Liability Insurance for Contractors

It may be that some clients do not like your work and want to recover the money that was invested in the work you did. It may also be the case that you are involved in a lawsuit that corresponds to another contractor’s work and not yours.

Let’s look at two examples

A plumbing contractor was dragged into a lawsuit involving a faulty window installation that was the source of the water damage. The plumber didn’t do any window work.

Or when a general contractor absconded with the money paid him without ordering the work done by his subcontractors. Oh, you are the general? Congratulations; your sub did a poor job, and you are getting sued. You don’t have to be guilty; just accused. Now you have to defend yourself in court. 

What type of coverage do you need in these cases?

Did you drop a hammer from the second story onto someone walking by, or did you perhaps drop a hammer from a second story onto a car window below? General Liability or GL covers you for any damage you do to a person or property while you are on the premise.

Products and completed operations

Did you leave a nail sticking out that hurt someone later on? Or did your assistant not double-check that solder joint and your plumbing job sprang a leak and damaged 10,000 square feet of new wood floor? This is part of your Comprehensive General Liability coverage and covers you for your work after leaving the job. Oh, by the way, I am not making these examples up. They are all actual claims. 

Additional Insured endorsements to your general liability coverage

These add your client onto your policy as an “additional insured.” That way, if you are working on his project and create a liability, your insurance is solely responsible. He doesn’t need that his insurance covers the loss or get into a legal battle about responsibility. 

What do you need?

If you specialize in commercial work, you will need products and completed operations endorsement. This will cover your endorsee’s full 10-year statute of limitations on a lawsuit. Your commercial customer and general contractor will demand this type of specific endorsement. Unfortunately, it is not available for residential work, but if you do both, you will need endorsements for both types. 

Oh, and speaking of subrogation, a Waiver of subrogation assures them that you can’t come back against them, even if it is their fault. YOUR insurance will pay it, no matter whose fault it is. What a great deal—believe me, they want it, and they will demand it.

And here is a new wrinkle that you may already have run across: they didn’t demand all of the above when you started the job. But, now that you want to get paid, all of a sudden, a page of requirements shows up as a prerequisite to your getting a check. You already did the work, and they didn’t warn you? Not their problem. Get it, or don’t get paid. 

New condominium work–an entirely new type of headache

Let’s talk about work on New Condominiums. A developer wants to build new condos, which he does. Then he establishes a separate organization called a homeowner’s association, to which he transfers all ownership responsibilities after the project is completed. Bad work? Almost always. He can almost always count on being sued for roof work or some other item because the homeowner’s association does not want to exceed the statute of limitations window. For that reason, it is incredibly expensive for an insurance company to insure you if you do new condo work, so most will exclude that from standard property insurance policies. 

Independent Contractors?

The answer is NO. The laws changed, so the definition of “independent contractor” has been so narrowed as to become almost nonexistent. If you have employees, an employee, someone who might be an employee who works one hour per week, or even someone who gets paid on 1099, almost certainly, you will need Workers Compensation insurance.

Property Coverage

Have tools and equipment? Office property? Building? If you work from your home, your Homeowners Insurance will NOT cover business property and tools. 

Commercial vehicle overage                                                     

Briefly, the coverage is higher; you can get $1,000,000 of coverage, which is not a whole lot for a business. You can also cover it under your commercial umbrella—see below. And lastly, it can provide non-owned auto liability coverage. 

For example, do you often send your assistant to pick up a part in their own car and then get into an accident? Some businesses have workers who use their own vehicles and tools on the job. If they get into an accident while working for your business, you could get sued as the employer. If he has insufficient liability limits on his own insurance, you make up the difference, or even all of it if he does not have commercial insurance. Have an installer technician who uses his own vehicle? Good example. You can’t be without non-owned auto insurance coverage. 

Commercial Umbrella

And did I mention that $1,000,000 is not a lot of insurance for a business? It will likely be for more than that if you are getting sued. If you are doing commercial business, they may want $5,000,000 of coverage before getting a job. If you do municipal work or sell a product to a very large retailer, you may need $10,000,000 of liability coverage. Excess liability coverage will increase your underlying coverage. 

And then, there are the contractor and performance bonds. Your client may want a performance or completion bond to protect himself from work not being completed. It’s very common for large commercial projects or even smaller ones if the client is a municipality or large company.