Contractors and certificates of insurance

When a new contracting business is established they shop around for insurance and usually end up acquiring the policy that provides the best price and/or coverage. The problem starts when it comes time for the policies to renew. Many are unaware that these policies, namely the general liability and workers compensation policies, are auditable policies. When first written, general liaibility policies are based upon either sales or payroll for the policy year and workers compensation is based exclusively upon payroll. Things go wrong though when the contractor uses subcontractors for various jobs and fails to collect a certificate of insurance from the contractor showing proof of their own, the subcontractor's, general liability and/or workers compensation coverage. At audit time, usually a few weeks before the policies are due to expire, the auditor asks for these certificates of insurance. If they aren't provided then the insurance company will use the payroll paid to that specific contractor and add it to the payroll originally estimated at inception. The resulting invoice to the contractor for the additional premium for the expired general liability and/or workers compensation policies, along with the additional premium for the policies already renewed, will cause no end of heartburn to the business owner/contractor. Make sure to request certificates of insurance from all your subs during the year and have them on hand at the end of the year at audit time. The insurance company will assume it's picking up the liability for the subcontractors if no proof of coverage is provided and will request to be paid for the coverage extended under your policy. It's also a good idea, most insurance companies require it anyway, that the subs general liability limits and workers compensation policy limits match yours. A little attention paid to this important detail during the policy year can save headaches and additional premium.

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