If you’re a contractor, you’ve probably had some experience with insurance. This could include general liability, bonding, or worker’s compensation. Another reason you might be exploring contractor liability insurance is if you’re going to hire someone to work for you. You may want to know their insurance coverage and how you’ll be protected if you decide to work with them.
The following are some of the general things to know about contractor insurance.
1. General Liability Insurance
This insurance is one of the most important types of insurance a contractor can have. This coverage protects against lawsuits and claims.
If you’re a contractor, your general liability insurance can provide protection against third-party claims of property damage or bodily injury because of business activities.
Along with general contractors, roofers, carpenters, and other construction workers should have, at a minimum general liability insurance.
You might even be required to, depending on where you live.
A client may require that a contractor show proof of general liability insurance, and your contract may also require that, as part of the agreement, you provide a certificate of insurance.
General liability coverage will typically cover risks like:
- Bodily injury, but not injuries that employees sustain
- Property damage
- Personal and advertising injury
Add-ons are available, which can include equipment coverage if you break or need to replace tools or equipment. Some contractors are also getting data breach coverage for protection if they’re the victim of a hacker who steals client information.
The cost of general liability insurance can depend on policy limits, business size, business location, and your previous claims history.
2. Worker’s Compensation
Worker’s compensation insurance is what protects your workers as a contractor, but also you if they’re hurt or become ill at work. This insurance will cover wages and medical expenses for an employee.
The construction industry is especially risky, so it’s critical that you have worker’s compensation coverage and you know what it includes.
For employees, worker’s compensation can also include disability benefits or, for their families, death benefits.
For an employer, having this coverage reduces your liability if someone is hurt or gets sick. If you don’t have worker’s compensation coverage, an employee could sue you for work-related illnesses or injuries to help cover their lost wages or their medical bills. Most states require if you have even a single employee that you have worker’s compensation, but every state has its own rules.
3. Builder’s Risk
Builders’ risk insurance can protect construction materials and property during a renovation or construction project. If something is damaged on a construction site by an unexpected event, this type of coverage will pay, and the coverage ends when the project is finished.
A building owner might want this coverage, as can contractors or subcontractors, architects, and engineers.
Many builders’ risk policies provide coverage that’s all-risks, which means property damage is covered regardless of the cause unless the policy specifically excludes it.
Examples of common exclusions include employee theft, flooding or earthquake damage, or flaws in workmanship.
4. Completed Operations Insurance
Completed operations insurance is coverage for liability for property damage or to a third party after the end of the contracted obligations.
Construction products are one situation where completed operations insurance may be needed, but it’s also seen in medicine and consumer goods.
With this coverage, the risk associated with a finished product then transfers to a third party. Even though the contractor completes the work, he still needs to be relieved of any expenses related to liability.
When a contractor has completed operations insurance, it can help maintain financial stability, and it’s a shield against negligence claims and breach of contract claims.
The coverage dictates reasonable compensation for injuries or damages due to the contractor’s work, and it’s considered a type of indemnity insurance.
The insurance company will provide a contractor who’s covered with a legal defense. The company will pay for settlements or judgments stemming from accidents related to completed work.
5. Commercial Auto Insurance
When you’re driving to worksites, your contracting business could be exposed to risk. If you’re in an accident and someone is injured, it could cost you thousands of dollars.
Commercial auto insurance protects against the costs of property damage, medical bills, lawsuits, and other expenses that can occur because of an accident. This coverage will also usually pay for vehicle damage from vandalism or weather, and it protects if a vehicle is stolen.
When a contractor gets this type of coverage, they can make sure it’s very tailored to their needs.
Commercial auto insurance could be needed if you send employees out during work hours, operate a contracting or construction vehicle, or transport equipment and tools.
State regulations can determine how much coverage you need, and your commercial auto policy needs to meet state liability requirements.
6. Inland Marine Insurance
If you lose equipment for any reason, it can bring your work to a halt. There is a range of risks that can threaten your equipment as a contractor, including transit, theft, weather, and accidents that an inexperienced operator might cause.
Inland marine equipment insurance provides broad protection for tools and equipment used in the completion of projects. The insurance can also cover not only tools and equipment that you purchase but also borrow, lease or rent.
The coverage includes damage from fires, natural disasters, and accidents, as well as vandalism and theft.
Finally, it’s important for contractors to understand the challenges and risks specific to them and find the policies that are going to best address these. Each trade is going to have its own limitations and exclusions too.
General contractors are often the hardest to ensure because their policies tend to be expensive and come with a lot of limitations and exclusions. These exclusions need to be read through carefully so that you know that you’re protecting yourself and your business in the ways that are most relevant to you. For example, a lot of insurance companies exclude subcontractors on general liability policies.
