Business Insurance 101: Contractor Liabilities

April 12, 2022

Written by Justin Sloan

Sometimes your biggest asset is also the biggest liability. Your business can become extremely valuable, but if something goes wrong, you can risk everything. Contractors, unlike other businesses, are liable for the behavior of their employees. If one of your workers damages property or accidentally injures someone on the job, you’ll be held responsible if you don’t possess liability insurance.

A liability policy protects your assets from being abused by others and protects you from any legal settlements that may arise from accidents or malicious attempts to bring you down. This blog post will discuss what contractor liability entails and why it’s so important to have it.

What Does Contractor Liability Entail? 

Contractors’ liability insurance is often-forgotten business insurance that can be crucial to your contracting business. The contractor’s liability covers injury or damage suffered from a third party due to your work on their property or business. 

Business owners often contract specialty contractors like plumbers, electricians, and landscapers to perform services in their commercial spaces or properties. So if something goes wrong during those services, an injured party can file a claim against you with the contractor’s liability policy that came with your business insurance policy. 

Does My Business Need Contractor Liability Insurance?

You might be wondering if you really need to spend money on a liability policy. It might seem like an unnecessary expense. However, that is not the case. Contractor liability insurance protects you and your business in case of an accident or unexpected event. 

In order to create a safe work environment and trust between you and your clients, it’s best to be protected against any eventuality. Having a liability policy in place will ensure you won’t have to spend your pocket money if there’s an accident involving your company. 

Acquiring this type of insurance also protects your clients in the case there’s accidental damage to their property, and they don’t have a home insurance plan.

Third-Party Hiring

General contractors often hire subcontractors to help with specific tasks on a job, such as electrical work or plumbing. In order for the general contractor to be held liable for any injuries or damages that occur as a result of the work of the subcontractor, they must have Workers’ Compensation insurance.

This type of policy protects both the subcontractor and the general contractor from any financial damages that may occur as a result of an accident on the job site. It’s important to note that workers’ compensation insurance is not the same as liability insurance.

Workers’ Compensation Insurance

A general contractor who hires a subcontractor without workers’ compensation insurance can be held liable for any injuries or damage that occur as a result of the work of the subcontractor. In order to protect themselves, general contractors should always make sure that their subcontractors have valid Workers’ Compensation insurance policies.

Types of Contractor Liability

If you are a builder, contractor, plumber, electrician, fence builder, or cabinet maker, you need the right contractor’s business insurance plan. There are several types of contractor liability policies available, so it’s important to ask Insurance Services which ones will work best for you. 

Basic Coverage

There are a number of policies that are essential for contractors to acquire. It is important to determine which factors apply to your business and which ones would be the best to ensure you’re fully covered in the case of an accident. 

General Liability: This is one of the most important policies that a contractor can get. It pays for bodily injury and property damage to others caused by your business, as well as defense coverage in the case of a lawsuit. 

Products and Completed Operations: This policy isn’t usually included in the general liability policy. However, it is extremely important to have it. This will cover your project even after it has been completed.

Premises and Operations: Pays for injuries that occur on your business premises, including slips and falls.

Injury to Employees: Covers medical expenses and lost wages for employees who are injured on the job. This may be one of the most expensive aspects of liability insurance. It is important to ensure that all subcontractors and their workers are covered by this insurance. 

Liability Outside the Business: Protects your business from legal action taken by people who are not customers or employees.

Medical Payments: Pays for the medical expenses of anyone injured on your premises, whether they are a customer, employee, or passerby.

Commercial Auto: Commercial auto insurance is a necessary policy for contractors who use their personal vehicles for business purposes. This type of policy will cover any damages or injuries that occur as a result of using the vehicle for work-related activities.

Additional Liability Coverage

There are other policies that might be useful depending on the scope of your business. It is important to talk to a professional to see which policies might be beneficial to have. Providing and maintaining adequate insurance is a key obligation of the contractor and a necessary precursor to signing a contract.

Product Liability: This policy covers any injuries or damage that may occur as a result of using your products.

Professional Liability: This policy protects you from lawsuits filed by clients who allege that you provided negligent or incorrect advice.

Environmental Liability: This policy provides protection from any damages or injuries that may occur as a result of your business activities impacting the environment.

Employer’s Liability: This policy covers any legal costs and damages awarded in an employee lawsuit against your business.

It’s important to go through all the different liability policies with an insurance professional to assess all the risks your company may face to select the right coverage for your specific needs. 

Is Contractor Liability Required by Law?

There is no one-size-fits-all answer to this question, as the requirements for contractor liability will vary from state to state. However, most states do require some form of business liability insurance for contractors.

In Connecticut, strict liability isn’t applied for contractors, as liability is only applicable to goods as established by the Restatement (Second) of torts § 402A that the Connecticut supreme court has followed. However, professionals advise acquiring a policy to avoid any issues down the road.

Contractor Liability Cost

The cost of a contractor liability insurance policy will vary depending on the size and scope of your business. However, it’s important to remember that it is a necessary expense to invest in. The overall cost of your policy will vary depending on these elements: 

  • Number of employees
  • Location 
  • Basic Coverage Needs
  • Vehicles (Number and type of vehicles used) 
  • Policy Limits
  • Claims History

The most accurate way to figure out how much you’ll need to pay for contractor liability insurance is to get help from insurance services. 

Contractor Liability Recommendations

No matter what type of contractor you are, it is important to have insurance that will protect you from any risk associated with your business. Depending on the different necessities you face, you will benefit from certain coverages over others. 

General Contractors

A business insurance policy that includes general liability and property damage will offer the most comprehensive coverage for general contractors. This type of policy can also provide protection for your equipment and tools while they are on a job site.

Service Contractors

If you are a service contractor, you’ll need commercial auto insurance to cover any damages or injuries resulting from using your vehicle for business purposes. In addition, if you frequently work at different locations, consider an extension to your policy that will provide temporary coverage for those job sites.

Small Business Contractors

For small businesses with less than 10 employees, business owner’s insurance is ideal because it provides a lot of protection at a low cost. This policy provides coverage for tools and property during transit, third-party liability, and business interruption in the event that your business is forced to close due to a covered loss.

Medium Business Contractors

Contractors with 50 to 200 employees fall as medium contractors. Due to the size of the jobs they perform, they require specific insurance coverage depending on the kind of work they perform. 

Large Contractor

While the same coverage that works for a medium contractor also works for a large one, a larger  contractor might need additional policies to ensure no gaps left in their coverage. For example, if you are a large contractor working on a big job, you’ll need commercial general liability insurance to protect you from any lawsuits that could arise.  

No matter what type of contractor you are, it’s important to ensure you have the right insurance plan to protect your business. Reviewing your coverage regularly and talking to an insurance agent can help ensure that you are fully protected in the event of an accident or loss.

Get The Coverage You Need

Figuring out which insurance policy will cover all your needs is the first step to protecting your business. Our Nesso Insurance professionals help you pinpoint which areas you’ll need coverage for, as well as help you assess for any gaps and risks. 

At Nesso Group, we want to ensure all your needs are covered. We maintain open communication, and we’ll walk you through every step of the process to ensure you’ll be able to make an informed decision. Don’t hesitate to contact us now to get started. 

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