Understanding General Liability Insurance for General Contractors
When it comes to the construction industry, general contractors play a pivotal role in bringing projects to life. These professionals oversee various aspects of a construction project, from planning and coordination to managing subcontractors and ensuring the project’s successful completion. However, with such responsibilities comes a range of potential risks and liabilities. This is where general liability insurance steps in to safeguard both contractors and their projects.
General liability insurance is one of the most common types of insurance for general contractors. Many states require you to have proper insurance coverage before getting your contractor’s license and starting your business. General contractors perform high risk activities each and every day. A single claim could put your company at risk of continuing existence.
The Nature of General Contracting Risks
General contractors have exposure to a myriad of risks due to the nature of their work. Construction sites are inherently hazardous environments. With heavy machinery, tools, and materials there are potential hazards for both workers and the public. Accidents, property damage, and even third-party injuries can occur, leading to legal claims and financial losses.
In addition to physical risks, general contractors also face the risk of unintentional errors or omissions that could result in project delays, design flaws, or other issues. Even with the most meticulous planning, unexpected events can still arise, underscoring the importance of having comprehensive insurance coverage.
General Liability Insurance
General Liability Insurance, often referred to as GLI or Commercial General Liability (CGL) insurance, is a crucial component of risk management for general contractors. This type of insurance provides coverage for a wide range of liabilities that can arise from the contractor’s operations. It typically includes:
Bodily Injury Coverage: This covers medical expenses and legal costs if there is an injury on the construction site or as a result of the contractor’s activities.
Property Damage Coverage: If the contractor’s work causes damage to third-party property, this coverage helps pay for the repairs or replacement.
Products and Completed Operations Coverage: This protects against claims related to faulty workmanship, design errors, or defects that become apparent after the project is completed.
Personal and Advertising Injury: This covers claims related to libel, slander, false advertising, or copyright infringement arising from the contractor’s advertising or promotional activities.
Legal Defense Costs
Even if a claim is groundless, legal defense costs can be significant. General Liability Insurance covers the expenses of hiring attorneys and legal representation.
General liability policies have limits that are presented to you when purchasing your insurance. This will be represented as a per incident and as an aggregate coverage. For example, if you have a $1 million per incident and $2 million dollar aggregate coverage, you will be covered up to $1 million per incident, but the annual total policy coverage will be $2 million.
Benefits for General Contractors
Financial Protection: In the event of a lawsuit or claim, General Liability Insurance helps cover the costs of legal fees, settlements, or judgments, safeguarding the contractor’s financial stability.
Business Reputation: Having insurance demonstrates a commitment to professionalism and responsible business practices, which can enhance a contractor’s reputation and credibility. There are many contractors or developers that will not allow you to bid their work unless you meet their insurance requirements.
Contract Requirement: Many clients, especially larger projects and government contracts, require contractors to have General Liability Insurance to mitigate potential risks.
Peace of Mind: Knowing that unexpected incidents won’t cripple the business provides peace of mind, allowing contractors to focus on project execution rather than constant worry.
Contractors Insurance Certificate
A certificate of insurance (COI) is issued by your insurance agency. A COI verifies the existence and proof of your insurance policy, and demonstrates the coverage you have. When a client has insurance requirements to perform work or go to contract with them, the COI is what you will present to show them your insurance coverage.
What Types of Insurance Should a Contractor Consider
Builder’s Risk Insurance
Builder’s risk insurance helps protect buildings under construction. This insurance can cover costs incurred such as fire damage, hail, vandalism, and acts of God.
Workers’ Compensation Insurance
Workers’ compensation insurance provides medical and salary expenses to people who have an injury or become ill at work and can no longer work for a period of time. If you have employees, it is wise to have workers’ compensation insurance.
Professional Liability Insurance
Professional liability insurance covers professional mistakes, for example personal injury, negligence, copyright, infringement and many more. As a professional you will make mistakes at time. Professional liability insurance will help to cover expenses against that.
Inland Marine Insurance
Inland marine insurance will help to help cover product, equipment, and materials while they are transported on land.
Exclusions From General Liability Insurance
Professional Liability: General liability insurance is not for cover errors, omissions, or negligence in professional services.
Intentional Acts: Deliberate acts or intentional wrongdoing are usually not covered by general liability insurance. If a business intentionally causes harm or injury, the policy may not provide protection.
Employee Injuries: While bodily injuries to third parties are covered, injuries sustained by employees in the course of their work are typically excluded. Workers’ Compensation Insurance is specifically designed to cover employee injuries and illnesses.
Product Liability: While general liability insurance may cover property damage caused by a business’s operations, it often excludes coverage for product defects or liabilities. Businesses that manufacture, distribute, or sell products may need Product Liability Insurance to protect against claims related to faulty products.
Pollution and Environmental Damage: Environmental liabilities and pollution-related claims are generally excluded from standard general liability policies. Companies that deal with hazardous materials or operate in environmentally sensitive industries may need to obtain separate environmental liability coverage.
Contractual Liability: Certain contractual agreements, especially those that involve assuming liability for another party’s actions or performance, might not be covered by general liability insurance. Businesses should carefully review their contracts and consider Contractual Liability Insurance if necessary.
Cyber Liability: With the increasing prevalence of cyber threats, general liability insurance typically does not cover losses related to data breaches, cyberattacks, and other cybersecurity incidents. Cyber Liability Insurance is specifically designed to address these risks.
Employee Discrimination and Harassment Claims: Claims in relation to employee discrimination, harassment, and wrongful termination are typically do not have coverage by general liability insurance. Employment Practices Liability Insurance is designed to address these types of claims.
War and Terrorism: General liability insurance often excludes coverage for damages arising from war, acts of terrorism, and other acts of violence.
Fines and Penalties: Any fines or penalties imposed on a business by regulatory authorities are usually excluded from coverage.
Choosing the Right Coverage
Selecting the appropriate general liability insurance coverage requires careful consideration. Contractors should evaluate their project scope, potential risks, and the scale of their operations. Working with insurance professionals who understand the construction industry can help contractors tailor coverage to their specific needs.
Conclusion
For general contractors, general liability insurance is not just a safety net; it’s a strategic investment in the longevity and success of their business. Construction projects inherently involve risks, and having the right insurance coverage can mean the difference between weathering a storm and facing devastating financial losses. By understanding the ins and outs of general liability insurance and customizing coverage to their operations, general contractors can navigate the complex world of construction with greater confidence and security.