Liga Asuransi – Dear readers how are you? Hope you’re always well. Let’s continue our discussion about risk management and insurance for projects, this time we are discussing insurance for sub-contractors.
So far, still so many subcontractors misunderstand that the risks of the project are the responsibility of the main contractor.
It’s worth noting that many companies or primary contractors may hesitate to work with you if you’re not adequately covered. It’s common for clients to require subcontractors to show proof of insurance.
A subcontractor who isn’t insured can leave the primary contractor vulnerable to lawsuits and other expenses, and most of the time, they aren’t willing to take that kind of risk. As a result, subcontractors need to consider several types of insurance coverage.
It has become a common practice among contractors to hire only subcontractors with insurance, which makes a lot of business sense.
As you may know that subcontractors are not considered employees of the main contractor. Often, subcontractors are freelancers who work on projects for the short term. The working relationship between a contractor and subcontractor is often temporary and ends once the project is complete.
Also, the insurance that contractors carry rarely covers subcontractors. Most contractor insurance policies specifically exclude any damage or injury caused by parties other than the contractor, unless otherwise specified.
To understand what kind of risks are faced by subcontractors and the types of insurance required, please continue the following explanation.
If you are interested in this article, please share it with your colleagues so that they also understand like you.
What are the benefits of insurance for subcontractors?
A subcontractor could be sued for several reasons. Even if they’re not at fault, they could still face an expensive legal battle.
Having the right kind of insurance can protect against this kind of risk. You may also need insurance to secure certain contracts, especially when dealing with government entities.
Are subcontractors covered under the contractor’s insurance?
If someone sues the contractor or the employer you work for, you could face the same liability risks as the employer, but without the employer’s insurance protecting you.
Subcontractors usually aren’t covered under their employer’s insurance policies, or those of independent contractors and employers aren’t required to provide it.
That’s why subcontractors should purchase insurance. It can protect them from the cost of unexpected lawsuits, workplace accidents, and property damage.
Is insurance required for a subcontractor?
Having a certificate of liability insurance lets clients know that you are willingly taking accountability for your work. Also, many businesses prefer to hire subcontractors who have insurance coverage.
While not legally required, insurance for subcontractors is strongly recommended for the financial protection it offers and the advantage it provides in bidding on contracts.
The specific insurance policies you need depend on a few factors, including:
- The clients you work with
- The specialized work you do
- Your exposure to risk
Are subcontractors covered under contractor’s insurance?
In general, every contractor should be responsible for carrying their insurance. You can be afforded some protections on other contractor and subcontractor insurance policies, with caveats.
These protections can be additional insured endorsements, per project aggregates, and certificates, but make no mistake, if you aren’t directly paying for the insurance policy and your name isn’t listed on the declarations page, you cannot rely on an insurance policy that isn’t yours.
Understanding Subcontractor Insurance
And most of the time, they are trying to shift the exposure to subcontractors, the subcontractor.
Construction projects are a virtual landmine of risk and potential liabilities. Every party involved in the building process is trying to manage risk and ultimately shift the liability exposure to other companies.
There are ways to protect yourself, however. By knowing and understanding your insurance program and purchasing coverage for your risks, you can increase your chances of surviving
Subcontractor Insurance Coverages You Should Have
General Liability
A general liability policy for subcontractors should also cover products and completed operations coverage.
This extends your insurance coverage of property damage or bodily injury to include claims that happen after you are finished with the job. An example of a completed operations claim would be if a deck you built a year ago collapsed and injured people.
A quality general liability insurance policy is a core coverage for any subcontractor. It not only covers property damage that you cause at the job site but also bodily injury (to a non-employee) that you create.
Property/Contractors Equipment
Additionally, you might have an office building where you keep spare parts or equipment that your customers have purchased OR are waiting to be installed.
As a subcontractor, you most likely work with specialized tools or heavy equipment. These tools can range in cost, but each can likely be an expense you don’t want to shoulder if they are stolen from a job site.
This type of property can be covered under a property or contractor’s equipment insurance policy.
Workers’ Compensation
Additionally, depending on your state, you can be responsible for the injuries of your independent contractors. Having workers’ compensation and employers’ liability is critical to ensuring you are protected from the costs of these injuries.
Employee injuries frequently happen on construction sites. Although you might be able to pay for small injuries out of pocket, a severe injury could bankrupt your company. In most states, this coverage is also required by law.
Workers’ compensation covers the medical payments associated with an accident an employee had while working for you.
Motor Vehicle
If your business uses vehicles for its operations, it is important to have them covered under a contractor’s commercial auto policy. This coverage will pay for the liability and damage to your automobile caused by a wreck or accident.
Surety Bonds
If you are bidding on any construction projects, you will either need to be covered under a surety bond or a subcontractor default insurance program.
These policies cover your obligations to finish the projects if you are financially unable to do so, or your company shuts its doors.
This gives the general contractor or project owner the peace of mind that you have bona fide subcontractors’ insurance but also assures them they can hire another subcontractor to finish work they already paid for.
Environmental
Being liable for an accident that causes an environmental claim can result in enormous consequences. Frequently, the EPA will also get involved and force you to pay fines, clean-up costs, and more. If paid out of pocket, pollution claims often result in bankruptcy.
A contractor’s environmental or pollution policy will cover the fines and damages you cause from a pollution event on a job site (or even in transportation).
Contractor’s Errors & Omissions (E&O)
Your general liability policy will not cover certain claims. There are some situations where you will need coverage that doesn’t involve property damage or bodily injury. In these situations, a contractor’s E&O policy fills in a lot of the gaps. A strong contractor E&O policy covers allegations or claims involving:
- Errors and oversights
- Failure to deliver promised services
- Negligence in providing professional services
- Poor, incorrect, or incomplete work
Contractor Plant and Machinery Insurance (CPM)
Damage or loss of expensive machinery could be a catastrophe for a small construction contracting business because these machines represent such a large investment.
Contractor Plant and machinery insurance protects your business from these losses. Understand the options and limitations of this type of insurance to determine whether your business needs to be covered.
CPM insurance covers all physical damage done to a contractor’s machinery that is not specifically excluded by the policy.
This includes accidents not due to gross negligence and acts of God, such as falling trees or storm damage.
The payments cover the cost to repair or replace the affected machinery, which is covered at work or rest, while on any job site owned by a third party, and even when dismantled or reassembled for maintenance.
Marine Cargo Insurance for Mobilization
Each project begins with the mobilization of equipment and materials for the project. The transportation of equipment belonging to subcontractors to the project site faces various risks. The more difficult and farther the project location, the higher the risk faced.
Many types of construction tools are transported to the project site, ranging from small to heavy equipment. Excavators, cranes, dozers, generators, measuring instruments, and others.
Many types of accidents can occur during the process of mobilizing equipment to the project site such as road accidents, accidents on board ocean liners, falls at the time of being unloaded from the ship, and overturning at the time of being transported towards the project site.
As we usually know the road to the project site through a difficult and unusual route. Therefore, the risk of accidents is very high.
Therefore, a transportation insurance policy or Marine Cargo insurance is required.
Why for subcontractor’s insurance you should use the services of an Insurance Broker?
Not many insurance companies are willing to provide insurance coverage for construction works.
It requires extensive insurance knowledge and experience in engineering insurance and knowledge of risk management so that insurance coverage is maximized.
The best way to arrange insurance for the construction is to always use the services of an official insurance brokerage company registered with the Financial Services Authority (OJK).
Insurance brokers design insurance programs that best suit your project’s risk conditions. Find the best insurance company that can cover the risk with competitive premium rates.
An important benefit of using the services of an insurance brokerage firm is that you will get help in resolving claims for free. The insurance broker also acts as your advocate for the settlement of insurance claims.
One of the insurance brokers companies with extensive experience in the field of construction insurance in Indonesia is L&G Insurance Broker.
For all your project insurance needs, please contact L&G now!
Sources:
- https://www.landesblosch.com/blog/understanding-subcontractor-insurance-what-you-should-know/
- https://www.techinsurance.com/resources/why-subcontractors-need-insurance
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