Whether you own a small plumbing business or a large excavation company, make sure you’re adequately insured if you sign on as a subcontractor to a construction project.
While the general contractor (GC) is responsible for managing the project and ensuring the job is completed on time, you could still be liable if something goes wrong.
If one of your employees is injured on the job, you could be subject to a workers’ compensation claim. If faulty workmanship on your part causes damages or injuries, you could be held liable. If you fall behind schedule or your expenses exceed the contracted amount, you could be sued by the GC. You could also be named in a lawsuit if the owner of the project has a dispute with the GC. The blame for an accident or delay could be shifted to you, even if it isn’t entirely your fault.
Since a big loss could potentially bankrupt your business, you’ll want to make sure you’re adequately protected. A good first step is to talk to an insurance professional who specializes in construction.
Checklist for subcontractors
Let’s review some of the basic protections you should have as a subcontractor.
- Are you licensed and bonded? Most contractors who do work above a specified dollar amount or perform specialized work such as electrical, plumbing, or heating and air conditioning must be licensed and bonded in their state. In addition, you may need to obtain a performance bond. Performance bonds provide certain guarantees in the event you default on a job. If you’re a critical-path subcontractor, your GC may require you to have a bond or carry subcontractor default insurance.
- Do you have a work contract with the GC? Make sure you have a contract that outlines the scope of your work, the length of the project, terms of your payment and how claims are to be handled. Most GCs have standard contracts.
- Are you able to meet your GC’s insurance requirements? Your contract with the GC will likely stipulate what forms of insurance you need for the job. The GC’s insurer will want the limits of your commercial general liability (CGL) coverage to meet or exceed the GC’s policy (see CGL below). The GC’s insurer may also require you to hold the GC harmless if there is a claim on work you performed. This is usually accomplished through an indemnity clause.
- Do you have certificates of insurance? Your GC may ask you to provide certificates of insurance proving that you carry CGL and workers’ comp insurance. Certificates of insurance can also be a competitive advantage when you bid on a job, since they indicate you already have coverage.
CGL coverage
CGL is a common coverage nearly every contractor carries and one that’s required on many construction projects. CGL covers injuries or damages caused by your company. Typical examples include injuries to individuals (other than your employees) on job sites, property damage and faulty work. CGL covers the cost of your legal defense and pays damages, up to the limits in your policy, if you are found liable.
It’s important to note that CGL doesn’t cover negligent professional acts. These would be covered by a separate professional liability policy.
Workers’ compensation insurance
Workers’ comp covers employees for injuries sustained on the job, and is required in nearly every state. Subcontractors in particular need this coverage because injuries are more frequent on construction sites.
Most GCs will require their subs to have workers’ comp coverage as a condition of the job. However, GCs are responsible for providing workers’ comp benefits if the subcontractor is uninsured.
An insurance professional who specializes in the workers’ comp market can review your experience rating (ex-mod) and recommend ways to lower your premium costs. Keep in mind that your premiums will be higher if you’d had previous claims or your employees are classified as working in a particularly dangerous occupation, such as roofing or excavation.
Wrap-up policies
For large construction projects, the owner or the GC may elect to use a controlled insurance program known as a wrap-up. Wrap-ups consolidate all of the coverage needed for the project, and they cover all of the contractors on the job. These policies typically include CGL and workers’ comp. In exchange for this coverage, you’ll be asked to reduce your bid by the amount you would normally include for insurance costs.
Other coverages you may need
CGL and workers’ comp are the two main policies you’ll need as a subcontractor, but there are other types of insurance you should consider, too. Here are a few to think about:
- Commercial property insurance protects your company’s physical assets from fire, theft or other covered losses. These policies typically cover buildings, equipment, furniture, personal property, inventory and tools.
- A business owners policy (BOP) is a bundled insurance policy that includes general liability and property insurance in one policy. It’s usually less expensive than buying the same coverage separately. You may also benefit from a commercial package policy, which is similar to a BOP but with more coverage options.
- Inland marine insurance protects your tools, equipment and materials while in transit or on job sites. Some BOPs provide limited inland marine coverage, but additional insurance may be needed for high-value items. Keep in mind that property insurance protects items stored at the location named in the policy, so items being carried to or from a job site might not be covered.
- Builders risk is a form of inland marine insurance that protects a construction project in progress. It insures against property losses and covers any materials, supplies or equipment that are on site or in transit. A form of builders risk called installation floater insurance can cover any materials, supplies or equipment used to install, fabricate or erect property on a job site.
- Professional liability, or errors and omissions insurance, protects you against lawsuits if you provide professional services such as surveying, engineering or architectural services.
Working on a construction project can be exciting and profitable. It can mean steady work for an extended period of time and perhaps lead to additional projects. But keep in mind that, as a sub, you’re exposed to many risks. Take steps to protect yourself legally by securing a contract that details your work requirements and terms of payment. And talk to an insurance professional about CGL, workers’ comp and other coverages you’ll need to avoid big financial losses.
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This content is for informational purposes only and not for the purpose of providing professional, financial, medical or legal advice. You should contact your licensed professional to obtain advice with respect to any particular issue or problem. Please refer to your policy contract for any specific information or questions on applicability of coverage.
Please note coverage can not be bound or a claim reported without written acknowledgment from a OneGroup Representative.
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