Subcontractor insurance: How to protect yourself

Published · 2 min read

Insurance is complicated. Consequently, when drafting a subcontract, you should always send a copy of the prime contract to your insurance agent. He or she can assure that the information you include in your subcontract’s insurance requirements matches the prime contract. An insurance agent can also identify any gaps between your insurance and what the contract says you are promising to provide.

You need to pay especially close attention to the following:

Additional insured endorsements

The prime contractor and project owner need to be listed as additional insureds on the subcontractor’s policy. This essentially includes them under the subcontractor’s insurance for claims arising out of the sub’s work. You also want to clearly define insurance coverage terms in the subcontract because many times additional insured coverage is tied to what’s in the contract.

Insurance expiration

Both prime contractors and subcontractors must maintain their insurance throughout the course of construction. General contractors, in particular, need to be proactive in demanding a new and updated certificate of insurance if a subcontractor’s coverage expires prior to completion of construction. Some GCs will monitor subcontractor insurance expiration dates and withhold payment until they receive a new certificate of insurance. This is a good practice if you are a GC, since failure to demand updated subcontractor insurance information can leave one open to liability if a claim arises.

Rights of subrogation

Insurers should be asked to waive any and all rights of subrogation. In essence, this takes away the insurance company’s ability to seek redress from third parties after it has paid on a claim. This minimizes the risk that the insurance company will sue a third party, such as the project owner, for recovery, who in turn may sue you. Said simply, it is any easy backstop for potential claims that could circle back against you.

Insurance is a “what if” product that goes hand in hand with construction work. Whether you’re building a single-family home or an office high-rise, there are a lot of different players and plenty of moving parts, all of which don’t necessarily always fit together correctly. Insurance can provide protection from loss due to construction defects, accidents, and natural disasters. Make sure your subcontract and insurance work together to give you the peace of mind that comes with knowing you’re protected.

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