The Insurance and Indemnity a Sub Must Carry

Why this matters

When a sub burns down a kitchen or puts a worker through a roof, "they were a subcontractor" does not keep you out of it. The injured party sues everyone with a name on the job, and yours is on it. The sub's own insurance and the indemnity language in your agreement are what stop their risk from becoming your loss. Knowing what coverage to require, and why each piece matters, is core to running subs without betting the company on their carefulness.

General liability

General liability (GL) is the base coverage every sub must carry. It responds when the sub's work causes bodily injury to a third party or damage to property that is not theirs: the customer's home, a neighbor's car, another trade's finished work. Without it, a sub's mistake has no funding behind it except the sub's own assets, which for a small operator may be nothing. Require GL, and require proof it is current.

Workers compensation

Workers compensation covers a sub's own employees if they are hurt on the job. This is the coverage owners skip and regret. If a sub without workers comp has a worker injured on your site, that injured worker can turn to your workers-comp policy as the next business up the chain, driving your claims and your premium, or, if you carry none for them, come after you directly. Require workers comp for any sub who brings help. A true solo operator may be exempt in some states, so confirm your state's rule rather than assuming.

Commercial auto

If the sub drives to your jobs or hauls materials and equipment, commercial auto coverage responds to accidents involving their vehicles. A personal auto policy often excludes business use, leaving a crash on the way to your job uninsured. For any sub operating a vehicle in the course of your work, require it.

Additional insured and waiver of subrogation

Requiring the sub to carry insurance is only half the job. Two endorsements extend the protection to you:

• Additional insured: an endorsement that adds your business as a protected party under the sub's GL policy, so a claim arising from their work can be defended and paid under their coverage, not just yours. Require it, and require the endorsement itself, not merely a checked box on the certificate.
• Waiver of subrogation: this stops the sub's insurer from turning around, after paying a claim, and coming after you to recover. Without it, their carrier can pay and then bill you.

These are the difference between a sub who is insured and a sub whose insurance actually shields you.

Indemnity and hold-harmless

Insurance funds the risk; indemnity assigns it. Indemnification, also called a hold-harmless clause, is the sub's contractual promise to cover losses their work causes, meaning to defend and pay claims that arise from their scope rather than yours. Insurance and indemnity work as a pair: the clause makes the sub responsible, and their insurance is where the money to honor it comes from. A sub with a strong indemnity clause but no insurance is a promise with an empty wallet behind it, so always require both. States limit how far indemnity can reach (many bar making a sub cover your own sole negligence), so have an attorney tailor the language.

Match the coverage to the risk

Bigger, riskier work demands higher limits. A sub doing minor, low-hazard work needs less than one doing structural, high-hazard, or high-value work where a single loss could be severe. Set your minimum limits to the worst plausible loss on the job, not the routine day. Your own insurance agent can tell you what limits to require for the kind of work you sub out, so ask them, because under-requiring is a gap you will not see until a claim exceeds the limit.

References

• Trade-standard practice for subcontractor insurance requirements
• Your commercial insurance agent or broker on required coverage types and limits
• Consult a licensed attorney on indemnification and hold-harmless language for your state
• See related: Why You Need a Certificate of Insurance From Every Sub; What a Subcontractor Agreement Must Spell Out