As a contractor in the state of Illinois, you will most likely run into a few, if not several, Surety Bond requirements. This should not worry you. While Surety Bonds can be a confusing line of insurance, for Illinois Contractors it can be quite a straightforward process. Many city and county municipalities will require the Surety Bond in order for you to obtain a license or permit to do work in that specific city or county. This means that you could possibly run into multiple cities or counties that have this as a requirement. One might think that you just buy one Surety Bond and you can use it for all of them right? Unfortunately that is not the case, as the Bonds are specific to each municipality that requires them, so the Bond you bought for The Village of Forest Park, will not be accepted by the City of North Chicago. When this happens, you should not worry too much. Even though for most contractors there is not a statewide Contractors Surety Bond, the Bonds for the municipalities are generally very inexpensive.
That takes us into the meat and potatoes of what everyone wants to know, how much will this cost me? As stated above they are usually very affordable, a policy will typically run around $50 to $125 for a one-year term. They generally do not require a credit check like other Surety Bonds, this is commonly referred to as “freely written,” meaning it does not go through underwriting. If you plan on doing work in a specific city/county for more than one year, you can usually purchase the Bond on a multiple year term and you will see some cost savings for extending the term.
These bonds can be taken care of over the phone in less than a ten minute conversation. You will just want to make sure you have the basic company information such as legal business name, address and contact information. Accuracy of the company information on your Bond is very important, if you do not match the name exactly how you filed your business name legally and how you are applying for the license/permit it could be denied by the municipality. The bonds are usually emailed and the electronic copy can be utilized to provide documentation to the municipality, but some do require original documentation. I always recommend asking how they would like you to file the Surety Bond to ensure there will not be any unexpected delays.
If you have an Illinois Contractors Surety Bond requirement or if you have questions, about Bonds feel free to call our agency and we will be happy to assist you with your Bonding needs.
My Customer Service Representative (CSR) and I see a ton of requests for a Certificate of Insurance. Many of our clients do not understand what a Certificate Holder is or what being an additional insured means. I want to describe the differences between additional insured and a certificate holder. I want to explain this because, many clients don’t understand why an Additional Insured cannot be named on a workers comp policy. These same clients do not understand why the same person can be named on Liability Policies. Well I am going to shed some light on this situation. Here are four common terms that will help a business owner through the process.
Certificate of Insurance:
A certificate of insurance is a document issued by an insurance company to verify insurance coverage to another person. The document tells what coverage is secured and under what specific conditions grated to the listed individuals. The document lists the effective date of the policy and the type of insurance coverage secured. Also, a certificate of insurance includes the limits of liability and the dollar amount of coverage. It is important to understand the holder of the certificate is not covered under the policy. The certificate serves as proof the holder made sure the person they are interacting with secured coverage.
When an insurance professional refers to an additional insured, they are referring to a type of status associated with General Liability Insurance Policies. Those policies provide coverage to other individuals or a group of individuals who were not initially named on the policy. After endorsement, the additional insured will be protected under the named insurer’s policy. They can file a claim in the event they are sued. Additional Insured is available on General Liability, Auto Liability and Umbrella Liability.
A certificate holder is an individual or entity that is named on the certificate of insurance. When named on the certificate, they are notified when coverage is cancelled prior to the renewal date. This is needed in the event a business is partnering with a contractor or another business and that business does not hold the necessary coverage for the business interaction. No coverage protection under the contractor’s policies is provided to a Certificate Holder.
Waiver of Subrogation:
A Waiver of Subrogation means the insurance carrier agrees to relinquish any right to recover damages if it is determined in the course of investigating the claim that the client or one of the client’s employees was responsible for the loss. An insurance carrier may reserve the “right of subrogation” in the event of a loss. This means the company may choose to take action to recover the amount of a claim paid to a covered insured, if the loss was caused by a third party.
Waiver of Subrogation is available on General Liability, Auto Liability, Umbrella Liability and Workers Compensation. A Waiver of Subrogation provision prevents an insurance company (who steps into the shoes of the insured after it pays a loss) from suing the other party to the contract. This is likely the party who caused the loss. Moreover, Waiver of Subrogation provisions found in contracts are generally upheld by Courts.
When a contractor works another person’s property, there are risks involved. Contractors can damage personal property or be injured while performing work. Companies and individuals that hire contractors want to be certain they will not be held liable for injuries, damages or substandard work. For this reason, they will frequently request to see a certificate of insurance from those contractors.
In my experience, most client’s call and request an additional insured to be added to a work comp policy. An Additional Insured cannot be added to a Workers Compensation Policy. As stated above, an Additional Insured is naming someone else on a policy and a Work Comp Policy is written to cover injured employees. Workers Comp does not cover another company. The alternative to this issue would be requesting a Waiver of Subrogation. If you are a sub contractor and you are working with a larger company requesting a Waiver of Subrogation, it is important to make sure you the contractor understand what you are being asked to waive.
If your company hires subcontractors, it’s important to get a certificate of insurance from every subcontractor. Even if you trust your subcontractors. For example, if you have worked with these contractors in the past you need to get updated certificates. Even if you knew the to have insurance in the past they may not have it now. A business owner should submit a request for a certificate each time they hire a contractor. This insures they have proper insurance. Proper insurance at the time you hired them. Doing this can prevent a scenario where you inadvertently take on the risks associated with the work your subcontractors perform.
Risk mitigation standards to keep in mind when using Subcontractors:
The topic of subcontracting comes up in several scenarios when it comes to small businesses, especially contracting and construction. This topic can bring up many questions from a legal, tax, and insurance standpoint. I’ll leave the legal and tax part to your Attorney and CPA. Here we will discuss, from an insurance standpoint, how to protect yourself and your business.
Subcontracting in the perspective of 1099’s vs W-2 employees is generally a very grey area with most contractors. It does not have to be. Here is why. Working with your independent insurance agent should allow you to determine if your employees truly are 1099 or traditional W2 employees. Many business owners think they have contractors, but to the letter of the law the workers are employees and require your business to cover them under a workers’ compensation policy. When it comes to General Contractors and those who have true subcontractors working for them, you still need to make sure you are protecting yourself.
Most business owners have chosen to utilize subcontractors for a combination of the following reasons: a specialized trade your business does not primarily do, the contractor is brought in for a specific job for a specific purpose, & this person or company you have “hired” is not an employee so you are not providing any typical employer benefits and it is your intent for them to cover their own business liabilities on their own in hopes of taking this off of your company. At least partially take this risk off of your company. When it comes to managing your risk, many business owners wonder, am I doing everything I can to mitigate these risks? There are many benefits of subcontracting work out, but if not done properly you are opening yourself and your business to a significant amount of liability. This liability could be costly, even detrimental to your business.
Here are a few basics requirements that you will want to make sure you verify with all of your subcontractors before they step onto your jobsite:
Confirm proof of Basic Insurance Coverages:
General Liability: (Common Limit Amount $1Million Per Occurrence/$2Million General Aggregate) This coverage varies from company to company, but the basic coverage is intended to protect from damages to 3rd parties as a result of the business operations for the company being insured. So if your subcontractors work operations cause physical damage or bodily injury to someone (excluding employees). This policy is a basic protection to cover those types of damages. For most artisan subcontractors we typically recommend a minimum limit of $1 Million per occurrence with a $2 Million General Aggregate limit.
Workers Compensation: This coverage is intended to cover medical expenses and a portion of lost wages for injuries incurred on the job for employees working for the business. This in particular is commonly overlooked since many subs are owner only companies, however if that owner only company despite not being required by law to carry workers comp gets injured on your jobsite you could see some liability for that. Making sure they provide a certificate of insurance to protect yourself. (Please note: current insurance certificates also point out if any officer the company are excluded from coverage; if you have a sub that does not have employees and they are excluding themselves then their coverage might not be sufficient to protect you)
Commercial Auto: (Common Limit amount ($1 Million) With some projects there are many vehicles used in the course of the operation. Whether going from one jobsite to another but also going to pick up supplies. Making sure your subs have Commercial auto liability coverage. At least making sure Hired/Non-Owned Auto endorsements are added to their General liability/BOP policy can be a minimum coverage to consider if they truly don’t have any vehicles.
Umbrella/Excess Liability Policy (amount needed will vary): Umbrella limits to increase the liability limits can be important especially depending on the size of the project and how many contractors your sub works for, a standard $1M/$2M General Liability Limit might not be sufficient. The reason for this is a $1 Million Occurrence limit on General Liability means the most one claim would pay is $1 million. If a sub has 2 claims of that amount, then they do not have any more coverage as their limits have all been used up on a $2 million General aggregate limit. For a small contractor having a $1 Million-$2 Million excess liability limit can be a good buffer to extend that, however for larger contractors this can easily go up to $5 Million or $10 Million and sometimes even higher.
If a subcontractor is doing major projects for you and several other general contractors but doesn’t have higher limits, one or two major claims could potentially wipe out their insurance limits leaving no coverage for the remainder of a policy period. If you have several projects that are total over the subs limits or if you have a multi-million-dollar project, the liability limit of some subs might not be to the level they should be at in the event of a catastrophic claim especially.
Waiver of Subrogation & Additional Insured: Additional Insured wording for the General liability and Commercial auto coverage and Waiver of subrogation on all three lines of insurance are two good ways to keep your company further protected as the General Contractor. An additional insured endorsement adds certain protections to the Additional insured for jobs the sub works on for you and the waiver of subrogation protects you from the subs insurance company from going after your company for damages. Keep in mind, these are sometimes put on a blanket or individual basis. The blankets in particular typically require a Written Contract between you and the subcontractor. Which leads me to….
Have a Written Contract: This day in age there is no good reason not to have a written contract of some sort for business conducted, especially in the construction field. Too many things can go wrong so it’s best to have a written contract. Especially on that has a Hold Harmless Agreement, insurance requirements with the above minimums and including the Waiver of Subrogation & Additional Insured requirements for applicable policies. There are many samples of contracts you can find online, as always, check with your attorney to make sure it has everything you need as well.
Screen Certificates of Insurance: In a time where insurance policies can be very costly, some sub-contractors do try to skirt the system. Fraudulent certificates of insurance whether they are for policies that never existed or for policies that have expired and the sub altered the dates these do unfortunately happen. The best way to keep from becoming a victim of this is to have certificates of insurance sent from the subcontractors Insurance Agent and make sure you are listed as a Certificate Holder. This way their agent will be able to let you know if a policy is cancelled before the expiration date.
These are just a few basics policies you will want to make sure you require from your subcontractors. Consulting with your Insurance Agent and your attorney can be best practices to make sure you doing everything you can to protect yourself. and your business.