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Tips for contractors collecting certificates of insurance

How do you prove to the auditor that your subs have their own General Liability, Auto insurance and Workers’ Compensation insurance? The one and only way is to have a current and valid certificate of insurance in your possession. If you can’t produce the certificate, you will be charged a premium on your audit for using uninsured subcontractors.

How do you obtain a certificate of insurance? Simply request the subcontractor to send one to you or make a direct request to his insurance agent. Your business should be shown as the certificate holder on the certificate.

Below are 8 tips that can make collecting and maintaining certificates of insurance easier and help reduce the risk of unwanted charges by your auditor.

  1.  When a subcontractor tells you that he has insurance, never believe him (no matter what) until you have a current and valid Certificate in your hands. If the subcontractor performs work for you, never pay him without deducting what you will be charged for using an uninsured sub. Tell the subcontractor that you will reimburse him for your deduction once you have the certificate in your hands. I’ve seen contractors cheated out of thousands of dollars on numerous occasions because they were too nice to do the above.
  2.  The Certificate should indicate that coverage is carried for both Workers’ Compensation (and Employers’ Liability) and General Liability. For example, if the Certificate indicates coverage for Workers’ Compensation but not for General Liability, you will be charged for General Liability. However, if the sub is a sole proprietor or individual, they may not carry workers compensation. In that case, you should require proof of health care coverage.
  3.  Don’t be fooled into thinking that Workers’ Compensation and Employers Liability includes coverage for General Liability. General Liability is not the same as Employers’ Liability, which is part of the Workers’ Compensation policy.
  4.  The coverage effective and expiration dates on the certificate must span the entire length of time that the sub performed work. If the subcontractor’s policy expires before he is through working for you, you must collect another Certificate proving that the subcontractor renewed his coverage. Therefore, you will probably need two Certificates for each sub if he continually working. Example: Your General Liability insurance runs from January 1 of 2019 to January 1 of 2020, therefore, this is the time period for which you will be audited. Your subcontractor’s policy runs from June 1 2018 to June 1 of 2019. You must collect a second Certificate from the subcontractor showing that he had coverage from June 1 of 2019 to June 1 of 2020. Failure to collect this second Certificate will result in your being charged for the work that he performs for you without a certificate.
  5.  Create a suspense system that lets you know when the subcontractor’s coverage expires. Always set up a suspense at least one week prior to your subcontractor’s coverage expiration date for all policies. Be sure to get an updated Certificate by requesting this from the subcontractor or his agent.
  6.  Make sure that the subcontractor’s name that appears on the certificate is exactly the same name to whom you make out your check and on your contract. If there is any discrepancy, the auditor may not accept the Certificate as valid. Many subcontractors will attempt to “fool” the contractor by giving them a Certificate that was issued to another contractor—such as a brother whose business has a similar name.
  7.  A General Liability certificate must show that coverage exists for products/completed operations.If the box on the certificate does not have an “X” beside “Products/Completed Operations Aggregate,” you have a problem. Your auditor won’t accept such a certificate and you will be charged as if such subcontractor was uninsured.
  8.  A General Liability certificate must also show that a certain minimum limit is carried under the “Each Occurrence” limit. Your auditor will not only require that the subcontractor have his own insurance, but also that such subcontractor be “adequately insured.”

Most insurance companies consider a limit of at least $300,000 Each Occurrence to be “adequately insured.” However, some insurance companies will require the subcontractor to carry a limit that matches the contractor’s limit under his own policy.

For example, if the contractor’s Each Occurrence Limit is $1,000,000 his insurance company may require the sub to provide a certificate evidencing the same amount of coverage. Otherwise, the auditor will not accept the subcontractor, as being “adequately insured” and a charge will be made against the contractor as if such subcontractor was uninsured.


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