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.