what is contractor’s insurance?
If you’re a contractor, chances are you’ve had some experience with construction insurance, whether it’s surety bonds, workers’ compensation, or general liability. Sometimes the companies you’re subcontracting for require a policy, and it’s often required by licensing and building boards.
In construction, no two contractors have the same insurance policy – your business is unique and so is your coverage. it’s essential that you know the basics of what you have and what you might need in the future to ensure you have the most comprehensive protection.
Reading: What does a contractor’s insurance cover
Below are three general levels of contractor coverage. these do not represent all coverages and you may need specific coverage from a different level, but you can use these groups to determine which insurance products to look for.
Level 1: Contractor Essentials
This level is for contractors or tradesmen who need the essentials. Their operations are small, the projects they work on don’t require extensive insurance or bonding, and the company doesn’t have any substantial assets that could be lost.
general liability of contractors
Contractor’s liability insurance covers claims arising from damage caused by a contractor to a third party. This is one of the most important coverages a contractor can get, because it covers the liability risks associated with their ongoing operations (while on the job site).
products and insurance products of completed operations
This specific coverage is an essential part of a contractor’s insurance program, but is often excluded from general liability policies. while general liability insurance covers your construction in progress, completed operations insurance covers liability for your work after the project is complete.
equipment coverage (if you have tools)
Equipment coverage, formally known as inland marine coverage, protects your equipment against natural events and theft. The policy can cover most contractors’ equipment, from hand tools to heavy machinery, located anywhere in the US. uu. It can be purchased as a stand-alone policy or as a supplement to your contractor’s Business Owners Policy (BOP).
workers compensation (if you hire employees)
Workers’ compensation insurance covers a company’s employees if they are injured while performing their job duties. In a contractor insurance program, this is often the most expensive part of insuring your business. Though fees vary depending on the type of contracting trade you’re in, it’s crucial to find a trader that has services to keep your experience modifier low.
Keeping the experience modifier low does a couple of things: It’s a good long-term strategy to avoid paying more for insurance, and it helps you bid on projects that require certain experience modifier numbers. An insurance company that specializes in experience modifier reduction will be more diligent in following up on any of your open claims and will take a more proactive approach to the medical care of the injured employee. For example, these insurance companies test strategies that include opioid avoidance education, occupational medicine, and return-to-work programs.
property insurance (if you own real estate)
Property insurance covers specific structures and the property within them. This commercial insurance is not specific to contractors and is often not necessary for many who work in rented space or a home office. Larger contractors who own buildings and those who have storage facilities for their heavy machinery will need this insurance.
commercial car (if you own work vehicles)
Contractors often have trucks or other vehicles that they use for their construction operations, which can range from one vehicle to hundreds. A commercial auto policy covers any property damage or bodily harm caused by those vehicles as a result of an accident.
level 2: recommended toppings
This second level of coverage is “contract required,” meaning that most contractors purchase these additional insurance policies because they are required for certain (usually large) projects. Larger general contractors or project owners want to make sure their extensive assets are covered, so they will only hire contractors with the insurance that protects them.
Many projects may require additional coverages, most of the time we see requirements for the following at this level:
$2-5 million liability umbrella
Most larger construction projects require you to purchase an umbrella insurance policy that extends your liability limits beyond the usual limit of $1 million per occurrence.
The contractor’s umbrella policy typically increases your general liability, workers’ compensation, and auto liability limits based on the amount of extended coverage you purchase. For example, if he had a general liability limit of $1,000,000 and he bought an umbrella for $5,000,000, now he would have a total general liability limit of $6,000,000.
hired & not owned
Rented and not owned insurance covers liability associated with vehicles you don’t own or vehicles you rent temporarily. Although many would consider this a Tier 1 coverage, we categorize it as Tier 2 as this coverage does not cover homeowners and therefore does not affect self-employed traders.
For example, if one of your employees was in a car accident while performing a task for your business, they will most likely be named in the subsequent lawsuit. The greater the damage caused by the accident, the more likely your business will face the risks and costs of litigation.
leased equipment coverage
Contractors with larger operations are often required to purchase an insurance policy that covers any of their leased equipment against damage, loss, or theft.
We often see contractors request this coverage with a limit of $50,000 so they can rent different equipment to complete projects or offer additional services.
labor practices
As your construction business begins to hire employees and grow its operations, you’ll need to address the risk of lawsuits from employees for employer misconduct. Some examples of such misconduct could be sexual harassment, wrongful termination, discrimination, hiring practices, and many more. An employment practices policy can offer this protection, as well as cover third-party allegations and employee actions toward others outside your company that put your business at risk.
This is highly recommended coverage if you have more than a handful of employees; It’s also especially important if you’re growing rapidly or planning layoffs.
level 3: large projects
While coverages in what we’ve categorized as level 3 can be beneficial to contractors of any size, they are especially relevant to those trying to bid on large jobs or working for very large companies.
pollution/environment
While most pollution insurance policies are purchased stand-alone or on a single line, sometimes environmental or pollution coverage can be added to your general liability policy existing. This insurance policy would cover a loss caused by pollution resulting from your contracting operations or during the transportation of waste materials. while larger contractors purchase this coverage with significant limits, some contractors liability insurance policies have the option to include a small limit of $25,000.
e&o contractors
e&o Contractors Professional Liability Insurance is important if your business provides construction consulting or hires subcontractors on a regular basis. this policy would cover acts of errors and omissions for the services you performed. For example, if one of your subcontractors does a job incorrectly, you may be liable to repair the damage caused.
insurance challenges for specific operations
Although jacks of all trades typically purchase the same types of insurance policies, what differs is the cost of each policy and how difficult it is to find. Additionally, each merchant has unique exclusions and limitations that are important to consider. Here are a couple of examples of industries we work with and the challenges they face when shopping for insurance:
general contractors
This is one of the most difficult contractor operations to insure. Policies can not only be expensive, but are often riddled with exclusions and limitations. Sometimes after reading a particularly bad general contractor insurance policy, you may wonder if any risks are covered.
However, not all of them are bad. Many insurance companies offer quality insurance policies for general contractors, but here are some things to keep in mind:
See also: Best practice to verifying contractors insurance before your hire
subcontractor exclusions: many insurance companies are implementing the cg 2294 subcontractor exclusion in their general liability insurance policies. this limits certain claims that occur as a result of your subcontractor’s actions. We highly recommend reading our article to learn more about this, as it can affect how your business is protected.
This exclusion may be something you have to live with if you’re new to the trade and doing certain types of construction (such as a home builder), but if you’re an established contractor, many companies no longer include this exclusion. .
Uninsured Subcontractors: Any uninsured subcontractors you use will be added to both your commercial general liability policy and your workers’ compensation payroll at the insurance audit. Costs vary, but can be high enough to significantly harm your business if you use a large number of uninsured subcontractors without planning for the additional costs.
Facility Limitations: Some general contractor general liability policies include facility limitations that limit coverage to the facilities described in the endorsement. this means that if you start a project without informing the insurance company, there is no coverage for that project.
As you can imagine, we don’t suggest having this on your policy because it creates significant exposure if you don’t update the insurance company on a new project.
roofers
roofing contractors are in another tough business to get insurance for. general liability coverage is moderately difficult to find, but workers compensation is one of the most difficult policies to obtain of all the construction trades. Although there is no way around it, here are some tips to get the best deal on your insurance program:
Avoiding accidents is the best way to save on premiums: Since workers’ compensation is the largest cost of insurance for any roofing company, avoiding accidents and maintaining an experience modifier low is the best way to reduce the cost of insurance. Proving that your business has gone a couple of years without a claim could save you around 30% on workers’ compensation premiums, and the insurer could give you an additional premium discount on top of that.
Limit the number of uninsured subcontractors if possible: Insurance companies frown on using too high a percentage of uninsured subcontractors. Not only does it increase your costs because your payment shows up on your insurance policies, but insurance companies view uninsured subcontractors as high risk because you have little or no control over how they run your business (safety, quality control, etc.). etc.). this is why using too many uninsured subcontractors will result in higher premiums than a company that does not use uninsured subcontractors.
To learn more about roofing contractors insurance, check out our article, “Roofing Business Insurance: Everything You Need to Know .”
carpenters
Insurance for carpentry contractors can be moderately difficult to obtain, depending on the type of carpentry your business performs. If your business is in the framing business, you should read our tips for roofing contractors, as your insurance challenges are identical. If your business focuses on things like cabinetry and carpentry, there are many insurance companies that can underwrite this type of trade.
although, with any woodworking trade, underwriters worry about fire hazards with shop sawdust collection systems and safety hazards, as their employees will often be working with saws.
To learn more about carpenters insurance, visit our article, “Carpenters Insurance: Everything You Need to Know .”
plumbers
Plumbing contractors have many options when it comes to insurance. it is not a particularly dangerous industry from a liability or workers’ compensation standpoint. although, if you’re doing plumbing on high-rise buildings or working on utilities, you may run into some issues that plumbers who aren’t doing those projects would face and would have to get their insurance through an e&s insurance company .
for plumbers, we strongly recommend that you purchase completed operations liability in your general liability insurance policy. Some of the biggest claims plumbing contractors face involve a completed project causing water damage to the building. in many cases, these claims are covered under the completed operations liability section of the commercial general liability policy.
electricians
Electrical contractors have many options when choosing an insurance company. Most insurance companies in the construction industry will likely quote an electrician with quality coverage. the exception is contractors involved in industrial projects or those working at heights of more than two stories.
For electrical contractors, we strongly recommend making sure your general liability insurance policy includes completed operations insurance. Claims involving electrical contractors often involve an electrical fire after the project is complete. in this scenario, liability for completed operations would cover the claim.
handyman
handyman insurance is an interesting policy to subscribe to. Handymen can perform a wide variety of jobs, including drywall work, cabinet installation, trim work, window and door installation, decking, fence repair, and many other tasks. On top of that, each handyman brings different skill sets to each job. That makes insuring this type of business difficult, but there are great insurance options out there for handymen. Here are a couple of tips before you buy or renew your handyman insurance:
Check Exclusions: The main goal of insurers is to limit the wide variety of types of work that handymen do to ensure that you are really a handyman and not a roofer trying to obtain a cheaper insurance policy. . In almost all personal maintenance liability policies, there will be a list of prohibited operations. know that sometimes this is unavoidable, and make sure you don’t do any type of work that is prohibited unless you want to risk not having coverage for that work.
if you subcontract the work, you may not fit the handyman classification: many contractors originally classify themselves as handyman, but upon further investigation, in they are actually remodeling contractors (for insurance rating purposes). If you subcontract a significant amount of work or subcontract to licensed trade professionals (electrical, plumbing, HVAC, etc.), you should be qualified as a remodeling contractor rather than a handyman.
HVAC contractors
In general, HVAC companies find it easier to purchase insurance than many businesses. there are many options to choose from and the cost of insurance is lower than in other construction trades. With that said, hvac contractors doing high-rise installations or taking on certain industrial work can face some challenges with purchasing insurance.
To learn more about hvac contractor insurance, visit our article, “Business hvac insurance: What you need to know.“
painters
Painting contractors can usually get a quality insurance quote from an insurance company in the construction industry. the challenges painters often manifest in the workers’ compensation portion of their insurance program. Although there are challenges to quoting interior painting, exterior painting is a more expensive classification than most because painters are often exposed to working from heights. If you need workers’ compensation and are having trouble getting a reasonably priced workers’ compensation policy, follow these tips:
Consider buying workers’ compensation and general liability from different insurance companies: We have been known to suggest that companies should use your workers’ compensation policy to get a better deal on their other insurance policies. for painters, this is probably not the right strategy. You may need to purchase workers’ compensation from a more specialized workers’ compensation insurance carrier, especially if you’re painting exteriors. This is because many insurance companies will quote liability, but relatively few specialized workers’ compensation companies will quote the workers’ compensation policy. just know that being a painter means you may need to take a different approach to finding insurance.
Have a safety program and make sure the insurance company knows about it: Another way to keep your workers’ compensation premiums low is to have a strong safety program in place to prevent your employees from becoming get injured on the way. worked. Having this formal security program makes your business more attractive to insurance companies and helps reduce the cost of insurance.
For more information on purchasing insurance for a painting company, see our article, “Painting Contractors Liability Insurance: What is it? “ ”
residential remodeling contractors
Traditionally, remodeling contractors would be listed under the general contractors section, but we’ve received enough questions about this specialization that we thought it warranted its own section.
remodeling contractors have had all the challenges of general contractors, but never qualified for any of the home builder insurance programs, leaving them with expensive liability policies that had a hefty number of exclusions . Fortunately, certain insurance companies, such as Markel, have become aware of this situation and have developed residential remodeling insurance programs to address this gap in the market.
See also: Do You Need Boat Insurance When Renting a Boat? | Freeway Insurance
If you own a residential remodeling business, we recommend running it through a company like Markel, which specializes in residential remodeling contractors. If you’re looking for more information, check out our article, “Commercial Insurance for Remodeling Companies: Explained.”
additional insured
Whether you’re a property owner, general contractor, or a seller, dealing with additional insureds is an inevitable part of being a contractor.
An additional insured endorsement adds the right person to your policy to limit your liability exposure and protect your business during a construction project.
One problem contractors face is that each additional insured may apply for coverage on a different form…and sometimes these forms date back to the 1980s.
This is an important reason why you should choose an insurance company that has several additional insured endorsements filed and a broker experienced in using these forms. otherwise, you may not be able to meet the job requirements and lose the job.
common additional insured guarantees
-
additional insured – owners, renters or contractors – intended person or organization (cg2010 4/13)
-
Additional insureds – owners, renters or contractors – operations completed (cg2037 4/13)
-
additional insured (owners, renters or contractors) automatic status when required in the construction agreement with you (cg2033 4/13)
-
additional insured (owners, renters or contractors) – automatic status for other parties when required in a written construction agreement (cg2038 4/13)
For more information on a specific additional insured endorsement, go to amwins insight.
using independent contractors
The frequent use of independent contractors presents some problems with a contractor’s insurance program.
Although many companies pay for their work as independent contractors (1099), these workers may be viewed as regular employees in the eyes of the insurance and legal industry. the distinction between employee and independent contractor is usually determined by the amount of control you have over that specific person and is an issue that should be raised with an employment attorney.
In other words, even if a worker is paid as an independent 1099 contractor, it may later be determined that the worker was actually an employee…meaning you are responsible for their workers’ compensation and workplace liability.
That’s why you need to know how your insurance will respond to your unique business structure. With many insurance companies, you have to pay to cover independent contractors as if they were your employees, as well as pay a higher rate for “uninsured subcontractors.” We suggest talking to your insurance broker to determine how your independent contractors or “uninsured subcontractors” will be charged in advance to avoid surprises or paying extra money.
using subcontractors
many construction operations use subcontractors to add additional capacity to their projects. Many companies, usually general contractors, may even outsource 100% of their work to different subcontractors.
Make sure you know what your insurance policy says about subcontractor coverage. For example, if a subcontractor causes damage to a customer’s property or a customer’s faulty workmanship causes a personal injury, the contractor who subcontracted the work will often be involved in the lawsuit. For this reason, many insurance companies add a limitation to their contractor’s insurance policy, called CG2294, which excludes subcontractor liability. Understanding your policy’s limitations on subcontractor liability is critical for any contractor looking to reduce their risk.
Also, have your subcontractors list you as an additional insured on their policy for an extra layer of protection. if they appear in a lawsuit for a problem they caused, the subcontractor’s insurance will cover their liability.
recommendations for contractors
small contractors
Small contractors are typically commercial contractors with fewer than 10 employees. These contractors often take on work as subcontractors and specialize in a specific type of project. The first insurance policy a small contractor should obtain is a business owner’s policy (BOP). This is a low cost insurance policy with many coverages included.
For example, in addition to general liability and property coverage, a contractor’s bop typically includes additional coverage for your hand tools and property when in transit.
Heavy construction contractors may have trouble participating in a bop program due to the size of the business and increased risk exposure, but it’s always a good idea to ask your insurance broker if you qualify for a bop program. .
For more information, see “what is a business owners policy (bop)?”
In addition to your business owner’s policy, you’ll need a workers’ compensation policy if you have employees. If you’re a sole proprietor with no employees, you can read here for ways to save money through a ghost policy or affidavit of exempt status.
medium contractors
Although there is no definitive size requirement to be a mid-size contractor, this generally applies to contractors with 50 to 200 employees. these contractors work on larger jobs that often require specific insurance policies.
Ask up front how flexible the insurance company is in meeting your general contractor’s or project owner’s insurance requirements. For example, will the insurance company accept different additional insured endorsements? Does the broker have other clients of a similar size with the same insurance company?
Even if an operator is a little more expensive, it might make sense to spend a little more if it offers more capacity to help you meet the requirements of the job. We suggest that you provide the carrier with contracts that he has bid on in the past to see if they can meet the approval requirements.
Midsize contractors should also start looking at additional coverages such as labor practices, cyber, pollution, e&o contractors, and inland marine.
big contractors
Large contractors require the most specialized insurance programs. Owners of large construction companies buy the same coverage as medium-sized contractors, plus they require specific policies like wrap-ups and ocips.
See also: How Long Does an Insurance Company Have to Pay a Claim in Texas?
