Why Your Business Insurance Policy Requires Contractors and Subcontractors to Show Proof of Insurance

By Jenny Holly Hansen | WBN News | August 12, 2025

When running a business, especially in industries like construction, manufacturing, or specialized trades, it’s common to rely on subcontractors to complete parts of a project. While subcontractors can bring valuable skills and efficiency, they also bring a level of risk—and your business insurance policy likely has clauses to address that risk. One of the most important is the contractors and subcontractors warranty, which requires you to ensure that any subcontractor you hire carries their own insurance.

The Reason for the Requirement

Your insurance company knows that if a subcontractor’s work causes damage or injury, there’s a good chance the affected party might try to hold your business responsible—whether you directly caused the issue or not. Lawsuits can be expensive, time-consuming, and damaging to your reputation. By requiring subcontractors to carry their own insurance, your insurer is ensuring there’s another financial backstop if something goes wrong.

This requirement protects both you and your insurer. Without it, your business could be footing the bill for someone else’s mistakes, and your insurance coverage might not respond the way you expect—especially if the policy has a clause that denies coverage if subcontractors are uninsured.

Proof of Insurance: Your Safety Net

It’s not enough for a subcontractor to simply say, “I have insurance.” You should always request proof of insurance, usually in the form of a certificate of insurance. This confirms that the subcontractor’s coverage is active and meets the requirements outlined in your policy.

A good best practice is to set this as a non-negotiable part of your hiring process—no proof, no work. Keep these certificates on file for your records in case you ever need to show your insurer you complied with policy terms.

Naming You as an Additional Insured

One of the most effective ways to protect yourself is to have the subcontractor name your business as an additional insured on their policy. This small but important step means that if a lawsuit arises from the subcontractor’s work, their insurance company will also defend and protect you.

The best part? This typically comes at no extra cost to the subcontractor. It’s simply an endorsement they can request from their insurance provider. By being an additional insured, you gain direct coverage under their policy for claims related to their work.

How This Protects You in Real Life

Imagine you hire a subcontractor to install electrical wiring in a building project. Months later, faulty wiring causes a fire, and the building owner sues both the subcontractor and your business. If the subcontractor is uninsured—or if you didn’t ensure you were an additional insured—you could be solely responsible for legal costs, damages, and even the settlement.

But if you followed your policy’s warranty, obtained proof of insurance, and secured additional insured status, the subcontractor’s insurance would help cover those costs, protecting your finances and your business reputation.

Bottom Line

The contractors and subcontractors warranty in your business insurance policy isn’t just a formality—it’s a safeguard designed to protect you from the fallout of someone else’s mistake. By requiring proof of insurance and additional insured status from subcontractors, you’re not only complying with your policy, you’re creating a strong legal and financial shield for your business.

Protect yourself now so you’re not paying for someone else’s mistake later.

Let’s Keep Talking:

Jenny is a business insurance broker with Waypoint Insurance. With 19 years experience, she will well versed in the technical aspects of business coverages.

She can be reached at 604-730-7758 or jhansen@waypoint.ca . Connect with Jenny on LinkedIn at https://www.linkedin.com/in/jenny-holly-hansen-365b691b/.  

TAGS:  #Jenny Holly Hansen #Business Insurance #Contractors and Subcontractors Warranty #Certificate of Insurance