As a general contractor you know how important it is to use the right tool for the job.Proper insuranceis one of those tools. Business insurance is a vital part of protecting you and your company. Given the frequency and magnitude of potential damages that can occur on the job site it’s critical to get the right coverage from the right type of provider. Here are six steps for buying business insurance for general contractors.
#1: Assess Your Risks
One of the best risk management tools is insurance but to keep it effective you need to know what risks you face and whether or not you have coverage. The first step in getting construction insurance then is to identify the risks associated with your business and your work projects. If you know what you need to protect against you’re one step closer to a comprehensive risk management plan.
Your broker can helpyou with this. They’ll likely ask you questions about your business and what type of work you do. They will help you catch risks you wouldn’t have thought about on your own. This article aboutsmall business liability risksmay also help.
#2: Start with a Solid Foundation
Next you’ll need to select the type of insurance you’ll need. The most common type of insurance isgeneral liability coverage(also known as a Commercial General Liability (CGL) policy). Consider this your base coverage. It will insure against liability related to bodily injury and property damage—both of which are common in construction and both of which pose a big threat to the success of your business.
For example your CGL policy won’t cover the cost to repair defective work but it will pay for damage resulting from defective work. So if a pipe bursts in an upstairs bathroom and causing flooding and water damage your CGL will kick in to cover the damage but you would be responsible for paying for the repair costs—just be sure to check with your insurance provider and pay attention to the terms of the CGL policy as well as your own warranty provisions.
#3: Build on that Foundation
If you own and operate more than one construction site you may need to go beyond CGL coverage and purchase what’s known as an umbrella policy. This policy is used as a supplement to CGL because your CGL will have maximum policy limits that may not cover all of your liability as the general contractor. By adding an umbrella policy you increase your policy amounts and further insure against catastrophic loss or damage that could seriously impact the health and welfare of your business.
#4: Concentrate on Specific Extra Protection
Traditionally when a construction project involves design the general contractor relies on a design professional who also assumes the professional liability for the job. These days however an increasing number of general contractors are also taking on the role of designer-builders—and without adequate insurance this can put you and your business at risk. To reduce that risk a general contractor should addprofessional liability coverageto their CGL plan. (To learn more about the difference between professional and general liability click here.)
Another option is a builder’s risk policy. This extra coverage protects the owner the general contractor and the sub-trades named on the coverage from specific perils that can arise when a building is being constructed. A builder’s risk policy will cover both the structure itself as well as coverage for materials already on the job site materials waiting to be installed and items in-transit to the job site.
Just keep in mind that a builder’s risk policy are usually written in terms of duration and will provide coverage from a variety of events (most commonly fire wind theft lightning hail explosion and vandalism). There are also a number of common exclusions such as earthquakes employee theft flood damage weather damage to property left in the open war government action damage due to contract penalty voluntary cessation of work on the project or damages due to mechanical breakdown of equipment. However insurance is ever-evolving and many add-ons are available to provide coverage for some of these normally excluded perils (see Tip #6 for more info). Again your broker is an excellent resourceto help you understand your policy.
#5: Choose Your Window
Most CGL policies are written on a claims-made basis meaning the policy only covers claims that both occur and are actually made during the time the policy is in force. But a potential problem can arise if the insurance company discontinues coverage or you switch companies or coverage as coverage may completely disappear. One stop-gap is to purchase “prior acts��? coverage (also known as nose run-off or tail coverage). Prior acts coverage can be added to your current CGL and will cover potential claims on past work that are made outside of the effective term of the policy.
Another option is to switch to a CGL that offers a claims-occurrence policy meaning the policy covers claims stemming from events occurring during the time in which the policy is in force regardless of when the claim is actually made on the policy. This type of policy provides coverage for a fixed window in time (determined by the policy effective date) meaning that even if a claim is made 10 years after the expiration of the policy this claims-occurrence policy will protect you as long as the claim occurred during the effective dates of the policy.
#6: Plug the Coverage Holes
Virtually every insurance policy will have certain exclusions where coverage won’t apply. By in large a CGL policy will have exclusions because separate specific coverage is provided elsewhere in the policy or these specific occurrences are covered by other types of insurance that must be purchased separately. However to effectively protect your business from catastrophic risk it’s vital that you become aware of any exclusions or limitations and plan accordingly. The good news is that supplemental insurance for construction professionals is fairly standard making these specialized coverages easy to obtain.
For example you may want to tack on a pollution policy to your coverage. This type of insurance will cover remediation costs associated with pollution accidents that are a result of your standard operation procedures. This type of policy is most useful for contractors involved in paving infrastructure maintenance mechanical demolition industrial excavation grading HVAC carpentry and pipeline and tank installation.
For those in high risk trades such as earthwork/grading framing and exterior stucco finishers consider contractor or project-type coverage as most standard CGL policies will not provide coverage for higher risk trades or projects that are at higher risk of potential class action lawsuits.
Given the frequency and magnitude of damages that can occur on construction projects it’s critical for construction professionals to select the right type of coverage from the right type of provider.Your broker can helpyou navigate this task by assessing your risks helping you choose the right coverage for your budget answering your questions and explaining the more confusing aspects of insurance.
