Your sub has no insurance. Here is who pays.

The largest audit bill I have watched a client take over an uninsured sub was $98,000. The client is a trade contractor in Los Angeles County, not a GC, doing about $15 million a year. They paid subs by the job and sent 1099s at year end. Then the auditor asked for a certificate of insurance for every sub paid that year. One sub did not have insurance in place, so the money paid to that sub became payroll at the client's own class rate.

That is the rule, not a rogue auditor, and it does not care what you call yourself.

Why the auditor can do that

Labor Code section 2750.5 says anyone doing work that requires a contractor's license must hold a valid license to be an independent contractor. No license, no independent contractor. Their crew is your crew for workers comp.

State Fund's construction audit guide says it plainly: unlicensed people doing licensed work "are employees for worker's compensation purposes," and premium for them "will be based on the trades they perform and the amounts they are paid," and "The premium for uninsured subcontractors can be substantial." The WCIRB says it in fewer words: "Many auditors place independent contractors on a workers' compensation policy at audit."

The audit is the cheap version. The expensive version is an injury.

The sub's worker becomes your employee

In 1988 a licensed, insured drywall contractor hanging the ceiling at the new Arco Arena could not find anyone willing to go up on the booms. He brought in a man named Griffin, asked for a license number, a tax ID, and a certificate of insurance, and got the first two. Griffin brought a helper, who fell from a scaffold. Griffin's license was not valid, and the drywall contractor was held to be the injured man's employer. When he argued he had been lied to, the court said the doctrine "will not be applied against one who is blameless," and the injured man had told no lies.

Same year, a licensed but uninsured GC remodeling a Moraga house hired a framer who claimed a license he did not have. The framer's $100 a day carpenter fell nine feet to concrete through a sheet of plywood. The Uninsured Employers Fund paid and came after the GC as the employer.

One was a GC. One was a drywall sub who hired a sub of his own. The law did not care about the difference.

Your own policy may turn on it

Many contractor liability policies carry a contractors warranty, subcontractor warranty, or contractors special conditions endorsement. Your coverage for a sub's work exists only if you hold a signed hold harmless agreement and a certificate of insurance from that sub.

A California general contractor learned what that means in a 2009 appeal. A homeowner's leak case settled for $2.2 million, the contractor's two carriers paying $1.1 million. The contractor had full paperwork from few of its 13 subs: no hold harmless from eight, no certificate from one, claims made certificates from two. The court called the endorsement a condition precedent to coverage, and the carrier that had it owed nothing toward $909,574 of the settlement. The contractor survived only because its other carrier's policy had no such endorsement.

If you are a trade contractor

The moment you bring in a sub of your own, every rule above is yours. The drywall contractor at Arco Arena was a sub.
Your own liability policy may carry the warranty endorsement. Ask. If it does, a missing hold harmless from your sub erases your coverage for his work.
The GC above you flows all of this down. In an Illinois case, a steel sub's sub put an ironworker on the job with no written agreement naming the GC, so the GC was not covered and was left to pursue the middle sub that had promised it. Its certificate said what every certificate says: it "confers no rights upon the certificate holder."

Certificates are paper

In 2024 the Department of Insurance charged an Encino trucking subcontractor with creating at least 13 fake certificates of insurance for 12 businesses that hired him. The department's advice to owners: verify the coverage yourself.

Licensed does not mean insured, either. CSLB's own research says 50 to 60 percent of licensed contractors claim to have no employees, and many of them do. A licensee whose comp lapses is suspended by operation of law the day it lapses, and nobody calls you. The rule that every licensee carry comp regardless of employees does not take effect until January 1, 2028.

Before the sub starts

Look the license up at CSLB: active, with a comp policy on file or an exemption. An exemption means no employees. If a crew shows up, stop.
Get a certificate for workers comp and liability dated before the first day, and call the agent on it at a number you find yourself.
Get a signed agreement that says the sub covers you, plus the additional insured endorsement itself, not just a certificate.
Keep it all by sub, by year. The auditor will want the certificate for the period the work was done.

Send me your liability policy. Within a day I will tell you whether it carries the warranty endorsement and what your sub file needs to look like if it does.