Building a Sturdy Business
Working with Subcontractors? Use Contracts to Make Sure They're Licensed, Bonded, and Insured

Did you know that you can be sued for mistakes your contractors and subcontractors make? It's true. But that doesn't mean your construction business is totally defenseless.

One of the simplest ways to reduce the risk of these construction lawsuits is to use business contracts every time you hire a contractor or subcontractor. A contract can protect your business by…

  1. Clearly identifying the responsibilities of the subcontractor.
  2. Establishing deadlines, budgets, and payment requirements.
  3. Outlining subcontractor insurance terms and requirements.

In this guide, you'll learn more about the last item on that list: subcontractor insurance requirements. Let's take a look at the insurance you should require your subcontractors to have and how you can ensure they have adequate coverage.

Subcontractor Liability Insurance Requirements

Subcontractor Liability Insurance Requirements

When you hire a subcontractor, you can specify which insurance policies they need to have in your contract. Ideally, you want to work with subcontractors who are bonded, licensed, and insured. Let's look more closely at these three requirements:

  • Bonded contractors. A contractor who is bonded has a License or Permit Bond. They may be required by state or local laws to have this bond in place before they can work anyhow. It guarantees that their work will comply with federal and local construction and safety regulations. If the contractor fails to produce work that complies with these laws, the client can make a claim on the bond. If the contractor is found liable, the client may be able to collect damages.
  • Contractor's license / business license. In some states or municipalities, your subcontractors might not need a license to do their work. But if a license is available, your subcontractors should have it, because some state laws offer more protection for licensed contractors. For instance, in California (where all contractors must be licensed), a customer isn't legally required to pay for work done by an unlicensed professional. If someone refuses to pay a licensed contractor, though, that person can be sued. You can read more about that in the Contractors State License Board's article, "Consequences of Contracting without a License."
  • Contractor's liability insurance. The most common construction insurance is General Liability Insurance. It's crucial that your subcontractors have this coverage. GL Insurance covers lawsuits over property damage and customer bodily injuries. For example, if a subcontractor's work damages your client's home or building, their General Liability Insurance can cover a lawsuit over the damages. If a subcontractor doesn't have GL Insurance, you might be on the hook for the damages.
How Do You Check Your Subcontractor's Insurance?

How Do You Check Your Subcontractor's Insurance?

Anytime someone purchases contractor liability insurance, they can get a Certificate of Liability Insurance. This is a document from the insurance company that outlines…

  • Which policies the contractor has.
  • Policy limits.
  • Effective and expiration dates.
  • Key coverage details.
  • And more.

Before you hire a subcontractor, require them to give you their Certificate of Liability Insurance, and attach a copy of it to your contract.

Protecting Your Business: Subcontractor Liability and Bonding Terms

Protecting Your Business: Subcontractor Liability and Bonding Terms

To summarize, in order to protect your business, your contracts should require subcontractors to have…

  • A License / Permit Bond.
  • General Liability Insurance.
  • A contractor's license or other professional license (if these licenses are available in your area).

If your subcontractor can't afford insurance, you can temporarily add them to your General Liability policy as an "Additional Insured." To learn more about covering subcontractors, read, "Construction Insurance: Why You Need It."

If you have any questions about construction insurance or subcontractor bonding terms, don't hesitate to contact an insureon agent at 800-688-1984.

Customer Rating 4.9 out of 5
Read Customer Reviews

Grab-n-Go Information

The House Insurance Built: Risk Management for Builders & Contractors
Browse eBook
Sample certificates
See a sample Certificate of Liability Insurance, the proof of coverage you need for most contracts.
View Sample
Sample Quotes & Cost Estimates
See what insurance really costs: actual quotes by policy & specialty.
Get Estimates
Ask A Question
Submit your questions about construction insurance and get answers from our experts.
Read Answers