Some of an agent’s general liability carriers, mostly in the excess & surplus market, require subcontractors to carry limits equal to the general contractor’s in order to be considered “adequately insured.” If a subcontractor does not meet this qualification, they are considered uninsured.

Q: I think the carriers are of the mindset that the general contractor’s insurance is excess over the subs. Can you think of an argument I could use to show them this definition of “adequately insured” is wrong?

A: The GL pricing rules require a subcontractor to be "adequately insured" to qualify for subcontracted work rates. The rule reads: 

"This classification applies to that portion of the operations performed by adequately insured subcontractors of the insured. Operations performed by subcontractors without adequate insurance shall be classified and rated under the specific classification description for each operation.

Determination of the adequacy of insurance shall be made in accordance with criteria established by the company prior to policy inception."

If the carrier guidelines state that qualifying as "adequately insured" requires limits equal to the general contractor's, that's what you have to deal with. This is an underwriting decision the carrier made across the board, so it's unlikely that any reasoning will change their position.

The rule should not apply to the umbrella coverage, just the underlying GL, so have the general contractor purchase lower limits and a higher umbrella. Often, though, this is done to avoid a situation in which the general contractor has $1 million/$2 million limits while the subcontractor has only $300,000/$600,000. 

I’m not sure why the general contractor wouldn't be excess in any given situation—that happens all the time. It could be subject to the contract and contractual risk transfer. Also, are they joint tortfeasors?

Remember too that the general contractor is responsible for the jobsite and all that happens on that site—that’s why they need tight contracts in place. This liability is not transferrable, so their policy may have to respond in certain situations as excess.

Chris Boggs is executive director of the Big “I” Virtual University (VU).

This question was originally submitted by an agent through the VU’s Ask an Expert Service. Answers to other coverage questions are available on the VU website. If you need help accessing the website, request login information.