Given the nature of the industry, contractors face a lot of risks and a claim could very quickly put a contractor out of business. Even if the lawsuit is dropped, the legal expenses alone can mean bankruptcy. When it comes to limiting financial exposure, a comprehensive insurance package plays an essential role in your risk-management strategy. At the very least, you should have commercial general liability insurance, builder’s risk insurance, and equipment and tools coverage.
Before purchasing contractor liability insurance, it is essential to understand how it will protect your business. To make this easy, we’ve listed four things you need to know when it comes to insuring your contracting business:
1. Know The Basics
Contractor insurance is a policy package that protects against claims related to your professional services, ranging from property damage to equipment theft. Three policies build the foundation of every strong contractor insurance policy:
- Commercial General Liability Insurance (CGL): Say a client decides to sue you for damage to their property that occurred during a project. Should you be successfully sued, a Commercial General Liability Insurance (CGL) can cover your legal defense costs, as well as the damages owed to the third party. In addition to property damage, CGL also covers third party bodily injuries that result from your professional activities.
- Equipment and Tools: Another foundational coverage, Equipment and Tools Insurance covers, you guessed it, equipment and tools. This policy covers hardware and accessories, the property of others in your care, and portable business tools from loss or damage, including theft. For example, your tools are stolen from a job site the day before you begin working on a new project. Adequate Equipment and Tools insurance coverage could cover the cost of replacement equipment.
- Builder’s Risk Insurance: This policy covers damages to the job site, as well as the materials or supplies required to complete the project. This policy is active for a set amount of time, usually while the property is under construction. This coverage protects your business against insured perils such as water or fire damage, equipment breakdown, and theft. Speak with your broker about the risks specific to your business to ensure you have proper coverage.
2. No One Regrets Having Contractor Liability Insurance
Unlike an office where most of the work takes place in one location, a contractor’s job is spread out to different sites and includes several clients, subcontractors, and workers. These factors multiply the number of potential claims. Insurance for contractors helps minimize that risk. Take a look at these common scenarios where contractors insurance is critical;
- Workplace Safety
Contracting trades require physical work, meaning the risk of injury is everywhere. For that reason, workplace safety is critical to the sustainability of our business. In Canada, 40,000 workers get hurt each year from falls alone. While most contracting companies register with the Workplace Safety and Insurance Board (WSIB), which offers insurance for many Ontario employers, in most cases, employees can’t sue their employers.
Having WSIB coverage doesn’t mean you should skip purchasing contractors’ insurance. There are many instances where you could be facing a claim from someone who is not your employee. For example, a client could injure themselves when touring the construction site and bring a lawsuit against your company for negligence. Of course, if WSIB doesn’t cover your company, you want contractors insurance to cover your business.
- Property Damage and Theft
When you’re in the business of tearing down walls, you need to cover yourself for when those ‘unplanned’ demolitions happen. Contractor Insurance covers more than a cracked window. It can also help you with claims you didn’t know you could be faced with, such as a collapsed sidewalk that affects your client’s neighbor’s property. Insurance for contractors also provides coverage for your own business property, including equipment and tools, in the event of damage or theft.
- Non-Owned Automobile
You most likely use a truck or van to tote around your materials. Non-owned Automobile Insurance is coverage for vehicles used in connection with your business that you don’t own, lease, rent, or borrow — for example, coverage for an employee who uses their truck for company purposes.
3. Contractor Liability Insurance Shows You’re Reliable
From a risk management perspective, it’s common sense for a contractor to have insurance, but it’s also good business sense. For large commercial contracts, project managers will often ask for proof of insurance before making a hiring decision.
Having contractor insurance could be the difference between whether or not you secure a contract.
4. Your Subcontractors Need Coverage, Too
As a general contractor, you may hire subcontractors to perform specific tasks. By enforcing that your subcontractors have their own insurance coverage, you limit the liability to yourself in case their work results in injury or property damage.
Keep in mind; your policy coverage limit applies to all employees of your business, not each employee. One option to accommodate all of your employees is to increase your limit. However, hiring subcontractors with liability insurance ensures all parties have adequate coverage.
When it comes to protecting your contracting business, we’re here to help.
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