Top 4 Risks of Hiring Uninsured Subcontractors
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General Contractor Insurance & Subcontractor Risks
It’s important to note that a General Contractor (GC) is responsible for work performed on their behalf by a subcontractor. In the event a GC hires an uninsured subcontractor, the GC cannot effectively transfer their risk to the subcontractor. This leaves GCs in a vulnerable position, since they could be held liable for damage caused by the uninsured subcontractor and deemed responsible if a subcontractor’s employee is injured on the job.
In Illinois, sole proprietors and partners are not required to purchase Workers’ Compensation coverage for themselves, but may opt to do so. Once the sole proprietor or partnership hires employees, however, the law requires that they secure Workers’ Compensation coverage for their employees. One caveat is the sole proprietor or partner (or member of an LLC) can elect to be “included” or “excluded” under the Workers’ Compensation coverage.
When a GC hires an uninsured subcontractor, they take on the responsibility of covering these workers as their own employees. So, at audit, naturally the insurance carrier will want to charge the GC for the subcontractor’s “coverage.” Some liability policies specifically exclude coverage if a subcontractor is hired that doesn’t maintain insurance equal to that of the GC’s coverage.
How this can impact a GC:
- Additional premiums due at Audit
- Possibility of putting the business’s financial strength at risk
- Possible increase at renewal in insurance premiums (or denial of coverage)
- Increased loss exposure which could affect your Experience Mod
How a GC can control this exposure:
- Do homework on the subcontractor
- Ensure a proper subcontractor’s agreement is in place
- Institute a certificate tracking and risk transfer program
- Consult with an attorney, insurance agent or broker
- The Risks and Rewards of Subcontractor, Vendor and Supplier Contracts
- Nitty Gritty of Risk Transfer for Contractors
- Commercial General Liability Webinar Recording
- Managing Risk Transference with Certificate Tracking Webinar Recording
- OSHA 10-Hour Construction Training (10/13)
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