Why Subcontractors Need to Carry Their Own Insurance

Companies often require subcontractors to complete work that fall outside their in-house capabilities.  The following is valuable information you need to know:

Here’s an example: Company A uses ABC Subcontractor to install new wood flooring that had been damaged due to a flood.

Because the job was time sensitive, Company A failed to request a certificate of insurance from ABC Sub-Contractor.

While rushing to finish, ABC Subcontractor inadvertently knocks over a  grandfather clock, valued at $20,000.  ABC Subcontractor does not have insurance. Because ABC Subcontractor was working on behalf of Company A,  it is Company A’s insurance that must pay for the damages. This will likely result in a premium increase the following year for Company A.

Companies should ask for certificates of insurance from subscontractors and utilize Subcontractor Agreements in order to avoid the following:

  1.  Being held responsible for paying a claim caused by an uninsured subcontractor, and thus causing your insurance premium to go up.
  1. If your company is using an uninsured subcontractor, your insurance carrier has the right to consider him part of your company. You may, therefore, end up paying the general liability or workers comp costs for this sub-contractor.

In order to avoid the costly and unnecessary situations, make it a practice to always ask for certificates of insurance from a subcontractor prior to starting a job. Request that your sub-contractor name your company as an additional insured.

Townsend Insurance Group would be pleased to provide a sample Subcontractor Agreement, as a way to help protect your business, better control your annual premium costs, and demonstrate the  value we can provide, as the preferred insurance partner of 911 Restoration.