The Ultimate Guide to Contractor Insurance

There are a number of things that can go wrong for contractors and subcontractors. This is just one reason it is important to have contractor insurance policies to protect businesses and their owners.

Contractors and subcontractors are at high risk of injury and face a number of other risks, including change orders problems, supply chain disruptions, adverse weather, permit issues and accidents.  

Contractors who specialize in a specific trade and need customizable commercial insurance products that cater to their unique risks. The right insurance policies protect contractors from accidents, lawsuits, theft, and damaged tools and equipment. 

We have put together the ultimate guide to contractor insurance to help you cover the risks in your profession.

How to Customize your plan 

1. Builder’s risk 

Contractors who specialize in new residential or commercial construction need builder’s risk insurance. This type of policy covers building materials, foundations, and temporary structures (such as scaffolding) during construction. Builder’s risk policies also cover plants, trees, and lawns the contractor installs, as well as fencing, paving and outdoor fixtures.  

2. Commercial General Liability 

All contractors and subcontractors should have commercial general liability insurance (CGL). Such policies protect against claims involving bodily injury and property damage by third parties. In some states, contractors must provide proof of CGL insurance before they can get a contractor’s license.  

3. Errors and Omissions 

The construction industry is complex, and projects can be large and multi-faceted. Errors in construction drawings, confusion with change orders, and problems coordinating other tradespeople can easily cause problems and delays that can lead to lawsuits.  

Errors and omissions coverage, also called professional liability, protects contractors against allegations of mistakes and poor advice. It also protects against omissions where a customer claims the contractor failed to do something or failed to meet certain industry standards.  

4. Commercial Auto Liability 

Contractors routinely use company vehicles to travel to and from job sites. Commercial auto liability insurance covers physical damage to company vehicles for covered losses. Comprehensive coverage is also available to cover theft, vandalism or damage caused by natural disasters. Commercial auto liability also covers medical payments and uninsured or underinsured motorists.  

5. Inland Marine 

Regardless of a contractor or subcontractor’s specialized trade, they need to transport tools and equipment to the job site. Inland marine insurance coverage protects tools and equipment against damage and theft as contractors transport them from one location to another. These losses are not covered under commercial general liability.  

6. Bonds 

Contractors and subcontractors may need to get several types of bonds to insure various aspects of their work. Surety bonds are a common type of bond that protects against poor workmanship, incomplete jobs, fraud and theft. Other types of bonds are bid bonds, performance bonds, payment bonds, and supply bonds to name a few.  

7. Workers’ Compensation  

Worker’s compensation coverage is required in most states for contractors and subcontractors who hire employees. This type of coverage pays for losses due to work-related illnesses and injuries. Workers who get hurt due to a job-related incident may receive payment for lost wages and medical bills. Workers’ compensation insurance assists injured workers as they recover to help them get back to work again as soon as possible.  

8. Pollution Liability Insurance 

Contractors often work with hazardous chemicals and materials. Chemicals may be spilled on job sites and contractors and subcontractors may have to dispose of construction materials or treatments that are harmful to people and animals. Pollution liability insurance protects contractors from liability due to the pollution they or their workers caused during a job and after it has been completed.  

9. Commercial Umbrella 

Commercial package policies or business owners policies (BOP) do not always have sufficient limits to cover contractors and subcontractors for large judgments or settlements. A commercial umbrella insurance policy adds an extra layer of liability coverage that extends beyond the limits of the underlying policies. Let’s look at an example.  

A contractor’s CGL policy had a maximum limit of $1 million of liability and a commercial umbrella policy with a $5 million limit. A vendor got injured at a job site and filed a claim for $600,000. The CGL policy would pay the first $500,000 and the umbrella policy would pay the remaining $100,000.

10. Employment Practices Liability

Employment Practices Liability Insurance (EPLI) policies protect contractors and subcontractors against claims of wrongful termination, workplace harassment, retaliation and discrimination. According to the Insurance Information Institute, the median claim for EPLI in the United States in 2021 was $258,500, making it worthwhile coverage for contractors.  

Accidents can easily occur on or off a job site, even when following safety practices. Having the right insurance policies ensures an accident will not break the bank, and your business can continue without interruption. 

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 Leap | Carpenter | Kemps Insurance Agency Can Help

To learn more about how to customize commercial insurance policies for your contracting business, call one of our licensed insurance agents at Leap Carpenter Kemps Insurance Agency today at (209) 384-0727.