As a business owner or contractor, it’s critical to understand the impact of properly managing subcontractor insurance on your Workers’ Compensation (WC) and General Liability (GL) insurance. Without the necessary documentation, you could face significant financial consequences at your final audit. Here’s why requiring and obtaining Certificates of Insurance (COI) from all subcontractors is essential for protecting your business.
Why Certificates of Insurance Matter
A Certificate of Insurance serves as proof that your subcontractor has the required Workers’ Compensation and General Liability insurance. Without this documentation, your insurance carrier or the state of California will assume the subcontractor is uninsured, making you financially responsible for:
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Premium Charges:
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At the time of audit, your insurance carrier will require proof that each subcontractor carried their own GL and WC insurance.
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If you cannot provide these certificates, your carrier may charge your business additional premiums for their specific classification.
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Liability for Injuries:
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If an uninsured subcontractor’s employee is injured while working on your behalf, you could be held responsible for the injury, even if the subcontractor was at fault.
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This can lead to higher premiums and potential lawsuits, putting your business at serious risk.
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Key Requirements for Subcontractor Insurance
To properly protect your business, ensure each subcontractor’s insurance meets the following criteria:
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Workers’ Compensation Insurance:
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Include a waiver of subrogation on the WC certificate.
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This waiver prevents the subcontractor’s insurance carrier from seeking reimbursement from your business if their employee is injured.
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General Liability Insurance:
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Name your business as an Additional Insured on the subcontractor’s GL certificate.
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Require Primary and Non-Contributory wording, ensuring their policy pays before yours in the event of a claim.
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Include a waiver of subrogation, which eliminates the risk of the subcontractor’s insurer holding your business liable for damages they pay.
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When to Obtain Certificates of Insurance
Always require and collect the COI before allowing the subcontractor to start any work on your behalf. This proactive step ensures that you have proper documentation in place and can avoid additional charges or liabilities during the audit process.
What Happens if You Don’t Obtain a COI?
Failing to obtain a valid COI from your subcontractors can result in:
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Being charged additional premiums for GL and WC based on the subcontractor’s work classifications.
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Becoming responsible for injuries sustained by the subcontractor’s employees while on the job.
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Exposure to claims and lawsuits that could have been avoided with proper insurance coverage.
Protect Your Business
Managing subcontractor insurance may seem like a minor detail, but it has significant implications for your business’s financial health and liability. Taking the time to collect and review certificates of insurance ensures you are properly protected and prevents unexpected costs.
If you need assistance reviewing COIs or understanding insurance requirements, Insurance Incorporated is here to help. Contact us today to ensure your business is fully protected at 877-898-9333. For All Your Business Insurance Needs think Insurance Incorporated.
For more tips and guidance, visit our website or reach out to one of our experienced insurance professionals. Let us help you build a strong foundation for your business!
