The right documents can save the day when hiring subcontractors

Don't let a little misstep in paperwork create an additional liability hazard for your business. UFG Insurance has a simple solution to consider: Make sure you have proof of insurance and the right legal documents in place before you hire that subcontractor. Not only can the right documents help protect your business, but they might help you save on insurance premium, too. 

Certificate of insurance

A reputable subcontractor should be able to provide a copy of their certificate of insurance without hesitation. This document proves they have insurance policies in place and verifies the specific types of coverage they have, along with associated limits. Looking over your potential subcontractor’s certificate of insurance before hiring them can help you make sure you’ve got the right company for the job.

If UFG is your insurance carrier, these are also the limits to require from subcontractors you hire.

General liability 

• Each occurrence: $1 million.
• Damage to rented premises: $300,000.
• Medical expense: $5,000.
• Personal and advertising injury: $1 million.
• General aggregate: $2 million.
• Products – completed ops agg: $2 million.

Auto liability

• Combined single limit: $1 million.

Umbrella liability or excess liability 

• Occurrence based: $1 million (an umbrella with larger limits may be desired due to project size and scope).

Workers compensation

• Employers liability (EL) each accident: $500,000.
• EL disease – each employee: $500,000.
• EL disease – policy limit: $500,000.

Another element of the certificate of insurance is a notice of cancellation. You don’t want the subcontractor’s coverage to lapse in the middle of a big job, so be sure to require at least a 30-day notice of cancellation (60 days is preferred).

Keep good records. When it’s time for your company’s premium audit, provide your insurance carrier with copies of the certificates of insurance to prove your subcontractors carried insurance limits equal to the limits stated on that document. Sharing the certificates from the term of your company’s policy might allow exposures to be allocated differently, and that could mean a lower premium for you. Premium auditors won’t have the proof they need to tie exposures to your subcontractor without copies, and that might mean a higher rate on your policy.

Legal agreement

Working with your legal representative to create a subcontractor agreement can help ensure that your contract requests adequate limits of insurance. In addition, they can also ensure your subcontractor agreement includes adequate verbiage for the following elements:

Hold harmless (indemnity) — This language can aid in preventing one party from being liable to the other in the event of injuries or damage (typically due to actions). 

Additional insured — Help protect your business from being held responsible for the subcontractor’s liability due to negligence. Request additional insured status (on a primary, noncontributory basis) on your subcontractor’s policy for ongoing and completed operations.

Waiver of subrogation — The waiver of subrogation prevents the insurer from seeking damages from a third party who causes loss to the insured.