If you're starting a contracting business, whether it's in construction, electrical, or plumbing, you need to be aware of your state's and clients' requirements regarding general liability insurance coverage for contractors. Familiarize yourself with what it needs to cover, its exclusions, and the minimum amount of coverage you must carry.
You should understand all those ins and outs of general liability contractor insurance policies, given that insurance claims are on the rise.
As Construction Executive magazine points out, construction liability claims are becoming more complex and frequent. It further notes that construction-related claims have a total lost time severity 50% higher than average.
By comparing liability coverage options and choosing the right business protection plans, you can significantly enhance your contractor risk management strategies.
What Is Contractor General Liability?
As a contractor, your "general liability" refers to the legal responsibility that you and your contracting business have to clients and third parties. Such responsibilities cover:
- Bodily injury
- Property damage
- Personal or advertising injury
Bodily injury means any physical harm a person experiences to their body. Examples include cuts or lacerations, bruises, illnesses, burns, and even mental impairment.
Property damage, on the other hand, is any form of destruction that results from the actions (or inaction) of an individual or a party. An example is damage to other vehicles (e.g., a car or motorcycle) or stationary objects (e.g., a fence, a utility pole, or a building).
As for personal and advertising injury, this refers to any non-physical harm, such as reputational damage or copyright infringement.
What Is the Minimum Amount of General Liability Insurance a Contractor Must Carry?
There's no single minimum amount for contractor general liability insurance. The requirements vary from one state to another, and can also differ based on the trade and client contract.
Some states, for instance, have a $1 million per occurrence limit. An example is Indiana. As published by Justia, Indiana Code § 5-16-13-10 states that a contractor must maintain general liability insurance with a minimum occurrence limit of $1 million and a general aggregate limit of $2 million.
What Does General Liability Insurance Coverage for Contractors Include?
General liability insurance for builders and contractors covers the costs of claims related to the legal responsibilities discussed above.
An example is a claim for bodily injury, which can arise when someone alleges that you or any of your staff did something that caused their cuts or bruises. In this case, your insurance policy should kick in to pay for this person's medical expenses.
Your contractor's general liability insurance can also help cover the costs of repairing or replacing third-party property damage.
Suppose you or any of your team members accidentally spills paint on your customer's carpets. If you have liability insurance, it should pay for the carpets' repairs or replacement, up to your policy's limit.
Your liability insurance can also help protect you and your business from personal injury claims like libel or slander. It should cover the costs associated with enlisting legal help (e.g., lawyers) who'll defend your firm against the lawsuit.
Depending on your policy's terms and conditions, it may even help pay for court-ordered judgments or settlements.
What Are General Liability Insurance Exclusions?
Your general liability insurance policy will have exclusions, which are events or risks that the policy won't provide coverage for. It differs from one policy to another, but most standard policies don't cover intentional acts and employee injuries.
You can still get coverage for employee injuries by obtaining workers' compensation insurance.
How Much Is General Liability Insurance?
The term "premium" refers to payments that go toward maintaining your general liability insurance coverage for contractors.
Data from Contractor Nerd shows that premiums often range from 0.89% to 2.19% of annual revenue. It also notes that by actively comparing quotes, contractors can secure more favorable pricing and achieve savings of 33% to 37% below average market rates.
What Factors Can Affect Your General Liability Insurance Premiums?
The nature of your business is a primary factor that can drive your general liability insurance premiums. The more inherent risks that you, your staff, and your customers face, the higher your premiums will likely be.
If you're in the construction industry, for instance, expect your premiums to cost more than those of a locksmithing company. One reason is that construction is among the most "dangerous" industries, as the National Safety Council points out. In 2023, it experienced the highest number of workplace fatalities.
The size and revenue of your business also affect your premiums. The larger and the more income it earns, the higher its premiums, as it likely has more exposure to liability risks.
Your firm's claims history is another factor. If it has a track record of filing high-value liability claims or has frequently filed claims, insurers will likely regard it as a high-risk business. Since they'll be taking on more risk, chances are, they'll charge you higher premiums.
Frequently Asked Questions
Is General Liability Insurance Mandatory?
Most state laws typically don't make liability insurance mandatory for all businesses. However, it may be a requirement of a state's trade licensing process. If your state requires licensure for contractors in your trade, then you need to get liability insurance.
Can Clients Require You to Get General Liability Insurance?
Yes, they can. As someone who'll potentially be paying a lot of money for the services your contracting firm will render, it's their right to require you to get insured before they sign the contract. Failing to meet this can result in them partnering with another insured firm.
Is It Possible to Lower General Liability Insurance Premiums?
Yes!
Make it a habit to shop around regularly. You should also consider bundling your policies; some insurers offer discounts if you buy several types of coverage from them, such as general liability and commercial property insurance.
You may also be able to get a discount if you pay your entire year's worth of premiums in one go instead of paying them monthly.
Protect Your Business With General Liability Insurance
General liability insurance coverage for contractors may not always be a legal requirement, but it's still good to have. It can protect your firm from expensive costs that can put it out of business.
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