By Quenda Behler
As the general contractor, you have liability insurance to
protect you from claims for bodily injury or property damage
caused by your negligence. So why, you ask, is it important for
your subs to have liability insurance, too? If they don't,
surely that's their problem, not yours. After all, you have
your own very expensive liability insurance to protect
Well, that's part of the problem. Most liability policies only
protect you from the consequences of your own negligence. But
it's not impossible that you could get sued, and wind up having
to pay for the consequences of somebody else's negligence. To
get your insurance policy to cover that, so it doesn't come out
of your own pocket, you may need a rider or endorsement on your
Someone Else's Mistake
Who is this person whose negligence, carelessness, bad
behavior, or just plain stupidity you might have to pay for?
Actually, it's not always a sub — it could also be an
engineer or architect on a project. If they don't carry Errors
and Omissions insurance, that could become a problem for you,
because many times they're involved with things that you're
responsible for, such as the proper installation of trusses.
Say the engineer's or architect's instructions are bad and
things go wrong. If the engineer or architect is uninsured, the
injured party will look for someone else to pay for the damage,
and that could be you.
What's more, if you give your liability policy and its riders
a careful read, you may find that you aren't protected from the
consequences of your own negligence if you didn't get an
insurance certificate from the sub who was working on the part
of the job that led to the dispute.
Who Gets to Pay
Here's another reason to get those insurance certificates.
There was a recent lawsuit in the Midwest by a subcontractor's
employee who was injured because of a combination of the
subcontractor's carelessness and the contractor's failure to
adequately supervise the sub. The injured employee could not
sue his employer for negligence because the only thing an
employee can collect from an employer is workers' comp.
However, he was able to successfully sue the general contractor
for negligence in failing to properly supervise the sub.
The contract between the general contractor and the
subcontractor in that case contained a clause that you should
have in your contracts with subs. The clause required the sub
to indemnify (reimburse) the contractor for any money that the
contractor had to pay because of "claims rising out of the
sub's work." The general contractor put in a claim for
indemnification from the sub. The sub said, "Hey, I don't have
to pay, because the injured person is my employee and is only
entitled to comp from me. Since I don't have to pay him, I
don't have to pay indemnification to you."
The court did not agree with the subcontractor's reasoning.
The court said it's not the employment relationship that's
kicking in, it's the indemnity clause. The sub has to reimburse
the general contractor because the general contractor and the
sub have a contractual relationship, not an employer-employee
So far, so good for the general contractor, but what if the
sub doesn't have any insurance to help him pay the
indemnification? In that case, the indemnity clause won't help
the general contractor a bit, because, as the ancient legal
theory states, you can't get blood out of a rock. If the sub
can't afford liability insurance to begin with, odds are, he's
Another ancient legal theory you should worry about is the
"Target the deep pockets" approach to lawsuits. You don't want
the deep-pockets target to be you, but here's how it could be:
Sometimes, the general and the sub are both liable for an
injury that happens to a third party, such as the homeowner or
someone who wanders onto the job site. If the injured person
sues and wins, but the sub doesn't have insurance, the general
will have to pay the entire claim.
Here's a slightly different reason for your subs to carry
liability insurance. Instead of the sub's employee being hurt,
let's suppose it's the homeowner who is injured. Even worse,
suppose it's the homeowner's small child who is injured because
of the subcontractor's negligence. That's always good for a big
If a $2 million verdict is entered, and the sub and the
general contractor each have a million dollar limit on their
policy, their two insurance companies will pay off the verdict.
But what if only the general contractor had insurance? He could
really use some help from his sub to pay off the claim, but the
help won't be there if the sub is uninsured or does not have a
lot of money.
That's the contractor's problem, not the plaintiff's. If the
plaintiff can't get the money from both defendants, he can go
after one defendant for all of it. The plaintiff will
concentrate on you, the general contractor, because you're more
collectible than the sub.
I understand the realities of the market. Sometimes you're
less competitive if you hold out for subs with adequate
insurance. But if things go wrong, the money you save by hiring
an uninsured sub could be the most expensive savings you ever
get, so be sure to get those insurance certificates. Ask the
sub to name you on the policy so that the insurance company
will send the certificate to you directly and will notify you
if it's cancelled.
has practiced and taught law for over 25
years and is the author ofThe
Contractor's Plain-English Legal Guide(www.craftsman-books.com).