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Contractor insurance is essential for anyone working in the construction industry. It helps protect your business against costly claims if someone is injured, property is damaged, or mistakes occur on a job site. But what about subcontractors?

Many contractors assume their subcontractors are automatically covered under their insurance policy. Unfortunately, this isn’t always the case. Failing to confirm coverage can leave your business exposed to financial risk if a claim arises.

In this article, we’ll explain how subcontractor coverage works in Ontario, why it’s important to verify, and how you can better protect your business.

What is Contractor Insurance and What Does It Cover?

Contractor insurance, often referred to as Commercial General Liability (CGL) insurance, is designed to protect construction businesses from third-party claims. These claims may involve property damage, bodily injury, or legal costs that arise during projects.

A standard contractor insurance policy generally covers:

• Bodily injury: If someone is injured on your job site.
• Property damage: If your work damages a client’s property or another structure.
• Completed operations: Issues that arise after the job is finished, such as faulty workmanship.
• Defence costs: Legal fees associated with covered claims.

While these protections are critical, they mainly apply to the named insured—the contractor or business named on the policy. Whether subcontractors fall under this coverage depends on the policy wording, which varies between insurers.

Are Subcontractors Automatically Covered?

In most cases, subcontractors are not automatically covered under a contractor’s insurance policy. This is because insurance companies distinguish between employees and independent subcontractors.

• Employees: Typically covered by the contractor’s liability insurance while performing their duties.
• Subcontractors: Considered independent businesses and usually required to have their own liability coverage.

Relying on your contractor insurance to cover subcontractors can be a dangerous assumption. Unless the policy explicitly names the subcontractor as an insured party or “additional insured,” they are likely not covered.

Many policies will exclude damages caused by subcontractors who do not carry their own insurance. This means if a subcontractor damages a client’s property and doesn’t have their own policy, you could be held financially responsible.

Why It’s Risky to Rely on Contractor Insurance for Subcontractors

Not verifying subcontractor insurance can leave your business exposed to significant risks. Here are a few scenarios where relying solely on your policy could lead to problems:

• Property Damage: A subcontractor damages a homeowner’s property, but they don’t have their own liability coverage. You could be held responsible for the cost of repairs.
• Injury Claims: If a subcontractor injures someone while working, your insurance may not cover the claim if the subcontractor isn’t properly insured.
• Defective Workmanship: If their work is defective and leads to costly fixes or lawsuits, you could end up covering the expense.

Another risk is how these uninsured subcontractors can impact your insurance program. Insurers may view you as a higher risk, which could lead to higher premiums or even difficulty renewing your policy.

How to Protect Yourself When Working with Subcontractors

The good news is that there are steps you can take to protect your business and limit your liability when working with subcontractors.

Require Proof of Insurance

Always ask subcontractors for a valid Certificate of Insurance before they start work. This certificate should confirm that they carry Commercial General Liability (CGL) insurance with limits that meet your project requirements.

Verify Coverage Limits

Ensure that the subcontractor’s coverage limits are sufficient for the scope of the work. If their limits are too low, it could leave your project under-protected.

Include Insurance Clauses in Subcontractor Agreements

Contracts with subcontractors should include language that requires them to maintain insurance. You may also include hold harmless and indemnification clauses, which help protect you if a claim arises.

Request to Be Listed as an Additional Insured

Ask subcontractors to list you as an “additional insured” on their policy. This ensures their insurer will also protect you if a claim arises out of their work.

Track and Manage Certificates

Keep records of all subcontractor insurance certificates and expiration dates. If a policy lapses, you need to know right away to avoid any gaps in coverage.

By taking these proactive steps, you can greatly reduce the risk of uncovered claims.

Additional Insurance Options for Contractors

There are also other insurance products that can help fill coverage gaps when working with subcontractors:

• Wrap-Up Liability Insurance: Common for large construction projects, this policy covers all parties involved in the project (including subcontractors) under a single policy.
• Umbrella Liability Insurance: Provides an extra layer of liability protection beyond your primary policy limits.
• Adding Subcontractors to Your Policy: In some cases, you may be able to extend coverage to certain subcontractors, though this can be costly and may not be practical for all situations.
• Bonding and WSIB: For Ontario contractors, ensuring subcontractors have proper bonding and Workplace Safety and Insurance Board (WSIB) coverage is also important for compliance and risk management.

Your insurance broker can help you determine whether these options make sense for your business.

Ontario-Specific Considerations

Contractors in Ontario need to pay particular attention to WSIB requirements and legal obligations:

• WSIB Coverage: Most subcontractors must have their own WSIB coverage. If they are not registered and a workplace injury occurs, you could be liable for medical costs and fines.
• Written Contracts: Ontario courts give significant weight to contracts. Clearly outline insurance and liability obligations in your subcontractor agreements.
• Licensing Requirements: Ensure subcontractors have the proper trade licenses for the work they are performing.

These provincial requirements are another reason to verify every subcontractor’s compliance before starting a project.

Working With an Insurance Broker

Navigating contractor insurance can be complex, especially when subcontractors are involved. Working with an experienced insurance broker in Ontario can help you avoid costly gaps in coverage.

A broker can:

• Review your current contractor insurance policy for subcontractor coverage gaps.
• Recommend strategies to protect your business when working with subcontractors.
• Help you set up systems for tracking Certificates of Insurance.
• Provide guidance on additional coverage options like wrap-up policies or umbrella liability insurance.

Regular policy reviews can also ensure your coverage keeps pace with your business as it grows.

Subcontractors are not usually covered under a contractor’s insurance policy in Ontario. Assuming they are can expose your business to serious financial and legal risks.

By requiring proof of insurance, verifying WSIB compliance, and working with a knowledgeable broker, you can protect your business from uncovered claims. If you frequently work with subcontractors, it’s worth taking the time to review your policies and contracts to ensure you’re fully protected.

Need help understanding your contractor insurance and subcontractor coverage? Speak with an Ontario insurance broker who specializes in construction businesses. They can review your current coverage and recommend solutions to close any gaps.