When working with subcontractors, some business owners tend to become confused on the nature of coverage required. Sadly, failure to find the right solution to this confusion could lead to unpleasant consequences. Perhaps, you are wondering: what if a subcontractor does not have liability insurance? What can be done about it?
What is Liability Insurance?
This is a variant of insurance that protects against lawsuits that the insured may be confronted with. The lawsuits could arise as a result of accidents, bodily injury or property damage. Liability insurance is essential for your business, as lawsuits can come when you least expect them. You might even not think about the possibility of a lawsuit, but that will surely not prevent them from coming about. The policy takes care of legal defense expenses and possible damages payment that could result from these cases.
Who needs Liability Insurance?
Businesses and contractors are among those required to have liability insurance policy. So if you are a primary or general contractor, you are expected to have one. Laws in some places do not require subcontractors to have liability insurance. But, you will do well to ensure the subcontractors you will be working with have one. This way, you can save yourself from the burden of being sued for the mistakes made by your subcontractors.
Subcontractors without Liability Insurance
You could choose to cover a subcontractor with your own policy if they do not have one. But when you are planning to do this, make sure you speak to your insurer first. This is because some policies will not cover damage caused by any other party, apart from you.
Bonding is another avenue you may explore when dealing with a subcontractor without liability insurance. This arrangement involves paying to a bonding company a surety bond, which is used to cover damages should the need for it arises. The problem with this system is that the bond may be insufficient to cover resulting losses.
Still, you may simply reach an agreement with the subcontractor to cover up any losses that may result from their action. This means if a lawsuit is filed against you as a result of problems caused by them, you will have to be indemnified.
While it is not legally required for subcontractors to have liability insurance, you will do well to ensure the one you work with has the policy to save you from excessive losses and stress. But you can still choose to use the other arrangements suggested, if you are comfortable enough with them.