Subcontractor insurance requirements explained
4 min read · Last updated
A general contractor who hires subcontractors usually passes part of the risk of the work to them through insurance. This guide explains the coverages most often required, how to set minimums by trade and job size, and how to write the requirements into the subcontract. Requirements vary by contract and by state. General information, not legal or insurance advice; check your contracts and your insurer.
Why contracts ask for insurance
Insurance clauses in subcontracts exist so that the party doing the work can pay for losses its own operations cause. Owners and lenders often require the general contractor to show that its subcontractors carry coverage, and the general contractor usually passes the same expectation down to each subcontract.
The requirements are a business decision backed by a written contract. They should be written down, reviewed when the scope changes, and applied the same way to every subcontractor on a job.
Coverages commonly required
The list below is a starting point. The prime contract and the subcontract decide what you actually need.
- Commercial general liability, including completed operations coverage. Completed operations protects after the work is finished, and many contracts require it to continue for a stated number of years.
- Workers' compensation for the subcontractor's employees, with the statutory limits your contract names.
- Auto liability for vehicles used on the job, including hired and non-owned vehicles where the contract requires them.
- Umbrella or excess liability on larger jobs, to sit above the primary limits.
- Specialty coverage where a trade carries unusual exposure, such as pollution coverage for hazardous materials work.
Setting minimums by trade and job size
Minimums should rise with exposure. A painting subcontractor working in an occupied office building and a framing crew on a new residential build face different losses, so they rarely need the same limit. Start from the risks each trade brings: working at height, heavy equipment, hot work, hazardous materials, vehicles on site and the number of workers on the job.
- Group trades into a small number of risk tiers, such as low, medium and high, and set one minimum set for each tier.
- Scale limits with contract value and the type of site. Ask your insurance broker what limits are typical in your market rather than relying on a single number.
- Keep one standard set for routine work and add requirements only for special hazards.
- Write each minimum as a number, including the per-occurrence and aggregate amounts for general liability, so it can be checked against a certificate.
- Record the reason for each tier so the decision can be explained later.
Putting requirements in the subcontract
The subcontract should state each required coverage, its minimum limits, the policy form where it matters, when certificates must be delivered and what happens if coverage lapses. A separate insurance schedule attached to the subcontract makes the requirement easy to find.
- Delivery of certificates before work starts and before each renewal date
- Notice to you when a policy is cancelled, reduced or not renewed
- Additional insured and waiver of subrogation language, where your contract uses it (see the guide on those terms)
- The consequence of missing coverage, as the contract allows, such as pausing work or payment until the document is received
Requirements vary by contract and state
Rules about insurance and risk in construction contracts differ by state, and some states limit certain indemnity and additional insured terms. Public projects can impose their own standards. Read the prime contract and the subcontract together, because a subcontractor cannot be asked to give you more protection than your own contract with the owner requires you to offer.
Have an attorney review the insurance schedule before you use it on a new type of project, and have your insurance broker confirm that the limits are workable.
Keeping the requirements current
Requirements change when a project changes. Recheck the schedule when the scope grows, when a new hazard appears, or when the owner revises the prime contract.
Keep the requirement list in one place and link it to each vendor, so expiry dates and minimums are checked against the current standard. VendorVault records coverage requirements and minimums per vendor and flags documents that are expiring, expired, missing or below the minimum.
Questions
Do all subcontractors need the same limits?
Not usually. Set tiers by trade and job size, and write down the reason for each tier.
Can a subcontractor's insurance replace my own?
No. A subcontractor's policies protect the parties named under them. Your own coverage remains your responsibility, and your broker should advise on it.
What if a subcontractor cannot meet a limit?
Decide before the bid. Options your contract may allow include a higher limit from an umbrella policy or a written exception approved by the person responsible for risk.
Should a one-day material supplier meet the same requirements?
Not always. Many contracts separate vendors who work on site from suppliers who only deliver. Apply your written categories the same way each time.
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