Managing subcontractor insurance and certificates

Require every subcontractor to carry workers' compensation, commercial general liability, auto and, for riskier trades, umbrella and specialty coverage. Then collect the endorsements as well as the certificate, check that the policy is in force, and track expiration dates. The reason is simple: when a sub has no insurance, or insurance that does not respond, the claim lands on you and your policies. The rest of this guide is the checklist and the traps.

Why a sub's insurance is your problem

Workers' compensation. In many states a contractor that sublets work is responsible for the injured employees of a subcontractor who lacks coverage. Florida is a clear statutory example. Under Fla. Stat. 440.10(1)(b), the contractor "shall be liable for, and shall secure, the payment of compensation" to the employees of its subcontractors, except employees of a subcontractor who has secured that payment. The Florida Division of Workers' Compensation says the same in its FAQ and adds that calling someone an independent contractor does not avoid the obligation in construction (Florida DWC FAQ). Other states differ, so check workers' comp and benefits requirements by state and the state's comp agency. See also independent contractors and workers' comp: the misclassification risk.

Premium audit. Your own workers' comp carrier can charge you for payroll of uninsured subs. NCCI's guidance for assigned-risk applications says payroll for uninsured contractors, for whom no proof of insurance is available, must be included, while insured subcontractors can be listed on an if-any basis (NCCI). Voluntary-market auditors commonly take the same approach. The certificate is the evidence that keeps that payroll off your audit. See premium audits: how they work and how to prepare.

Liability. When a third party is hurt or property is damaged and sues the general contractor, the sub's insurance helps only if the contract, the additional insured endorsement and the sub's policy all line up. If they do not, your own CGL, and your claims history, take the loss. Contractors' policies, especially surplus lines policies, often carry a subcontractor warranty that cuts back coverage if you did not obtain the insurance and indemnity terms you promised.

What to require

Set the package by trade and risk, put it in the subcontract, and attach the same exhibit to every agreement. The table is a hypothetical starting point, not a market standard; the right limits depend on your contracts and your own insurance.

For endorsement details see additional insured endorsements explained and for what each tool does see contractual risk transfer: shifting liability by contract and insurance.

Reading the sub's policy, not only the certificate

A certificate reports coverage on a date. ACORD's standard certificate says it confers no rights and does not amend the policy. Request copies of the endorsements. The Certificate of insurance (COI) review checklist covers the certificate; the policy review should add:

• Contractual liability limitation. ISO CG 21 39 removes the "any other contract" part of the insured contract definition, which leaves most subcontract indemnities uninsured. CG 24 26 narrows it to injuries caused at least in part by the sub. See contractual liability coverage and insured contracts.
• Work performed by subs. ISO CG 22 94 removes the exception to the "your work" exclusion for work done by subcontractors, which matters for a sub that hires its own subs.
• Classification and operations limits. A policy rated for "carpentry" may exclude roofing or work above a certain height. Compare the endorsement schedule with the work.
• Employee injury and "action-over" exclusions. These remove coverage for injuries to employees of contractors, which is exactly the claim a general contractor faces from a sub's worker. Carrier-specific, so read the forms list.
• Residential, height or project-type exclusions.
• Additional insured wording. Confirm the endorsement names you or applies by blanket wording to parties required in a written contract, and check whether completed operations are included.
• Limits. Compare the declared aggregate to the schedule, and find out if defense costs reduce the limits.
• Insurer. Look up AM Best rating and admitted status; contracts commonly ask for A- VII or better. See AM Best rating.
• Policy dates and cancellation. A certificate does not guarantee you notice of a cancellation; the ACORD form says notice will be given as the policy provides. Track the dates yourself.

Verifying workers' comp

Do not rely on a certificate alone for workers' comp. Some states give you tools. Florida's Division of Workers' Compensation publishes a Proof of Coverage database of employers whose policies carriers reported in the last five years, an Exemption Search for owners who have excluded themselves, and a Construction Policy Tracking service that alerts contractors when a sub's coverage status changes (Florida DWC FAQ; POC data). The Division cautions that the data reflects what carriers reported, and that a leased-worker arrangement through a PEO covers only workers reported to the PEO. Save a dated screen print. Other states have their own lookups or none, so ask the agency. NCCI's proof-of-coverage inquiry exists, but NCCI's page describes it as available to regulators.

Check sole proprietors and owner exemptions too. An exempt owner is not covered, and the people working for the owner may not be.

A working process

1. Prequalify. Collect licenses, a safety record, and loss runs or a bonding letter for larger subs.
2. Contract. Attach a written insurance exhibit and the indemnity clause, and flow the same terms down to the sub's subs.
3. Collect before mobilization. Certificate, endorsements for AI, primary and noncontributory and waiver, the comp proof, W-9 and any state exemption certificate.
4. Review. Use a checklist and sign off. Reject certificates with "as per written contract" in place of named insureds or with blank or expired dates.
5. Track. Enter expiration dates, request renewals 30 days ahead and set a stop date for payment. Certificate tracking software and digital COIs automates this.
6. Enforce. Do not let an uninsured sub on site and do not pay applications while a policy is lapsed.
7. Close out. Keep records for the length of the completed operations exposure and the statute of repose in the state where the work was done.

Alternatives to chasing every sub

• Wrap-up programs. On large projects an owner or contractor may buy one program for everyone on site, instead of collecting from each sub. See Wrap-up programs: how OCIPs and CCIPs work.
• Bonds. Payment and performance bonds, discussed in bid, performance and payment bonds: how contract surety works, protect against default, not injuries. Some larger general contractors buy subcontractor default insurance instead of bonding each sub.
• Smaller, vetted sub list. The simplest control is to use fewer subs and know their insurance people.

A hypothetical lapse

Say a general contractor hires a framing sub for a six-month job. The sub's workers' comp renews in month three, but the premium goes unpaid and the carrier cancels. In month five a framer is injured. There is no tracking, so nobody noticed. In Florida or a state with a similar rule, the contractor is the one responsible to pay the benefits, and its own comp carrier may charge audit premium on the sub's payroll. With a tracked policy and a stop-payment rule, the contractor would have caught the lapse in month three or kept the sub off site until a new policy was issued. The facts are invented to show the sequence.

Key takeaways

• If a subcontractor lacks coverage, the cost can fall on you through statutory employer rules, premium audits and your own liability policy.
• Collect endorsements and a comp verification, not only the certificate, and review them against a written requirements exhibit.
• Watch for CG 21 39, CG 24 26, CG 22 94, classification limits and employee-injury exclusions on the sub's policy; they can gut the coverage the certificate seems to show.
• Track expiration dates, enforce with payment holds, and flow requirements down to lower-tier subs.
• State rules differ; Florida's workers' comp statute and verification tools are one example, not a national rule.