How Does Hiring a Sub Contractor Affect Your Contractor's Insurance Policy?
Is Liability Lurking When You Hire a Sub Contractor?
Hiring a sub-contractor can affect your contractors insurance coverage and premium. Here’s what you need to know when you hire a sub-contractor.
Secure and retain a Certificate of Insurance from each sub-contractor. Be sure that each sub-contractor has adequate insurance of their own. Adequate insurance should be at least the same as your limits.
- If the sub-contractor does not have adequate insurance and there is no certificate on file, you are liable to pay insurance premiums. You are responsible for any and all sub-contractors you hire to perform construction/services for your company as if they were your employees.
- Premium charges for uninsured sub-contractors are made when your Business Liability Insurance Policy is audited in accordance with the terms and conditions of your policy and the rules in effect for your type of business. This could cause a bid audit premium to be due and you could be in for a financial woe.
If you wish to minimize your insurance premiums for your business liability, it is important that you:
- Request and obtain a current certificate of liability insurance for every sub-contractor you hire.
- Monitor when certificates of insurance expire so you can be sure to order new certificates.
- Maintain an accessible file of certificates of insurance for your company auditor to review when the auditor conducts the premium audit.
Let’s look at the coverage area:
- With the Certificate of Insurance, you know at least your sub-contractor has insurance for the negligent acts they perform. If your sub-contractors name you as an “additional insured” on their policy, their policy will stand in your place and defend you and pay up to the limits of the policy if the court so finds.
- That would be ideal, but when you have multiple sub-contractors, you could have a conflict among insurance companies, each blaming the other for the problem. Don’t fall under the illusion that since you are named on the sub-contractor’s insurance policy, you don’t need your own policy. You absolutely do!
- The sub-contractor’s policy limits may not be sufficient to cover your assets. Your insurance policy becomes excess over the sub-contractor when you are named on their policy. When you have a Certificate of Insurance that doesn’t name you as an additional insured, the sub-contractors insurance may be primary and your insurance secondary, but that sure is an uncertainty!
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