Construction risk transfer is the process of shifting financial responsibility for job-site losses from the general contractor to subcontractors, suppliers, and their insurers through contractual requirements. The three primary mechanisms are insurance requirements (minimum limits and coverage types), indemnification clauses (hold-harmless agreements), and additional insured endorsements (naming the GC on the sub’s policy).
For subcontractors, understanding what GCs require is essential to winning bids. For GCs, a tight risk transfer program prevents your insurance from paying for a sub’s mistakes. Here’s how the system works.
Key Takeaways
- Three mechanisms: Insurance requirements, indemnification clauses, and additional insured endorsements
- Standard sub requirements: $1M/$2M GL, workers’ comp, $1M auto, and $2M–$5M umbrella
- Additional insured: The GC must be named on the sub’s GL and umbrella policies
- COI verification: Certificates of insurance must be collected and verified before subs start work
- SBA projects: Add lender-required hazard insurance on top of standard construction coverage
For projects financed through SBA loans, additional hazard insurance requirements apply. See our guide to SBA hazard insurance for the specific coverage lenders mandate.
Frequently Asked Questions
What insurance should a GC require from subcontractors?
At minimum: GL ($1M/$2M), workers’ comp (statutory), commercial auto ($1M), and umbrella ($2M–$5M). The GC should be named as additional insured on GL and umbrella. Specialty trades may need professional liability or pollution coverage depending on the work.
Disclaimer: This article is for informational purposes only and does not constitute insurance, legal, or financial advice. Coverage requirements vary by state and operation. Consult our licensed advisors for guidance specific to your business.
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