Liability insurance is important for any business owner. You need it to protect your company against lawsuits that can result from property damage or bodily injury.
But what about if you’re a contractor? That’s where contractor general liability insurance (CGL) comes in. CGL is a form of commercial (or business) insurance for contractors.
It covers the company against liability for the work being done at the job site. CGL is an insurance policy that helps protect contractors against liability for third-party claims for damages arising from their work.
What does General Liability for Contractors Cover?
General Liability, considered the foundational insurance coverage, protects a contractor when things go wrong and a third party brings an action against the contractor for bodily injury or property damage.
Although often sold as a stand-alone policy, contractor general liability provides a package of coverage for the policyholder.
Here are the coverages provided by a contractor’s general liability policy:
- Bodily injury to a third party – If a third party (neighbor, visitor, non-employee) wanders around the job site and gets injured, the customer will likely bring a lawsuit against the contractor for medical expenses. The contractor general liability policy will pay to defend the contractor and pay damages awarded by the court up to the limits of the policy.
- Third-party Property Damage – If a third-party’s property is damaged because of work being done at the job site, the contractor general liability (CGL) will pay to repair or replace the damaged property up to the limits in the policy.
- Products-Completed Operations – Products completed operations provide protection even after a job has been completed. For example, let’s say some kitchen cabinets were replaced during a home remodel and months after the job was completed, those cabinets fell from the walls after improperly being installed and cause serious injury to the homeowner. In this case, you could be 100 miles away from the remodeled home but 100% responsible for that homeowner’s injuries! Warning: your policy that was in force during the remodel will need to be in force when the claim is made.
- Advertising Injuries – Most contracting companies give little thought to advertising injury even though the risk can be significant. The risk of copyright exposure or can end up costing thousands to defend. Even something that seems minimal can cost you thousands if you use images in an ad that copyright protected without paying a licensing fee. This also applies if you own a website and a web developer uses a protected image inadvertently on your site. In these cases, your CGL will not only pay defense costs but also any damages rewarded by the court.
Are General Contractors Required to have Liability Insurance?
Since insurance requirements are regulated by the state you do business in and not by the federal government, CGL requirements will vary by state. Here are the requirements for contractor general liability insurance and licensing requirements:
|State||CGL Required?||License Required?|
|Colorado||No||Check local jurisdiction|
|Connecticut||No||Check local jurisdiction|
|Delaware||No||Check local jurisdiction|
|Idaho||No||Yes if job is more than $2k|
|Illinois||No||Check local jurisdiction|
|Indiana||No||Check local jurisdiction|
|Iowa||No||Check local jurisdiction|
|Kansas||No||Check local jurisdiction|
|Kentucky||No||Check local jurisdiction|
|Maine||No||Check local jurisdiction|
|Missouri||No||Check local jurisdiction|
|New Jersey||No||Check local jurisdiction|
|New York||No||Check local jurisdiction|
|North Dakota||Yes||Depends on size of project|
|Ohio||No||Check local jurisdiction|
|Oklahoma||No||Check local jurisdiction|
|Pennsylvania||No||Check local jurisdiction|
|South Carolina||Yes (projects > $5k)||Check local jurisdiction|
|South Dakota||No||Check local jurisdiction|
|Tennessee||Yes (projects > $25k)||Check local jurisdiction|
|Texas||Yes (projects > $25k)||Check local jurisdiction|
|Vermont||No||Check local jurisdiction|
|Washington||No||Enroll in Dept of Labor|
|Wyoming||No||Check local jurisdiction|
How is General Liability Insurance Calculated for Contractors?
The contractor general liability policy is not a cookie-cutter when it comes to pricing. Although most insurers have an established minimum premium, this will likely not apply to a general contractor or subcontractor.
Here are the factors your insurance will take into consideration to establish your annual premium.
- Experience: Number of years the business has been operating in the industry specified.
- Class Code: Your class code tells the insurance company what niche you operate in and helps them establish your particular risk. For example, a residential roofer (less than 3 stories) will have a class code that signifies a higher risk than a commercial roofer who might work on skyscrapers.
- Annual revenue
- Claims history
- Number of employees and/or subcontractors
- Whether the policy is Claims-based or Occurrence-based
- Business location
- Number of years with the previous insurer
- Uncorrected safety code violations
- Policy Limits
How Much General Liability Insurance Should I Purchase?
If you are a contractor, you should purchase as much general liability as you can afford. If you are a large contractor and need more coverage than a typical policy will offer, you should purchase umbrella coverage that will pay over and above your CGL policy.
Hundreds of contractors lose their business and livelihood each year simply because they asked for lower limits of liability insurance to save a few dollars on their insurance.
Most contractors hate having to carry insurance until they are sued for the value of their company and the insurance company steps in and pays all damages.
Here is What We Recommend
General Liability: Contractors General Liability will be the foundation of protection for your business. The coverage will respond if you or your employees are found liable for bodily injury, property damage, or have a products/completed operations complaint. The coverage also covers defense costs for your business to respond to any lawsuits brought by a third party.
Workers’ Comp: Many states will require contractors to provide workers’ compensation coverage for their workers before they can begin a project. Accidents will happen at the job site that can result in an employee becoming injured and missing work. Your workers’ compensation coverage will provide financial assistance for medical expenses and lost wages.
Surety Bonds: It’s very likely that your state will require you to be licensed before you can begin operations. Most states and customers will require contractors to offer a license or surety bond before you are allowed to bid on a job or begin working.
Commercial Auto: Typically, most contractors will have light and heavy vehicles that require commercial auto insurance to make certain their vehicles can be repaired or replaced in the event of an accident, vandalism, or theft.
Tool Coverage: Also known as Inland Marine Insurance, this policy will provide for reimbursement for expenses to repair or replace tools and equipment. Your tools represent an important part of your livelihood, so we always encourage carpentry contractors to consider this valuable coverage.
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