Subcontractor Liability
General contractors have liability insurance to protect them from claims for bodily injury or property damage caused by their negligence. Most liability policies only protect you from your own negligence, not your subcontractors. It’s possible that you could get sued, and wind up having to pay for the consequences of someone else’s negligence.
When you hire a subcontractor to do work for you, he must carry General Liability insurance and he must have the same limits of liability as you do. If you have a policy with a $1,000,000 limit the subcontractor that you hire must have an equal or greater limit, and here is why:
At the end of your policy period, your insurance company has the right to audit your books. The auditor is trained to look for sub-contracted work and will then look for the certificate of insurance that corresponds to the work subbed out. If you cannot produce the certificate the amount of sub-contracted work will be added to your payroll, or gross receipts, in either case you will owe the insurance company an additional amount for your general liability insurance, which can be substantial.
If there is a problem on the job the customer is going to sue the subcontractor and the General Contractor. The insurance company has no recourse against the subcontractor and must defend the entire lawsuit, while the subcontractor walks away. Subcontractors must have insurance. It doesn’t matter if they are doing the foundation, framing, roof, electrical or just laying sod – everyone on your job site needs insurance!