Subcontractor Insurance: What Contractors Need to Know About Coverage and Liability

Understanding how subcontractor insurance works and what coverage is required is a critical part of protecting your business, managing liability, and meeting legal and contractual obligations.

Are Subcontractors Covered Under Contractors Insurance?

Unlike direct employees, subcontractors operate independently and are typically not covered under the contractor’s insurance policy. When subcontractors aren’t properly insured, it creates potentially serious financial and legal exposure for the general contractor. For example, if a subcontractor causes property damage or bodily injury and doesn’t carry their own subcontractor liability insurance, the general contractor may be held responsible for the resulting costs.

While subcontractors aren’t automatically covered, contractors can structure agreements to help ensure proper protection, such as requiring additional insured endorsements or a proof of insurance. Taking these steps before work begins can help reduce risk and clarify responsibility.

The Risk of Uninsured Subcontractors

Working with uninsured subcontractors can expose your business to serious risk. Even minor mistakes can quickly escalate into a costly, multi-layered problem if proper insurance coverage isn’t in place.

Here’s what’s at stake when subcontractors aren’t properly insured:

• Financial stability: Uninsured incidents can lead to unexpected expenses, from out-of-pocket repair costs to legal fees, putting pressure on your budget and cash flow.
• Compliance: Most states and many contracts legally require certain types of insurance. Failing to meet these requirements can result in fines, penalties, or even termination of agreements.
• Project timelines: Disputes over liability or unresolved incidents can delay progress, disrupt schedules, and increase costs, especially if legal action is involved.
• Reputation: Clients expect professionalism and accountability. If a subcontractor’s mistake leads to a costly issue, it can damage your credibility and future opportunities.
• Employees: Uninsured subcontractors can complicate workplace safety and liability. For example, an injury caused by subcontractor negligence may create coverage gaps and increase exposure under your own policies.

Consider a scenario where a subcontractor accidentally damages a client’s custom-built cabinetry.

If the subcontractor doesn’t carry liability insurance, the general contractor may need to cover the repair costs out-of-pocket. That single incident could trigger a chain reaction: the project budget is disrupted, timelines are thrown off while the issue is resolved, and the client’s trust in the contractor takes a hit, resulting in a negative online review.

Subcontractor Insurance Requirements

While not always legally required, subcontractors and independent contractors often need their own insurance to meet contractual obligations. Typical subcontractor insurance requirements include:

• Workers’ compensation insurance for subcontractors with employees, as it is legally required in most states.
• Professional liability insurance (also called errors and omissions) for those providing professional services like design or consulting.
• Commercial auto insurance for vehicles used on jobsites or for transporting materials.

In some cases, subcontractors may need coverage to meet conditions like a waiver of subrogation or being listed as an additional insured on the contractor’s policy. These requirements help reduce subcontractor risk and ensure accountability across the project.

Best Practices for Contractors

Managing subcontractor insurance requirements effectively is one of the most important steps you can take to help protect your business and reduce risk. Whether you’re working with a single subcontractor or coordinating a large team, these best practices can help ensure coverage is in place and responsibilities are clearly defined.

Require Insurance Documentation

Before work begins, contractors should request a complete certificate of insurance (COI) from each subcontractor. This document should include the scope of work, coverage limits, and expiration dates. At a minimum, the description of work should match the scope outlined in the contract to avoid confusion or gaps in coverage.

Include Insurance Terms in Contracts

Contracts should clearly outline the types of insurance, coverage amounts, and policy duration required. Contractors may also require subcontractors to name the owner, general contractor, and other relevant parties as additional insureds on their policies. This creates a contractual obligation and provides grounds for a breach of contract claim if coverage lapses.

Request Full Policies When Needed

A COI alone doesn’t guarantee coverage. Contractors should consider asking for the full insurance policy, including endorsements and exclusions, to better understand the scope of protection. This is especially important for general liability insurance, which may contain exclusions that limit coverage for bodily injury or property damage.

Protect Your Business With the Right Coverage

With the right insurance structure, contractors can focus on delivering quality work without worrying about financial pitfalls. Working with an experienced insurance professional can make all the difference.

At Westfield, we’ve supported contractors and subcontractors for decades, helping them navigate complex coverage needs with confidence. Our deep understanding of the construction industry means we know what’s at stake — and how to help you stay protected.

If you’re unsure about your current coverage or want to strengthen your risk management strategy, reach out to one of our agents today.