When subcontractors perform work for general contractors, they usually need to show the general contractor that they have insurance. Often, the general contractor asks to be named as an Additional Insured, and occasionally include a Waiver of Subrogation clause as well. We'll take a look at each of these here. In general, proof of insurance is expected, Additional Insured may be a negotiated item, and waiver of subrogation gives up significant rights and should not be given without serious deliberation.

Showing that you have insurance has been common for years. If a sub-contractor does work for a general contractor and something bad happens, the general wants to know the sub has insurance. A simple example would be if the electrician performs faulty wiring that results in a fire. If the sub-contractor doesn't have insurance, then not only does the claim go on the history of the general contractor, but the entire payroll (including both materials and labor) is charged to the general contractor on audit. So even when there is no claim, the absence of insurance through the sub will still cost the general money on his own insurance, since all actions of the sub will be picked up under his insurance. The simplest and most common way to show proof is on a certificate of insurance. If a fire results from work by the sub-contrator electrician, the general's insurance company may get involved in a claim, but the general's insurance company will know the sub-electrician's insurance company name, coverage amounts, and policy number; ultimately the responsible party's company will be the company to pay damages.

Additional Insured

The general contractor may ask to be named as "additional insured" as well. If granted by the sub to the general, the electrician's insurance will include the general contractor in its defense coverage and actual judgments if a lawsuit arises out of his work. So, if the electrician causes damage, the general contractor gets insurance protection from the sub's insurance company, keeping losses off its own claims experience.

When we are the electrician's broker, we discourage granting ‘additional insured' status to others, since they're sharing their insurance with another entity. If there are two judgments for $600,000 after the fire, and the electrician has a $1,000,000 policy, the electrician ran out of insurance when it reached a million dollars, but the general contractor can still go to his own insurance. Of course, if we are the general contactor's broker, we encourage them to get additional insured status from everyone who comes on a job site. After all, everyone needs to be held responsible for their own work, and the general contractor wants to shift costs and exposure downstream whenever possible.

Waiver of Subrogation

Larger contractors now require another step in cost shifting: Waiver of Subrogation. This takes cost shifting to a whole new level. Suppose the electrician is hurt on a job site due to negligence of the general contractor when a temporary wall collapses on the electrician. Unlike the previous two steps which assign whose insurance company pays the responsible party, waiver of subrogation prevents the electrician's insurer from going after the general contractor's insurance, even if the general was at fault as in this example! So the worker's compensation claim will go on the electrician's insurance history, and boost his experience midification factor. Normally, the worker's compensation company will get reimbursed by the general contractor's general liability insurance in a process known as subrogation. Here, when a waiver of subrogation is granted, the electrician's workers compensation carrier will not get reimbursed. The losses will stay on the loss history of the electrician. What's fair about that? Plus, becuase your insurance company knows it can't recover against a responsible party, they need to charge you more when you grant this.

This means that acts of negligence by the general contractor are not subject to the same rules as we expect on the job site. Bigger companies can demand this because they are doing the hiring and writing the checks. But even their negligence may result in claims on your loss history that weren't your fault. It isn't fair and it isn't equitable, but it is part of today's landscape. As with other jobs costs, consider what you're giving up and whether the cost makes the job still worth it when asked to grant Waiver of Subrogation.