The Basics on Construction Insurance

Insurance basics 2

Contractors require a portfolio of insurance coverages to protect their property and assets. The following is an overview of several of the coverages that comprise construction insurance. Feel free to repurpose and share this primer with your clients and prospects.

General Liability Insurance

General Liability (GL) insurance protects against financial losses from third-party claims for bodily injury or property damage arising from a contractor’s operation. Coverages include:

  • Bodily Injury: If a third party, such as a client or a visitor to the construction site, sustains bodily injury as a result of the contractor’s activities, the GL policy will cover medical expenses, legal fees, and any potential settlement or judgment.
  • Property Damage: If a contractor causes damage to someone else’s property during construction operations, such as accidentally damaging a neighboring building or causing a fire, the GL policy will cover the costs of repairs or replacement.
  • Products & Completed Operations: This coverage is typically included and provides protection for liabilities that arise after the completion of a project. For example, if a defect or error in a contractor’s work causes property damage or bodily injury after the project is finished, this coverage can protect against related claims and expenses.

Contractors Professional Liability Insurance

Contractors Professional Liability insurance protects contractors against claims arising from professional errors, mistakes, or omissions in providing construction-related services. Claims may include alleged negligence, design errors, faulty workmanship, or other professional deficiencies that result in financial losses. A policy will cover legal defense costs, including attorney fees, court costs, and other associated expenses in defending a claim, as well as pay for settlements and judgments if a contractor is found liable.

Contractors Pollution Liability Insurance

Contractors Pollution Liability (CPL) insurance covers liability claims from third parties, such as property owners, adjacent landowners, or individuals who may have suffered bodily injury or property damage due to a pollution incident caused by the contractor’s operations. A CPL policy will often cover the costs associated with environmental cleanup and remediation required to mitigate the pollution or contamination caused by the contractor’s activities. It can also cover the legal costs incurred by the contractor in defending against pollution-related claims or lawsuits.

Builder’s Risk Insurance (Course of Construction)

Builder’s Risk insurance provides valuable coverage to contractors during the construction phase of a project. The policy is designed to cover physical loss or damage to the insured construction project, which includes the building or structure being constructed, as well as materials, equipment, and supplies on site. Covered perils may include fire, theft, vandalism, windstorms, hail, explosions, and certain natural disasters, depending on the policy terms. Some policies also provide coverage for soft costs associated with a covered loss. Soft costs are the non-physical expenses that arise from a construction delay, such as architectural or engineering fees, financing costs, marketing expenses, and real estate taxes.

It’s important to note that Builder’s Risk insurance usually applies during the construction phase and expires once the project is completed or occupied. Coverage limits and exclusions can vary depending on the policy, so it’s crucial to review the terms and conditions.

Commercial Property Insurance

Commercial Property insurance provides coverage for the physical assets and property owned or used by contractors in their business operations. The policy insures these assets for various perils, such as fire, theft, lightning, vandalism, and severe weather events, providing financial compensation for damage, loss, or destruction. The policy covers a contractor’s owned building, storage facilities, or other structures used in their business; equipment and tools (but not in transit or at a job site); and inventory and materials.

Contractor’s Tool & Equipment Insurance

A Contractor’s Tool & Equipment policy protects a contractor’s tools and equipment on job sites, at temporary locations, or in transit. Coverage applies to tools and equipment listed on the policy, which can include hand tools, such as saws, wrenches, and hammers; power tools, such as drills, nail guns, and jigsaws; and heavy equipment, such as excavators and backhoes. The policy will pay to replace stolen tools and equipment and for repair or replacement if they are damaged by a disaster like a fire, vandalism, or a work accident.

Commercial Auto Insurance

A Commercial Auto policy protects contractors and their employees from potential liabilities and financial losses arising from accidents or incidents involving their commercial vehicles. The policy can include Bodily Injury and Property Damage Liability, Physical Damage, Medical Payments, and Uninsured/Underinsured Motorist Coverage. Non-Owned Vehicle insurance can be added, which is crucial if a contractor or its employees use vehicles that are not owned by the company but are used for business purposes.

Umbrella/Excess Liability Insurance

An Umbrella policy extends the Liability limits provided under a contractor’s underlying primary insurance policies. If a contractor exhausts the limits of its primary policies (such as General Liability), Umbrella/Excess Liability insurance kicks in to provide additional coverage, up to the policy limits. This is crucial in high-cost liability claims or lawsuits where the damages exceed the limits of the underlying policies.

Workers’ Compensation Insurance

Workers’ Compensation insurance provides important benefits to contractors and their employees in the event of work-related injuries or illnesses. These include medical expenses, such as doctor visits, hospitalization, medication, surgeries, rehabilitation, and necessary medical devices or aids; wage replacement (up to a certain amount) if an employee is unable to work due to a work-related injury or illness; disability if an employee experiences temporary or permanent disabilities due to work-related injuries or illnesses; and death benefits if the work-related injury or illness leads to the death of an employee. Death benefits typically cover funeral expenses and provide ongoing financial support to the surviving family members.

There are additional coverages and endorsements available to contractors to enhance their insurance and risk management program.

*NOTE: The insuring agreement in a policy sets out the covered perils, assumed risks, and nature of coverage that the insurance company provides to its insured in exchange for the premiums paid. Thus, the terms and conditions of the policy will dictate whether coverage exists and the nature of any potential benefits.