Why Did My Liability Audit Charge Me for Uninsured Subs?

Why did my general liability audit charge me for uninsured subcontractors?

Because your carrier priced the policy on the assumption that every sub you hire carries their own general liability, and at audit it checks. A contractor's general liability premium is usually based on payroll, and on the cost of subcontracted work. When a sub can show a certificate of insurance for the dates they worked for you, most carriers either leave that cost out of the premium base or rate it at a small fraction of the full rate. When there is no certificate, the carrier treats the sub's work as if your own employees did it and charges full premium on what you paid them.

The logic is simple from the carrier's side. If an uninsured sub's work injures someone or damages property, the claim lands on your policy, because you are the contractor of record and the only one with coverage. The carrier is charging for the exposure it actually carried during the year, not for the exposure you thought you had.

That is why the audit invoice often has two numbers that surprise owners. One is the uninsured sub cost, which can be rated near your own class rate. The other is a much smaller charge, or none at all, for the subs who had certificates on file. The gap between those two lines is the price of the paperwork you did not collect.

What does the auditor need to see for a sub to count as insured?

A certificate of insurance showing that the sub carried general liability that was in force on the dates they worked for you. The certificate should name the sub's business, show the carrier, the policy number, the policy period, and the limits. Many carriers also want to see that the sub carried workers comp if they had employees, and some want the certificate to list you as the certificate holder so it is clear it was issued for your job.

Timing is where most owners get caught. A certificate that was current when the sub started but expired two months into a six-month remodel covers only the first two months. The auditor will split the payments and charge the rest as uninsured. The same happens when the certificate was issued after the work was done, or when the policy period on the certificate does not overlap the dates on your checks and 1099s.

Two situations trip up Little Saigon contractors in particular. A sub who holds a CSLB license with a workers comp exemption because they have no employees is still uninsured for general liability unless they bought their own policy. And a day laborer or a helper you pay in cash is not a subcontractor at all in the auditor's eyes. Without a certificate, that money is rated as payroll, and often as the payroll of your highest-rated class.

How much does an uninsured sub add to the bill, and how does it compare to workers comp?

The amount depends on your class code, your rate, and how much you paid the sub. As a rough picture, if your general liability rate is several dollars per hundred of payroll and a sub cost you thirty thousand dollars for the year, an uninsured charge on that sub can run from several hundred dollars to more than a thousand, while an insured sub with a clean certificate might have added very little. Multiply that by a handful of subs and it explains an audit invoice that runs into the thousands.

General liability is not the only audit that looks at subs. Your workers comp carrier runs its own audit and asks the same question. A sub without proof of workers comp is charged as if their crew were your employees, at your class rate, and in California an injured worker on that crew can also file a claim against your policy. So a missing certificate can cost you twice, once on each audit, plus a claim you never planned to carry.

The premium is also only part of the exposure. If an uninsured sub's work fails and the homeowner sues, your policy defends and pays, your loss history takes the hit, and your renewal is priced on that history. Certificates are cheaper than any of that.

The audit invoice already arrived. Can I dispute it?

Yes, and it is worth doing. Start by asking the carrier or the audit company for the worksheet that shows how each sub was treated. Then go back to every sub who was rated as uninsured and ask their broker for a certificate covering the dates you paid them. If the sub actually carried general liability during the job, a certificate issued now that shows those policy dates is usually accepted, and the carrier will revise the audit. Most carriers give you a window of a few weeks to a few months to submit corrections, so do not let the invoice sit.

Look at the payroll side too. Auditors sometimes place an uninsured sub, or a helper, in a higher-rated class than the work they did. If your roofing sub hung drywall on that job, the drywall class is the right one. Owner draws, reimbursements for materials, and the material portion of a lump-sum sub invoice are also often ratable at a lower amount, or not at all, when you can document them separately.

Going forward, the fix is a habit rather than a form. Collect a certificate before a sub starts, log the expiration date, ask for a renewal certificate when it comes due, and store them with the job file. Put an insurance requirement in your subcontract so the sub has to keep coverage for the length of the job. At audit time, hand over the folder with the 1099s, and the uninsured line shrinks to the subs who really did not carry coverage.

Get a free contractor insurance review, in English or Vietnamese

A short review before your policy year ends can tell you how your carrier rates subcontractor cost, whether your class codes fit the work you actually do, and which certificates you still need to collect so the audit does not become a surprise.

As an independent brokerage in Fountain Valley, we place contractor programs with many carriers, so we can compare how different companies treat insured and uninsured subs, and help you dispute an audit that charged you for coverage a sub really had.

We work with licensed contractors across Fountain Valley, Garden Grove, Westminster, Santa Ana, Anaheim, Huntington Beach, and all of Orange County. Reach out for a free contractor insurance review, in English or Vietnamese.

Frequently asked questions

What is an uninsured subcontractor charge on a general liability audit?

It is premium charged on money you paid to subcontractors who could not show a certificate of general liability insurance for the dates they worked for you. The carrier rates that cost as if your own employees did the work, because a claim from that work would land on your policy.

Does a sub's CSLB license mean they are insured?

No. A license shows the sub is licensed and bonded, and it shows whether they carry workers comp or hold an exemption. It does not show general liability. Only a certificate of insurance from the sub's carrier shows that.

The sub's certificate expired halfway through the job. Do I still get charged?

Usually yes, for the portion of the work after the expiration date. The auditor splits the payments by date and charges the uncovered portion as uninsured. Ask the sub for a renewal certificate that shows continuous coverage, and submit it to revise the audit.

Can I send certificates after the audit is done?

In most cases yes, within the carrier's correction window. If the sub actually carried general liability during the job, a certificate issued later that shows those policy dates is usually accepted and the audit is revised. Ask for the audit worksheet so you know exactly which subs to chase.

Will my workers comp audit also charge me for uninsured subs?

Yes, workers comp audits ask the same question. A sub without proof of workers comp is charged as if their crew were your employees. A sub with a valid exemption and no employees is usually not charged, but a sub with a crew and no policy is.

What should I keep for the audit?

A certificate of insurance for every sub covering the dates they worked, your 1099s, job cost records that separate labor from materials, and a subcontract with an insurance requirement. Store them by job so the auditor can match certificates to payments.