The Hidden Risk in Subcontractor Agreements—and How to Insure Against It

In industries like construction, HVAC, electrical, and roofing, subcontracting is essential. But buried in many subcontractor agreements lies a dangerous risk: liability exposure that could fall back on you.

If your subcontractors are underinsured—or uninsured—you could end up paying for their mistakes. In 2025, with rising legal costs and claim severity, that’s a risk you can’t afford to ignore.

Here’s what you need to know about subcontractor agreement risk and how to protect your business with the right insurance and contract strategies.

1. The General Contractor’s Liability Doesn’t Always End at the Contract

Many business owners assume that if a subcontractor causes damage or injury, their insurance will cover it. But that’s not always the case.

Here’s why:

The subcontractor’s policy may have lapsed or be insufficient
You may be named in a lawsuit simply because you’re the general contractor
If their insurance denies the claim, your policy becomes the fallback

Real-world example:
A roofer you hired fails to properly tarp a site before a storm. Water damage ensues. Even though your agreement says they’re liable, your company gets sued—and your insurance foots the bill.

2. Missing Insurance Requirements in Contracts Create Major Exposure

Many subcontractor agreements are vague or incomplete when it comes to insurance. That creates confusion—and liability.

Your subcontractor contract should clearly require:

General liability coverage (with minimum limits)
Workers compensation (even for 1099s)
Auto liability (if vehicles are used)
Additional insured status (naming your company)
Primary & non-contributory wording
Waiver of subrogation

Bonus: Request certificates of insurance (COIs) before the work starts—and set reminders to request renewals annually.

3. You May Be Held Responsible for Injuries on the Job

Injury claims are some of the most expensive commercial claims in 2025. If a subcontractor’s employee is hurt on your job site, you may be liable—even if they’re not on your payroll.

Why?
Courts sometimes find that the hiring company had a duty to maintain a safe job site. If your subcontractor doesn’t carry workers’ comp, you could be sued for medical bills and lost wages.

What to do:

Require proof of workers compensation coverage from every subcontractor
Don’t assume “independent contractor” status protects you—some states disagree
Talk to your insurance advisor about Employers Liability and Stop Gap coverage

4. Not All Policies Cover Subcontracted Work

Some commercial general liability (CGL) policies include exclusions for subcontracted work—especially if your subcontractor doesn’t have their own insurance.

Key coverage gaps to watch for:

Independent contractor exclusions
Action-over exclusions
Residential construction exclusions (in certain policies)

How to protect yourself:
Work with a knowledgeable broker to customize your liability coverage. And always disclose the use of subcontractors when binding a new policy.

5. Umbrella Insurance Can Be a Backstop—but It Has Limits

In today’s litigation-heavy environment, even a strong CGL policy may not be enough. A commercial umbrella policy can help—by providing excess liability coverage once your primary limits are exhausted.

However, umbrella policies have conditions. If your subcontractor’s claim isn’t covered by your base policy, the umbrella may not apply either.

Recommendation:
Treat umbrella insurance as a safety net, not a first line of defense. The foundation is a strong contract and clear insurance verification process.

Final Thoughts: Protecting Against Subcontractor Agreement Risk

The risks hidden in a subcontractor agreement aren’t always obvious—but they’re always yours to manage.

Require written agreements with clear insurance language
Verify coverage before work starts
Customize your own insurance to fill in the gaps
Work with an advisor who understands subcontractor risk

At SIA Group, we help contractors and service providers protect their business at every level of the job site. Let’s review your risk and build a smarter insurance strategy.