor fails to hire subcontractors with proper insurance, they could easily find themselves footing the bill for a variety of different lawsuits or claims. These claims could include property damage, bodily injury and even pollution. It is considered a best practice to require that every person working on a project be covered by a liability policy.

If the subcontractor doesn’t have coverage, the general contractor could be sued and potentially held liable in court for damage or injury regardless of who was responsible. GL policies very clearly state that the policy will only cover claims resulting from “your work,” not the work of a subcontractor.

What should general contractors ask subcontractors to provide?

Prior to starting any job, general contractors should request to see proof of insurance from each subcontractor involved. They should look for four things:

• general liability;
• limits;
• auto insurance; and
• workers’ compensation.

Subcontractors should not only have general liability insurance, but also adequate limits that accompany it. What good is a liability policy if it won’t cover much of anything? A good rule of thumb is that the subcontractors’ limits should be comparable to the general contractors’ policy limits. Depending on the nature of the project, general contractors may also want to request proof of pollution liability insurance. Confirming auto insurance coverages in the event they hit a company car, house, persons or pets should be on the list to verify as well. In addition, general contractors should ensure that subcontractors have Workers’ Compensation coverage that covers their team. If they don’t, general contractors could find themselves taking the hit for any injuries that occur to their team members.

Last but not least, general contractors should require all subcontractors to name the general contractors as additional insureds on their general liability policies. This will help protect the general contractors if they get sued for something related to the subcontractors’ work.

These requirements should be considered commonplace prior to starting any project or entering any new agreements. Many general contractors will even write these stipulations into their own agreements as part of the contractual engagement, with a risk transfer agreement in place.

Reputation Preservation

For general contractors, reputation is always on the line. While it may be appealing to hire the cheapest contractor or the one who is available right then and there, that may not be the best idea. It is always prudent to enter agreements with vetted, reputable and reliable subcontractors who both the general contractor and the client can trust. Their work will directly reflect on all associated parties.

When searching for new subcontractors, it is always worth it to take the time to find partners that can be trusted. General contractors should consider asking around for recommendations, always check references and take the time to verify proof of insurance. The extra time and effort spent verifying subcontractors is worth it.

by Joseph Lalla
Joseph Lalla has been a commercial insurance agent with Georgetown Insurance Service, Inc. since 2008. He has a construction background and concentrates on Construction Contractors, Nationwide Limousine Companies and Hazardous Soil Contractors. He is a member of ABC Chesapeake Shores Chapter, the Sheet Metal and Air Conditioning Contractors’ Association, Maryland Limousine Association and the Virginia Limo Association.

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