Cowart Insurance Agency Blog

All You Ever Wanted to Know About Insurance

Why do I have to pay for my insured subcontractors?

Audits for contractors can be challenging. One of the most common questions auditors hear is, “Why do I have to pay for my subcontractors if they carry their own insurance?”

When a contractor hires subcontractors, an additional exposure is created on the job-site that can result in claims against the contractor. These may include subcontractor negligence or inadequate limits of insurance, which would leave the contractor liable.

There are also possible defense costs when the contractor is named along with the subcontractor in a lawsuit. The potential for liability exposure is also real, if the subcontractor lets his policy coverage lapse.

For general liability policies, the exposure basis for a subcontractor is “total cost.” By definition, total cost includes all labor, materials and equipment furnished, used or delivered for use in the execution of the work.

Total cost also includes all fees, bonuses or commissions made, paid or due.

Properly insured subcontractors are assigned to the corresponding subcontractor work class code based on the type of work performed. If uninsured subcontractors are used, they will be classified to the payroll-based classification that best describes the type of work completed, as if they were employees of the contractor.

A best practice if you’re a contractor would be to require certificates of insurance from your subcontractors prior to paying them for the services performed. This allows you to retain some leverage in obtaining the certificate of insurance from your subcontractor.

Please contact our agency if you have questions about your audit. Thank you for your business!