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Subcontractor Default Insurance (SDI) provides insurance for General Contractors against default from a subcontractor. The coverage is an alternative to a surety bond and is purchased from an insurance carrier in order to protect the General Contractor from the subcontractors they hire. To get a stronger understanding of Subcontractor Default Insurance, there are two types of default that you should know about.
1. Default Of Performance
This type of default is the failure of the subcontractor/supplier to fulfill the terms of the covered subcontract or purchase order as determined by the insured or a legally binding authority.
This type of default is bankruptcy; filing for chapter 11 or chapter 7, or a voluntary resolution for the liquidation of the subcontractor.
Subcontractor Default Insurance is largely for General Contractors with subcontractor volume of $100MM or more. The length of coverage is either project specific or for all subcontracts executed within a set term. A deductible is agreed upon by both parties and must be paid by the General Contractor.
There are numerous benefits of an SDI program, which are listed below:
- The General Contractor controls the pre-qualification of the subcontractors they use
- The claim process is more expedient than a surety bond
- It provides an incentive to the General Contractor to refine and manage the subcontractor process
- The insurance carrier does additional subcontractor review
Do you have additional questions about Subcontractor Default Insurance? If you are a General Contractor looking to learn more about SDI and if it is right for you, reach out to TSIB today for more information! You may also click below to view more of our blog posts around different types of insurance and tips for contractors.