Subcontractor Liability Insurance: Why It’s Essential

June 03, 2024 | Insurance 101

This article was originally published December 14, 2022

It’s a lot to ask of a contractor to be an expert in everything. That’s why it’s common for contractors to hire subcontractors (sometimes referred to as 1099 workers) to handle some of the tasks on projects. The subcontractor typically specializes in a specific kind of work and can complete it efficiently. That means the contractor can focus on other tasks. But this is key: Workers you subcontract work out have to have their own subcontractor’s liability insurance

This article is about subcontractor insurance (general liability insurance for subcontractors, for example) and why you need to require the people you hire for a project to have it. 

Let’s dive in.

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Contractors, Subcontractors, and Liability Insurance

As a contractor, you know there are lots of risks on even well-run jobsites. You’re probably aware of situations where workers made mistakes like:

  • Damaging client property
  • Accidentally causing injuries
  • Unintentionally violating some rule, regulation, or law

If these or other types of incidents happen, a client can sue your business. In fact, clients can always file lawsuits that claim you made a mistake. 

Even if you haven’t done anything wrong, you have to pay for your legal defense to protect your company and reputation. That’s one reason that subcontractor insurance is so important. Liability insurance for 1099 workers benefits them and your business.

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Are Subcontractors Covered Under a Contractor’s Insurance?

Nobody needs to tell you that the relationship between subcontractors and contractors can be complicated. It’s affected by contracts, local laws, etc. In some cases, subcontractors are covered under the contractor’s policy, but not always.

Why wouldn’t a subcontractor have their own liability insurance? That varies, too. Some might not know they need it. Others may see liability insurance for a subcontractor as an expense they’d rather not pay. And some subcontractors realize they need it and are willing to pay for it but just haven’t taken the time to buy it.

Whatever the reason, liability insurance for subcontractors is something you need to address. If they don’t have coverage, it can be a problem for your business.

On the flip side, confirming that subcontractors have their own insurance by getting Certificates of Insurance (more on that below) can potentially lower your insurance costs and minimize future insurance cost increases. So, you should ensure that a subcontractor has the necessary coverage before you agree to hire them.

Requiring Subcontractor Insurance on Day 1

Hiring a subcontractor with the understanding that they’ll obtain insurance before work starts is risky. Imagine that you’ve obtained the required work permits, ordered materials, and scheduled this project and others to follow. Then, a subcontractor arrives at the jobsite without the insurance they said they’d have. 

That scenario puts you in a bind: Do you let them start working without insurance? Temporarily pause the project until they can get coverage? Fire them and hire another subcontractor? None of those options is ideal, but allowing a subcontractor to work without insurance is a significant financial risk you definitely shouldn’t take.

When thinking about liability insurance for a subcontractor, some contractors might say, “What are the odds something will happen in the couple of days until they get around to buying insurance?” Yes, a subcontractor could work for days, weeks, or longer without any problems. Or, they might create a costly liability the first time they swing their hammer. You just don’t know. That’s why having liability insurance for 1099 workers before starting a project is essential.

Insurance for Subcontractors: Obtain a Certificate of Insurance

Nobody wants to look like they don’t trust the people who work for them. But if a subcontractor says they have the necessary liability insurance, you shouldn’t just take their word for it. 

Maybe they make that statement fully intending to buy insurance later that day but aren’t able to for some reason. Or maybe they think they have the necessary coverage when, in fact, they don’t have the type of insurance or insurance limits required to protect themselves and you.

The only way to be sure someone has adequate subcontractor’s liability insurance is to review the Certificates of Insurance they provide. (Their insurance company can tell them how to get a Certificate of Insurance.) These documents indicate:

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    The name of their insurance company
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    The named insured on the policy—meaning the company or individual that the policy covers
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    Details on coverage amounts and limits
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    The policy’s effective date

If the information on the COI meets your requirements, you can start the project confident that the subcontractor has good financial protection, which means you’re protected from any mistakes they make.

Essential Insurance for Subcontractors and Contractors

The types of insurance you need and require of your subcontractors will vary, but the policies below are common in this industry:

  • General Liability Insurance. Also known as commercial liability insurance, subcontractor general liability insurance covers damages and legal costs associated with injury claims by customers and other people who don’t work for you, damage to other people's property caused by your business, and medical costs associated with these incidents. General liability insurance for subcontractors is essential.
  • Workers' compensation insurance. This type of insurance, which is almost always required for companies with employees, helps protect your business if your employee is injured, contracts an illness, or dies on the job. It can cover medical costs, legal fees, and lost wages due to the injury.
  • Business owners policy. Also called property & liability insurance, a business owners policy (BOP) combines general liability insurance with coverage for your company’s property.
  • Commercial auto insurance. This insurance is for company-owned or leased vehicles. It can cover your legal fees and the medical costs of others if your employee is at fault in an accident. It can cover the cost of damages even if the vehicle is used for personal activities outside of its primary business use.
  • Umbrella insurance. Liability policies have a maximum value they’ll cover in the event of an incident. Umbrella insurance adds another layer of protection, covering costs that exceed the limit of another biBerk liability policy, subject to its own limit. Without it, you may be responsible for anything over your policy limit.
  • Cyber insurance. This coverage can be purchased as an add-on to another policy. It helps cover costs related to system hacks or data security breaches where sensitive information has been stolen, and fraud has occurred or there is reason to believe it might happen.

Subcontractor Liability Insurance: What’s at Stake for You?

Regardless of your role on a construction project, liability insurance is critical, and biBerk is a company you can rely on. 

Let’s say you’re a freelance contractor. Working with biBerk means you have access to licensed insurance experts who can explain why liability insurance is crucial for your financial protection. They can also explain how to develop a cost-effective insurance strategy that gives you the coverage you need affordably. They’ll also point out that carrying the right business insurance enhances your credibility, particularly with clients who are concerned about risks. 

What if you’re a small business owner? Maintaining adequate coverage for your people and operations can be even more complex. Here again, biBerk can advise you on how to protect your business, including requiring your subcontractors to have their own liability insurance. Our insurance experts can share tips for communicating with subs and verifying their coverage.

In many cases, project managers are responsible for dealing with subcontractors and mitigating project risks. If that’s your role, you’ll probably be glad to learn that biBerk has extensive experience with insuring contractors and subcontractors. We can help take the stress out of insuring your company and confirming that subs are insuring their operations.

Confirm Subcontractor Liability Insurance Coverage and Get Working

Buying insurance for your company is easy. You can get instant, self-service quotes for small business insurance online and then make your purchase.

The same is true for the specialists you bring into a project—they can buy subcontractor liability insurance like workers’ comp or subcontractor general liability insurance in minutes online. Insurance from biBerk is affordable and effective almost immediately, so there’s really no reason a subcontractor can’t get their own policies before starting a project. 

Protect your business by letting them know that’s a requirement.