June 05, 2019
If you are a contractor, chances are you have had previous experience with insurance, whether it be bonding, workers compensation, or general liability. Sometimes these are required by companies you are subcontracting for, and frequently it is required by licensing and construction boards.
In construction, no two contractors have the same insurance policy. It is essential that you know the basics of what you have and what you might need in the future. You can contact our risk advisors for advice tailored specifically to you and your business.
General liability insurance covers claims arising out of damage you cause to a 3rd party. This is one of the most important coverages a contractor can get, because it covers your liability risks associated with your ongoing operations (while at the job site).
Although this is in the general liability insurance portion, this specific coverage is an essential part of a contractor's insurance program (and is often excluded). While general liability insurance covers your ongoing construction, completed operations insurance covers the liability of your work after the completed project.
Equipment coverage, or formally known as inland marine coverage, is relevant to all contractors. The equipment policy protects your equipment from natural events and theft anywhere in the US. The policy can cover most contractors equipment from hand tools to heavy machinery located anywhere in the US. It can be purchased on a stand-alone policy or an add-in to your contractor's BOP.
Workers Compensation insurance covers the employees of a company (and the owner if they elect to be included in Oklahoma) if they get hurt while fulfilling their job duties. In a contractor insurance program, this is oftentimes the most expensive part of insuring your business. Although rates have a wide range of pricing depending on what type of contracting trade you are in, it is crucial to find a carrier that has services to keep your experience modifier low.
Keeping the experience modifier low does a couple of things, it is a good strategy long-term to avoid paying more in insurance and many projects are starting to require certain experience modification numbers to even bid on the job. An insurance company that specializes in experience modifier reduction will be more diligent in following up with any open claims that you have and take a more proactive approach to the injured employee's medical care. These insurance companies try strategies such as opioid avoidance, the use of occupational medicine, and return to work programs.
Property insurance covers specified structures and the property in them. This business insurance isn't specific to contractors and is often not necessary for many that work out of a leased space or a home office. For larger contractors with buildings and those who have storage facilities for their heavy machinery will need this insurance.
Pollution insurance is can be purchased on a stand-alone basis or can be added to some general liability policies (sometimes). This insurance policy would cover a loss caused by contamination resulting from your contracting operations or during the transportation of the waste materials. While larger contractors purchase this coverage with significant limits, some contractors liability insurance policies have the option to include a small limit of $25,000.
Contractors E&O or Contractors Professional Liability Insurance is important if your business regularly provides construction consulting or you hire subcontractors in your business operations. This policy would cover acts of errors and omissions from the services that you perform. An example of this would be if a subcontractor that you hired improperly does a job, you can be on the hook for hiring bad subcontractors or not managing the project correctly.
Contractors often have work trucks or pickup trucks that they use for their construction operations. The number of work vehicles commonly range from one vehicle to hundreds. The commercial auto policy covers those vehicles in the event the vehicles were in an accident and were damaged or if your vehicle caused bodily harm or property damage.
Hired & Non-owned insurance covers auto liability associated with vehicles that you do not own or vehicles that you temporarily rent. It is a coverage that is often overlooked, but one that frequently has claims. If you have employees doing any tasks for your business and they were to get into a car accident, you will most likely be on the ensuing lawsuit. The more damage caused by the accident, the more likely your business will get brought in.
An additional insured endorsment adds coverage for the person being listed General contractors, project managers, and property owners often request to be added as an additional insured to protect their liability exposure in the process of a construction project.
1. Additional Insured – Owners, Lessees or Contractors – Scheduled Person or Organization (CG2010 4/13)
2. Additional Insured – Owners, Lessees or Contractors – Completed Operations (CG2037 4/13)
3. Additional Insured – Owners, Lessees or Contractors – Automatic Status When Required in Construction Agreement With You (CG2033 4/13)
4. Additional Insured – Owners, Lessees or Contractors – Automatic Status For Other Parties When Required in Written Construction Agreement (CG2038 4/13)
For additional reading or if you are unsure what a specific additional insured endorsement does see this AmWins Insight.
Small contractors are often trade contractors with less than 10 employees. They often take jobs as subcontractors to larger contractors and specialize in a specific type of project. The first insurance policy a small contractor should look at getting is a Business Owners Policy (otherwise known as the Contractors BOP). This is a low-cost insurance policy with a lot of coverage built in. Frequently it comes with coverage for your hand tools and property in transportation.
Heavy construction companies might have trouble getting on a BOP program due to the liability exposure, but it is always a good idea to ask your agent if you qualify for a BOP program with an admitted carrier in Oklahoma.
In addition to heavy construction, mid-sized and large construction businesses will generally not qualify for a BOP due to their size and the need for customization.
Small businesses also often need workers compensation insurance. If you are a sole-proprietor, you can read here for your options on alternative ways to get workers compensation.
Although there is no definitive size requirement to be a medium-sized contractor, we generally see these contractors having 50 to a couple hundred employees. These contractors are working on pretty major jobs that often require high bonding limits and specific insurance requirements.
These contractors should look for a standard admitted insurance carrier. It is also important to ask upfront if they are able to offer multiple different additional insured and waiver of subrogation forms, due to the number of different jobs that mid-sized contractors take.
In addition to the core contractors insurance products, these sized contractors should start looking at additional coverages such as employment practices, cyber, pollution, contractors E&O, and Inland Marine.
Large contractors are the largest contractor class and require the most specialized insurance programs. Owners of large construction firms purchase all the coverage of medium-sized contractors, plus require specific policies such as wrap-ups and OCIP's.
The frequent use of independent contractors presents some problems with a contractors insurance program. Often, even though a 1099 employee is paid as such, they are really an employee. This is determined by the amount of control that you have over that specific person and is an issue that should be brought up with an employment attorney.
The problem is that even if a worker is paid as a 1099 independent contractor it can later be determined that the worker was actually an employee, which means you are responsible for their workers compensation and liability associated with their work.
This is why insurance charges owners of businesses with uninsured independent contractors as if they were employees (sometimes more). Just because you pay an employee as 1099 does not mean they are not legally an employee.
Many construction operations use subcontractors to add additional capacity to their projects and some firms subcontract 100% of the work out. The number one issue that is happening in Oklahoma with subcontractors is the use of the subcontractor exclusion by insurance companies. We have written in another article about how the CG 2294 is hurting local construction companies. Before hiring subcontractors, make sure that you do not have any form of this exclusions.
Once you remove that exclusion and you have coverage for subcontractors, make sure that they have their own insurance policies with the same limits or more that your insurance policy has. This way you will not get charged for them at the time of audit. It is also a good practice so that you are not on the hook for any problems that arise out of their faulty work.
Make sure your subcontractors add you as an additional insured on their policy. The additional insured endorsement means that if you get listed on a lawsuit for an issue that they caused, their insurance will cover your legal bills and the resulting settlement.
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