As a subcontractor, you can only sometimes can’t depend on your contractor’s insurance. Getting coverage yourself is best to ensure you and your business are protected. Subcontractor liability insurance comes in many forms, so exploring the options is essential to finding the right policies that meet your needs.
This guide is here to help you. In this article, we’ll guide you through the policies every subcontractor should consider and how they can safeguard your business. Keep reading to enhance your understanding of the various types of subcontractor liability insurance policies your business might need.
Subcontractor liability Insurance
Subcontractor liability insurance covers various policies that aim to protect subcontractors from third-party injuries and property damage claims financially. While subcontractors are often linked to construction projects, this coverage also applies to those in the advertising, media, and technology sectors.
Specific policies may be legally mandatory based on the industry, while others are commonly specified as requirements in business contracts.
Are subcontractors required to have insurance?
Subcontractors and independent contractors might need insurance to follow state laws and licensing rules. They may also require insurance to qualify for contracts and safeguard against financial losses.
Every job a contractor takes on comes with unique needs and challenges in completing the required work. When a contractor needs the help of a subcontractor, they might need to pay attention to insurance terms, as their coverage often only extends to unlisted subcontractors.
Although subcontractors aren’t usually legally required to have insurance, there are situations where coverage may be necessary. For instance, if a general contractor asks for a waiver of subrogation, the subcontractor must be listed as an additional insured on the contractor’s coverage. Some policies a subcontractor may need include:
- Workers’ compensation insurance
- Professional liability insurance (errors and omissions or E&O insurance)
- Commercial auto insurance
Subcontractors must understand why they need their business insurance, as different situations may require various policies to reduce risk exposures and protect their business.
When do contractors need insurance coverage?
For some subcontractors, getting work can be challenging without having their insurance. Subcontractor liability insurance is crucial to their risk management plan, safeguarding their bottom line from lawsuits.
Subcontractors require insurance for several compelling reasons:
Insurance helps you qualify for contracts.
Customers or contractors might ask subcontractors to have specific insurance. This is crucial, especially for federal government contracts, as per Federal Acquisition Regulations, to protect against risks faced by the contractor. Medical professionals may need their liability insurance to work in hospitals or clinics. In the construction and contracting industry, different types of insurance are often required for subcontractors.
You may need insurance to get licensed.
Specific jobs, like those in healthcare, law, real estate, and insurance, may need professional liability insurance, also called errors and omissions (E&O) insurance. For healthcare professionals, it’s known as medical malpractice insurance. This insurance helps if mistakes or omissions happen in their work.
Professions that typically require this coverage include:
- Healthcare professionals
- Real estate professionals
- Insurance professionals
State laws may require insurance.
Besides professional licensing, many states, including subcontractors, have extra insurance needs for small business owners. Most states ask for workers’ compensation insurance for businesses with one or more employees or sole proprietors in riskier jobs, like building trades. You might also need commercial auto insurance by law if you have a business-owned vehicle.
Insurance protects your business from bankruptcy.
Picture this: someone claims you damaged their property. Even if it’s not your fault, you must defend yourself in a potentially costly lawsuit. That’s where general liability insurance comes in, easing the financial burden.
If a client is pleased with your work or accuses you of causing them financial losses, your professional liability or errors and omissions insurance steps in. It helps cover the expenses of a lawsuit and settlement.
Does the contractor’s insurance cover subcontractors?
Subcontractors usually don’t fall under a general contractor’s insurance coverage. A subcontractor must be explicitly named in an additional insured endorsement with the contractor’s insurance company to be covered under someone else’s policy.
An additional insured is someone covered by an insurance policy other than the policyholder. Some contractors might agree to list their subcontractors as additional insureds on their insurance certificate, especially if they have an ongoing relationship.
It’s common for contractors to expect subcontractors to have their insurance and may request proof of insurance before hiring them. Contractors might even ask subcontractors to list the contractor as an additional insured on the subcontractor’s policies.
What impact does a waiver of subrogation have on both contractors and subcontractors?
A waiver of subrogation is an agreement that lessens one party’s responsibility in a contract. In the construction industry, general contractors often ask subcontractors to provide a waiver of subrogation as part of their operations coverage.
When a subcontractor gives this waiver to a contractor, the subcontractor and their insurance company agree not to sue the contractor over an insurance claim, even if the contractor was negligent on a job site.
To include this waiver, the subcontractor informs their insurance carrier, which may increase premiums due to the added risk.
These waivers can be applied to various insurance policies, including general liability, property insurance, and workers’ compensation.
Which insurance policies should a subcontractor consider?
In addition to the mentioned insurances, subcontractors should explore various business insurance options for comprehensive coverage.
Commercial General Liability Insurance
This insurance protects against common business risks like customer injuries, property damage, and advertising issues. It’s often a requirement for leases and contracts.
Commercial Property Insurance
Required for leasing commercial properties, this insurance covers damages, losses, and theft of business property, including buildings, inventory, and equipment.
Business Owner’s Policy (BOP)
Combining general liability and commercial property coverage, a BOP offers a cost-effective, all-in-one solution compared to separate policies.
Subcontractor liability Insurance: Hired and Non-Owned Auto Insurance
This liability policy covers personal, leased, or rented vehicles used for work, as private auto insurance may not cover work-related accidents.
Subcontractor liability Insurance: Cyber Insurance
Also known as cyber liability insurance, it helps cover the costs associated with data breaches or malicious software attacks.
Subcontractor liability Insurance: Fidelity Bonds
Often required for contract eligibility, these bonds act as a surety, reimbursing customers and the business in case of employee fraud, theft, or forgery