02 Oct What You Need To Know About Sub-Contractors And Your Insurance
Contractors often use sub-contractors with specific expertise on projects. It makes sense to let an expert do the work quickly and properly. However, contractors need to take special precautions to protect themselves from risk.
Here’s what you should pay particular attention to when working with sub-contractors:
When you hire sub-contractors to work on your behalf you must ensure they have adequate insurance coverage. Otherwise, their mistakes could become your liability.
It’s a very common and wise practice for contractors to specify their insurance requirements in their sub-contractor agreements. Before work begins, ask to see their “Certificate of Liability Insurance,” check it is active and they have adequate coverage and limitations to ensure they fulfill your demands.
Also ask them to provide you with a copy of any endorsements, since some attach restrictive endorsements. If the sub-contractor’s insurance doesn’t cover an event, the aggrieved party could pursue you instead.
If for some reason it isn’t feasible for a sub-contractor to buy their own insurance, you can also add them as an “Additional Insured” to your policy. This only covers work they do for you during the contract.
Contractors are only required to pay workers’ compensation insurance for their W-2 employees after their business reaches the specified size dictated by their state. However, it is extremely important you ensure your sub-contractors carry valid workers’ compensation coverage.
Even if you work regularly with sub-contractors, you can’t afford to let your guard down. It might seem an onerous task to track down and verify workers’ compensation insurance certificates, but it is essential for your protection. Insist on them before work starts.
You should also include an additional insured clause in your subcontractor agreement which requires written notification of a policy cancellation from the insurance provider. Otherwise, you have no way of knowing if the sub-contractor let their coverage lapse and it happens more often than you might think.
Since it is your responsibility to ensure sub-contractors have workers’ compensation coverage, you’ll face the repercussions if they don’t. Your carrier may hike up your premiums or drop you as a client. That makes it harder to find an insurer and almost guarantees you’ll pay more.
If your business can’t produce a valid certificate of insurance for every sub-contractor when you’re audited, workers’ compensation will charge your company retroactively for what it would have cost the carrier to cover the injuries that might have occurred.
Workers’ compensation insurance is expensive enough without incurring a hefty, unnecessary expense. Even seemingly reliable sub-contractors can cut corners to save money. Of course, trying to recoup the money you pay to worker’s compensation can be next to impossible. If there’s an injury or accident involved, your costs escalate exponentially.
Rely on the expertise of an insurance professional to ensure you’re fully protected. Insurance policies are complex and an exclusion or limitation could leave you at risk.
An independent agent or broker understands policy language and your potential risks. Let them tailor your coverage to your business needs to protect your company.