Subcontractor insurance requirements in California

Why general contractors set requirements

A general contractor is responsible to the owner for the whole project, including work performed by subcontractors. If a subcontractor’s work causes an injury or property damage, the general contractor and owner are often named in the lawsuit. Insurance requirements in the subcontract are designed to move those claims to the subcontractor’s insurance.

Requirements often flow down from the prime contract between the owner and the general contractor. A subcontractor may be asked to meet the same limits and endorsements the owner imposed on the general contractor, sometimes with additional parties such as lenders or architects named as additional insureds.

This guide describes common practice and general legal principles. It is not legal advice, and subcontract terms vary widely. Review specific agreements with a licensed insurance professional and a California construction attorney.

Typical coverage list

• Commercial general liability with stated per occurrence and aggregate limits
• Commercial auto liability covering owned, hired and non owned vehicles
• Workers compensation with statutory limits and employer’s liability
• Umbrella or excess liability to reach higher total limits
• Professional liability for design build or engineering work
• Contractors pollution liability for trades with environmental exposure
• Additional insured, primary and noncontributory and waiver of subrogation endorsements

Per project aggregate

A general liability policy usually has a general aggregate limit, which is the most the policy will pay for most claims in a policy period. A subcontractor working on many jobs shares that single aggregate across all of them. A large claim on one project can reduce the limit available for every other project.

General contractors often require the aggregate to apply separately to each project. This is usually done with an endorsement, such as the ISO CG 25 03 Designated Construction Projects General Aggregate Limit form or an insurer’s own per project aggregate wording. Check whether your policy already includes this, since many contractor policies do.

Using an umbrella to meet limits

Subcontracts often require higher total limits than a primary general liability policy provides. Many general contractors accept a combination of primary limits and an umbrella or excess policy to reach the required total. This is sometimes described as using the umbrella to cure a limit shortfall.

Acceptance is not automatic. The subcontract may require the umbrella to follow form, extend additional insured status to the same parties, be primary and noncontributory over the general contractor’s own umbrella and sit over each required underlying policy. If the umbrella does not meet those conditions, the general contractor may reject it even when the total limit is enough.

Additional insured for completed operations

Most California subcontracts require additional insured status for both ongoing and completed operations. Ongoing operations coverage applies while the work is under way. Completed operations coverage applies to claims that arise after the work is finished, such as a construction defect that causes damage years later.

Common forms are CG 20 10 for ongoing operations and CG 20 37 for completed operations, or blanket equivalents. Many subcontracts also require the subcontractor to keep completed operations coverage, including additional insured status, in place for a set number of years after the project ends. That obligation continues even if the subcontractor changes insurers, so each renewal must keep the right endorsements.

Completed operations and the statute of repose

A statute of repose sets an outer time limit for bringing certain claims, measured from a fixed event rather than from when damage is discovered. In California, Code of Civil Procedure section 337.15 generally limits actions for latent construction defects to 10 years after substantial completion of the improvement. Section 337.1 sets a shorter period for patent defects, which are those apparent by reasonable inspection.

Residential construction is also subject to the Right to Repair Act, which contains its own procedures and time periods. Exceptions and details apply to all of these provisions, and courts interpret them case by case.

The practical point is that construction claims can arrive long after a project closes. This is why general contractors ask subcontractors to maintain completed operations coverage for years, and why subcontractors should keep contracts, certificates and policies from past projects.

Where California law limits indemnity

Subcontracts usually include an indemnity clause requiring the subcontractor to defend and pay for claims arising from its work. California law places limits on how far these clauses can go in construction contracts.

California Civil Code section 2782 makes void provisions in construction contracts that purport to indemnify a party against liability for its sole negligence or willful misconduct, and contains further limits for residential construction and for certain public agency contracts.

California Civil Code section 2782.05 applies to many commercial construction subcontracts entered on or after January 1, 2013. In general, it voids provisions that require a subcontractor to insure, indemnify or defend the general contractor or owner for claims to the extent they arise from the active negligence of those parties. The statute also sets rules about how a defense is tendered and shared. It lists exceptions, including certain wrap up insurance programs, so whether it applies depends on the project and contract.

These are summaries of complex statutes that have been amended over time. Confirm the current text and how it applies to your contract with a California construction attorney before relying on it.

Wrap up programs

Some larger projects use an owner controlled or contractor controlled insurance program, often called an OCIP or CCIP. The sponsor buys general liability and sometimes workers compensation that covers all enrolled contractors for work on that site.

Enrolled subcontractors usually still need their own policies for off site work, auto and other exposures. Read the wrap up manual to see what is covered, what you must still carry and how long completed operations coverage lasts under the program.

Workers compensation and licensing

California Labor Code section 3700 requires employers to secure workers compensation coverage for their employees. The Contractors State License Board also has workers compensation requirements for licensees, and those requirements have changed in recent years. Check the current rules for your license classification on the board’s website.

General contractors usually ask for a certificate showing workers compensation in force and often a waiver of subrogation. A subcontractor without valid coverage can also create premium audit charges for the general contractor.

Certificates and proof of coverage

General contractors and their certificate tracking services usually ask for a certificate of insurance and copies of the actual endorsements before a subcontractor can start work or receive payment. A certificate alone does not create additional insured status, primary and noncontributory wording or a waiver of subrogation. Those come from the policy itself.

Plan for this paperwork when bidding. Requesting a scheduled endorsement from an insurer can take time, and a missing document can hold up mobilization or a progress payment.

What to check before signing a subcontract

• List every required coverage, limit and endorsement from the subcontract and any flow down documents.
• Confirm whether additional insured status must cover ongoing and completed operations, and for how many years.
• Check whether your aggregate applies per project.
• Confirm the umbrella meets the follow form and additional insured conditions.
• Ask your attorney to review indemnity and defense language.
• Find out whether the project has a wrap up program.
• Request missing endorsements before starting work, not after.