Contractor's Liability Insurance: Essential Coverage for Construction ProfessionalsIf anything goes wrong, will you be covered? Don’t let an uncovered lawsuit threaten your business. Contractor’s liability insurance provides essential protection for construction professionals.
Who Needs Contractor’s Liability Insurance?
Contractor’s liability insurance is appropriate for contractors, subcontractors, carpenters, roofers, electricians, HVAC repair technicians, plumbers, handymen, landscapers, painters and other workers in similar industries. Whether you own a business that employs others or you work for yourself as an independent contractor, it’s important to have sufficient liability coverage in place.
Is Contractor’s Liability Insurance Required?
Contractor’s liability insurance may be required.
- Licensing Criteria: Contractors need to meet the licensing requirements established by the state where they operate, and this frequently includes insurance requirements. See your state licensing board for details.
- Contractual Obligations: Contractors may also need to carry insurance to meet the requirements established in contracts. To avoid a breach of contract, it’s important to maintain the appropriate coverage required by those who hire you.
- State Law: Contractors may be required to maintain certain types of insurance under state law. For example, states typically require drivers to maintain auto liability insurance and employers to maintain workers’ compensation coverage.
It’s important to meet your legal and contractual obligations by securing the required coverage, but keep in mind that you may want additional coverage to protect yourself and the business you’ve worked hard to build.
Key Coverages for Contractors
You may need multiple policies to cover your contractor liability risks. A broker can work with you to determine an insurance package that makes sense in your situation. Common contractor insurance policies include:
Commercial General Liability Insurance. General liability insurance is a staple policy for many businesses, and contractors may be required to maintain general liability insurance coverage under state licensing requirements. For example, in Oregon, residential general contractors are required to carry general liability insurance with a per-occurrence limit of at least $500,000, while a level 1 commercial general contractor needs to carry a minimum aggregate limit of $2 million.
Commercial general liability insurance provides coverage for many common lawsuits, including ones involving third-party property damage or bodily injury. It also provides coverage for personal and advertising injury claims. For example, if you’re sued over copyright infringement in your advertising, you may have coverage under your commercial general liability insurance policy. However, commercial general liability insurance doesn’t cover every type of lawsuit, so you may need additional coverage types.
Commercial Auto Insurance. Any vehicle owned by your business needs to be insured with commercial auto insurance. Also consider whether any personal vehicles used for work have sufficient coverage. For example, if an employee is in a crash while transporting equipment, your company could be named in a resulting lawsuit, and the employee’s personal liability insurance wouldn’t cover your company. This is why it’s smart for businesses to secure hired and non-owned auto insurance for personal vehicles used for work purposes. (The employee still needs personal auto insurance!)
Workers’ Compensation. If you have employees, you most likely need to carry workers’ compensation insurance under state law. Due to the high risk of injury, some states have additional workers’ compensation requirements for construction businesses. For example, California requires all employers to carry workers’ compensation insurance, even if they only have one employee. Additionally, certain contractors (C-8 Concrete contractors, C-20 Warm-Air Heating, Ventilating and Air-Conditioning contractors, C-22 Asbestos Abatement contractors, C-39 Roofing contractors and C-61/D-49 Tree Service contractors) need to carry workers’ compensation or a valid certification of self-insurance even if they don’t have employees.
Contractor Bonds
In addition to contractor liability insurance, you may need to secure surety bonds. Bonding is often required for contractor licensing. You may also need bonds to bid on or accept a project.
Although surety bonds can seem like liability insurance policies, there are some significant differences that will become relevant if you ever have a claim. A liability insurance policy protects the policyholder against claims. A surety bond protects another party by guaranteeing that the bond holder will fulfill his or her obligations. When an insurance carrier pays a claim, you don’t have to pay it back. When a surety bond company pays a claim, you are required to pay it back.
Other Construction Coverages to Consider
Securing adequate liability insurance protects your business against lawsuits, but you also need to consider risks to your own property and operations.
For example, if you are working on the construction, renovation or repair of a building or other structure, builders risk insurance provides protection against common losses such as vandalism, fire and storm damage.
As more processes move online, cyber insurance also provides valuable protection. Ransomware attacks, data breaches and other cyber events can be both expensive and disruptive. Cyber insurance can offset the financial impact and help you recover faster.
Having the right insurance in place can help you fulfil your contractual obligations, minimize disruption to your projects and grow your business with confidence. Do you need help navigating your contractor’s liability insurance needs? Heffernan Insurance Brokers provides customized solutions for the construction sector. Learn more.
