Do subcontractors need their own insurance?

In practice, yes. Most general contractors require subs to carry their own general liability, and in most states workers’ comp is required by law once a sub has employees. A GC that hires an uninsured sub usually pays for it at audit, when the sub’s pay gets charged to the GC’s own policy. So whether a subcontractor needs insurance is usually settled by the GC’s contract and the GC’s insurer, not only by the law.

Why do GCs require subs to carry their own insurance?

The GC’s own coverage depends on it. Many GC policies make it a condition: every sub must carry its own liability at set limits and name the GC as an additional insured, and some policies limit or exclude coverage for work done by subs who don’t. The owner’s contract usually pushes the same requirements down to the GC, who passes them on to every sub.

There’s also the claim itself. When a sub’s work floods a unit or injures someone, the GC gets sued too. If the sub carries its own policy with the GC as an additional insured on a primary basis, the sub’s policy is the one that’s supposed to respond first. If the sub has nothing, the GC’s policy and the GC’s loss history take the hit.

What happens at the GC’s audit when a sub has no certificate?

The GC gets charged. At the end of the policy year, the GC’s workers’ comp auditor asks for a certificate from every sub the GC paid. A sub who can’t produce one covering the dates of the work is treated as uninsured, and many states make the GC responsible for an uninsured sub’s injured workers. So the auditor adds what the GC paid that sub, or the labor part of it, to the GC’s own payroll in the class that fits the work. General liability audits often add the same payments as uninsured subcontracted work.

Say a GC pays a drywall sub $80,000 over the year. No certificate ever comes in. At audit, that $80,000 can show up on the GC’s comp policy as drywall payroll and on its liability policy as uninsured subcontract cost, and the GC pays the additional premium even though the sub was the one without coverage. Our article on surprise audit bills walks through the rest.

What insurance does a subcontractor typically need?

The subcontract sets the list, and most GCs ask for the same core coverages:

• General liability, commonly $1,000,000 each occurrence and $2,000,000 aggregate, with the additional insured, waiver and primary wording the contract calls for
• Workers’ comp once you have employees, or a valid exemption where your state’s rules allow one
• Commercial auto for the trucks and vans you drive to the job, often at $1,000,000
• An umbrella when the contract asks for more than the policies below carry

Tools and equipment coverage usually isn’t required, but it’s the coverage built for a trailer of tools stolen from a job site.

Many GCs ask for a comp certificate even from a one-person shop. Comp often isn’t required by law when you have no employees, but some owners carry a minimum policy anyway so they have a certificate to show, and some states issue exemption certificates instead. Ask the GC which it accepts. The rest of a typical clause is covered in how to read the insurance section of a subcontract.

Does a 1099 mean the sub doesn’t need workers’ comp?

Not by itself. Paying someone on a 1099 is a tax decision, and it doesn’t settle who’s responsible when that person gets hurt on your job. Each state sets its own workers’ comp rules: who counts as an employee, when a sub needs its own policy, and when the hiring contractor becomes responsible for a sub’s workers. Many states look past the paperwork at how the work is actually done.

For insurance, the practical test is simpler. If the sub can’t show its own comp policy or a valid exemption for the dates it worked, expect your auditor to treat that sub’s pay as yours. Whether someone is an employee or an independent contractor for tax purposes is a separate question for a tax professional.

Should contractors have their own insurance even when no one asks?

Yes, in almost every case. The GC’s policy protects the GC. It doesn’t make you an insured, so if a homeowner sues you over work you did, the GC’s policy generally won’t defend you. The same goes for your trucks, your tools and your employees, none of which the GC’s insurance was bought to cover. Even on a job with a project-wide wrap-up policy, you still need your own coverage for work off that site and for your vehicles.

What to collect from every sub before they start

This is the file a careful GC builds for each sub before the first day on site:

1. A signed subcontract whose insurance section matches what your own contract and your own insurer require.
2. A certificate showing general liability, auto and workers’ comp, with policy dates that cover the whole job.
3. Copies of the additional insured endorsements, covering ongoing and completed operations and naming you and anyone else your contract requires, such as the owner.
4. Copies of the waiver of subrogation and primary and noncontributory endorsements.
5. A comp exemption document, if the sub has no comp policy and the state’s rules allow one.
6. The sub’s W-9, with a legal name that matches the certificate and the subcontract.
7. The sub’s license, if the trade requires one where you work.
8. A reminder set for each policy’s expiration date, so a renewal certificate arrives before the old one lapses.

If you’re the GC, our general contractors page covers the rest of your side. If you’re a sub pricing coverage for your first GC contract, start a quote with that contract’s insurance page in hand, so the policy is built to what the GC will check.