Contractor’s Insurance 101

Why Buy Insurance

Very simply, there are two reasons a contractor would purchase insurance:

  • You want to protect yourself.
  • Someone is requiring you to have it.

In today’s marketplace, owners of construction projects, developers, and general contractors have a lot of questions regarding what type of policy is needed for their current construction project or business.

What is Commonly Required

You don’t have to be in business very long before you realize you will have to provide a certificate of insurance for at least General Liability, Workers Compensation and Commercial Auto. In addition, if you want to buy or rent equipment or a location, your bank, leasing company or equipment rental supplier will require some kind of Property Insurance.

General Liability will provide coverage for “bodily injury” and “property damage” for which you become liable for your premises and ongoing operations as well as your product and completed operations. Oftentimes your customer will also want to be added as an “Additional Insured” by an endorsement which may receive an additional charge of $100 – $250 (sometimes more depending on which version). Limits for this coverage are usually $1,000,000 per occurrence and $2,000,000 aggregate.

Workers Compensation is required by the state and usually by your customer that has you working under contract. Limits are dictated by statute. Likewise, the state will require Auto Liability as do most contracts, and any lender will require the physical damage insured under comprehensive and collision.

If you have a truck or trailer full of tools and supplies, those need to be insured under an inland marine form for contractors tools and equipment (these are not covered under the Auto). If you want to rent a Bobcat, lift or cement mixer you will likely need to show that you have coverage for rented, leased or borrowed equipment. If you have construction material or supplies stored or in transit, you’d need special coverage for that as well.

Bonding/Surety is typically required on any public-works job. This is not insurance, but rather a financial guarantee (similar to a line of credit) requiring very thorough financial transparency. A good bonding professional will help you establish a bonding line and help you grow into qualifying for the jobs you want.

Protect yourself and your assets

As contractors grow they start working with more and more sophisticated project owners, general contractors or construction managers. They also start to acquire assets they would like protected: buildings, vehicles, boats, cabins, beach homes and airplanes; just to name a few. At this point there are many more insurance product options that go beyond the essentials already laid out. Some additional coverages for consideration are:

  • Employment Practices Liability provides coverage for various wrongful acts. These can be: wrongful termination, harassment, failure to promote and other illegal activities. Though much harder to get in California, it can help off-set the cost of defending wage and hour claims.
  • Directors and Officers policies can cover the company, directors, and officers for wrongful acts related to employment or operating the company.
  • Cyber and Privacy can cover all sorts of computer or data breaches that lead to the release of personally identifiable information, wire transfer fraud or ransomware.
  • Pollution and Environmental protection is generally excluded from a General Liability policy, but should be seriously considered as most construction materials can lead to a pollution condition.
  • Umbrella or Excess Liability extend the underlying limits of (typically) a GL and Auto policy, and can sometimes provide additional coverage where the underlying policies do not.

Managing Cost of Risk

Insurance is expensive. Contractors live and die by hard bids and are frequently tempted to “bid” or “shop” their insurance program as if its a commodity, and there are plenty of insurance brokers who will play that game. But the most successful contractors understand that their broker should be their go-to professional in helping them understand how to proactively lower their insurance costs year over year relative to their competition.

The truth is: it pays to be safe. Your professional insurance broker should be able to help you establish a strategy to become the best performing contractor you can be, which will in turn, help you gain bigger contracts and lower your cost of risk. Get started today with experienced insurance professionals that are on your side by visiting us at https://www.libertycompany.com.