Written by Jared Perkoski, Sales Exec at FBinsure
Whether you are a Snow Contractor, a Landscape Contractor or a General Contractor, at some point you will most likely hire one or more subcontractors. By definition, according to dictionary.com, a subcontractor is:
“a person or business firm contracted to do part of another’s work.”
As a contractor you may utilize subcontractors frequently or may only have the need arise once or twice. Whatever the frequency of your need for subcontractors you will want to make sure you are protected. It can even be argued that the companies who do not typically use subcontractors are at a greater risk because they are unfamiliar with how and when to properly transfer risk.
When you hire a subcontractor for a job you will need to have a written contract in place to transfer risk. Within that contract you will need an indemnification agreement. An indemnification agreement typically requires the subcontractor to reimburse the contractor for any losses. This transfer of risk also means that the subcontractor will be responsible for payment of injury or damage resulting from work which they and those under their employ performed for you.
Once the subcontractor has signed the contract you will then need to get a certificate of insurance from his insurance agent showing that they have the correct coverages and limits in place. If a contract is not signed between the two parties then you, as the main contractor, could be required to pay for injuries or damages that you did not cause. For Example: If a General Contractor hires a subcontractor to do the electrical work on a house. The wiring is not done properly and the house burns down as a result. You may be liable for the damage if there was not a signed contract between you and the subcontractor. The owner of the house will come to the General Contractor looking for payment to replace the house. If you properly transferred risk to the electrical subcontractor then their insurance would pay for the loss. If you did not transfer the risk then you will be responsible for the damage.
As a subcontractor it is extremely important to read and understand all contracts that you sign. The section which you should pay particularly close attention to is the indemnification section. As mentioned, this section is where the subcontractor agrees to indemnify or “make whole” (pay back losses to) the contractor should any losses occur. There are different types of indemnification agreements.
There is the Broad Form Agreement where the subcontractor is responsible for all losses whether they are at fault or not.
There is the Intermediate Form Agreement where the subcontractor is responsible for all losses except if it can be proven that he/she was at 0% fault.
Lastly there is The Limited Form Agreement which states that the subcontractor is only responsible for his share of a loss.
It is important that you have both your lawyer and your insurance agent review all contracts. For more information or to discuss your insurance coverage you can call any of our eight convenient offices or call 800-734-6604 and speak to our Business Insurance Specialists.