For contractors in the Tri-State area and across the country, subcontracting is a common and often necessary practice to complete projects on time and within budget. However, when a contractor relies too heavily on subcontractors, it can raise red flags for insurance companies — especially for Commercial General Liability (CGL) and Workers’ Compensation (WC) insurers.
In this article, we’ll explain why insurance companies grow cautious when contractors sub out a majority of their work, what requirements are typically written into CGL policies to manage these risks, and how BGES Group is uniquely positioned to help contractors in New York, New Jersey, and Connecticut manage their insurance programs effectively.
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Why Do Insurance Companies Care About Subcontracting?
From an insurance company’s perspective, the more a contractor subcontracts work out to others, the less control they have over job site safety, quality of workmanship, and risk management procedures. This lack of oversight can lead to increased liability exposures and claim frequency.
Some of the key concerns insurance carriers have when contractors rely heavily on subcontractors include:
• Higher Liability Exposure: If a subcontractor causes property damage, bodily injury, or another type of claim, the general contractor may ultimately be held responsible if the subcontractor is uninsured, underinsured, or if their policy contains exclusions.
• Uninsured or Inadequately Insured Subcontractors: Not all subcontractors maintain proper insurance coverage. If a subcontractor is uninsured and causes a loss, the responsibility often falls back on the hiring contractor’s policy.
• Workers’ Compensation Exposure: Even though subcontractors may be considered independent contractors for tax purposes, Workers’ Comp boards and insurers often classify uninsured or misclassified subs as employees for the purpose of coverage and claim handling. This can lead to unexpected premium audits and liabilities for the general contractor.
• Job Site Safety Risks: Contractors have more control over safety procedures and compliance when using their own employees. With subcontractors, it’s more difficult to ensure that safety protocols are followed, increasing the chance of on-site accidents and claims.
• Claims History Impact: When claims are caused by the actions of subcontractors, the general contractor is usually sued too. This can go against the general contractor’s loss history, impacting future premiums and insurability.
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How Commercial General Liability Policies Manage Subcontractor Risk
To mitigate these risks, most Commercial General Liability insurance carriers include specific requirements and policy provisions such as soft or hard hammer clauses that address the use of subcontractors. Some of the common clauses and stipulations include:
• Insurance Requirements for Subcontractors: Policies often require general contractors to ensure that any subcontractor they hire carries their own General Liability insurance, often with equal or greater limits of coverage.
• Hold Harmless and Indemnification Agreements: CGL policies frequently stipulate that contractors must have subcontractors sign hold harmless agreements, transferring liability for their own actions back to them.
• Additional Insured Status: Many carriers require subcontractors to name the hiring contractor as an Additional Insured on their CGL policy. This extends the subcontractor’s coverage to the general contractor for liability arising out of the subcontractor’s work.
• Waiver of Subrogation: Contractors may be required to secure a waiver of subrogation from subcontractors’ insurance policies. This prevents the subcontractor’s insurance carrier from seeking reimbursement from the general contractor’s policy after paying a claim.
• Certificates of Insurance (COIs): CGL policies typically mandate that the general contractor obtain and maintain current certificates of insurance from all subcontractors, proving that they carry the appropriate insurance before starting work.
If these requirements aren’t met, a general contractor’s insurance carrier may deny coverage for claims involving subcontractors, or the contractor may face increased premiums or even policy cancellation at renewal.
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What Workers’ Compensation Insurers Expect When Contractors Use Subcontractors
Workers’ Compensation carriers have their own concerns when it comes to subcontracting. Even though subcontractors may operate as independent businesses, Workers’ Compensation boards often look at the nature of the relationship between the contractor and subcontractor to determine if coverage is required.
To protect themselves and manage premium calculations accurately, Workers’ Comp insurers typically expect:
• Proof of Workers’ Compensation Coverage: Contractors are usually required to obtain certificates of Workers’ Compensation insurance from each subcontractor they hire. If a subcontractor does not carry their own coverage, the contractor could be liable for covering the sub’s employees under their own policy.
• Exemption Certificates: In cases where a subcontractor is a sole proprietor or operates as a one-person business with no employees, a Workers’ Comp exemption certificate may be required.
• Payroll Reporting for Subs Without Coverage: If a contractor uses uninsured subcontractors, most insurance carriers will include that sub’s payments in the general contractor’s payroll for premium calculations. This can lead to hefty audit adjustments and unexpected premium increases.
• Subcontractor Agreements: Workers’ Comp insurers often want to see clear, written subcontractor agreements in place, defining the independent relationship between the contractor and sub, and outlining responsibilities for insurance and job site safety.
Failing to adhere to these expectations can have significant financial consequences for contractors at audit time and in the event of a claim.
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BGES Group: Your Tri-State Contractors Insurance Specialist
At BGES Group, we specialize in protecting contractors in New York, New Jersey, and Connecticut. We understand the unique insurance challenges that contractors face — especially when it comes to working with subcontractors.
Our experienced team works with a network of top-rated insurance carriers to craft customized insurance programs designed specifically for contractors. Whether you’re a general contractor, subcontractor, artisan contractor, or specialty trade professional, we can help you secure the right coverage, navigate complex policy requirements, and avoid costly mistakes.
Some of the services we offer include:
• Commercial General Liability
• Workers’ Compensation
• Commercial Auto
• Umbrella / Excess Liability
• Certificates Management Assistance
• Risk Management Support
• Audit Preparation Guidance
We also educate our clients on the importance of obtaining proper certificates of insurance, additional insured endorsements, and waiver of subrogation provisions from all subcontractors — helping to keep your insurance program compliant and your business protected.
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Contact BGES Group Today
If you’re a contractor in the Tri-State area and you’re unsure whether your current insurance program properly addresses subcontractor exposures, or if you’d like a competitive quote from an agency that specializes in your industry — reach out to BGES Group today.
Contact Information:
• Gary Wallach
• Phone: 914-806-5853
• Email: bgesgroup@gmail.com
• Website: www.bgesgroup.com
At BGES Group, we’ve got your back — so you can focus on building your business while we handle your insurance.