What happens if a subcontractor's insurance lapses mid-project?

The risk moves up to you. A claim for injury or damage during the gap looks for the next insured party on the job, and the indemnity clause in your subcontract has no insurer behind it. Your workers' comp audit may also charge you for the sub's crew.

This is general information, not legal or insurance advice. Your subcontract and your state's law decide how much of this lands on you.

What the lapse takes away

• The sub's liability coverage. Most contractors' general liability policies are occurrence policies (the ACORD 25 marks OCCUR or CLAIMS-MADE): they answer for injury or damage that happens during the policy period. A policy that ended on the 15th doesn't answer for an accident on the 20th.
• Your additional insured status. It lives inside the sub's policy. When the policy ends, so does your cover for anything that happens after it.
• The indemnity promise. Most subcontracts make the sub defend and indemnify you. Without insurance, that promise is worth what the sub has in the bank.
• Workers' comp for their crew. Many states make a general contractor responsible for an uninsured sub's injured workers. Virginia's statute, for one, says the contractor "shall be liable to pay to any worker employed in the work any compensation" the worker would have been owed (Va. Code § 65.2-302).
• Premium at your audit. Insurers that follow NCCI's Basic Manual charge you premium on what you paid a sub who can't show workers' comp for the period. With no payroll records, the whole subcontract price can count as payroll; a 2022 Alaska Division of Insurance decision upheld that charge against a general contractor (Case H 22-01).

How coverage lapses without anyone telling you

The policy reaches its expiry date. Liability policies usually run for a year, and plenty of jobs outlast the certificate collected at kickoff.

The sub stops paying and the insurer cancels. You probably won't hear about it. The current ACORD 25 says notice of cancellation "will be delivered in accordance with the policy provisions", and the standard ISO common policy conditions (form IL 00 17) send that notice to the first named insured, which is the sub.

The sub changes the policy. It moves to a new insurer, or lowers a limit at renewal. Nobody has to send you a new certificate unless your subcontract says so.

The certificate warns you itself. The box at the top of every ACORD 25 says it "confers no rights upon the certificate holder" and does not "amend, extend or alter the coverage afforded by the policies below". It describes the policies on the day it was issued, and nothing after.

The accident date is the one that counts

Say a framing sub's general liability expired on June 15 and a bundle of studs falls on a delivery driver on June 20. The certificate in your file, issued in March, shows a valid policy. On June 20 there wasn't one. The claim can arrive weeks later, and that is often when you learn about the lapse too.

Checks that catch a lapse in time

1. No current certificate, no start. Collect it before the sub's first day on site.
2. Track the earliest expiry. A certificate lists several policies. You're only as covered as the first one to end.
3. Ask for the renewal a month ahead, and count it when it arrives. A promise to renew isn't a policy.
4. Confirm the doubtful ones with the agent. Use a phone number or email you look up yourself, not the one printed on the certificate.
5. Look again before each payment. Money paid to a sub while they were uncovered is what the audit will ask about.

The day you find a lapse

• Stop the sub's work on your site until a current certificate arrives, and write down when you stopped it.
• Ask the sub's agent whether coverage was continuous or whether there's a gap, and for which dates.
• If there's a gap and the sub worked during it, tell your own broker now rather than at audit time.
• Hold payment if your subcontract allows it, and keep a record of why.

What TradeGuard does here

TradeGuard tracks every policy's expiry date, asks subs for renewals through an upload link, and reads each certificate it receives. If you pay subs from QuickBooks Online, it lists unpaid bills from subs who aren't covered, and one click writes a HOLD note on the bill. It can't see a policy cancelled mid-term: it knows the dates printed on the certificate and what the agent tells you.

FAQ

Is the general contractor liable when a sub's insurance lapses?

Often the cost lands on the general contractor. Injured people look for the next insured party, and many states make the contractor responsible for an uninsured sub's injured workers. Your subcontract and your state's law decide the details.

Does a certificate of insurance prove coverage is still active?

No. It describes the policies on the day it was issued, and the ACORD 25 says it confers no rights on the certificate holder. Check the dates, ask for renewals before they're due, and confirm with the agent when in doubt.

Will the insurer tell me if a sub's policy is cancelled?

Usually not. Standard policy conditions send notice of cancellation to the first named insured, which is the sub. Unless the policy has an endorsement that notifies you, plan to find out yourself.

What is the difference between an expired and a cancelled policy?

An expired policy reached the end of its term without a renewal. A cancelled policy ended early, often because a premium went unpaid. Either way the sub has no coverage from that date.

Can a sub keep working while their renewal is being processed?

That's a risk you'd be carrying. Anything that happens before the new certificate arrives can land on you, so many contractors pause the work until it does.