The Importance of Getting Certificates of Insurance (COIs) from Subcontractors
Obtaining Certificates of Insurance from subcontractors is a critical risk management practice for any business that hires outside contractors or vendors. It ensures that the subcontractor carries adequate insurance coverage to protect themselves and, by extension, your business. Here’s a detailed breakdown of why COIs are so important:
1. Risk Transfer and Liability Protection
- Primary Purpose: A COI confirms that the subcontractor has active insurance coverage in place, such as General Liability, Workers' Compensation, Auto Liability, and potentially Excess or Professional Liability.
- Protection from Claims: If a subcontractor causes bodily injury, property damage, or another loss while performing work, their insurance should respond—not yours—as long as appropriate coverage is confirmed.
- Financial Shield: Without a COI, your company could be held responsible for damages, legal costs, or injuries that arise from the subcontractor’s operations.
2. Contractual Compliance
- Meeting Contract Requirements: Many master service agreements (MSAs) or subcontractor agreements require evidence of insurance. A COI serves as proof of compliance with those terms.
- Avoiding Breach of Contract: If your business hires a subcontractor without verifying their insurance, you may be in breach of contract with a general contractor, project owner, or client.
3. Verification of Coverage Details
- Coverage Types and Limits: A COI allows you to verify: Adequate liability limits (e.g., $1M/$2M) Workers' Compensation coverage (especially important for injury claims) Auto Liability (if the subcontractor is driving on behalf of the job) Pollution, E&O, or other specialty coverages depending on the trade
- Policy Dates: Ensures coverage is active for the period the work is being performed.
- Additional Insured and Waiver of Subrogation: Many clients require subcontractors to name them as additional insureds and waive subrogation rights—this should be indicated on the COI or attached endorsements.
4. Prevention of Project Delays and Litigation
- Avoid Costly Delays: If a claim arises and insurance isn't in place, it can delay project timelines, inspections, or payouts.
- Limit Legal Exposure: You reduce the chances of costly litigation and disputes by ensuring subcontractors are independently insured.
5. Demonstrates Professionalism and Due Diligence
- Due Diligence Indicator: Requiring a COI shows that your company follows sound risk management practices.
- Professional Standards: It promotes a culture of accountability and helps you work only with subcontractors who maintain proper business practices.
- Collect COIs Before Work Begins: Never allow a subcontractor to start work without receiving and reviewing their COI.
- Use a COI Tracking System: Especially for projects with many subs or long durations.
- Verify Endorsements: Don’t rely solely on the COI—request copies of actual endorsement forms for Additional Insured status and Waivers of Subrogation where needed.
- Update Annually or As Policies Renew: Insurance can lapse or change—make sure you keep current documentation on file.
Failing to obtain Certificates of Insurance from subcontractors can expose your business to serious liability and financial risk. COIs are not just a formality—they are your first line of defense in confirming that your subcontractors are properly insured and compliant with your risk management standards.