Contractual Liability Insurance and Subcontractors

The use of independent contractors is a common occurrence in most forms of business and is a requirement in some. For construction companies, contracting out work in the form of subcontracting is a daily occurrence from contracting out whole projects to bringing in independent specialists to perform specific work. However, as you contract out this work, where does the liability for the project go to? Today we look at forms of contractual liability insurance and subcontractors and how they interact.

The Process of Subcontracting

Contractors promise services to a client in the form of a contract, and with that contract comes liability. If a project isn’t done on time, on budget, up to code, damages to property, or one of many other forms of risk construction contractors take on, lawsuits often happen. Subcontracting complicates this. When subcontracting in a construction contract, it is a contract within a contract. Depending on how this contract is written, and the insurance resources both have in place, any losses that the subcontractor causes could fall on their contractor when it comes to liability.

Understanding Contractual Liability

Contracts may contain an indemnity agreement, where one party assumes liability for another party (sometimes called a “hold harmless” agreement). In this case that the contractor assumes the liability of the subcontractor. Where liability falls between a contractor and subcontractor depends not only on the contract, but also the insurance they carry between them.

General Liability Insurance

A standard part of any Business Owner’s Policy (BOP), general liability insurance does include coverage for personal injury or property damage caused by work done by your company. This can be carried by both the company and the independent contractor. However, this insurance may carry exclusions for work that is contracted out.

Contractual Liability Insurance

The general liability insurance’s contractual liability coverage can be increased both regarding the amount of coverage and what it covers and excludes. This is important if you regularly with independent contractors who have little to no insurance coverage. This can also include increasing your Omissions and Errors (E&O) Insurance.

Best Management Practices for Subcontracting

Since you will often assume the risks and liabilities of those you subcontract to, it’s important to manage those risks appropriately. Below are a few best practices when subcontracting:

• Require Your Subcontractors to Be Insured: Make sure your subcontractors carry their own general liability insurance. Ask for proof of insurance (typically a “Certificate of Insurance”).
• Ask Them to List You as Additional Insured: By asking for your company to be named as an additional insured on their general liability policy, if you are sued as a result of damage they caused, their insurance will automatically cover it.
• Review Your General Liability Coverage: Know ahead of time what coverage your policy provides to subcontractors: some may provide coverage, but only at an increased premium.

As a contractor company or as an independent contractor, it’s important to know your liabilities when it comes to contracts and your insurance. To learn more about contractual liability and providing coverage in these situations, get help from the construction insurance specialists at H&K Insurance. Contact us today.