The Ultimate General Contractors Insurance Guide
As a general contractor, you know that no two work days are the same. That is why when it comes to general contractors insurance, it’s important to make sure you have the right kinds of coverage, at the right time, and for the right amounts. After all, you deserve the protection — and peace of mind — knowing you’re covered properly.
Because we work closely with general contractors, we wanted to put together a general contractors insurance guide that went above and beyond the basic questions. Learn why the right coverage is so important and how to make sure you have it.
Why Do You Need General Contractors Insurance?
In April of 2012, a Midtown Manhattan hotel lobby was suddenly buried under a thick layer of fresh concrete. The incident was a simple mistake made by a nearby construction team.
The weight of the fresh concrete broke through the bordering construction site. The sudden rush of the material was so strong it pushed lobby furniture out of its way with ease. Luckily, there were no employees or hotel guests in the lobby at the time.
However, from a lawful point of view, the general contractor of the construction site was responsible for the damages. What if you found yourself in a similar, or even worse, situation?
This example is just one reason why you need insurance as a general contractor. Despite your best efforts and most careful attention to detail, things can still go wrong. In the construction and building industries, however, when things go wrong, they sometimes have devastating and costly consequences.
General contractors insurance shields you to some degree, from the worst of the potential financial fallout from these situations. But that’s not the full extent of what the right kind of coverage can offer you.
It can also help to provide for medical care for employees who are injured while working for you. It can help you repair or replace equipment that is destroyed by fire, tornadoes, vandalism, and other covered events — or even equipment that is stolen. It can protect your business property, including buildings, office equipment, and supplies you have on hand for your building projects.
Think you’ll never use your coverage? Claims are more common than you think. In 2017, there were a total of 645 construction accidents in New York City alone, including fallen materials, construction equipment injury, fallen workers, and other miscellaneous incidents. This resulted in 666 injuries and 12 deaths. Though there’s no guarantee an accident on the job will result in damages to property or human life, there’s also no guarantee it won’t.
What Types of General Contractors Insurance Policies Should I Have?
This is by far the most common question we get, so we’ll spend the most time on it. There are several types of insurance policies you should consider as a general contractor. Here’s a list some of the business insurance policies you may need, along with appropriate examples.
Business Owners Policy
This is a standard policy all businesses need. It provides some general liability coverage along with business property insurance and business interruption insurance.
If you’re a larger construction company with an office and/or warehouse, this type of policy will protect you if fire tears through your building. Just keep in mind that not all types of perils are covered so speak to your insurance broker about the specifics of your policy.
Business/Commercial Auto Insurance
Commercial auto insurance for construction businesses is a necessity. You might also want to consider investing in non-owned policies for employees who drive their personal vehicles on behalf of your business.
If two of your employees are on their way to a job in a company vehicle and rear-end a car on Canal Street, commercial auto insurance is the only type that will cover associated damages.
Contractors Equipment Coverage
You invest a lot of money in your tools and machinery. Losing even a small percentage of your equipment could be devastating. This type of coverage will cover equipment while it’s in transit from different job sites, along with damage or loss due to fire, vandalism, and theft.
There are a few things to make note of though. Your policy should clarify if it covers only owned equipment or rented and borrowed equipment as well. You also need to look for specifics. For example, using your equipment on a barge on the Hudson might not be covered if waterborne job sites aren’t included in your policy.
Employee Dishonesty Coverage
This coverage helps your business recover losses resulting from employee theft. This usually covers money and property. So, whether you have an administrative employee cutting themselves extra checks or an on-site worker helping themselves to tools or materials, your loss may be covered.
However, the loss needs to occur within the policy period and there needs to be proof of financial loss for the employer and financial gain for the employee.
Errors and Omissions or Professional Liability Insurance
This protects the business against claims of negligence, errors, and omissions during the building process. You’ll want to take a close look at the fine print of this policy. First, covered damage must be unintentional. Any evidence of risky shortcuts or known negligence will result in a denied claim. Also, the work of subcontractors is not covered, and the damage must occur after a job is completed.
For example, if your company is responsible for installing a new lighting system at a retail store, Errors and Omissions Insurance would protect you if an unintentional mistake causes the building to burn down after the job is complete. This type of coverage is optional but highly recommended.
Rented or Leased Equipment Coverage
This coverage protects your business in the event that leased or rented equipment is damaged or destroyed by covered events. Sometimes, the high cost of equipment is too much for your budget to absorb. Rather than turn down a job that needs it, you have the option of renting or leasing the needed equipment. You may already have coverage for this in your Contractors Equipment policy so ask your insurance broker so you’re not double paying for the same coverage.
Umbrella Liability Insurance
An Umbrella policy provides additional liability in the event that your claims exceed the limits of other liability policies your business owns. All insurance policies have limits and potential gaps. This is why it’s important to always be transparent with your insurance broker about your needs. An Umbrella Liability Insurance policy could be the difference between financial disaster and an unfortunate bump in the road should an incident occur.
Products and Completed Operations Liability Insurance
This type of coverage provides liability coverage for products or building projects you completed while the policy is in effect. This can cover a wide range of events.
For example, let’s say you installed new windows in a small apartment building. A month later, heavy rainfall exposes several leaks above the frames. The building owner has the option to sue for incorrectly performed work, which would be filed under Completed Operations.
The most important detail to know about this type of policy is that for it to be used, it must remain active. For example, if your company completes construction of a deck during the summer while having coverage but then cancels the policy during the slower winter months, the work is no longer covered. If someone is injured on the deck because of your work, a claim will not be covered.
Inland Marine Insurance
This covers property in transit, buildings under construction, mobile equipment, and more. Chances are, as a general contractor, you spend a large percentage of your day transporting tools, equipment, and materials to job sites. Though some of your property may be covered under another policy, Inland Marine Insurance provides protection to fill in gaps or coverage limits.
Workers Compensation Insurance
If you have employees, most states will require you to invest in Workers Compensation Insurance. This coverage provides medical treatment and lost wages to employees who are injured on the job.
There are countless examples of workers compensation claims in the construction realm. Unfortunately, 20% of all work-related deaths in any given year are related to the construction industry. This doesn’t include the thousands of other injuries that are serious enough to be life-altering. Workers Compensation Insurance will protect your business and your employees’ livelihoods in the event of an accident.
While these are all good policies to have for your contractor business, it is always best to work with an insurance agent in your area to determine the specific policies that will best meet the unique and individual needs of your general contracting business.
What Types of General Contractors Insurance Are Required?
As a general contractor, one type of insurance you are most likely legally required to have is Workers Compensation Insurance (if you have employees, of course). You’ll have to check with your state to see if any other policy types are legally required.
But just because you’re not legally required to have insurance doesn’t mean you should go without. As a basic rule of thumb, if you can’t afford to replace all your equipment, your building, pay for potential litigation costs, or medical costs of injuries caused by your work, you need to have general contractors insurance.
Are Subcontractors Covered in My Policy?
Possibly. But it’s not wise to rely on this coverage alone. As a general contractor, all aspects of a job fall on you. It’s not uncommon to use subcontractors to speed up a job or take care of tasks that don’t fall under your umbrella of specialties.
But before you hire a subcontractor, make sure they have insurance of their own. This will help with any gaps left from limited subcontractor coverage in your policy (and keep in mind your policy may not cover subcontractors at all).
Do I Need General Contractors Insurance If I Retire or Switch Professions?
Answered simply, yes. But not forever. Every state is different as far as how long they allow claims to be made after a job has been completed. If your state, for example, has a 10-year limit, it is recommended to have coverage for at least 10 years after retiring or switching professions.
In New York, the statute of repose is a bit tricky. It only applies to engineers and architects. There is no statute of repose for construction claims but there is for breach of contract. If you operate in New York, you’ll want to speak with your insurance broker in detail to make sure you’re covered, even after you’ve put down the hammer for good.
How Do I Make Sure New Services Are Covered?
You’ll want to speak with your insurance broker before doing any type of new work. Construction policies can be very specific. If you’re currently covered for roofing and windows, you may not be covered for floor installation. If you take a flooring job without proper coverage, your work may never be covered. This leaves the door open for future litigation issues. If you’re not sure if a job is covered under your policy, don’t start until you’ve spoken with your insurance broker.
How Much Is General Contractors Insurance?
There is no standard answer to this question. It will depend on your services, number of employees, your inventory, and your individual policy needs. General Liability Insurance for general contractors can be as low as $400 a year with a policy limit of $2,000,000.
Workers Compensation Insurance will run you more, between $5,000 and $8,000. Inland Marine Insurance is affordable with a top average cost of just under $800 a year. As you can see, the yearly cost of general contractors insurance can vary greatly.
Unfortunately, New York contractors pay, on average, ten times what contractors in other states pay. Knowing this beforehand will help prevent sticker shock.
How Can I Save Money on General Contractors Insurance?
The best tips for saving money on general contractors insurance involve doing several things, including:
- bundling policies
- improving safety on your property and at job sites
- taking preventative measures to deter theft
- beefing up security in the office and on the business property
You can also consider equipping business vehicles, machinery, and supplies with GPS tracking for added security and the greater likelihood of recovery this action provides.
The better you understand your need for general contractors insurance coverage, the easier it will be to save money on your policies — today — and in the future. If our general contractors insurance guide left you with unanswered questions, we’re here to help.
