Hedging Your Risk
A Lawn Care Business Owner's Guide to Subcontractors, Part 2

In "A Lawn Care Business Owner's Guide to Subcontractors, Part 1," we discussed when and why lawn care businesses should work with subcontractors, but now let's look at this issue from a small business insurance angle.

Before you hire a subcontractor, you'll need to…

  • Tell your insurance company you're working with a subcontractor.
  • Make sure the contractor has sufficient General Liability Insurance.
  • Outline your insurance requirements in the subcontractor agreement.

What Your Insurance Company Needs to Know

It's important to keep your insurance provider in the loop about subcontractors you've hired. Your provider may actually refuse to cover claims if you haven't disclosed that you worked with subcontractors.

What will your insurance provider want to know? When you sign up for small business insurance, your insurance provider may ask on its application for information about your subcontractors, including…

  • What services they provide.
  • How much you pay them.

Disclose this information and keep your provider updated if anything changes (e.g., you start working more often with subs).

Insurance Requirements for Landscaping Subcontractors

If you work with subcontractors, your business insurance provider may require that the subcontractors have a certain amount of General Liability Insurance, usually a policy with $1 million in coverage that can extend to cover your business. Why does your insurance provider care about your subcontractor's coverage? To answer that question, let's look at an example.

General Liability may pay for third-party lawsuits over accidents and injuries. Let's say that you've hired a subcontractor who specializes in sprinkler systems. Unfortunately, a problem in the water line causes flooding, which leaks into the house's basement. If the homeowners file a lawsuit for property damage, they could sue your business, not just the contractor.

By requiring your subcontractors to have insurance, you and your insurance provider make it less likely that you'll have to pay for a lawsuit. The subcontractor's insurance may cover the lawsuit so you don't have to.

Your insurer may be strict about these requirements. In order to maintain your own General Liability Insurance, you may have to make sure all your subcontractors…

  • Have $1 million in General Liability Insurance.
  • Sign a hold harmless agreement (more on that later).
  • List your business as an "additional insured" on their policy.

When your subcontractors add you as an "additional insured" to their GL policy, they're extending their coverage to include your business. It means their policy may pay for legal costs you incur if you're sued over injuries and accidents that happened while the subcontractor was working for you.

Ensuring Your Landscaping Subcontractors Have Insurance

Okay, so your insurance provider requires your landscaping subcontractors have insurance. How do you actually check that they have coverage?

You'll need to do two things:

  1. Outline this requirement in your subcontractor agreement (see "6 Items to Include in Your Landscaping Subcontractor Contract" for more details).
  2. Check your subcontractor's Certificate of Liability Insurance.

Just like your car insurance gives you proof of insurance, small business policies come with an Insurance Certificate that shows how much coverage you have and demonstrates that your policy is active. You can ask for a copy of your subcontractor's Insurance Certificate and keep it on file.

To learn more about how Insurance Certificates work, see our Sample Certificates of Liability Insurance for lawn care companies.

Hold Harmless Agreement: How to Prevent Lawsuits from Your Subcontractor

In your subcontractor contract, you can include a "hold harmless" agreement. By signing this agreement, your subcontractor agrees not to sue you for injuries or other problems that come up while they're working for you.

Say a sub trips over your extension cord and breaks their ankle. An accident like this could lead to thousands of dollars in legal bills. Your insurance company wisely wants to prevent your subcontractor from suing you and will require you to include this language in your contracts.

While hold harmless agreements aren't perfect and can't offer you complete protection from lawsuits (nothing can), they may prevent subcontractors from filing some lawsuits against your business.

Checklist: Before You Hire a Landscaping Subcontractor

For your lawn care business to protect its liability and maintain its General Liability Insurance protection, it may need to do the following before hiring a subcontractor:

  • Require subcontractors to have $1 million in GL insurance.
  • Formalize these insurance requirements in a contract.
  • Check that the sub's insurance is current by looking at an Insurance Certificate.
  • Require the subcontractor adds you to their policy as an "additional insured."
  • Have the subcontractor sign a hold harmless agreement.

While this may seem like a lot, once you've gone through the process a few times it should be fairly simple. You can think of these extra steps as something of a litmus test: they're a way to make sure your subcontractors are organized, know how to run a business, and are up to the task.

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