As a Contractor, Require Certificates of Insurance from Subcontractors

As a Contractor, Require Certificates of Insurance from Subcontractors

As a contractor, you know the value of providing your customers with a certificate of insurance (COI). Most people won’t hire you to work on their homes or businesses without one. But did you know that hiring subcontractors that do not have adequate insurance protection and coverage can place you at risk as well?

What Information Does a Certificate of Insurance Reveal?

While used only for informational purposes, certificates of insurance reveal a few important details about the subcontractor you’re considering. These details may include:

  • Policy effective dates
  • Policy expiration dates
  • Liability limit amounts
  • Types of coverage

Of course, a certificate of insurance isn’t all you need. There’s an old adage to remember, Trust but verify.

When you hire subcontractors, you’re assuming a certain level of risk associated with hiring them. The COI can mitigate some of that risk. Performing further due diligence by calling the insurance agency listed on the document to verify coverage is still in place, and other facts revealed on the certificate of insurance allows you even greater peace of mind.

When Do You Need a Certificate of Insurance?

Any and every time you hire a subcontractor to work with you on a project, you need an updated COI.

The reason is simple.

Coverages lapse. People change policies, plans, and coverage amounts.

Finally, even good businesses fall on hard times. Unfortunately, one of the first expenses they cut is one of the most essential - insurance protection.

Even if you’ve worked with a contractor on several projects in the past and trust their work, you need to make sure to get a new COI before they set foot on the property where work is taking place. Otherwise, you could find yourself responsible for accidents and injuries to them or their people.

After all, the purpose of obtaining insurance for your business is to insulate your business from risks associated with accidents, injuries, and, in some cases, workmanship. By requiring your subcontractors to provide the same, you’re protecting yourself and your financial interests.

Things to Check When Examining COIs

Because fraud happens far too often in this industry, you need to go beyond a quick glance at the COI. These are the key details listed on the COI you want to verify before work begins with a subcontractor.

  • Company name. Make sure you’re working with the company listed. Unscrupulous subcontractors may provide COIs from other companies.
  • Policy effective dates. Verify that the policy is in place for the expected duration of the project.
  • Policy limits. It is vital to know that the amount of coverage provided is sufficient for the risks you’d undertake. Ideally, it will be equal to the policy limits you carry for your coverage.

Finally, you are required to be named as an additional insured for the project or contract. While it may seem like such a small thing to you at the time, taking the time to confirm the important details of a COI can make a world of difference if an accident occurs. You want to make sure that everyone has the financial protection necessary to weather the storm and the means to provide for the worker who becomes injured in the process.

Even more than that, though, for many contractors, is the desire to protect your reputation. One worker injured on a job site that isn’t properly cared for can spell disaster for your reputation, even if the person didn’t directly work for you. In this line of work, your reputation is of critical importance. Not only for seeking out and securing new clients but also when working with other subcontractors.

That is why you must verify that subcontractors have the necessary insurance protection.

Avoiding Costly Workers Compensation Audits

Another important reason to specifically choose subcontractors who have general liability and worker’s compensation coverage for their employees is to avoid costly worker’s compensation audits.

Here’s how it works.

If you, as a general contractor, have a worker’s compensation policy in place and hire a subcontractor to complete some of the work on your project, your payment to the subcontractor will be considered “payroll” on your worker’s compensation audit, requiring you to pay for the subcontractors worker’s compensation policies.

However, if you secure proof of insurance (and verify coverage) for general liability and worker’s compensation coverage from your subcontractors before beginning work and prior to paying the subcontractor for work they’ve performed (for instance on projects lasting more than four weeks), the subcontractor’s worker’s compensation coverage negates the charge to your worker’s compensation audit, saving you a ton of money over the course of a year.

Unfortunately, many contractors don’t find out about this until the audit occurs and they receive a nasty bill after the worker’s compensation audit occurs.

You should note that nearly ever general liability policy for primary contractors requires you to secure proof of insurance from your subcontractors.

Peace of Mind Multiplied

Not only does it give you peace of mind that your subcontractors are properly insured, but it also allows you to pass that peace of mind on to your clients.

They want to feel confident in their choice of hiring you to do the work for them. Showing them proof of your insurance coverage plus the coverage of those you’ve hired to work on their homes, offers an added level of comfort.

You take great pride in doing an excellent job for the people who have trusted their home renovations, new home constructions, or business construction projects to your organization.

Adequate insurance protection for your business and your subcontractors can’t prevent accidents, but it can reduce your financial risks.

Give us a call here at Coverage Specialists at 866-700-2683 to learn more about subcontractor’s insurance.