5-Star Subcontractors Insurers

What insurance does a subcontractor need? 

Subcontractors require two types of insurance: income protection insurance and public liability insurance. You might also need professional indemnity insurance, depending on the type of work your business does, but, for most building trades, that is more uncommon.

Public liability insurance is typically the most required type of subcontractor insurance, covering you if you cause personal injury to a third party or property damage. A third party might be a member of the general public or your client. Property damage usually prompts minor claims for public liability.  Personal injury is more common for larger claims and can become costly (into the millions of dollars) if your negligence causes death or serious injury. It is crucial to know that, as a subcontractor, you may not always be covered by the main contractor’s insurance; you will be held financially responsible if you are found to have been negligent. That is why a lot of contractors and building companies have strict requirements for subcontractors to have their own public liability cover. It is critical for your protection, even if the company you are working for does not require public liability insurance. 

Income protection insurance is not only important but mandatory for subtractors on many work sites because they are not covered by sick leave or, in many cases, workers’ compensation. While you are unable to work due to illness or injury, income protection will cover most of your income. 

Do subcontractors need workers compensation?  

Subcontractors that use workers must have their own workers’ compensation policies. In that case, you can ask for a certificate of insurance to get proof of coverage. If your subcontractor is someone working alone as an independent contractor, it can get slightly more complicated. The first step, again, is verifying the subcontractor qualifies as an independent contractor under law (which varies by state in the U.S.). You will be responsible for providing coverage even if a subcontractor carries workers’ comp insurance, if they fail to qualify as independent contractors. In the U.S., independent contractors are not required to carry workers’ comp coverage for themselves in most states – but can do so if they choose. You should request a certificate of insurance if a subcontractor you have hired does have coverage.  

Does an LLC need workers comp insurance? 

You only need to get workers’ compensation insurance if you have employees. For independent contractors that you have hired to help your business, you do not have to provide workers’ comp coverage. A person who operates his or her own independent business is an independent contractor. Limited liability company (LLC) members, self-employed sole proprietors, and partners in partnerships are not required to buy workers’ comp – unless they have employees that are not owners. The same is true in most states in the U.S. for “closely held” corporations without employees. 

In the U.S., in some states, LLC members, sole proprietors, partners, or corporate officers have to file documents, or waivers, with their state’s workers’ comp agency to receive an exemption from the state’s workers’ compensation requirements.  

Additionally, not every employee has to be provided with workers’ compensation coverage. Certain kinds of workers are excluded from workers’ comp coverage, although it varies from state to state. Typically, however, they include casual labour and certain kinds of farm labourers and domestic workers. 

What happens when a subcontractor indemnifies a general contractor? 

An indemnification clause, a.k.a., hold harmless agreement, is basically an agreement a subcontractor makes to accept the obligation to pay the contractor for a future liability that may arise. Usually, the subcontractor will agree to indemnify the general contractor for their own liability, rather than the liability of the general contractor. 

Some contracts, however, include broad indemnification clauses seeking the subcontractor to indemnify a general contractor for a liability resulting from the subcontractor’s work. But that type of overbroad provision may not be enforceable, depending on the state. Indemnification provisions may include defense costs, attorney fees, and payments of actual damages to a third-party. What is crucial to remember about indemnification is that typically the provision doesn’t begin unless the money, by way of judgment or settlement, is owning and due.  

What if my contractor doesn’t have workers compensation?  

If your subcontractor does not have workers’ comp coverage, you can request a copy of his or her independent contractor registration form, where applicable. In the U.S., for example, it depends on the state. Otherwise, you can ask for a copy of the subcontractor’s license. You can also check that the subcontractor is registered as a business entity with the state and request a certificate of general liability insurance that covers the dates worked with limits of $300K at least.  

It can be tricky determining if a subcontractor qualifies as an independent contractor. If unsure, you can ask your agent or underwriter for clarification, which will help you understand the implications of your workers’ comp premium immediately, instead of finding out that you owe more than expected after your premium audit or, worse, after an injury.