Are Subcontractors Covered Under Contractors Insurance?

Whether you’re a business owner or a general construction manager, you’ve probably asked yourself this question at least once. The answer is: it’s possible—but subcontractors are not often covered by a standard policy. Additionally, employers aren’t required to provide it.

Contractor’s insurance typically only covers full-time employees in case of a claim or an accident. Whatever the case, there will be times when you might need the expertise of a subcontractor.  But what if the subcontractor does not have insurance and gets involved in an accident? In this case, it’s possible that you might get sued.

That’s why it pays to have your policy cover the third party ahead of any projects, as it protects yourself and your business against hefty medical or legal fees.

So, under what instance are subcontractors covered under a contractor’s policy? Keep reading to find out the answers!

Subcontractor Insurance: Is It Required?

While not legally required, subcontractors’ insurance is strongly recommended for the financial protection of any third-party employee. Some construction projects rely heavily on subcontractors, which is why it’s important to prepare solutions ahead of starting a new project.

The reason why liability insurance is important is that if the subcontractor you hire damages third-party property or a client’s home, you, as the employer, will shoulder the expenses arising from the accident. When these funds come from your own pocket, it can put your business at risk.

On the other hand, if the subcontractor is covered under your policy or has their own insurance, you’re protected against financial liabilities. 

Who Needs Subcontractors Insurance?

For subcontractors, having liability insurance lets future employers know that you will take accountability for your work. As such, having a policy in place puts you at an advantage in bidding on contracts. Of course, specific insurance policies will depend on several factors, including but not limited to:

• The type of work you do;
• The type of clients you work for or with; and
• The risks you are exposed to. 

Subcontractor policies usually cover business liability expenses, such as serious injuries at work or damage to a client’s assets.

If you work in the construction industry as any one of these tradespeople, you need subcontractors insurance:

• Roofers;
• Painters;
• Landscapers;
• Electricians;
• Carpenters;
• HVAC contractors;
• Construction contractors;
• Plumbing contractors; and
• Handyperson. 

Furthermore, depending on which province you work in, you may be required by law to have subcontractor insurance coverage.

How to Protect Yourself and Your Business 

As a business owner, you can employ various methods and techniques to ensure you’re covered from unfortunate circumstances. One method is to ensure the subcontractors you hire already have their own insurance policies. You can do this by including a clause in your contract that states this explicitly.

You can also ask for an updated copy of your subcontractor’s Certificate of Liability Insurance and check their policy yourself.

There may be situations, however, when the subcontractor does not have adequate coverage to be hired. In this instance, adding the subcontractor under your personalized policy will help protect you and your third-party employee from liabilities. This also ensures they are covered for the work they provide under your license. What this does is that it saves you from liabilities borne from any mistake they make while they are working under someone else’s license.

Although most businesses opt to get commercial general liability (CGL) insurance, if you’re planning to hire many subcontractors, it is advisable to add coverage to your initial policy to include them. General liability insurance usually extends to you and your employees, and typically excludes subcontractors.

Additionally, some insurance plans you should consider include:

Subcontractor Liability Insurance 

This insurance policy covers property damage or injuries, which is similar to CGL. But, as mentioned, subcontractors aren’t included under CGL policies. For subcontractors, having an insurance policy in place shows prospective employers that they are proactive in protecting themselves before signing on to any major deals or projects. Without one, employers may be hesitant to hire you for safety purposes.

Professional Liability Insurance 

Also known as errors & omissions insurance, this protects business owners from mistakes that subcontractors make while on the job. This does not include physical damage, but it covers claims in case a client says a subcontractor’s work does not meet their standards. It also covers legal expenses, as well as pays for consequential damages or settlement fees.

Workers’ Compensation Insurance 

CGL may cover third-party bodily injuries, but employee injuries are not within its scope. workers’ compensation insurance helps pay for medical costs in the event of a work-related injury. It also provides wages lost during the time when the employee could not go to work due to their injury.

Commercial Auto Insurance 

Subcontractors might need to drive to and from project sites. Commercial auto insurance protects both you and the subcontractor in case an accident occurs while the employee is in transit. It also helps pay for damages caused to company cars or third-party vehicles. 

Surety Bonds 

Surety bonds protect an obligee (or the project owner) from work or services that are:

1.) Illegal;

2.) Below industry standards; or

3.) Are not in accordance with what’s stated in the set contract.

Sometimes surety bonds are required before a project can begin because it boosts a client’s confidence in your company. This essentially guarantees a client that a task or project will be carried out until the end.

In the context of subcontractors, if an employee has committed fraud, theft, forgery, or fails to meet the client’s standards while working, then a surety bond protects your company from financial loss. 

Get Personalized Insurance Plans At Contractors Insurance 

Contractors Insurance, an Ontario-based, award-winning commercial insurance brokerage, is dedicated to providing its clients with personalized insurance plans suited to their unique needs. We offer complete transparency on your coverage, its limitations, and exclusions—don’t worry, we’ll explain everything without unnecessary jargon.

Our plans are tailored without extra riders, so you save on premiums in the long run.

For detailed inquiries about subcontractor insurance or our other insurance bundles, feel free to contact us today or get started with a free quote!