When working with contractors we deal with hundreds and
thousands of subcontractors. Often we get push back when we request their
certificates of insurance. I think I’ve had this argument probably
hundreds of times. The subs like to pull out the old well I’m not
required to be on the policy while standing one hand in the electrical panel on
the job site. My other favorite is the sub that says he is a sole
proprietor with no employees so the state says he doesn’t need to carry
workers’ compensation insurance. To all these subs we say yes you need it
and here is our canned response. Feel free to use it.
Insurance has nothing to do with an entity type. Our
liability on a job site is the same if the independently contracted service
provider is a C corp or a one man D.B.A. sole prop. Liability and
exposure are liability and exposure. If the sole prop work alone guy falls
off the roof and dies or the C-corp employee does the exposure to the homeowner
and contractor are the same. Where the difference in exposure comes is
the kind of work that is being done. For example, there is less exposure
and risk for the surveyor on the job site before the project starts than for
the roofer. This is reflected in the insurance rates they themselves
pay. As the contractor, we want to have everyone covered. With the
high net worth of individuals for which our contractors build homes, we are
often held to a higher standard by their advisors and lenders as they have more
at risk financially. Exposure and risk mitigation are what is at
hand here. If someone isn’t covered by our company payroll and workers’
compensation insurance as well as by the GL policy of the company we want to
see them insured or else they are falling under our exposure.
Some people get the state’s requirements and allowances for
certain exemptions under labor laws confused with exposure and risk
mitigation. They are not one in the same. The state of
Massachusetts says that if the electrician is a sole prop or DBA with no
employees he is not required to purchase workers comp insurance or that if he
has employees he himself can opt out of coverage and only cover the
employees. The problem with this both in the eyes of our customers and in
the eyes of our insurance company is that while that guy is allowed to do that
by law it then shifts the risk and exposure to us. If the owner of the
electrical company never sets foot on the job site then great no worries, but
if he is working alongside the guys or on his own on the job site we are just
as exposed. There is no magic bubble around him because he opted out and
is self-employed.
There are all kinds of other audit considerations and
legalities but those are secondary.
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