General Liability Insurance: Protecting Subcontractors

“General liability covers third-party damages,” explains Justin Cardullo, Hiscox Vice President and general liability product head. “Most commonly, the type of things that a general liability policy would protect someone against would be bodily injury.”

For example, if a subcontractor is digging a trench and doesn’t provide adequate marking or other safeguards, a pedestrian could walk by and fall in. This can certainly come back to the subcontractor.

Property damage is another reason for coverage.

“Say one of your crew puts a nail in a piece of drywall and then hits a water pipe; you know the ensuing water damage will be a consequential hit to your company without liability insurance,” he says.

Cardullo adds that while premiums might seem high to a mechanical-electrical-plumbing (MEP) contractor, “the litigation and damages associated with some of those losses far exceed what that insurance premium would be. MEP contractors typically carry about $1 million of liability insurance for general liability. They get a lot of coverage for a relatively small amount of premium dollars; going without coverage is a significant risk to the business.”

This is especially true when something your employee did on the jobsite results in a total loss for the building owner—such as sweating a fitting and starting a fire that burns down the building. “Even if that building owner has coverage, their carrier can always subrogate, which means they file legal action against the employee in that business that caused the loss,” Cardullo explains.

A business doesn't have to do something wrong to be sued; there can be litigation where any subcontractor on a jobsite is named in the lawsuit. “Damage can take a while to sort out; a general liability policy can help provide defense for the business and take some of that strain off the business owner,” he notes.

Risks

On a construction site, the GC carries the risk for the entire project—carpentry, welding, masonry, MEP, sheet metal, etc.—everything from the foundation to the roof. GCs require subcontractors to have their own insurance for damage issues.

“The GC is best served to ensure that all the various tradespeople have adequate coverage so it isn't overexposed to liability issues,” Cardullo notes.

In addition to liability risks, subcontractors risk the theft of tools, equipment or other trade materials. A general liability policy is only third-party coverage, so subcontractors need a separate policy, such as a business owner’s policy, to cover their tools, equipment and people.

However, the biggest risk for subcontractors is safety. The construction industry has the highest number of nonfatal falls, slips and trips, notes the US Bureau of Labor Statistics (BLS). It states that 62.2% of construction workers are exposed to heights on the jobsite.

The Occupational Safety and Health Administration’s Construction Focus Four hazards are falls (most cited violation), struck-by accidents (one of the biggest causes of jobsite fatalities), caught-between (crushing) incidents and electrocutions.

Measures should also be taken to protect workers from heat- or cold-related incidents, ensuring they are properly hydrated or wearing appropriate work apparel for the conditions.

High temperatures are one of the Focus Four for Health studied and compiled by the American Industrial Hygiene Association (https://bit.ly/3LwhBxq). It lists other health issues workers face on construction sites, including manual material handling, noise and air contaminants.

The BLS notes that in 2020, 8.9% of all construction workplace deaths were due to exposure to harmful substances or environments (https://bit.ly/442bdp4). Construction workers have high rates stemming from overexertion (lifting and lowering) and bodily reaction, which can relate to nonfatal injuries where they cannot work for a time.

Workers comp insurance will cover employee costs associated with a work-related illness, accident or death. The coverage is mandated in most states, and penalties may be incurred without it. An employee’s family could also sue subcontractors for severe injury or death, so a laser focus on health and safety practices is necessary for construction businesses.

Reputation

MEP subcontractors can also have nonmonetary consequences to jobsite liability issues. Whether or not they are in the wrong, being named in a lawsuit can damage their reputations.

“The entire litigation process can take a toll on business owners,” Cardullo explains. “In many ways, it can be a distraction; their time and energy are diverted to thinking and dealing with one of those incidents. Business owners invest years building their brand; it’s crucial for them to protect that reputation and brand that can be difficult to rebuild.”

He adds that general liability coverage includes reputable representation if that worst-case scenario happens.

Cardullo’s advice for MEP contractors is to carefully read any contract for subcontractor work to ensure they understand what their responsibilities are.

“It's always important for an MEP business to know what it’s signing up for,” he explains. “Whoever the decision maker is should review and understand the contract’s terms and conditions; be sure to ask questions. If the subcontractor has legal representation, its counsel should review a contract for any questions they might have and identify anything that is or could be problematic.”

Kelly Faloon is a contributing writer to CONTRACTOR magazine and principal of Faloon Editorial Services. The former editor of Plumbing & Mechanical magazine, she has nearly 35 years of experience in B2B publishing, with 25 of those years writing about the plumbing, heating, cooling and piping industry. Faloon is a journalism graduate of Michigan State University. You can reach her at [email protected].