At Infuse Insurance, Inc. business clients ask us why insurance companies dislike general contractors.
First, understand, what insurance companies consider a general contractor (paper contractor). Insurance generally consider general contractors any contractor that.
- uses subcontractors for over 25% of the contracted work or job and/or
- has more than 3 jobs going at any one time
Next, why is this an issue with insurance companies? When a contractor is operating in this situation they would be considered “spread too thin”. When a general contractor takes out a policy it is to cover themselves and their client. The insurance also covers the final product, to some extent.
Proper procedure when hiring a Subcontractor:
- add the General contractor to their insurance as a, additional insured
- give proof of insurance for a worker compensation policy.
This creates another layer of protection for their client.
Quick note: if the subcontractor does not have workers compensation insurance as the general contractor may still be responsible for a work-related accident. This is true even if your state does not require coverage.
A contractor may do everything required. When using many subcontractors the proper procedure becomes difficult. This sometimes causes paperwork to fall through the cracks.
Finally, General contractors can acquire insurance! General liability insurance for general contractors in normally written by a company specializing in these contractors.