Bringing a construction project to life is a team effort. There’s usually a general contractor who is responsible for the full management of the project, but there’s also a group of subcontractors who perform the actual work itself. When it comes to insurance coverages for both parties, many of the same rules apply. It’s often the general contractors who set the pace but it’s the subcontractors who carry the limits. There may also be a variety of stipulations set forth in a contract or certain requirements depending on the state or municipality where the work is being performed. So, what type of insurance coverages should general contractors and subcontractors carry?
General contractors typically take on a project for its entire lifecycle, start to finish. This includes not only management aspects but also hiring the right teams to perform the work. It’s important for a general contractor to ensure the subcontractors they hire all have proper insurance, including any subcontractors hired by those subcontractors. If they don’t, they could find themselves paying for any number of different lawsuits or claims. But what type of insurance coverage should a general contractor have for themselves?
While most people wouldn’t go to a doctor who didn’t have proper insurance, the same goes for general contractors who hire subcontractors to work on their projects. General contractors who fail to properly vet their subcontractors could find themselves financially liable should something go wrong.
Subcontractors need to carry the exact same type of insurance that general contractors do but they also need to ensure their limits are adequate. A good rule of thumb to follow is that a subcontractors’ limits should be comparable to the general contractors’ policy limits.
In addition to those outlines in the section above, there are a few other coverages subcontractors should consider:
All contractors want to limit their liability and control insurance costs at much as possible. A general contractor will often ask subcontractors to have the same insurance coverages as they do, pushing liability down the chain. Risk transfer is what protects the general contractor and places (or transfers) responsibility for claims, losses and damages on to the subcontractor. But what about when subcontractors hire other subcontractors? The same applies. Subcontractors also need a transfer risk agreement that indemnifies them. When a subcontractor hires another subcontractor, proper risk transfers techniques need to be employed in order to protect the business.
Whether a general contractor searching for a subcontractor or a subcontractor seeking another subcontractor to perform a specific task, it’s important to ensure the business is protected and there are partners that can be trusted. Working with a knowledgeable insurance agent who understands the construction industry is also critical in helping understand what is needed, what to require from subcontractors and how to keep the business safe.
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