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The acquisition of appropriate insurance is not only a judicious move on the part of contractors but, in many cases, a minimum requirement for which a certificate of insurance is necessary. It is also a common expectation from construction clients, coupled with surety bonds. While insurance policies are necessary to protect you from potentially devastating financial losses, they present an expensive upfront cost as well.
Therefore, it is important that you not only compare different insurance providers to get the cheapest rates in your area, but understand what the basic types of contracting insurance are, what losses they protect you against, and what limitations they have. This can prepare you to assess what types of insurance (and terms of that insurance) are needed to suit your project’s or company’s unique needs.
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This is the most common type of liability insurance and is typically required for you to perform any kind of construction or repairs. In many states, you must have proof of liability insurance to even get your contractor’s license. General liability covers concrete losses, such as physical injury to an individual or damage to the building. It is important to note, however, that this coverage does not protect the employees involved in the event of an injury, as that is covered under workers’ compensation. In the event that a client makes a claim against you or your company for a loss that falls under your general liability coverage, the policy will not only cover the payout, but also any associated legal fees.
Workers’ compensation is insurance that covers medical bills and lost wages in the event that an employee is injured in the course of their work. It may also provide a payout to surviving family members in the event of the employee’s death. Most states require employers to provide workers’ compensation, although the exact terms of the insurance can vary.
Contractors’ professional liability (CPL) insurance covers the contractor in the event that there is an error in design, construction, or related services. It not only covers mistakes caused directly by the contractor but also mistakes caused by third parties hired by the contractor. It is important to note that professional liability insurance is different from a performance bond. While a performance bond will compensate the client in the event that a contractor defaults on a project (fails to complete to spec, on time, etc), professional liability insurance will help pay for legal fees and potentially the settlement if the contractor has a dispute with a client.
This type of insurance is not always available for the development of new structures. The exact details of what is and is not covered under professional liability insurance depend on the terms of the individual contract. Contractors can acquire an ongoing contract for multiple projects going forward, or they can acquire a contract for a more specific timeframe.
Contractors Pollution Insurance
Contracting work often poses significant pollution risks. These risks could include air pollution, water pollution, soil erosion, and general damage to ecosystems, depending on the project site and specifications. There are many laws and regulations that dictate how contractors must operate to avoid a pollution event, as well as what damage they are responsible for in the event that pollution or other damage to the environment takes place in the course of their work. Pollution insurance will pay for damages and costs relating to bodily injury, property damage, legal defense, and cleanup following a pollution event.
Commercial Auto Insurance
Commercial auto insurance (also referred to as automobile liability insurance) covers any damage to vehicles used in the course of the contracting work, or any damage caused by these vehicles, either to property or person. This is similar to regular auto insurance, except that it covers any company vehicles, rather than one’s personal vehicle.
Covered vehicles can include everything from cars used to transport workers and materials to excavators and other heavy machinery used to carry out the work itself. In fact, contractors are often required to insure excavators or similar equipment. This insurance also covers any legal fees related to covered damages.
Builder’s Risk Insurance
Builder’s risk insurance covers damage to the property that occurs in the course of construction. As opposed to professional and general liability insurance, builder’s risk insurance more so covers damages to the structure that result from external sources, such as natural disasters, vandalism, theft, and explosions. Again, this type of insurance is different from a contractor surety bond, which provides more basic compensation to clients, and typically requires repayment if it is used.
This insurance not only covers the structure itself, but also damages or losses relating to materials and equipment. In fact, it can even cover losses incurred by delays related to relevant damages, such as lost revenue, increased loan expenses, and extensions on or replacement of rented equipment.
Inland Marine Insurance
Inland marine insurance may sound like it must have something to do with aquatic projects, but this is not the case. It simply insures transportable materials that belong to the insured (the contractor, in this case) that are lost or damaged in transit. Said property can include equipment, cargo/deliverables, or even the vehicle doing the transportation.
This insurance not only covers losses related to human error, but also losses incurred by natural phenomena like wind or hail. This insurance can be acquired as an add-on to your existing policy, or as a separate policy. Inland marine insurance is particularly useful to contractors due to the need to transport a lot of high-value equipment, sometimes over large distances.
Umbrella insurance extends the coverage of your existing policies. Your primary insurance will have limits on its payout, and umbrella policies can cover the remaining damages that are in excess of these limits.
This type of insurance is similar to “excess liability insurance,” but is often broader in scope and can be applied to multiple insurance policies, whereas excess liability insurance can only extend one policy at a time. While umbrella insurance is a voluntary expansion on your existing policies, it can be worthwhile for contractors, who often work on large, high-value projects over a long period of time.