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6 Common Questions Your Clients Need to Answer When Hiring Subcontractors

Jul 5, 2022

Suppose your client鈥檚 construction company hired subcontractors to help renovate a multimillion-dollar home. During the renovation process, the arborist your client hired cut down a tree that fell the wrong way, causing extensive damage to the house. The homeowner sues your client for the damage. Even if your client has General Liability insurance coverage for their business, most policies don鈥檛 cover subcontractors鈥攎eaning your client is stuck paying the legal fees and cost for repairs.听

Your contractor clients can avoid this exposure by requiring any hired subcontractors to carry a Commercial General Liability (CGL) policy. This will cover any injuries or damages a subcontractor may cause on a project, protecting your client from costly litigation and other expenses.听

Here are 6 questions your contractor clients should consider when working with subcontractors:

1. When should a subcontractor carry their own Commercial General Liability policy?听

Your client鈥檚 General Liability policy will cover injuries or damages caused by their employees, but it often won鈥檛 cover injuries or damages caused by subcontracted workers. All non-employees should have their own Commercial General Liability insurance.

So what makes someone an employee versus a contractor? The IRS provides to help businesses correctly classify their workers. They generally focus on three key areas related to a worker鈥檚 control and independence:

  • Behavioral: What degree of control does your client鈥檚 company have over the worker? How much do they direct the worker in their job?听
  • Financial: Does your client control financial or economic aspects of the worker? For instance, who controls how the worker is paid? Is the worker reimbursed for expenses? Does the worker supply their own tools?
  • Nature of the Relationship: Does the worker receive benefits from your client? Is the working relationship a long-term commitment or does it last only for the duration of a specific project? Does the scope of the work extend to all facets of the business or just a specific function?

2. What does Commercial General Liability Insurance cover?听

CGL policies typically cover the following types of risks:

  • Injury. If your clients鈥 subcontractor accidentally hits a bystander with debris from their work at the jobsite, their CGL covers the medical bills associated with injuries, plus any legal fees should they鈥攐r your client鈥攇et sued over the incident.听

  • Property damage. If a subcontractor causes property damage to the jobsite, CGL covers the damage and any resulting lawsuits. For instance, if a plumber your client hires accidentally ruptures a pipe that floods the property and damages the building and the equipment or furniture inside, it would be covered under the plumber鈥檚 CGL.

  • Products-completed operations liability. If a subcontractor builds or repairs something on your client鈥檚 job site and it breaks soon afterwards (such as a new roof that leaks shortly after installation), their CGL covers the damages, plus any legal costs arising from the incident.

  • Advertising injury. If Subcontractor A works for your client and makes false statements about Subcontractor B, and Subcontractor B sues your client for slander, CGL can cover the legal costs, as well as any personal injury claims associated with defamation. CGL also protects against costs associated with copyright infringement鈥攊f, for example, a subcontractor inadvertently used someone else鈥檚 advertising materials, logos, or slogans without permission.

3. Should your client be listed on the subcontractors鈥 Commercial General Liability policy?

Yes, your client should be listed on their subcontractors鈥 CGL policies as an 鈥渁dditional insured.鈥 This is a critical point and something your client should require in their business agreements with subcontractors. This protects your client if they are, for example, taken to court for damages a subcontractor causes. Without it, your client may be held liable for expenses鈥 regardless of a policy being in place.

4. How should your clients verify their subcontractors鈥 Commercial General Liability policies?听

Before allowing a subcontractor to begin work, your client should always request a certificate of insurance to review policy limits, dates of coverage, ensure they are listed as an additional insured, and other policy information.听

Your client should also periodically verify the coverage by calling the insurance company on the policy. Most state laws don鈥檛 require policyholders to notify the additional insured before a policy is canceled. This means a subcontractor could show your client proof of coverage and then soon after cancel the policy, and your client would be none the wiser.听

5. Should subcontractors get add-ons for their Commercial General Liability policy?

Depending on the type of work, subcontractors may need extra protection in areas that basic CGL policies don鈥檛 cover鈥攕uch as Pollution Liability or Cyber Liability insurance. They may also need Excess Liability insurance for larger projects that go beyond Commercial General Liability policy limits.听 听

6. Should subcontractors be included in your client鈥檚 General Liability policy?听

Although it鈥檚 vital that subcontractors carry their own CGL insurance, your client may also need to list the subcontractors in their General Liability policy as well. Most carriers include a warranty in their General Liability policies that requires a list of all subcontractors and requires all subcontractors carry the same level of liability limits as the policyholder. The warranty may also require that the subcontractors list your client as 鈥渁dditional insured鈥 on their CGL policies. If these conditions aren鈥檛 met, your clients鈥 claim may be denied.

麻豆放映免费鈥檚 construction experts will provide guidance for your client鈥檚 and their subcontractors to ensure that all parties are properly covered in the event of an unexpected loss. Contact us today.

The 麻豆放映免费 Construction Insurance Team

The 麻豆放映免费 Construction Insurance Team

麻豆放映免费鈥檚 construction experts specialize in a variety of construction-related coverages鈥攆rom commercial general liability and professional liability to wrap-ups and workers鈥 compensation, and beyond. 麻豆放映免费 has dedicated teams of construction brokers for every risk type, account size, and geographic area in the country. We have broad market access to brokerage and binding authority and can offer exclusive program solutions to fit any construction need.
construction | construction insurance | contractors | subcontractor liability | subcontractors

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