In New York’s construction industry, it’s common for contractors to use a mix of workers—day laborers, leased employees, or independent contractors paid on a 1099. This approach offers flexibility and speed when deadlines are tight and skilled help is hard to find. But there’s a critical question too many contractors overlook until it’s too late:
Are these workers actually covered under your Commercial General Liability (CGL) policy?
The answer depends on how your policy is written—and in many cases, the coverage contractors think they have simply isn’t there.
1. Day Laborers: The Hidden Exposure
Day laborers are often brought on for short-term needs—unloading materials, site cleanup, or helping with small tasks. Because they’re usually not on your formal payroll, your insurance company may question their employment status if there’s a claim.
If a day laborer is injured on the job, they would most likely be covered under workers’ compensation (either yours or the employer of record). However, that’s not where the risk ends. In New York, injured workers often bring an “action over” claim—a lawsuit against the general contractor or property owner under Labor Law §§ 240/241.
If that GC or owner tenders the claim back to you because of a contract you signed, your CGL policy may not respond. Many policies have injury to employee or worker exclusions that apply to anyone performing work on your behalf—regardless of payroll status. If your policy’s definition of “employee” or “worker” includes day laborers, your insurer can deny coverage.
The result? You could be stuck paying your own defense costs and any settlement or judgment—an uninsured claim that can easily reach six or seven figures.
2. Leased Employees: Who’s Responsible?
Leased employees—provided by a staffing agency or Professional Employer Organization (PEO)—may seem like a safer option. You might assume the staffing company’s insurance will handle any claim. But the reality is more complicated.
Some CGL policies have an employee leasing exclusion, pushing coverage responsibility onto the leasing company’s insurance. If their coverage is inadequate or excludes certain claims, you could still be on the hook.
It gets even trickier if a leased worker causes property damage or injures a third party. Which policy responds first—yours or theirs? Without clear contractual agreements and properly coordinated insurance, finger-pointing between carriers can delay payments and increase your legal costs.
3. Independent Contractors (1099 Workers): The Soft and Hard Hammer Problem
Insurance carriers often treat 1099 workers as independent contractors, not employees. That might sound like a positive for workers’ comp purposes, but in CGL coverage, it’s a potential landmine.
Many contractor policies include independent contractor conditions or soft/hard hammer warranties requiring you to:
- Collect proof of insurance from every subcontractor before work starts.
- Ensure you’re named as an additional insured on their policy.
- Verify their coverage meets required limits (often $1M per occurrence or more).
- Obtain signed hold harmless or indemnification agreements.
Failing to meet these requirements can have costly consequences:
- Soft hammer: The claim is covered, but you pay a significantly higher deductible—sometimes $10,000 to $100,000 per occurrence.
- Hard hammer: The claim is denied outright unless the subcontractor had the proper coverage in place.
Example: You hire a 1099 roofer who fails to tarp a roof before a storm, causing $250,000 in water damage. If you didn’t collect the proper certificates and endorsements before work began, your policy could deny the claim—or force you to cover a massive deductible.
4. Common Exclusions That Can Leave You Exposed
Many New York contractor policies include one or more of these coverage killers:
- Injury to Workers Exclusion – Broadly excludes bodily injury to any worker—employee, leased worker, day laborer, or volunteer—while performing duties.
- Labor Law/Scaffold Law Exclusion – Denies coverage for claims under New York Labor Law §§ 240/241, which are common in construction injury cases.
- Independent Contractor Warranty – Requires strict compliance with risk transfer procedures for all 1099 workers.
- Employee Leasing Exclusion – Removes coverage for leased employees, expecting the staffing company to provide it.
These provisions are often buried deep in the policy, and many contractors don’t know they exist until after a claim is denied.
5. The Financial Impact of a Coverage Gap
Without proper coverage, the costs can be devastating:
- Medical bills and lost wages for injured workers (if workers’ comp doesn’t apply).
- Property damage repairs from accidents caused by non-covered workers.
- Defense costs in a lawsuit, which can easily exceed $100,000 before trial.
- Settlements or judgments that must be paid out of pocket.
Even one uninsured claim can threaten the survival of your business.
6. How to Protect Your Business
If you use day laborers, leased employees, or 1099 workers, you can reduce your risk by:
- Reviewing your CGL policy carefully—pay attention to how “employee” and “worker” are defined, and identify exclusions.
- Implementing strict subcontractor protocols—always collect certificates of insurance, additional insured endorsements, and signed hold harmless agreements.
- Working with a broker who specializes in construction risks—generalist agents often miss critical policy details.
- Requiring compliance before work starts—no insurance, no job.
- Auditing insurance certificates regularly to ensure they’re still valid.
BGES Group: Protecting Contractors in NY, NJ, and CT
At BGES Group, we focus exclusively on helping contractors navigate the complex, high-risk insurance landscape in New York, New Jersey, and Connecticut. We know the traps hidden in many contractor policies—especially the ones that affect coverage for day laborers, leased employees, and independent contractors.
We make sure you’re not blindsided by exclusions, hammer clauses, or misclassified workers when a claim happens. We also help you put subcontractor compliance procedures in place so your policy conditions are met—and your coverage stays intact.
Our services include:
- In-depth policy reviews to identify and fix coverage gaps.
- Negotiating with carriers to secure better terms for independent contractor coverage.
- Setting up subcontractor compliance programs to satisfy warranty requirements.
- Providing fast, expert support when a claim or compliance issue arises.
We don’t just sell insurance—we work as your partner to keep your projects running and your business protected.
Contact BGES Group Today
Don’t wait for a denied claim to discover your coverage gaps. Let us review your policies and make sure your business is protected from the real-world risks of using non-traditional labor.
BGES Group
Workers’ Compensation & Contractor Insurance Specialists
Serving New York, New Jersey & Connecticut
📞 Gary Wallach – 914-806-5853
📧 bgesgroup@gmail.com
🌐 www.bgesgroup.com