In the construction industry, managing risk is a critical part of every project, whether you’re a general contractor overseeing a large build or a subcontractor focused on a specific task. One of the most effective ways to manage risk is by using a Certificate of Insurance (COI)—a document that verifies that a company has the required insurance coverage in place.
Let’s break down why both general contractors and subcontractors need to have their own COIs, and why general contractors must collect them from their subcontractors.
Why Do General Contractors Need a COI?
As a general contractor, you’re the central player in any construction project. You manage the work, hire subcontractors, and are responsible for the overall project. Here’s why it’s essential that you have your own COI and collect COIs from subcontractors:
Protecting Your Business
Your COI acts as proof that your business has the appropriate insurance coverage in place, such as General Liability, Workers’ Compensation, and Commercial Auto Insurance. These policies protect your business from claims that can arise during construction, such as:
Injuries: If someone gets injured on your job site, General Liability Insurance helps cover medical expenses or lawsuits.
Property Damage: Accidents happen. If something gets damaged during construction, your insurance will cover the costs.
Subcontractor Mistakes: If a subcontractor makes a mistake and causes damage, having proper insurance helps protect your business from claims related to their work.
Without a COI, your clients, project owners, or even the subcontractors you work with might question whether your business is adequately covered. This can put your projects—and reputation—at risk.
Reducing Your Liability with Subcontractors
As a general contractor, you’re responsible for the actions of the subcontractors you hire. If one of them causes an accident or damage, you could be held liable. That’s why collecting COIs from your subcontractors is crucial. By ensuring each subcontractor has the right coverage, you protect your own business from liability.
For example, if an electrical subcontractor accidentally damages the building’s wiring, their insurance should cover the claim, not yours. But without a COI proving they have insurance, you could be forced to handle the claim yourself.
Meeting Contractual Obligations
Most contracts require general contractors to have specific types of insurance, such as General Liability and Workers’ Compensation. A COI serves as proof that you meet these contractual obligations. Without it, you could be disqualified from working on certain projects or face penalties if you’re not properly insured.
Managing Risk Across the Project
By collecting COIs from every subcontractor, you create a comprehensive risk management system. This ensures that every party involved in the project is adequately insured, reducing the overall risk of unexpected costs and delays.
Why Do Subcontractors Need a COI?
Subcontractors play a specialized role in construction, but they still face significant risks. Having a COI is essential for protecting your business, fulfilling contract requirements, and building trust with general contractors. Here’s why:
Proving You’re Insured
As a subcontractor, having your own COI shows that your business is properly insured. It’s your way of demonstrating that you have General Liability, Workers’ Compensation, and other required coverage. Without a COI, general contractors might hesitate to hire you, as they don’t want to risk working with someone who isn’t insured.
Your COI protects you from liability claims that can arise from:
Accidents on the Job: If you or your employees cause damage to the property or injure someone while working, your insurance covers the resulting claims or medical costs.
Mistakes in Your Work: If a mistake in your work causes damage or delays, your insurance can help cover the costs of fixing the problem.
Complying with Contract Requirements
Most general contractors require subcontractors to provide a COI before they can start work. This ensures that all parties working on the project are insured, helping to manage risk. Without a COI, you could be excluded from working on certain projects, limiting your business opportunities.
Protecting Your Reputation and Relationships
When you provide a COI, you’re demonstrating that you’re a professional, reliable subcontractor who takes risk management seriously. This can help build trust with general contractors, project owners, and other partners, leading to more work and long-term relationships.
Avoiding Legal and Financial Troubles
If you’re uninsured and something goes wrong, you could be facing significant legal or financial challenges. For example, if a client sues you for faulty work or property damage and you don’t have insurance, you might be forced to pay out-of-pocket for legal fees, repairs, or settlements. A COI ensures that your insurance is there to cover these potential costs.
How to Collect and Manage COIs
As a general contractor, collecting and managing COIs from all subcontractors is essential. You’ll need to:
Verify Coverage: Ensure each COI meets the insurance requirements for the project, including coverage types and limits.
Track Expiration Dates: Make sure the subcontractors’ insurance doesn’t expire during the project. If it does, they must provide an updated COI before continuing work.
Use Tools: Managing COIs can be a headache, especially on larger projects. Consider using software tools (like Billy) to streamline the collection and tracking of COIs.
Use Services: Utilize a team full of insurance brokers and CRIS Certified representatives that are US based to review and notify vendors of gaps in coverage (like Billy's Managed Services).
General Contractors need their own COI to prove they have adequate insurance, manage project risks, and meet contract requirements. They must also collect COIs from subcontractors to protect their business from liability and ensure everyone on the project is insured.
Subcontractors need a COI to demonstrate that they’re insured, protect themselves from liability claims, and meet the requirements set by general contractors.
Having the right COIs in place is a critical part of construction risk management, helping both general contractors and subcontractors work together safely and efficiently.