You landed the job.

The GC sends over the construction contract. You look at the scope of work, check the price, skim through a few pages of legal stuff, scroll to the bottom and sign it.

Then you send it to your insurance agent.

That’s backward.

Buried somewhere in that contract may be a list of insurance requirements that you just agreed to meet. The problem is, your current insurance may not meet them.

Even worse, the insurance company you’re currently with may not be willing to provide everything the contract requires.

Now you’ve already signed the agreement, scheduled the job, ordered materials or committed your crew — and somebody is asking for a certificate of insurance you can’t provide.

That’s when a simple insurance requirement turns into a business problem.

The better approach is pretty simple:

Review the insurance requirements before you sign the construction contract.

Here’s what contractors should look for and what some of the most common requirements actually mean in plain English.

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Having Insurance Doesn’t Mean You Meet the Contract

Let’s say you’re a plumber, electrician, HVAC contractor, roofer or another trade contractor bidding on a commercial project.

The GC sends you a subcontract with insurance requirements that look something like this:

• General Liability: $1 million per occurrence / $2 million aggregate
• Additional Insured
• Primary and Noncontributory
• Waiver of Subrogation
• Completed Operations
• Commercial Auto: $1 million Combined Single Limit
• Workers’ Compensation
• $2 million Umbrella

You look at it and think:

“I’ve got insurance. I’m good.”

Maybe.

But that’s not really the question.

The question is:

Does the insurance you currently have meet the specific requirements in this contract?

Those are two very different things.

Let’s translate each one into normal contractor English.

$1 Million / $2 Million General Liability

This is one of the more straightforward requirements.

The GC is telling you the minimum general liability limits they expect you to carry.

When you see:

$1 million per occurrence / $2 million aggregate

the $1 million generally refers to the limit available for a covered occurrence, subject to the policy terms. The $2 million is generally the most the policy will pay for certain covered claims during the policy period.

A lot of contractors already carry $1 million / $2 million limits.

But don’t assume yours does.

Some contracts require higher limits, and increasing your limits may increase your insurance cost.

That’s something worth knowing before you price the job, not afterward.

What Does Additional Insured Mean?

This is probably one of the most common insurance requirements contractors see.

The GC, property owner or another party involved with the project wants certain protection under your liability policy for liability connected to your work, to the extent provided by your policy and endorsements.

In very simple terms, they’re saying:

“If your work creates a covered liability problem that drags us into a claim or lawsuit, we want protection from your policy where it applies.”

But there’s an important catch.

Not all additional insured coverage is the same.

The contract may require additional insured status for your ongoing work. It may also require protection for completed operations after your work is finished.

It might require specific parties to be included or specific endorsements.

That’s why “just add them as additional insured” isn’t always as simple as it sounds.

Your insurance agent needs to compare what the contract requires against what your actual policy provides.

What Does Primary and Noncontributory Mean?

This is one of those insurance phrases that sounds like it was invented specifically to make normal people stop reading.

The concept is simpler than the wording.

The party hiring you may want your applicable insurance to respond on a primary basis where required by contract and provided by your policy, without seeking contribution from their applicable insurance.

In plain English, they’re basically saying:

“We don’t want our insurance sharing the front of the line with yours for a claim arising out of your work when your policy is supposed to respond first.”

Whether your policy actually provides that depends on the policy language and endorsements.

And this brings up an important point about certificates of insurance.

Putting words on a certificate does not create coverage.

A certificate of insurance is evidence of insurance. It doesn’t change your policy or create coverage that isn’t actually there.

So if the contract requires primary and noncontributory wording, the question isn’t simply whether your agent can type it onto the COI.

The real question is whether the underlying policy supports it.

What Is a Waiver of Subrogation?

“Waiver of subrogation” sounds complicated.

The basic idea isn’t.

Imagine there’s a covered claim and your insurance company pays it.

Depending on the circumstances, the insurance company may normally have the right to pursue another responsible party to recover some or all of the money it paid.

That’s subrogation.

A waiver of subrogation can limit the insurance company’s ability to pursue certain parties when the policy allows it and the appropriate endorsement applies.

The important thing for contractors is to look at which policies require the waiver.

The contract might require it on:

• General liability
• Workers’ compensation
• Commercial auto
• Or more than one policy

So an email from the GC saying, “We need a waiver of subrogation,” doesn’t necessarily tell the whole story.

The actual contract usually does.

Why Completed Operations Matters After You Leave the Job

Finishing the project doesn’t necessarily mean your liability exposure is finished.

Let’s say you’re a plumber.

You complete a job and everything looks fine. Six months later, there’s an allegation that something you installed failed and caused significant water damage.

Or you’re an electrician and completed electrical work is later alleged to have caused a fire.

Those are examples of why completed operations coverage can matter.

A GC may require additional insured protection not only while you’re actively performing the work, but also for certain liability arising from the completed work afterward.

Some construction contracts may even require that protection to continue for a specified period.

That’s something your insurance agent needs to see before you agree to it.

$1 Million Commercial Auto Requirement

Here’s another place contractors can get tripped up.

You own a truck.

The truck is insured.

So you assume you’ve satisfied the auto requirement.

Not necessarily.

The contract may specifically require a commercial auto policy with a $1 million combined single limit.

Now we need to look at questions like:

Is the vehicle on a personal or commercial auto policy?

Who owns it?

How is it being used?

Are employees driving company vehicles?

Are employees using personal vehicles for company business?

What liability limits are currently carried?

The GC isn’t simply asking:

“Do you have insurance on your truck?”

They’re asking whether your insurance program satisfies a specific contractual auto requirement.

Those aren’t the same question.

Workers’ Compensation Requirements for Texas Contractors

Texas contractors need to pay particular attention to this one.

Unlike most states, Texas generally doesn’t require most private employers to carry workers’ compensation insurance.

That sometimes leads contractors to believe they don’t need workers’ comp.

But there’s a big difference between what state law generally requires and what your construction contract requires.

A general contractor, property owner or project may require workers’ compensation as a condition of working on the job.

You might be a Texas non-subscriber.

Maybe you primarily use subcontractors.

Maybe you’re a small operation with only a few employees.

Maybe it’s just you.

None of those facts automatically means you satisfy the contract.

If the contract says workers’ compensation is required, you need to figure that out before you sign the agreement.

Saying, “Texas doesn’t require me to carry workers’ comp” doesn’t solve the problem if you voluntarily signed a contract requiring it.

What Does a $2 Million Umbrella Requirement Mean?

An umbrella or excess liability requirement usually means the project wants liability limits above the limits provided by certain underlying policies.

For example, you might carry $1 million in general liability, while the project requires another $2 million in umbrella or excess liability.

Depending on the policy, an umbrella or excess policy may sit over general liability, commercial auto and potentially employers liability, subject to its terms and underlying insurance requirements.

Here’s where this becomes more than an insurance issue.

It becomes a pricing issue.

If you don’t currently have an umbrella policy, you may need to purchase one to meet the contract.

That costs money.

Which brings us to the part contractors sometimes overlook.

Insurance Requirements Are Part of the Cost of the Job

Let’s say you bid a project expecting to make $20,000.

You sign the contract.

Then you find out you need to:

Increase your auto limits.

Add workers’ compensation.

Purchase a $2 million umbrella.

Add endorsements to your general liability policy.

Or potentially move coverage because your current carrier can’t satisfy one of the requirements.

Suddenly, the economics of that job look different.

That’s why insurance requirements shouldn’t be treated as paperwork you deal with after winning the job.

They’re part of your cost of doing the job.

If meeting the contract is going to cost you additional money, wouldn’t you rather know that before submitting your final price?

The Phone Call Insurance Agents Get All the Time

It usually goes something like this:

“Luis, I need a certificate for this job.”

No problem. Send us the insurance requirements.

Then we receive three pages of specifications.

We compare those requirements against the contractor’s current insurance and discover something doesn’t match.

Maybe it’s the limits.

Maybe it’s workers’ comp.

Maybe it’s the auto requirement.

Maybe it’s an endorsement the contract requires but the current policy doesn’t provide.

Then comes the sentence nobody wants to hear:

“But I already signed the contract.”

And that’s exactly the problem.

Don’t sign the contract and then find out whether your insurance meets it.

Find out whether your insurance can meet the requirements first.

Then make your business decision.

A COI Can’t Fix a Coverage Problem

This deserves its own section because it’s a common misunderstanding.

Sometimes a GC rejects a certificate of insurance and asks the contractor to have their agent “just add the wording.”

It isn’t always that simple.

A certificate of insurance doesn’t change the policy.

If the contract requires coverage, limits or endorsements that your policy doesn’t provide, typing those words onto the certificate doesn’t suddenly make the coverage exist.

That’s why a good insurance agent may occasionally tell you they can’t put certain wording on a COI without confirming the policy supports it.

They’re not trying to make your job more difficult.

They’re trying to make sure the certificate accurately reflects the insurance you actually have.

Your Insurance Agent Isn’t Your Construction Attorney

There’s another important distinction here.

Your insurance agent shouldn’t be telling you whether the entire construction contract is legally acceptable.

Construction agreements can include indemnification provisions, hold-harmless language, warranties, payment terms, scope-of-work requirements and plenty of other legal obligations.

Those are issues you may want to discuss with a qualified attorney.

What your insurance agent can help with is reviewing the insurance requirements against your existing insurance program.

Sometimes the answer will be:

“Your current policies appear to satisfy these insurance requirements.”

Sometimes:

“We can probably get there, but we’ll need to make some changes.”

And sometimes:

“Your current policy or carrier doesn’t provide what they’re asking for.”

All three answers are useful.

But they’re much more useful before you’ve signed the contract.

What Contractors Should Do Before Signing a Construction Contract

Here’s the habit I wish every contractor would develop.

When a GC, property owner, municipality or developer sends you a contract, find the insurance section before you sign anything.

It may be called:

Insurance Requirements

Contractor Insurance

Subcontractor Requirements

Risk Transfer

Exhibit

Or it may be buried in an attachment.

Send those pages to your insurance agent and ask one simple question:

“Can you compare these requirements to my current policies and let me know if there’s anything I don’t currently meet?”

Even better, do this before submitting your final price when possible.

If satisfying the insurance requirements is going to add thousands of dollars to your cost, that’s information you need when deciding what to charge.

You don’t need to become an insurance expert.

You just need to stop treating the insurance section as something you’ll figure out later.

Before You Sign, Send Us the Insurance Requirements

If you’re a contractor in Texas and regularly work under written contracts, get into the habit of reviewing insurance requirements before you commit to the job.

At Leal Insurance Services, we help contractors compare project insurance requirements against their current policies so they can identify potential problems before they’re standing at the jobsite waiting for a certificate.

Because the best time to discover that your insurance doesn’t meet a construction contract is when you still have time to do something about it.

Not after you’ve signed.

Not the day you’re supposed to start work.

And definitely not when somebody is holding up your payment because your insurance paperwork doesn’t satisfy the contract.

Have a contract sitting in your inbox right now? Send us the insurance requirements before you sign it. Let’s figure out what you’re agreeing to first.

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Frequently Asked Questions About Construction Contract Insurance Requirements

Should I send a construction contract to my insurance agent before signing it?

At minimum, send your insurance agent the insurance requirements before signing the contract. Your agent can compare those requirements against your current policies and identify potential gaps, additional costs or requirements your current insurance may not satisfy. Your insurance agent isn’t a substitute for an attorney reviewing the legal terms of the contract.

What are common insurance requirements for contractors?

Construction contracts commonly require general liability insurance, additional insured status, primary and noncontributory wording, waiver of subrogation, completed operations coverage, commercial auto liability, workers’ compensation and umbrella or excess liability. The exact requirements vary by project and contract.

What does $1 million / $2 million general liability mean?

Generally, $1 million refers to the per-occurrence limit, while $2 million refers to an aggregate limit for certain covered claims during the policy period. The actual coverage available depends on the policy terms, exclusions and endorsements.

What does additional insured mean for a contractor?

Additional insured status can provide certain liability protection to another party — often a general contractor or property owner — under the contractor’s policy for liability connected to the contractor’s work, subject to the applicable policy and endorsement.

What does primary and noncontributory mean?

Generally, primary and noncontributory language addresses the order in which applicable insurance responds and whether contribution will be sought from another party’s insurance. Whether the requirement is satisfied depends on the actual policy language and endorsements.

What is a waiver of subrogation in construction insurance?

Subrogation can allow an insurance company that paid a covered claim to pursue another responsible party to recover what it paid. A waiver of subrogation may restrict that right against certain parties when permitted by the policy and applicable endorsement.

Does a certificate of insurance create coverage?

No. A certificate of insurance is generally evidence of insurance and does not amend, extend or alter the coverage provided by the policies listed on it. Adding wording to a COI does not create coverage or endorsements that aren’t actually provided by the underlying policy.

Can a general contractor require workers’ compensation in Texas?

Yes. Although Texas generally doesn’t require most private employers to carry workers’ compensation insurance, a contract or project may still require it as a condition of performing the work. Contractors should distinguish between state requirements and contractual requirements.

Why would a contractor need umbrella insurance?

A construction contract may require liability limits higher than the contractor’s underlying policies provide. An umbrella or excess liability policy may provide additional limits above specified underlying insurance, subject to the terms of the policy.

What happens if my insurance doesn’t meet the construction contract?

The consequences depend on the contract and circumstances. You could potentially be unable to start the project, incur additional insurance costs, have a certificate rejected or face other contractual issues. If you’ve already signed the contract, speak with your insurance agent about the coverage requirements and consider consulting an attorney regarding your contractual obligations.

Can my insurance agent just add the required wording to my COI?

Not necessarily. A certificate should accurately reflect the insurance that actually exists. If your policy doesn’t provide a requested coverage, endorsement or condition, simply adding wording to the certificate doesn’t create it.

When should contractors review insurance requirements?

Ideally, review them before signing the contract and, when possible, before finalizing your bid. That gives you time to determine whether your current insurance meets the requirements and whether satisfying them will create additional costs that should be factored into the project.

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Read more from Leal Insurance Services

• Your Contracting Business Grew. Did Your Insurance Grow With It?
• Why Two Contractors Doing the Same Work Can Pay Completely Different Insurance Rates
• Before You Sign That Construction Contract, Read the Insurance Requirements
• Contractor Insurance Audits: Why You Got a Huge Bill After Your Policy Ended
• Real Contractor Claims That Put Small Construction Companies Out of Business: Employee Injuries in Texas