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Subcontractors and the Importance of Risk Transfer Agreements

By September 10, 2021May 23rd, 2022Business Insurance, Insurance, Workers' Compensation

Subcontractors and the Importance of Risk Transfer Agreements


At ALL Insurance, we specialize in coverage and risk management for contractors, specialty and general. One of the topics we discuss with EVERY contractor is their use of sub-contractors and risk transfer agreements.

As a contractor (artisan, trade, general) who hires “subs” you make yourself and company vulnerable to lawsuits from them for an unsafe workplace. You need to verify that your sub-contractors maintain insurance coverage equal to or more than your insurance limits. Without these limits you and your company may be responsible for THEIR actions, up to and including their employees.

It becomes critical, if not necessary, to obtain a written and signed contract PRIOR to any work being done on your behalf by a sub-contractor. When you have a contract in place you can better safeguard your business and assets in the event of a loss.

Construction contracts vary by state, and we strongly recommend that you have your attorney review any contract you maybe using.

There are 4 essential elements to this written contract. Any contract should require:

  1. Verification of insurance

Confirmation (via certificates of Insurance) that the sub is adequately insured for the term of the contract. Adequately insured can be defined as:

  • Commercial General Liability coverage equal to or higher than the hiring contractor. They should be $1,000,000 occurrence and $2,000,000 aggregate.
    • Note: If certificates cannot be confirmed for each sub (or inadequate limits) the sub’s operations will be classified as an employee and charged to the insured contractor at audit
  • Workers Compensation coverage of no less than $500,000 per occurrence, aggregate and per disease.
  1. Additional Insured

As the hiring contractor you should be named as an “additional Insured” on the sub-contractor’s liability and auto policies. This includes any liability insurance the sub may have for products and completed operations coverage (CG-2010 and CG-2037 come into play here)

  1. Indemnification

Each sub-contractor should have a “hold-harmless” or indemnity agreement in favor of the insured contractor prior to the start of any work for that contractor. A similar agreement must be required of each sub who further subcontracts a portion of their work to others.

  1. Primary and Non-Contributory

The liability coverage of the sub-contractor (including THEIR subs) should contain language indicating that their policy coverage is primary and non-contributory in favor of the insured contractor.

Risk Transfer agreements can help with all these elements & templates are typically available from agents, insurance companies and loss control departments. Let us know if you would like to discuss this further.

One other element we did not discuss but is of importance, is that, any sub-contractor agreement should contain language that certifies compliance with U.S. immigration laws. When signed, the sub-contractor is disclosing and acknowledging that their workers are legally allowed to work in the United States. An attorney can assist with this wording as well.

All Insurance is dedicated to the contractor market! We specialize and work with Insurance carriers that understand and can assist them. If you think you could use that expertise and dedication, give us a call and we can discuss your needs.