Orlando Harmon
As a subcontractor, you may not always be legally required to carry insurance, but it is highly recommended to ensure payments and protect yourself and your business in one of the most high-risk industries. While general contractors often carry their own insurance, their policies may not extend coverage to subcontractors unless they are specifically listed as additional insured. Subcontractors can access a range of policies, including general liability insurance, professional liability insurance, workers' compensation insurance, and commercial auto insurance, each offering different levels of protection. These policies can provide financial protection against claims of third-party injuries, property damage, service-related mistakes, and work-related accidents, ensuring that you don't end up paying out of pocket for costly lawsuits or settlements.
| Characteristics | Values |
|---|---|
| Is subcontractor insurance mandatory? | No, but it is highly recommended and can enhance a contractor's reputation. |
| Who might require a subcontractor to have insurance? | The general contractor, the employer, or the client. |
| What types of insurance might a subcontractor need? | General liability insurance, professional liability insurance (also known as errors and omissions insurance), workers' compensation insurance, commercial auto insurance, and surety bonds or subcontractor default insurance programs for large or publicly funded projects. |
| What does general liability insurance cover? | Property damage, bodily injury, personal injury claims, and medical expenses from injuries that occur on the business' premises. |
| What does professional liability insurance cover? | Service-related mistakes and oversights, including legal and settlement costs. |
| What does workers' compensation insurance cover? | Medical costs and lost wages for work-related injuries and illnesses, as well as disability and death benefits. |
| What does commercial auto insurance cover? | Damage and injury liability when driving a business vehicle. |
| What does a surety bond or subcontractor default insurance program cover? | The obligation to finish a project if the subcontractor is financially unable to do so or goes out of business. |
| What is the purpose of subcontractor insurance? | To protect the subcontractor, the contractor, and the client from financial risk and liability. |
| What are the risks of not having insurance as a subcontractor? | Financial liability may fall on the contractor or client, and they may be less likely to hire an uninsured subcontractor. |
| How much insurance coverage should a subcontractor have? | This depends on the details of the work, but general recommendations include $1 million in liability coverage and $500,000 in workers' compensation coverage. |
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What You'll Learn
Commercial auto insurance
The cost of commercial auto insurance varies depending on the industry and specific coverage needs. On average, it costs around $147 per month, but rates can go up to $150 per month. Small business owners can usually deduct their commercial auto insurance premiums as a business expense when filing their taxes.
When considering commercial auto insurance, it is important to review the specific requirements of your state. Each state has its own regulations regarding the minimum amount of coverage needed for both personal and commercial vehicles. Additionally, certain endorsements can be added to extend coverage to non-auto mobile equipment, such as tractors or forklifts.
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General liability insurance
In addition to general liability insurance, there are other types of insurance that subcontractors may want to consider, such as commercial auto insurance, workers' compensation insurance, and professional liability insurance. Commercial auto insurance covers damage to company vehicles and any liability from accidents that occurred on the job. Workers' compensation insurance covers the cost of medical care and a portion of lost income if you become injured or sick while doing your job. It also provides disability and death benefits. Professional liability insurance, also known as errors and omissions (E&O) insurance, protects you financially from claims resulting from service-related mistakes and oversights. It covers the cost of hiring a lawyer and paying consequential damages or a settlement.
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Workers' compensation insurance
In certain states, such as Louisiana and Florida, companies are required to provide workers' compensation insurance coverage to independent contractors in the construction industry. Other states, like Texas, allow companies to elect to cover independent contractors under their workers' compensation policy by filing the appropriate form. Some states, such as New York, impose significant penalties for non-compliance, which can be as high as $2,000 per violation for each 10-day period of non-compliance.
Even if workers' compensation insurance is not legally required for subcontractors in your state, it is often a condition set by contractors before engaging in business with you. Without this insurance, the financial liability of work-related accidents falls on the contractor. Additionally, having adequate insurance coverage can enhance a subcontractor's reputation and demonstrate to potential clients that they are professional and prepared for risks.
It is worth noting that workers' compensation insurance follows a no-fault system, meaning that the benefits received are not affected by negligence. This insurance can provide coverage for medical care, a portion of lost income, disability benefits, and death benefits to the family in the event of an on-the-job accident.
As a subcontractor, it is essential to review the specific requirements of your state and industry to ensure compliance with workers' compensation laws. Additionally, considering the potential risks associated with your work and the desire to maintain a positive reputation, obtaining workers' compensation insurance can be a prudent decision, even when it is not mandatory.
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Errors and omissions insurance
E&O insurance is not usually a legal requirement, but it is often taken out by construction professionals to protect themselves against potentially devastating financial losses resulting from negligence. It is also important for businesses that provide a service to customers, as it can help cover legal expenses, which can run into the thousands, even if the customer drops their claim.
E&O insurance covers attorney fees, court costs, settlements, and judgments, which can cost a business thousands to millions of dollars. It is important to note that E&O insurance does not cover every type of liability claim. It will not cover illegal acts, purposeful wrongdoing, or deception of customers or clients. Additionally, it only covers claims filed within the policy period or extended reporting period and incidents that occurred on or after the retroactive date.
As a subcontractor, it is important to understand that you cannot always rely on your contractor's insurance policies for coverage. Subcontractors should consider taking out their own insurance to protect their business and investments, as construction is a high-risk industry. General liability insurance, workers' compensation insurance, and professional pollution coverage are other types of insurance that subcontractors may need to consider, depending on their specific circumstances and requirements.
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Professional liability insurance
As a subcontractor, you may not be legally required to have insurance, but it is highly recommended and often expected by clients. Carrying adequate insurance coverage can enhance your reputation as a professional who is prepared for risks and able to handle issues responsibly.
If you intend to work on government projects, you are required to take out professional liability insurance under the Federal Acquisition Regulation (FAR) to prevent the transfer of risk from your business to the government. While coverage is not compulsory for architects and engineers, it can still be beneficial as it covers legal and settlement costs.
In addition to professional liability insurance, there are other types of insurance that subcontractors may want to consider, such as general liability insurance, workers' compensation insurance, and commercial auto insurance. General liability insurance covers bodily injury, property damage, personal injury, and legal defence costs related to third-party claims. Workers' compensation insurance covers the cost of medical care and lost income for employees who are injured or become sick on the job, as well as disability and death benefits. Commercial auto insurance is important if you use your vehicle for work, as it covers damage to your vehicle and any liability from accidents that occur on the job.
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Frequently asked questions
Subcontractors are not usually legally required to carry insurance. However, general contractors often require them to be insured before hiring them.
The types of insurance you should consider depend on the details of your work. Common types of insurance for subcontractors include general liability insurance, professional liability insurance, and workers' compensation insurance. If you use your personal vehicle for work, you may also need commercial auto insurance.
The amount of liability coverage you need depends on the details of your work. However, it is recommended to have at least $1 million in liability coverage.
The contractor's insurance may not cover you as a subcontractor. If you are not insured and something goes wrong, the contractor could be held responsible for any claims arising from your work.
You can obtain a certificate of insurance, which proves that you have the required insurance coverage. This can be a digital or printed document.
