Central Insurance Blog

At first glance, paper contractors may seem insulated from the jobsite risks traditional general contractors face. However, despite subcontracting all work and rarely handling tools, paper contractors can still be held accountable when something goes wrong. 

Without the right coverages, contract language, and risk controls, even experienced professionals can make contractor insurance mistakes that derail your business, reputation, and financial stability. 

In this article, Tanner Webb, construction underwriter at Central Insurance, explores five key mistakes he’s seen paper contractors face during his 8 years in the field, and uncovers the best practices for avoiding them.

1. Assuming Contracts Alone Shield You From Liability

Strong contractual language can help limit liability, but overconfidence in contracts can be costly.

“Some paper GCs get complacent,” Webb says. “One of the most common contractor insurance myths is assuming that having a contract is the same as proper risk transfer. It’s more nuanced than that. Without the right provisions, a contract may be little more than a formality.”

Learn More: Subcontractor Agreement: How to Write Your Contract For Maximum Coverage

Below are some common gaps in contracts that can leave you exposed:

• Incomplete indemnification language: Many contracts miss a key phrase like “to the fullest extent permitted by law,” which may be required in some states to make the clause enforceable. Without this clause, specific hold-harmless language might be deemed void, putting all liability and risk back on you.
• Missing additional insured status: If the subcontractor’s policy doesn’t list you as an additional insured, their coverage may not respond in your defense.
• No completed operations coverage: You could be on the hook if a claim arises from completed work and the policy lacks this protection.
• No waiver of subrogation: This allows the subcontractor’s insurer to go after you if they pay a claim, even if the subcontractor was at fault.
• No language requiring coverage will remain in force post-project: Webb recommends requiring coverage throughout the statute of repose, not just after project completion.

“Contracts carry a lot of weight,” Webb notes. “It can change the outcome of a claim if it’s missing even one core protection.” 

Real-World Scenario: A homebuilder hired a subcontractor to complete framing work, but failed to include specific additional insured language in the subcontract agreement. When a third-party injury occurred on the jobsite, the subcontractor’s insurer denied coverage to the GC, stating the policy didn’t extend protection to parties not named. The GC had to pay for legal defense despite not performing the work. 

2. Overlooking Jobsite Safety and Premises Liability

As a paper contractor, just because your team isn’t swinging the hammers doesn’t mean you’re off the hook for safety. As the GC, you’re still responsible for overseeing projects, including site safety. 

Whether you hire one subcontractor or a dozen, jobsite hazards like unlit walkways, unsecured equipment, or an unfenced perimeter could leave you open to claims. 

In short, premises liability doesn’t disappear just because someone else completes the hands-on work.

“You’re still responsible for protecting the public and maintaining a safe jobsite,” Webb explains. “Failing to account for lighting, fencing, or equipment storage could expose you to claims that fall outside your GL policy or result in a contractor insurance mistake that leads to a costly injury or premises liability suit.”

Real-World Scenario: A pedestrian is injured after entering the unfenced jobsite overnight. Despite not doing hands-on work, the paper contractor is liable for failing to secure the area.

3. Missing Critical Coverages Like Professional and Pollution Liability

Two of the most overlooked coverages among paper contractors are also essential: professional liability and pollution liability. Both protect against exposures not covered by standard general liability policies and can come into play even when you’re not doing physical work.

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Professional Liability Insurance

Sometimes called contractor’s errors & omissions insurance, this policy covers claims tied to project management mistakes, such as poor coordination, scheduling delays, miscommunications, or failure to catch design issues, even if the GC didn’t do the design work. Webb emphasizes the importance of professional liability.

“Even if they’re not doing the design, the GC is still responsible for the overall project, including site maintenance, safety, and quality. If something goes wrong, they will be part of the conversation,” he says.

Real-World Scenario:  A subcontractor installs HVAC units in the wrong location due to miscommunication. The paper GC is blamed for poor coordination and faces a professional liability claim, even though they didn’t do the work themselves.

Pollution Liability

This insurance covers the cost of cleanup, legal defense, and third-party claims arising from contamination caused by construction activity, like runoff, dust, fuel leaks, or improper disposal. 

People often dismiss pollution exposures as rare, but common jobsite issues can easily trigger them. Webb describes a situation where the GC failed to implement silt fencing. After a heavy rain, the resulting erosion caused contaminated runoff to flow into storm drains, triggering a costly pollution cleanup.

“It may not be a common claim,” Webb says, “but when it happens, it’s a big one.”

Real-World Scenario: After heavy rain, sediment and debris from a jobsite without proper silt fencing pollute a nearby waterway. The paper GC is held responsible for the cleanup costs. 

4. Underestimating Claims Costs, Even When You’re Not at Fault

Many paper contractors assume that a lawsuit won’t impact them if their contracts are solid and their hands are clean. But even airtight agreements don’t always keep you out of the courtroom, and if you do find yourself in a legal case, defense costs can add up fast. 

One of the most overlooked mistakes in contractor insurance is thinking strong contracts eliminate the cost of being named in a claim. In today’s litigious environment, it’s not unusual for attorneys to name everyone involved in a project—from subcontractors and site supervisors to GCs and even the guy who delivered lunch. If your name is on the permit or contract, odds are you’ll be on the list.

Real-World Scenario: A subcontractor’s scaffolding collapses and injures a passerby. The GC has solid contracts in place, but they’re still named in the lawsuit. They spend months racking up legal fees, and are later found not to be liable.

5. Relying on Verbal Agreements or “Handshake Deals”

It’s easy to see how handshake deals happen, especially for smaller projects, long-time collaborators, or jobs that need to start quickly. Handshake deals are still the norm in some parts of the country.

“In more rural areas or with smaller contractors, I still hear about handshake agreements,” Webb says. “That might work on a person-to-person basis, but it doesn’t hold up from a liability standpoint.”

Verbal agreements may feel faster or friendlier, but a paper contractor with a handshake deal could be found responsible if a claim arises and there’s no written contract. Their liability can include injuries, damages, or defective work tied to the subcontractor.

Webb recalls a small $500 paint job arranged without a formal contract. The painter failed to secure the area, dropped a paint can, and gravely injured a passerby below. The result was a seven-figure claim, and the GC who hired the painter was held fully liable.  

Real-World Scenario: A GC verbally hires a subcontractor to handle demolition on a small remodel. The subcontractor fails to cap a gas line, resulting in a fire and major property damage. Without a formal contract, the GC is held liable for the damages.   

Best Practices for Staying Protected

Understanding your risks as a paper contractor is only half the battle. The real value comes from knowing how to reduce losses. 

Based on his experience as both a claims adjuster and an underwriter, Webb offers these best practices to help paper GCs strengthen their coverage, protect their business, and avoid contractor insurance mistakes that can derail a project: 

• Require written contracts for all subcontractors, no matter how small the job. Ensure indemnification and a savings clause are included in every agreement.
• Confirm that subcontractors add you as an additional insured on a primary, non-contributory basis.
• Include completed operations coverage lasting through the full statute of repose.
• Require a waiver of subrogation in each subcontract.
• Carry professional liability coverage to protect against errors in coordination or oversight.
• Purchase pollution liability if your sites involve potential runoff, dust, or fuel exposure.
• Maintain standard premises-safety protocols, even when you’re not self-performing work.

The Central Difference

At Central, we understand the nuances of paper contractor construction risks. Our team of specialized construction underwriters knows how to identify the hidden exposures that come with subcontracted work and build policies that reflect your actual risk. 

With insights from this team and a deep understanding of subcontractor relationships, we work closely with our agents and policyholders to ensure your coverage protects and supports how you do business.

Talk to an agent to review your coverage and ensure you’re properly protected.