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Understanding subguard insurance

The use of subcontractors by Florida general contractors is commonplace, especially for large and complex construction projects. Performance bonds once were the industry’s primary way of protecting contractors against the default or poor workmanship of subcontractors. However, today, subcontractor default insurance has become the new standard. This form of coverage is commonly referred to as subguard insurance in reference to its official brand name from one particular insurance company.

While subguard insurance does provide valuable protection, it is important that contractors understand the nuances of this type of policy. One point that many clients may not be aware of is that a subguard insurance policy only covers losses by the contractor, not by the project owner. HighProfile.com makes it clear that the owner of a commercial real estate development, for example, would have no ability to file a damage claim if a subcontractor failed to perform the required duties on a job. Only the original general contractor could do so. Clarifying this fact to clients up front may help to prevent problems down the road for contracting firms.

SDI insurance may pay costs associated with various forms of losses including:

  • Delays
  • Overhead
  • Defective work
  • Incomplete work

Subcontractors must be pre-qualified for all subguard policies. This requires reviews of their previously completed jobs as well as their financial statuses as a means by which risk is measured. Lorman Education Services indicates that contractors should evaluate each job appropriately to determine if subguard insurance is the best path to protection when working with a subcontractor. In some cases, a three-party surety approach may be better, especially for smaller jobs. 

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