The Importance of Contractor Insurance
Having proper insurance coverage for your contracting company is critical. Contractor’s insurance protects you, as the business owner, and the client, in the event of an accident or incident. There are several kinds of insurance available for contractors, but the most popular type is known as contractor’s General Liability Insurance. The term “liability” means you are responsible for answering the consequences of your actions, or those incidents that occur on your property. Because of the high-risk nature of construction work, having the appropriate type and amount of commercial liability insurance is of vital importance.
Contractor insurance goes by many names: general liability insurance; contractor liability insurance and business insurance. While different organizations refer to this type of insurance by many names, the coverage, limits, deductibles, and assistance you get can also vary from insurance company to insurance company. It’s important to understand your options when choosing the right insurance policy for your contracting business.
Insurance is an important aspect of any successful contracting company’s risk management portfolio, but let’s not forget about contractor bonding. A California contractors license bond is required by the CSLB and must have a limit of $15,000 in order to maintain an active contractor’s license.
If you are a full-time contractor, you may not be able to get loans for equipment, to make leasehold improvements to your office, or buy materials to complete client projects without proof of liability insurance. More important, potential clients will likely not want to hire you if they discover your work is not properly insured. There are many incidents in which commercial liability insurance can help you as a contractor; including, the protection of your assets. For example, if a client arrives at your office and experiences a slip and fall, you could be sued for injuries sustained as a result of the accident. If you don’t have insurance, you can be personally liable for those damages.
Commercial liability insurance also protects your business if an unforeseen circumstance arises, such as a claim regarding your construction work. Without the proper coverage and legal representation, you may end up spending your entire savings on costly legal fees. If a client decides to bring a claim against your company, your insurance can help you to continue to operate while dealing with court proceedings.
The bottom line is that contractor’s insurance can provide peace of mind. Knowing that you’ve accurately quoted your insurance and are working with a contractor insurance agent who specializes in construction is the best way to protect your business. There are many commercial liability insurance plans to choose from, don’t let cost be the only factor in determining what insurance policy is best for your company.
What does liability insurance for contractors cover?
The reality is accidents do happen, and clients do have complaints. General liability coverage is not required by the CSLB, but it can help to see you through many difficult situations. The importance of having insurance becomes even more evident as you read through these potential cases. Exposing your business and your assets are not worth the risk of skipping the insurance you need to operate. It is not illegal to operate without commercial liability insurance, but a business owner who is willing to put others at risk to increase their bottom line is asking for trouble. The importance of having contractor insurance becomes even more evident as you read through these potential exposures.
Here’s a basic overview of what liability insurance can cover:
Bodily Harm
It is an important distinction to make that contractor’s liability insurance does not cover workers’ injuries. Contracting companies typically need separate workers’ compensation coverage to help cover the costs associated with an injured worker. However, commercial liability insurance can cover medical expenses and claims against a construction company made by visitors to construction sites, offices and showrooms. Accidents happen every day, wouldn’t it be smart to ensure you’re protected? To learn what is covered by your commercial liability insurance plan, be sure to consult with your insurance agent and ask about workers’ compensation plans as well if you have employees. You may be able to bundle your insurance for additional savings.
Property Damage
Third party property damage is one of the primary forms of coverage within a general liability policy.
From time to time, however, disgruntled property owners may pursue legal action further, and your insurance can help cover you if this happens. If you are not sure about what is included in your liability insurance policy, always ask your agent to clarify. You don’t want to think you are covered for one type of accident or injury and find out later that you are not. It can be challenging to navigate a lawsuit without the proper legal protection for your business.
Completed Project Complaints
Just because a project is complete doesn’t mean the risk of being sued is gone. Clients can take up a lawsuit down the road if there is evidence that your completed work caused injury or damage to the homeowner. Contractor liability insurance can cover the expenses associated with such a lawsuit and enable the company to continue to function while taking on such a claim. Depending on where you live and the stipulations of your policy, completed projects may have claims brought against them for various lengths of time. Do you have specific questions? Contact us for a free policy review to ensure your company is properly insured.
Faulty Workmanship
When a contracting company employs workers to complete a job, there is always a risk that the work might not be done to the standards that are expected. This can cause issues with property damage claims, as well as claims that you didn’t complete the work as specified in the contract. A good way to avoid these type of lawsuits is to put everything in writing and keep records of the work done. Have the client sign off on work as completed and document those approvals so you can protect your business. These records can provide valuable information for the insurance company to show that your job was completed. Disputes like these can drag on for some time, and if a contractor doesn’t have proper documentation in place, they can lose valuable operating dollars to dealing with this kind of dispute.
Advertising Complaints
Contractors may also be sued for false advertising. This can come about because of the increased advertising is done on social media; often social media is an afterthought for labor intensive trades like construction, but to stay current, they may not monitor their posts as often as they should. If you find yourself in this type of situation, your general liability insurance may cover you for a suit associated with advertising complaints. This kind of coverage also offers coverage for acts of slander, privacy invasion and copyright infringement which can happen quickly online and through social media.
Medical Payments
When a medical emergency arises, it can be a show stopper for many constructions and contracting companies. While it doesn’t cover you or your employees, it does protect people who visit your work site, showroom, and office. There is growing evidence that this type of insurance is used to pay immediate medical expenses, rather than battle out a lawsuit in court; however, that may be covered in your policy as well. Medical payment are a fantastic first line of defense that utilize a no-fault sytem. The payment sare ma
With all commercial liability insurance plans, you should confirm what is covered and what is excluded. Don’t make the mistake of assuming you and your business is covered for any incident. There are some things that are not included, such as your injury coverage and injury to your employees. Getting clear on what is covered in your construction insurance policy is vital in handling medical emergencies on the job and at your office.
What is not typically covered in commercial liability insurance?
It’s important to note that general liability covers others who are or may become involved in your business dealings. There are some other areas of your business operation that may require further insurance policies to ensure coverage and security to your company. Items that are commonly excluded in a liability policy are: intentional injury, incidents involving liquor or drunkenness, workers’ compensation, mobile equipment use and ownership, acts of war, product recalls, or electronic information and data.
Understanding your general and commercial liability insurance policy is very important. Knowing what you are covered for in the event of an accident or injury, lawsuit or complaint can make the process much easier to deal with. Lots of stress is brought about during such times and having the peace of mind in knowing your business is covered can make the whole process less stressful for everyone. Remember that complaints against your company are not personal and you should not take them as such. Having the proper insurance in place makes it easier not to have to take these situations personally because your business is covered and you don’t have to take money out of your pocket to deal with them.
How much does contractor’s insurance cost?
The are many factors that go into quoting general liability premiums. Every business is different, what you need will directly impact the cost of your insurance premiums. To determine these requirements, your insurance provider will ask you a series of questions or have you complete an information packet online, and then a quote can be provided. If you aren’t sure what is covered in your commercial liability insurance policy, make sure you get clear, so you don’t find yourself exposed in certain areas of your business. Don’t make the mistake of assuming everything is included in your generliability policy.
Below is a list of factors which determine insurance premiums:
● The size of the company
○ The size of your company matters. This refers to revenues, work completed, and how much future revenue is expected from the company on a regular basis. The more work that a company has the more risk for the exposure it has as well. It may also take into consideration operating expenses, debts, and financial liabilities.
● The particular industry in which you work
○ Depending on whether you work in the residential contracting field or the commercial contracting field, you will encounter different types of clients, work with various kinds of professionals and require different types of insurance for each. The more information you can provide about your contracting operation, the more comprehensive policy you can create for your business dealings. For example, if you specialize in building new homes, your insurance coverage will not need to cover you for commercial building sites, which can be very costly.
● How much experience you have in your field
○ Just like trying to get insurance for your car, the longer you have been “driving,” the better your rates will be. If you are a new contracting company, you may have higher premiums until you establish your business as reputable and have not had any claims. If you have been in business for a while without any claims carriers, it is a great idea to have a contractor insurance broker shop multiple carriers to have them compete for your business.
● The total number of employees you have
○ The amount of employee payroll directly determines how much exposure your company will have because as you have more employees working for your company the higher the chances of a claim arising. Your workers’ compensation insurance premiums are also determined by your employee payroll as well. Many carriers allow you to bundle insurance policies together to make it easier to manage your payments, but sometimes these need to be kept separate depending on your specific operations.
● What you can tolerate for limits and deductibles
○ If you are willing to take on a higher deductible (the amount of money you are willing to pay out of pocket), then you can lower your premiums significantly. What’s more, if you are prepared to reduce the maximum limits of your insurance policy (the amount the insurance company might have to pay out in the event of a lawsuit or claim), then you can also decrease your premium payments that way. Newer companies or businesses with large loans should not skimp on deductible and limits. The more coverage you can get for your growing business, the better off you’ll be.
● What features do you want to be included in your policy?
○ If you want to bundle other types of insurance with your contractor’s general liability insurance, you may be able to save on insurance costs overall. For example, if you are also insuring your contracting vehicles with the same insurance company, you can usually get a discount for your premiums overall. This can add up to significant savings if you roll in your auto insurance, property insurance, and GL insurance into one payment.
● Have you had any previous claims?
○ One factor that can drive up the cost of insurance is if there have been previous claims against the owner or the company itself. When claims are filed against an insurance policy, the policy premiums usually increase in some way. This is not true of all insurance policies, but it is common practice to increase the premiums in response to the claims. If you have never had a claim submitted against you or you have never taken out a claim against your insurance policy, your premiums will be less expensive.
What is an additional insured endorsement?
According to IRMI, an additional insured is a “A person or organization not automatically included as an insured under an insurance policy who is included or added as an insured under the policy at the request of the named insured.” There different endorsements intended to address various situations, some of which afford very restrictive coverage to additional insureds.” Throughout your operations, you will come across general contractors or property owners that would like to be added as additionally insured on your contractor’s insurance policy. It is important to review each unique contract to ensure your company is meeting the insurance requirements set forth on the project.
What are common policy exclusions you should be aware of?
While commercial general liability insurance covers many aspects of a contractor’s business operation, some exclusions need to be addressed. The last thing you want to find out is that your insurance coverage doesn’t cover certain types of accidents, incidents, and situations. Here are some of the standard policy exclusions that left out of commercial general insurance policies. Always be sure to clarify with your insurance agent if you are not sure what is covered in your contractor liability policy.
Workers’ Compensation
As stated previously, Workers’ compensation is a separate, but a vital form of insurance for contractors with any number of employees. With some construction projects, workers’ compensation may even be required for owner/operator, but it is best to check on the regulations in the state. Workers’ Compensation can help cover the cost of claims associated with injury or loss of life for your employees, as well as yourself. Many business owners, however, choose to exclude themselves from workers compensation coverage to avoid paying the high premiums of contractor’s worker’s comp on themselves. Today, employees are more aware than ever about working in a safe environment. Be sure to provide the coverage they need to ensure their safety and operate legally within your state.
Professional Liability
Most contractors are product based (i.e., they build houses and buildings), professional liability insurance is commonly excluded in a standard general liability policy. Professional insurance provides organizations with the coverage they need for advice or services rendered that might result in a civil lawsuit. So if a contractor is advising clients, they could be sued for giving incorrect advice as a professional contractor. There are, however, specialty insurance products available that package both general liability along with professional liability for occupations such as engineers and
Automobile or Vehicle Insurance
General liability insurance does not cover any vehicles, cars, equipment or machinery. There is a broad range of auto insurance policies available, and we are happy to speak with you about your unique needs.
Corporate/ Director’s Insurance
For larger contracting companies or building organizations, there may be a board of directors or corporate office that helps run the organization or oversees the operation of the organization. Commercial general liability insurance does not cover any risk associated with the board of directors or corporate office. There is specialty insurance available for directors and officers who assume the responsibility of running these organizations. It is important that all boards have their own directors’ insurance to ensure they are covered in the event of a class action lawsuit or claim against the umbrella company.
Pollution Claims and Issues
Some contractor companies store a variety of chemicals, gasoline, petroleum, propane, and other toxic chemicals. These substances and materials are not covered under contractor liability insurance policies. Typically, these items need to be stored in a secure and safe place under guidelines from state and local legislation. To qualify for insurance, contractors would need to show that they have followed these regulations and provide a safe working environment for their employees and staff. Mold is also another form of pollution claim that is also excluded from traditional GL policies. If you are a roofing or HVAC contractor, who deals with water and moisture on a daily basis, it is wise to at least speak with your insurance broker about the options available to include coverage for mold.
Property Damage Exclusion
There are six categories of property damage that are commonly excluded which include:
- Property, the insured contractor, owns, rents, or occupies
- Premises the insured contractor sells, gives away, or abandons
- Borrowed property
- Personal property in the contractor’s care, custody, or control “That particular part” of real property on which the contractor (or any subcontractors) is performing operations if the damage arises out of those operations
- “That particular part” of any property that must be restored, repaired, or replaced because the contractor’s work (including work performed by a subcontractor) was incorrectly performed on it
Employment Related Practices
While general liability insurance covers the company from suits brought against them for negligence or injury, if employees decide to take up action against a fellow employee, a general liability insurance policy will not cover the company from those situations. There are some ways to get around this broad spectrum of possibility and one way to do that is to ensure your insurance company uses specific language, such as “all employees” and not “existing employees.” This can cover new hires who are not specifically listed as a subsidiary worker or as being full-time employees. Sometimes, however, situations dictate that the fellow employee must seek their legal counsel or help in taking on the insurance claim and that can be devastating to a company and its reputation. Ensuring everyone is covered with workers’ compensation, and the language used in your policies includes everyone, is important. An additional coverage to keep in mind with this type of risk is employment practices liability insurance.
Product Recalls
Put very simply; commercial liability insurance policies do not cover product recalls because of the sheer cost of them. Product recalls can cost companies millions of dollars, and a specific type of insurance is necessary to qualify for product recall coverage. A company usually needs to have a high deductible and maximum limits on payouts for a policy like this to be approved. If you have experienced with product recalls, you know they can devastate a small or medium sized business, so if you feel you need this kind of insurance, be sure to speak with our experienced agents today. Many policies, like this type of policy, have waiting periods for the coverage to kick in so don’t delay in inquiring about this kind of policy if you think your company could benefit from it in the future.
Contract Disputes
Unfortunately, contract disputes can put a damper on any working environment; however, the construction and contracting industry are highly susceptible to contract disputes because of the number of labored and unionized workers involved in the trades. Insurance policies, especially commercial liability insurance, do not cover this kind of issue in a contracting business. At the union level, there are some options for calling workers back to a work site, but insurance does not step in to handle this kind of situation. Make sure you understand the limitations of your commercial liability insurance policy and inquire about coverage from lost time due to work stoppages or other union related issues when you sign up for your contractor’s insurance.
Government-related Issues
General liability coverage excludes instances when a general contractor fails to submit tax documents, business registration documents, or other forms of documentation. When a business owner neglects his duties to the government, i.e.,. Doesn’t remit payroll taxes or personal taxes as the proprietor of the company, the insurance company cannot provide any support in those matters. If the company does not provide the proper documentation to the government as per regulations, the insurance policy will not provide support for legal action or financial issues that arise.
Failure to Provide a Safe Working Environment
It is the duty of every employer to provide a safe working environment for their employees. Whether they work in the showroom or they work on the construction site. Contractor company owners must work diligently to ensure the safety of everyone involved in the operation of the business. When a company fails to provide a safe working environment and an investigation reveals this to be true, the commercial liability insurance policy will not cover any legal action, damages or claims made against the company. The business owner “ought to have reasonably known better” than to provide an unsafe working environment and in many cases, this can void any insurance policies that are in place for that particular contractor company. Knowledge is crucial when it comes to providing a safe working environment and ensuring that everyone plays their part reduces the risk to everyone involved.
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Whether you are just starting your contracting business or you’ve been in business for decades, ensuring your business is covered by commercial liability insurance is a good business move. Working with a contractor insurance specialist can save you and your business a lot of grief in the event of an accident, injury, or claim. You never know when accidents can happen or when a previous client might decide to take action.
Understanding what commercial contractor’s general liability insurance covers, is vital to the long-term success of your operation. Contact us today to find out how we can help you build an insurance policy that fits your needs and budget.