Contractor vs Subcontractor: Understanding Liability and Insurance

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What Is the Difference Between a Contractor and a Subcontractor?

Contractors and subcontractors fulfill different yet interconnected functions for construction and renovation projects.

A general contractor oversees an entire project and is the customer’s primary point of contact. They also hire and manage subcontractors and ensure the project is completed on time and within budget, as agreed upon with customers.

A subcontractor is a skilled tradesperson hired by a general contractor to work on a project or build. They focus on a specific service, such as a plumber or an electrician.

Subcontractors report to the general contractor who hired them, but manage their area of expertise and responsibility.

Contractor vs Subcontractor: Who Is Liable for Mishaps?

If something goes wrong on a project – a fire igniting or a faulty installation, for example – it can be tricky to determine if the general contractor or a subcontractor they hired is liable for damages.

Are contractors liable for subcontractors? Depending on several factors, including the nature of the incident, the terms of the contract, and local laws, liability for mishaps (accidents, damages, building code violations, etc.) can fall on either the contractor or the subcontractor. Sometimes, they share the liability.

What Type of Insurance Do Contractors and Subcontractors Need?

The type of insurance contractors and subcontractors need depends on the project and each professional’s responsibilities and roles.

In general, there are 10 types of insurance contractors should consider. They may include the following:

• General liability insurance: General liability insurance is your first line of defence when accidents happen – like a passerby getting injured near your job site or property damage caused by your work.
  
  It protects contractors against third-party claims for bodily injury or property damage linked to their operations or job sites. If a lawsuit arises, this coverage helps pay for legal fees, settlements, and court judgments.

• Professional liability insurance: Also called errors and omissions (E&O) insurance, professional liability insurance covers contractors for errors, omissions, poor advice, or allegations of professional negligence. If a contractor provides a service or advice instead of physical labour, and that service or advice causes another party physical or financial harm, professional liability insurance may cover the damages.

• Tools and equipment insurance: This coverage protects transportable tools and equipment used in a construction project against losses from theft, vandalism, and damage caused by fire, water, and natural disasters.

• Pollution liability insurance: Pollution liability insurance shields contractors from the costly fallout of environmental damage – covering third-party claims for injuries, property damage, cleanup, and legal fees caused by hazardous exposure during or after a project.

• Installation floater: Contractor’s installation floater insurance covers their materials and property at temporary locations, during transportation, and throughout the installation phase until they are installed or accepted by the customer.

• Builder’s risk insurance: Builder’s risk insurance, also known as course of construction insurance, is a type of property insurance. It protects contractors and property owners throughout construction or renovation projects, covering buildings, structures, and materials until the project is finished.

• Wrap-up liability insurance: Wrap-up liability insurance is designed to cover large construction projects. It protects general contractors, subcontractors, and others, such as owners, engineers, and architects, with an all-encompassing policy covering their third-party and general liability exposures.

• Commercial auto insurance: Commercial auto insurance is essential for contractors and construction professionals to cover any vehicle or trailer used for transporting people, packaged goods, raw materials, or hauling equipment.

Similarly, subcontractors hired to do work by a general contractor on a job site should consider the following coverages:

• General liability insurance covers third-party bodily injuries or property damage caused by their work.

• Professional liability insurance covers subcontractors for claims or allegations of professional negligence, mistakes, subpar design or management, providing incorrect advice, and failing to deliver a service as promised.

• Tools and equipment insurance covers a subcontractor’s portable tools and equipment if they are damaged by fire, water, or natural disasters or stolen or vandalized.

• Commercial auto insurance is necessary to cover damages to vehicles used for business purposes, such as driving to and from job sites.

Can a Contractor Add a Subcontractor to Their Insurance?

Yes. A general contractor can add subcontractors they hire to their policies – this is known as including an additional insured.

An additional insured is a person or persons or entity to whom you extend your insurance coverage. They are entitled to limited benefits under a general contractor’s policy and are insured for their third-party liability arising from the contractor’s conduct.

Sometimes, adding another party to your policy is a requirement.

If a general contractor needs to add an organization or financial lender to their policy for a specific project or property, they can include an additional interest in their coverage. There are unique differences between additional insureds and additional interests.

Insurance for Contractors and Subcontractors: Get a Free Quote

Zensurance is Canada’s leading small business insurance provider, helping more than 350,000 Canadian small business owners and independent professionals – including contractors and subcontractors – protect their finances and assets.

Fill out our online application for a free quote in a few minutes and explore your coverage options.

Our knowledgeable team of licensed insurance brokers will shop our extensive partner network of over 50 insurers to get the coverage you require, customize it to your specific needs, answer questions, and issue policy documents and a certificate of insurance within 48 hours or less.