Hiring Subcontractors? Run These 4 Insurance Checks First

If you're a general contractor, remodeler or handyman business, there's a good chance you bring in subcontractors for electrical, plumbing, drywall, roofing or other specialty work.

Subs help you take on bigger jobs and keep projects moving. But they also bring a question many contractors don't think about until something goes wrong:

If your subcontractor causes damage or someone gets hurt, whose insurance responds?

The answer depends on your contracts, your sub's insurance, and your own policy. A little preparation up front can make a big difference, both when a claim happens and when you're shopping for your own business insurance.

Why Subcontractors Matter to Your Insurance

When you hire a sub, the property owner or your client usually sees you as the one responsible for the job. If your sub's work causes a fire, a leak or an injury, the claim may come to you first.

That's why insurance companies ask detailed questions about subcontractors when you apply for general liability coverage. They want to know:

• How much of your work is subcontracted out

• Whether you collect certificates of insurance from your subs

• What limits your subs carry

• Whether you're named as an additional insured on their policies

If you can answer those questions clearly, quoting tends to go more smoothly. If you can't, it may affect your options or your premium.

The 4-Point Subcontractor Checklist

1. Have a signed, written agreement before work starts

A handshake deal may feel easier, but it leaves a lot of room for confusion if something goes wrong.

A written subcontractor agreement should spell out:

• The scope of work

• Insurance requirements, including the coverage types and limits you expect

• Hold harmless or indemnification language

• A requirement to name your business as an additional insured

Get the agreement signed before the sub starts work, not halfway through the job. And because hold harmless and indemnity language has legal consequences, it's a good idea to have an attorney review your agreement template.

2. Collect current certificates of insurance (COIs) and track them

A certificate of insurance shows what coverage your sub had when the certificate was issued. Policies renew, change and sometimes cancel, so a certificate from two years ago doesn't tell you much today.

Good habits include:

• Getting a COI from every sub before they start

• Keeping copies organized in one place

• Tracking expiration dates

• Requesting an updated certificate when a sub's policy renews

A simple spreadsheet with each sub's name, policy dates and coverage types works fine for most small contractors.

For bigger or higher-risk jobs, take one more step. A COI is usually just a PDF, and PDFs can be edited, even though only the insurance company or a licensed agent is allowed to issue or change one. We've heard of outdated certificates being passed along with new dates, even after coverage had ended. Most subs are upfront about their insurance, but on a high-dollar or higher-risk project it's worth confirming the details yourself:

• Ask for the certificate to come directly from the sub's insurance agent, not from the sub

• Or call the agent listed on the certificate to confirm the policy is active and the dates and limits are correct

It's a quick step that protects you and keeps everyone on the same page.

3. Make sure your subs' general liability limits at least match yours

If you carry $1 million per occurrence and your sub carries $300,000, a serious claim caused by your sub could leave a gap that ends up on your policy.

As a general rule, ask your subs to carry general liability limits at least equal to your own. Also check:

• Whether their limits meet any requirements in your contract with the property owner or general contractor above you

• Whether their policy is written for the type of work they're actually doing for you

4. Confirm you're an additional insured, including completed operations

Being named as an additional insured on your sub's general liability policy can give your business protection under their policy for claims arising from their work.

If a client or property owner has ever asked you for additional insured status, you've seen this from the other side. The certificate alone doesn't extend coverage; the endorsement does. (We explain how that works here.) The same applies to your subs. When you review their paperwork:

• Ask for a copy of the additional insured endorsement, not just a checked box on the certificate

• Make sure it includes completed operations, since problems often show up after the job is finished

• Compare it to your own contracts. If the agreement with your client requires things like waiver of subrogation or primary and non-contributory wording, you'll often need to pass those same requirements down to your subsIf your subcontractor causes damage or someone gets hurt, whose insurance responds?

Don't Forget About Audits

Many general liability and workers' compensation policies are auditable. At the end of the policy term, the insurance company reviews what you actually paid, including payments to subcontractors.

Insurance companies generally reserve the right to charge additional premium when uninsured subcontractors are used. If you can't show proof that a sub had their own coverage, their payments may be added to your own payroll or receipts at audit, which can mean a bill you weren't expecting.

Keeping current COIs on file is one of the easiest ways to avoid that surprise.

Is Your "Sub" Really a Subcontractor?

Calling someone a subcontractor doesn't automatically make them one. If you control how, when and where someone works, provide their tools, and they only work for you, they may be considered an employee for insurance or legal purposes.

If you're not sure how your workers should be classified, talk with your agent and a tax or legal professional.

The Bottom Line

Subcontractors can help your business grow, but they also add risk. Running these four checks before each job helps protect your business, keeps your records audit-ready and makes your next insurance quote easier:

1. Signed written agreements

2. Current certificates of insurance on file

3. GL limits at least equal to yours

4. Additional insured status, including completed operations

📝 Acuhawk Insurance Tip

Create a simple "sub file" for every subcontractor you work with: their signed agreement, current COI, additional insured endorsement and renewal date. Set a reminder a few weeks before each policy renews so you're never chasing paperwork after the job starts.

Have Questions?

Every contracting business is a little different. If you work with subcontractors and want a second set of eyes on your coverage, or you're getting ready for renewal, we're happy to help.

Acuhawk Insurance Solutions proudly serves individuals, families, and businesses throughout Nebraska and Iowa. Call us at 531-222-2120 or schedule a consultation on our website.

This article is intended for educational purposes only and should not be considered legal, tax, financial, or insurance advice. Insurance laws, regulations, policy provisions, coverage, exclusions, endorsements, eligibility requirements, and underwriting guidelines vary by insurance company, policy, and state. Coverage is always subject to the terms, conditions, limitations, and exclusions of the applicable insurance policy. Always review your individual policy and consult with a licensed insurance professional or other qualified advisor regarding your specific situation.