The construction industry is highly demanding. Between injuries to construction crews and property damage resulting from substandard work, there is so much that contractors can be held liable for. If your construction company has poor liability coverage, the cost of lawsuits can put you out of business.
So, as a contractor or construction business, you need liability coverage. This insurance protects you against financial loss resulting from job site damage, errors, and accidents. In this article, we will explain what contractors insurance is, its various types, and what liability it covers.
What Is Contractors Insurance?
Contractors insurance, also known as general liability insurance, covers contractors and different types of construction businesses over any liability claim that third parties can raise against you during the course of construction jobs. Coverage can include:
- poor workmanship, where the delivered work falls short of the agreed or expected standards,
- injuries to your workers or that suffered by clients on the construction site,
- damage caused to the property itself by your own workers’ mishandling of tools, and
- injury to third parties, like people getting electrocuted by electricity cables your workers left unsecured.
Contractors’ insurance will not cover your construction business against every risk. But it will cover the most common ones. As long as you have solid builder liability insurance, it does not matter if your company is found to be in the wrong. Your insurance policy will cover your legal costs as well as the settlement costs and damages.
Note also that contractors’ insurance is a common requirement on many projects. You will be asked to supply a certificate of insurance as part of your bid documentation.
Otherwise, your company will not be considered. So, depending on the types of projects your company is targeting, you may not be able to get work if you don’t have good liability insurance.
You may also ask:
Does general liability insurance cover independent contractors?
Most contractors’ insurance policies do not cover the mistakes, injuries, and property damages caused by independent or sub-contractors. Even though independent contractors perform work on your behalf, they are not your employees. The same applies to sub-contractors you may hire to execute part of your contract.
Other than hiring independent contractors and sub-contractors who can prove their skill and experience, the best way to protect your business is to ask that they also carry their own liability insurance. Before hiring outside help, also ask your insurer if your liability insurance policy extends to independent and sub-contractors.
Contractors’ Insurance Requirements
As we proceed to discuss the different types of contractors’ insurance, we must make a distinction between general liability contractors’ insurance and property insurance. We have already discussed general liability insurance.
Commercial property insurance covers the cost of repairing or replacing your tools and equipment after damage or destruction. Here you are ensuring the continuity of your business in the event that a fire or some occurrence causes loss of your work tools and equipment.
However, there may be exclusions to both liability and property insurance, for which your insurer should guide you. The following are the types of contractor’s insurance. With your contractors’ insurance certificate (or evidence of coverage), from a client perspective, these are often bundled as contractors’ insurance requirements: Commercial General Insurance. As we have already explained, this type covers your business against injuries to your workers and third parties as well as against damage to property resulting from poor workmanship or the negligent or poor handling of tools by your workers.
- Workers’ Compensation Insurance. If your construction business handles high-risk work where injuries are common, it may be prudent to secure insurance that specifically covers that risk. Workers’ compensation insurance covers both the medical expenses accrued from workplace injuries and the income lost while workers get treatment.
- Contractors’ Errors Or Omissions Insurance. Depending on the nature of your construction business, there may be exclusions on what construction errors and bad workmanship your general liability contractors’ insurance policy will cover. To avoid coverage gaps, you may consider the more specific contractors’ errors or omissions insurance.
- Builders’ Risk Insurance. This type of contractors’ insurance covers you for the cost of materials and labor on uncompleted projects. The partial completion may be due to insufficient budgets, escalation of costs, or associated legal disputes. This coverage ensures your business can quickly recover sunk costs and proceed to service other clients without waiting for the settlement of whatever caused the project to stall.
- Professional liability insurance. If you are a contractor that also provides design services, you will need professional liability insurance. This type of contractor insurance covers professional risks, like copyright infringement lawsuits brought on by your competitors. The client may also sue you for reputational damage resulting from the bad press caused by the same litigation.
Business Owners Liability Insurance
To ensure that your contracting business has coverage for all common risks, you may choose to buy different types of contractors’ insurance. But that raises cost issues. So some insurance providers bundle some of these together as business owners liability insurance and sell them at discounted rates.
Business owners’ liability insurance may cover both general liability and commercial property insurance or commercial vehicles insurance under one policy. Depending on the insurer, other coverages may be included as add-ons. If you find this option provides you reasonable coverage, you will likely find that it will also result in considerable savings.
There are other types of contractors insurance that are specific to the type of construction business you run or the risks associated with it. Examples include electrical contractors’ and restoration contractors’ insurance.
Homeowners Insurance Does Not Cover Contractor Damages, Errors, Or Omissions
Homeowners’ insurance policies do not cover structural damage to a property resulting from poor workmanship or defective construction on the contractor’s part. It will also not cover any injuries your workers, the client or their customers suffer on your job-site. You need your own insurance to cover all those risks.
There may be cases where a homeowner’s insurance policy may cover the cost of repairing damage caused by poor or defective work by a contractor. But the insurer will usually ask for reimbursement from the contractor’s insurer.
How Much Does Contractors Insurance Cost?
Contractor insurance cost is a factor of how much risk is associated with the work your construction business handles. For example, if you install driveway gates, your liability will be lower than what a roofing or air conditioning systems installer can expect. In the case of the latter, the possibility of leaks and associated moisture damage that can attract costly lawsuits is high.
Do You Need Insurance To Be An Independent Contractor?
We will be frank here. Whether you are a one-man operation that installs hangs doors, your work attracts some form of liability. As such, you will need a general liability contractor’s insurance at the very least.
Solid builder’s liability insurance gives you and your workers the reassurance to work without distraction. It will also help you get work. As the scope and size of the projects you take on grow, expect that most clients will insist on a certificate of insurance as the bare minimum for considering your bid.
So, to give your business a chance of securing any work and to protect your reputation, assets, and to avoid the risk of lawsuits bankrupting your business, you need liability coverage for your construction business.
Able Elite is a highly regarded insurance brokerage in Ontario. Our team of insurance sales experts is highly experienced in the ins and outs of the contractors’ insurance space. We will provide you with qualified advice and shop for policies that will ensure solid coverage for your construction business. Contact us here for consultation.