If you want to protect your head on the job site, you wear a hard hat. So what do you do if you want to protect your business? The simple answer is, you get insurance. The problem is, there are more types of contractor insurance than you can count on both hands, so how do you know which policies are right for your construction business?
Today we’re going to talk about general liability insurance in construction, one of the most common (and most important!) policies you can have as a contractor.
Key Takeaways
A general liability insurance policy protects your construction company from third-party liability claims that your work led to property damage or bodily injury. In other words, if someone outside of you or your team gets hurt, or a part of the property gets damaged, the responsibility for settling those damages falls on the insurance company instead of your business. A third-party lawsuit can lead to thousands (if not millions) in financial losses for your business, so this is a must for businesses in high-risk industries like construction.
While general liability and professional liability policies both protect your business against risks, the risks they cover are pretty different. General liability covers physical risks, like property damage or injury. Professional liability (also known as errors or omissions insurance) covers more abstract business risks, like design errors.
If you’re responsible for a project in some way, shape, or form, it’s safe to assume you need general liability insurance.
Normally, general liability policyholders include:
The majority of project owners don’t want to work with an uninsured contractor, so they’ll require you to submit a certificate of insurance before they let you on their job site. This is especially true for public works projects. Some states also have their own general liability insurance requirements to even get licensed as a contractor. Basically, if you want to work on good, profitable jobs, you’ll need to have the right insurance coverage.
There are two types of general liability insurance: Claims made, and occurrence. Claims made policies only cover claims on active policies, regardless of when the damage or injury happened. An occurrence policy covers claims made during the policy term (even if they’re filed after the policy ends/is canceled).
A typical general liability policy will cover third-party claims related to:
If a third-party claim that falls under one of these categories is made against you, your insurance will cover settlements, attorney fees, medical bills, and court fees up to your policy limit. Your policy will have per-incidence limits as well as in aggregate limits.
For example, say you have a policy of 1 million / 2 million. This means each incident that results in a claim will be insured up to 500k, and your yearly coverage limit for all claims is 1 million.
General liability covers a lot, but it doesn’t cover everything. Generally speaking, you can think of general liability insurance as covering things that happen to other people or businesses because of your work. If something happens to you or one of your crew, you likely won’t be covered under this type of policy.
Most general liability insurance policies have the following exclusions:
Thankfully, other construction insurance policies exist to cover these gaps, like inland marine insurance, or builder’s risk insurance.
You already know the construction industry is risky, so why put your business in front of any more risk than necessary? Good risk management in construction is all about planning ahead, but there are some things you just can’t plan for - and those often come in the form of third-party claims.
From long, drawn-out lawsuits and legal fees to medical bills from personal injury, third-party claims against your contractor business can be financially devastating. General liability insurance coverage gives your company the financial protection it needs to not only withstand these potential events but maintain your professional reputation and credibility. Put simply, if you want to mitigate risk in your business, you need good coverage with the right kind of insurance.
Plus, as we touched on earlier, most project owners will require you to show proof of insurance before they agree to work with you. By being proactive about general liability business insurance, you’ll demonstrate that you’re a professional contractor who cares about minimizing risk on the job.
Sadly, there’s no one fixed price for general liability insurance. Every construction business is different, and your insurance quote will be calculated by an underwriter looking at several different risk factors, including:
If you want to save some money, most insurance companies will offer to bundle multiple policies together.
Sometimes, a basic general liability policy isn’t enough. If your business needs additional endorsements or coverage, most policies have the option to add on what you need. Depending on your business, you may want to pay for extra coverage in areas like:
To get general liability insurance, you’ll work with an insurance company or insurance broker to explore your coverage needs and get a quote. As always when it comes to insurance, we recommend talking with an insurance provider that specializes in the construction industry.
While you’re talking with your insurance agent, make sure you understand exactly what your policy does and doesn’t cover. If you have any questions about exclusions or want to talk over specific situations with your broker, now’s the time to ask them.
👉 You can read all about the different types of insurance you should consider for your construction business in our guide: Everything You Need to Know About Construction Insurance.
When it comes to insuring your small business, you should always start with general liability coverage. This probably won’t be the only policy you’ll need, but having this will lay the foundation to keep your business safe from potentially devastating liability claims.