Cities and towns that hire uninsured contractors risk experiencing increases in their workers’ compensation and liability insurance premiums.
The least expensive contractor is often not the least expensive contractor in the long run. When municipalities do not engage fully insured contractors, they functionally become the insurers of their contractors.
It’s critical for municipalities to properly vet their subcontractors before any work begins. Once the employees of a subcontractor without proper coverage are on the job site, the municipality becomes liable for them.
The first step to protecting the municipality is requiring copies of subcontractors’ certificates of insurance, known as COI, including worker’s compensation. Municipal staff should confirm that information on the COI is correct, including the company name, insurer name, policy numbers and effective dates. Staff should also be sure they understand the type of insurance subcontractors have, and their coverage limits. The South Carolina Workers’ Compensation Commission maintains a workers’ compensation insurance verification tool for subcontractors on its website.
Even when subcontractors have no prior incidents or claims, ensuring that everyone working at a site has the proper coverage protects the municipality. The SC Municipal Insurance Trust performs payroll audits to verify that coverage was in place for every subcontractor. If it finds that coverage was not in place, the municipality will incur additional premium charges. This makes it critical that municipalities compare the certificate of insurance to the insurance requirements in their subcontractor agreements.
Risk Management Services provides recommended insurance types and limits for contractors.
Having insufficient coverage, such as the lack of appropriate policy provisions — “Additional Insured,” or “Waiver of Subrogation” — or limitations or exclusions related to the subcontractor’s scope or work will be costly in the event of a claim. Municipalities that employ subcontractors should ensure that insurance coverage is vetted before work begins.
For more information on uninsured contractors, contact Robert Collins, underwriting manager, at rcollins@masc.sc.or 803.933.1279.