The construction industry has witnessed its share of ebbs and flows in the past. As per the latest forecast of the American Institute of Architects, spending on non-residential construction is expected to increase by 4% in 2024.
Till 2028, this sector will continue to grow at a rate of 5.6%. Such growth for individual contractors hinges on how well they are prepared to manage the risks. The construction industry is known to be highly risky, with threats to profitability and efficiency arising during any stage.
This is why it is important to stay covered using a contractors’ liability insurance policy. Also known as general liability insurance for contractors, this policy protects those involved in a construction project against losses and errors. In this article, we will discuss the extent of risks and claims covered by contractors’ general liability insurance.
Common Liability Risks Contractors Face
Contractors face unique liability exposures for each project. Be it a small artisan or mid-sized contractor, nobody is immune to the possibility of damaging the property they’re working on.
For instance – workers may accidentally cut the pipes during a bathroom remodeling project. Moreover, tools may fall off the scaffolding and break tiles or leakages may stain hardwood floors. The contractor is at risk of lawsuits and costly repairs in such circumstances.
Another example would be a failure to meet client agreements or schedules. The contractor may be unable to meet promised deadlines or the client may complain of low-quality materials. It is also possible that a worker sustains personal injuries onsite. If the contractor faces legal consequences, their resources could drain out.
Such on-job risks call for sufficient liability protection. Contractors liability protection offers coverage to many classes of individuals. According to Commodore Insurance Services, contractors should look for a policy that covers general contractors, service trade contractors, remodelers, trade contractors, and more.
Must Read: Why You Must Invest in Workers’ Compensation Insurance for Your Employees
Standard General Liability Insurance Inclusions
Now that we’ve looked at the possible risks that lurk over a construction project, let’s focus on the insurance aspect. The following are the general inclusions made in a contractors’ liability insurance policy for loss coverage.
Bodily Injuries
There are too many things that can quickly go wrong during construction work, thereby causing severe injuries to workers. These include falling objects or debris, slip-and-fall accidents, electrocution, explosions and fires, and ground collapses.
The contractor, being the employer, is required to compensate for any losses suffered by workers onsite. These include medical costs, lost wages, etc. Contractors liability insurance can cover such costs for workers and clients should they also suffer injuries.
Property Damage
Besides injuries, a construction project may cause damage to nearby property and infrastructure. For instance – heavy equipment such as pylons can lead to trembling of the ground and vibrations. If a workplace accident occurs, it may also inflict structural damage to nearby property.
One case in point would be a fire that breaks out due to inflammable unsecured waste materials and ruins a part of the constructed building. The contractor will be held liable for such negligence and general liability insurance will cover the gaps.
Legal Liability
Contractors are always vulnerable to being sued by their clients or even employees. The former may be dragged into court due to poor workmanship, inefficient performance, and breach of contract. The latter can sue the contractor for workplace injuries.
If a legal war starts, the cost of settlement can be exorbitantly high. Using general liability insurance for contractors, the insurer will cover the legal expenses under ‘defense costs.’
Also Read: Types of Corporate/Business Insurance
Non-Owned Auto Liability
The daily operations of a construction company often involve constant transportation of goods and people. Employees may be required to run certain errands throughout the day. What if they use their private vehicle for the same and cause an accident?
In such cases, the contractor will not have to bear the responsibility under general liability coverage. This holds for all vehicles not owned by the construction company but kept under their custodian or care temporarily.
Until this point, we focused mainly on the standard inclusions of contractors’ liability insurance. Even optional add-ons are available which a contractor may consider based on their unique needs. A few examples would be construction equipment coverage and protection against damage caused during maintenance.
Contractors are often on the lookout for insurance policies that gracefully balance their needs with affordability. The largest influencing factor is the type of work since certain construction activities carry higher risk, including demolition and excavation. After assessing the contractor’s needs and their company’s total revenue, it becomes easier to customize the policy.
