Subcontractor coverage

Subcontractor coverage refers to insurance policies that protect businesses from financial losses caused by the actions or negligence of hired subcontractors. General liability insurance often extends to subcontractors only if specifically endorsed in the policy.

Many general contractors require proof of subcontractor coverage before allowing work to begin, as seen in contracts for commercial building projects. Certificates of insurance act as documented proof that subcontractors maintain active coverage with specified minimum limits, such as $1 million per occurrence.

Workers’ compensation laws in states like California mandate that subcontractors either carry their own workers’ comp policy or be covered under the general contractor’s plan to avoid fines and claims. Endorsements such as Additional Insured status extend protection to the hiring entity against liability claims arising from a subcontractor’s work, according to YourInsuranceInfo.

Exclusions frequently apply; for example, standard policies do not cover faulty workmanship unless a specific rider is added. Insurance audits at project completion verify active subcontractor coverage, with gaps potentially leading to back-charged premiums exceeding $20,000 on large jobs.

Subcontractor default insurance (SDI) differs from surety bonds by providing first-party indemnity to project owners for nonperformance or defective work, paying up to $50 million per loss on major infrastructure projects. Waivers of subrogation in subcontractor policies prevent insurers from suing other parties involved in the project after claim payouts, streamlining resolution and protecting professional relationships.