In construction, uncertainties and challenges are part and parcel of the job for contractors. Juggling projects brings the constant risk of accidental damage, bodily injury, potential lawsuits, and the looming threat of harm to your reputation.
Fortunately, there’s a practical solution at hand: contractor general liability insurance. This reliable coverage serves as a financial safety net, sparing you from the full financial impact of unforeseen challenges.
In this article, we’ll explore five straightforward reasons why contractor general liability insurance is a dependable ally for builders.
What Is Contractors Professional Liability Insurance?
Professional liability insurance protects contractors against construction mistakes, neglect, or omissions that increase project expenses and damages. This insurance also covers other building experts. This covers mistakes made on a specific project by employed outside parties such as designers, engineers, architects, and plumbers.
A contractor might obtain this insurance on a project-by-project basis or annually to protect their general activities. It frequently works in tandem with a contractor’s commercial general liability insurance. Contractors’ professional liability insurance falls under the category of professional liability or errors and omissions policies.
This insurance provides protection for contractors, architects, engineers, and similar professionals against issues such as faulty designs, improper installations, and structural flaws resulting from negligence, failure to disclose information, or other professional mistakes. The consequences of these errors can entail significant expenses for repairs or rebuilding.
According to Commodore Insurance Services Inc., contractor general liability insurance offers three primary types of liability coverage. The first is third-party coverage, which protects individuals outside the contract who experience losses directly due to the negligence of the contractor or subcontractor.
Second is first-party indemnity coverage, protecting contractors when filing claims against subcontractors for errors they are legally responsible for. Lastly, there is pollution coverage, safeguarding the contractor in case of pollutants not properly detected during a project. Each of these coverages plays a distinct role in mitigating risks and ensuring comprehensive protection for contractors.
How Does Liability Insurance Help Contractors?
#1 Coverage for Property Damage and Injury
Liability insurance protects contractors, shielding them from potential financial burdens resulting from being deemed responsible for accidents leading to property damage or bodily injury to third parties.
In instances where a contractor unintentionally causes damage at a worksite or a client’s property, they may be held accountable for rectifying the harm. General liability insurance steps in to assist in covering the costs associated with repairing property damage, adhering to the defined liability limits.
To illustrate, let us say a construction company inadvertently leaves a hose running at a job site. It will result in flooding and water damage to multiple buildings under construction. The contractor’s general liability policy may contribute to covering the expenses incurred in restoring the affected structures.
#2 Bodily Injury Liability Coverage
Commodore Insurance Services notes that a general liability insurance policy encompasses bodily injury liability protection in addition to property damage coverage. This facet aids in covering medical expenses for third parties if a contractor’s negligence results in physical injury.
Let us take the flooded job site scenario as an illustration. If the building owner were to slip on the wet floor, sustaining a broken arm, and need emergency medical attention, the contractor’s general liability coverage would contribute towards the building owner’s medical bills. Additionally, it would cover any legal costs incurred if the owner opts for legal action.
#3 Securing Contracts
Encountering this requirement may be new to you, but it’s a common stipulation in various project contracts, especially those involving substantial commercial ventures or agreements with governmental bodies. Contractors and subcontractors are often obligated to obtain specific types of insurance coverage to secure project approval.
You can expect to find it on the contractual checklist in liability insurance. The rationale behind this requirement is clear – the party hiring you for the project aims to avoid assuming financial responsibility for any unforeseen incidents, whether it be an excavation-related mishap or an electrical trip-and-fall occurrence.
By ensuring that you have general liability insurance coverage, you effectively meet the terms of your contractual obligations. This not only safeguards your interests but also provides the necessary financial protection for both parties involved in the project.
#4 Safeguards Your Reputation
The risk of facing allegations of libel, slander, or advertising injury has significantly increased compared to the analog era. Many scenarios may unfold, such as finding inspiration from a competitor’s online presence, inadvertently infringing on intellectual property, or engaging in comparative marketing perceived as defamation.
Consider a situation where you believe your YouTube video and social media posts merely highlight the distinctions between your services and a competitor’s. However, your competitor interprets these actions as a defamatory attack, leading to potential retaliation. In this digital age, protecting your business against reputational harm is paramount.
Thankfully, general liability policies commonly cover advertising injuries and reputational harm. This coverage extends to slander, which refers to oral defamation like a critique in a video.
It also includes libel, encompassing written defamation on platforms like Twitter, and violations related to copyright or intellectual property, such as adopting another company’s advertising themes.
In the event that your insurance policy includes provisions for advertising injuries, a covered claim can provide financial support for legal fees. It will also help you cover court costs and any settlements or judgments that may arise.
#5 Cost-Effective Choice
At an average cost of $80 per month or $960 annually, general liability insurance represents a relatively affordable expense when considering the potential financial risks linked to customer lawsuits. This insurance is a crucial asset, offering financial coverage against common lawsuits like bodily injury, property damage, or copyright infringement claims.
The actual costs can vary, influenced by factors such as the level of risk in your industry. Operating in high-risk sectors like construction may lead to higher premiums.
Your business ZIP code also plays a role, with densely populated areas increasing the likelihood of claims and thus raising coverage costs. The age of your business matters, as newer companies with limited experience may face higher insurance rates.
Additionally, your coverage details impact costs. Choosing higher policy limits and smaller deductibles typically increases expenses. A favorable claims history, with few or no past filings, often results in lower insurance costs. Some insurance carriers may offer bundled solutions, combining essential contractor insurance policies for a customized and cost-effective package.
In conclusion, contractor general liability insurance is a necessary safeguard whether you choose standalone coverage or a bundled solution. It is essential for any serious construction business owner aiming to protect both their business and hard-earned profits.
For optimal coverage tailored to your specific needs, it is recommended to consult with your preferred insurance agent or broker. They are able to provide tailored advice and a quote that fits your company’s needs.
Don’t hesitate to contact your insurance professional today to ensure your construction business is adequately protected.