General Liability Premium Audits and Subcontractors: What the Auditor Asks For

What a General Liability Premium Audit Is

The premium you pay when a GL policy starts is usually a deposit, calculated on an estimate of your exposure for the year: payroll, sales, the cost of subcontracted work, or a mix, depending on the class codes your policy is rated on. After the policy year ends, the insurer checks the estimate against what actually happened. That check is the premium audit.

It may be a questionnaire you fill in, a phone or video call, or an auditor at your office going through the books. If the real figures came in higher than the estimate, you get a bill for additional premium; if lower, a refund. The rules are in your policy's premium audit condition and its rating schedule, and they cover the policy period, not the calendar year.

Why Your Subcontractors Show Up on It

Your policy exists to cover your operations, and a subcontractor's work is part of your operations. If the sub carried their own liability insurance, a claim from their work is expected to land on their policy first, so many contractor policies rate payments to insured subs lightly or not at all.

If the sub was uninsured, or can't be shown to have been insured, your policy is the one standing behind their work. Many policies therefore rate what you paid that sub the way they rate your own crew, under the class code for the work they did. That's the surprise bill: a framing sub you paid $80,000 becomes $80,000 of exposure on your premium basis.

Some policies go further and spell out what counts as "insured": limits at least equal to yours, you named as additional insured, coverage in force for the dates of the work. A sub who carried insurance but at lower limits can then be treated as uninsured. Your agent can tell you exactly what your policy requires.

What the Auditor Asks For

Expect some version of this list for the subcontractor part of the audit:

• Every subcontractor and independent contractor you paid during the policy period, with the amount paid. Usually from your general ledger, check register or 1099 records.
• A certificate of insurance for each one, showing a general liability policy in force for the dates they worked for you. For the workers' comp audit, the same for workers' comp.
• Evidence that the coverage met your policy's requirements where it sets any: the limits, and additional insured status.
• Exemption documentation for subs who legitimately have no workers' comp, such as a sole proprietor with no employees in a state that allows it.

The payments come out of your accounting system. The certificates have to come from wherever you keep them, and if that's an inbox, this is the week you find out.

Five Gaps That Cost Money

Notice that only the first is a sub who was actually uninsured. The rest are paperwork: a renewal nobody collected, a name nobody matched, a limit nobody checked. That's the part you control.

How to Prepare, Step by Step

1. 1

   Pull every payment to a subcontractor for the policy period

   Use the policy's own dates, not the calendar year. Your general ledger, check register or 1099 vendor list gives you payee and amount. Include one-off jobs; they're the ones most often missing a certificate.

2. 2

   Match each payee to a certificate

   By legal name. A W-9 on file is what connects the name on the check to the named insured on the certificate when they differ.

3. 3

   Check the dates coverage by coverage

   The certificate's GL policy period, and its workers' comp period where you need one, has to cover the dates the sub worked. A certificate dated this year proves nothing about last spring.

4. 4

   Check the limits and wording your policy expects

   Ask your agent what your policy requires a sub's insurance to show, since it varies: limits at least equal to yours, you as additional insured, or both.

5. 5

   Chase the gaps before the auditor does

   A sub who was insured can usually get their agent to issue a certificate showing the policy period that covered your job. That's far easier now than after the sub has moved on.

6. 6

   Hand over one tidy package

   A list of subs with amounts paid and, for each, the certificate that covers the period. Keep a copy of exactly what you sent.

7. 7

   Read the result, and question what's wrong

   If the audit charges a sub you can show was insured, tell your agent. Carriers will often revise an audit when you produce certificates afterwards, but how long you have depends on the carrier.

Step 4 is where the COI audit checklist helps. It covers the eight things to check on a single certificate, including limits, additional insured and the policy dates.

Making Next Year's Audit Easy

Every gap above is cheaper to prevent than to fix at audit time. Four habits cover most of it:

• Collect before the first payment. A certificate and a W-9 before the sub's first invoice is paid, including for one-off jobs.
• Track each coverage's own expiry. GL and workers' comp often renew on different dates. A certificate is only as current as its earliest-lapsing line.
• Keep the old certificates. The audit asks about last year. When the renewal arrives, the expired certificate is still the proof for the months it covered.
• Collect the renewal when it's due, not when you're audited. A reminder to the sub before the expiry date closes the "coverage for part of the period" gap.

A spreadsheet can do all four at a small scale. Past a few dozen subs, the renewals and the history are where it slips.

This guide explains how premium audits commonly treat subcontractors. It isn't insurance or legal advice: rating rules vary by carrier, class code and state, and your policy's wording governs. Ask your agent how your policy handles subcontracted work.