Why you should care about the insurance status of companies working for you.
Is your business protected from insurance claims if an accident happens on your property? If you haven’t seen your subcontractor’s certificates of insurance (COI), it might not be.
Most people think of the building construction industry when they think of subcontractors. But subcontractors exist within every industry, each with different risk exposures. Every business owner needs to ensure that they – and the subcontractors they employ -- have sufficient insurance.
What should you expect and what are the necessary documents of proof? Here are some guidelines for ensuring your business is covered while your subcontractors are on the job:
Ask to see a Certificate of Insurance (COI).
The standard policy that fits for most businesses is a $1 million general liability policy, which will cover any loss, damage or injury. A business owner should never assume that a subcontractor is covered or settle for confirmation without proof. Even if the subcontractor believes they have coverage, if their policy has lapsed, you are liable for anything that happens on your job site. The information you seek should include the policy numbers, coverage amounts and periods of coverage.
When it comes to the building construction industry, “certainly general liability insurance is the most important,” says Bill Kelly of the William Kelly Agency in Atlanta, “but many carriers that specialize in contractor policies, like Hartford, offer packaged policies that include a lot of additional coverages that are specific to a contractor.” For example, an inland marine policy also covers machinery and tools that a contractor uses. While not as important as liability, the contractor should be aware that this kind of policy is available. No one wants their subcontractor to be unavailable to work due to a stolen piece of equipment.
Verify that the insurance certificates are valid.
“Be wary of fraudulent certificates,” says Julie Crowe, president of CJ & Associates Insurance Agency in Hiram, Georgia. There are many fraudulent certificates in circulation right now. To ensure certificates are valid and current, it’s ideal to receive those documents directly from the subcontractor’s agent, which may also make the verification process faster and more efficient.
Ask if the subcontractor will be completing the work himself/herself or if the work will be done by an employee.
If the subcontractor has employees, then they must maintain worker’s compensation insurance. If a business owner hires a subcontractor who does not carry worker’s comp insurance, he/she is taking an unnecessary and possibly expensive risk. What’s more, says Crowe, “a general liability policy is only third party, it does not cover workers.” Every state has a different worker’s comp requirement for company employers. For example, the State of Georgia requires a business with three or more (full- and part-time) employees to carry worker’s comp insurance.
If you’re having trouble verifying that your subcontractor carries a current worker’s comp policy, Julie advises that business owners can also go online to your State Board of Worker’s Compensation (SBWC), where there is usually a current list of worker’s comp insurers.
If you’ve been working with the same subcontractor for more than a year, it may be time to request updated documents.
Business owners should request proof of insurance from their subcontractors on an annual basis. Consider requesting COIs when you renew your own policies. For further protection, consider asking subcontractors to sign a Hold Harmless agreement that states that they do carry current insurance and they will not hold your company liable for anything. If you have a long-term relationship with your subcontractors, it might make sense to ask your subcontractor to be added to his/her general liability policy as an “additional insured,” Crowe adds. This will not only guarantee complete coverage, but you will be notified if the policy is cancelled, or is about to expire. This is a fail-safe way of alerting you to any potential lapses in coverage.
Maintaining close business relationships will reduce your risk.
Risk exposures vary from industry to industry, and thereby so do the policy types and value amounts required for necessary coverage. Your insurance agent can discuss with you the types of exposure risks your business might encounter and the policies that will keep your assets protected. Bill Kelly adds that it’s ideal to establish a close relationship between the broker-agent, the business owner and the subcontractor to ensure everyone is on the same page. “Full disclosure is critical so that any risk can be properly addressed.”