One of the best ways to mitigate risk is to routinely request, obtain, verify, and monitor contractor proof of insurance (certificates of insurance) from independent contractors providing services for you, such as janitorial, maintenance, or building contractors, in order to verify that they are insured against their liabilities and/or workers’ compensation.
Workers’ comp is wildly important here. If your business hires an independent contractor, and that contractor does not carry their own workers’ compensation policy, then the 1099 contractor’s costs are added to the hiring company’s workers’ compensation payroll, increasing the cost of the business’ own policies if the contractor doesn’t have their own coverage. If your 1099 contractors don’t have workers’ compensation insurance, you may need to include that cost on your workers’ compensation policy.
So When is it OK to Move Forward With Independent Contractors and Vendors?
Let’s say you have a subcontractor or independent contractor working for you, and their COI verifies their workers’ comp policy, and it all checks out, then you’re in good shape as the hiring party. You only want to move forward when you know liability is on your subs, not on you. Having proof of coverage also comes in handy when in a workers’ compensation audit; you can show the auditor evidence that your subcontractor has coverage. This can be helpful when it comes time to evaluate your EMR score which affects your workers’ comp premium.
If the subcontractor already has proper insurance, the agent should provide the subcontractor with the COI to provide to you. Better yet, they, the agent, may just send it right to you if the sub asks them to. If the insurance provider decides that the subcontractor is uninsured, it can take into account that the sub is a part of the hiring firm, and raise premiums accordingly.
Start With Contractors Who Have Coverage
It’s best to just hire subcontractors (any vendors, for that matter) who have the proper coverages from the get-go.
If that is not possible, you, the general contractor, could wind up paying for claims and losses that the subcontractor caused and was supposed to have had coverage for in the first place. By requiring that your subcontractors carry insurance, you are protecting your organization and it’s financial interests. You do this by (you guessed it) obtaining their COI and verifying it for accuracy: proof of active policies, the type of coverage carried, when it expires, and what/how much it covers.
As the general contractor, you dictate the terms you require for your subcontractors including coverage amounts, policies, and indemnification. If your subs don’t meet your requirements, the ball is in your court as to whether or not you hire them. It’s all about risk transfer; your subs are doing most of the work, so the risk belongs to them.
What Kinds of Coverage Should My Contractors Have?
All of it.
Well…maybe not every single kind of coverage, but the more, the better. Here are some things to make sure your subs are carrying at a base level. We’ll include some descriptions to make it easy to understand why you want them to have these specific coverages.
Commercial General Liability Insurance – if your subs were to inflict damage, bodily injury, advertising injury, or reputational harm due to non-professional negligent acts, this coverage takes care of it. It provides a blanket of coverage in a broader sense than some of the other coverages we’ll see below. It’s that “at minimum” coverage everyone needs. It isn’t workers’ comp insurance.
Errors and Omissions Insurance – sometimes called E&O insurance, this coverage addresses losses that aren’t traditionally under liability coverage. It protects you from claims stating you were neglectful, that you omitted issues or concerns, or that you committed errors that led to the accident leading to a claim. This is usually only required if there is a design/build component to the work being done.
Commercial Auto Insurance – unlike commercial property insurance above, commercial auto covers vehicles…just like it sounds. It provides coverage when a commercially owned vehicle is involved in an accident, stolen, or vandalized. This can include auto liability, medical payments, collision coverage, comprehensive coverage, and uninsured motorist coverage options. Many states require this coverage.
Workers Compensation & Employers Liability – This coverage protects you against your two most significant areas of liability regarding employee injury. The first part is covering employers’ mandated liability under workers’ comp laws. The second part covers things that fall outside of the first area beyond the workers’ compensation statute. These coverages are required by most states.
Umbrella Insurance – when it rains, it pours, right? Umbrella policies kick in to protect against claims that exceed limits presented by “traditional policies” and are used when the risk is more significant than you might be comfortable with. It can cover things like injuries, property damage, certain lawsuits, and extraneous liability claims.
Pollution & Environmental Liability – created in the 1980s, these policies protect companies should an incident happen that affects the natural environment. Specific policies cover specific pollutants, so it’s best to make sure you know what you’re getting before you purchase. Most policies provide coverage for things like cleanup, bodily injury, damage to property, and some legal defense should it be needed.
General contractors routinely check for coverages to cover losses in the above mentioned areas, but every business owner should set the practice of asking, receiving, documenting, and tracking certificates of insurance as evidence of liability insurance and workers’ compensation coverage, from any supplier, or contractor doing work on your premises or working somewhere else under your guidance.
Depending on the number of contractors you work with, you may deal with a mountain of COIs to keep all of this straight. At a certain point, you may find it too much to deal with, even if you have a dedicated employee or team to manage them.
At that point, it is worth your time to consider a partner who can help you manage COIs in a way that not only alleviates some of the work you have to do, but that keeps your compliance issues at bay. myCOI’s clients can see a greater than 80% compliance rate when they employ our software, AND they spend less time chasing COIs. We do it for you.
See how we can make your work more efficient, enjoyable, and cost-effective. Schedule your free tailored demo today.